The Dangerous Dive in Aircraft Production

Dec. 1, 1986

[Note: See the accompanying PDF to view the charts from this article.]

While many from the World War II era still remember “skies blackened by military air­craft,” trends in aircraft production by the US and its allies since the war paint a different picture. As this ar­ticle will show, there has been a per­sistent decline over the last three decades in the total number of air­craft being produced each year and in the number of new aircraft types being introduced into the NATO ar­senal.

While aircraft performance has shown dramatic improvements from generation to generation, costs have gone up equally rapidly. The result is a distinct shift toward very few, very-high-performance aircraft in the inventory of each nation. Al­though this broad trend is well known to aircraft industry observ­ers, the data in this article under­scores its magnitude and consisten­cy and raises questions on what the future holds for our military effec­tiveness if these trends are not re­versed.

The clear implication is that new approaches to aircraft design and procurement are needed and need­ed quickly.

Chart 1 shows the sharp drop in new aircraft types introduced by the US and its allies over the last three decades. The data was compiled for the 132 different types of NATO mil­itary aircraft that had their initial operational capability (IOC) in the decades of the 1960s through 1980s. For the US alone, the number of new types of military aircraft has dropped from about thirty-five a decade to eleven.

When one recognizes that many of these different types are, in fact, “major upgrades” of existing air­craft (for example, redesign of the F-15 from a fighter/interceptor air­craft to a strike/ground-attack air­craft), it is clear that this greater than-three-to-one reduction in new types of aircraft entering the in­ventory has been a very significant one. Interestingly, the data is con­sistent for both new US aircraft pro­grams and those of our NATO allies.

This reduction has not been brought about by a lowering of the priority placed on military aircraft by the US and its allies. “Air superi­ority” remains a basic tenet of NATO strategy. Rather, the reduc­tion in types of aircraft has been driven by the billions of dollars re­quired to develop a new aircraft and by the extremely high cost of pro­ducing each one.

As Chart 2 shows, the average unit cost of US fighter aircraft has been growing from generation to generation at a compound rate of around seven percent per year (even after adjusting downward for the ef­fects of inflation and the reduced quantities being produced). This means that each decade has essen­tially seen a doubling in unit costs. Similar trends have been found for attack aircraft and bombers (as the $20.6 billion for 100 B-lB bombers demonstrates), for non-US NATO fighters (growing at approximately the same annual seven percent com­pound rate), and even for Soviet fighter aircraft (to the best of our ability to estimate Soviet costs).

Naturally, when the cost of an in­dividual aircraft reaches such a high level, one wants to amortize the de­velopment and production facilities expenses across as many aircraft as possible. Thus, it is impractical to have a large number of different types of aircraft in this high-cost en­vironment.

Performance for a Price

While the data on rising unit costs is certainly staggering, this cost growth has been justified on the basis that these higher-cost aircraft are, in fact, providing dramatically higher individual performance. Studies that compare performance from generation to generation of air­craft bear this out.

While it is difficult to compare one aircraft precisely with another, techniques have been developed—frequently based on detailed inter­views with pilots to determine im­portant performance parameters—and these show clearly that the US and its allies have been increasing the performance of their aircraft from generation to generation by a compound rate of around five to six percent per year. Thus—within the accuracy of these analyses—it is fair to say that we are essentially getting what we are paying for, i.e., increasing performance for increas­ing cost.

The challenge, of course, is to find a way to get off this curve—to find a way to control costs without compromising improved perfor­mance. It is undoubtedly necessary and advantageous for military air­craft design to keep pace with the state of the art. Yet there are ways to do this and still control costs. Un­fortunately, these approaches often face strong institutional barriers. Nontraditional solutions to military mission needs frequently offer high performance at lower costs—for ex­ample, using standoff weapons or remotely piloted vehicles—but are “culturally” resisted.

In the same way, compromising maximum possible individual air­craft performance for reduced costs—and greater quantities—means we’d get “less than the best.” This may not be “good enough.” Many people are not willing to ac­cept the fact that the last few per­cent of performance gains often in­crease the weapon’s cost by thirty to fifty percent, thus dramatically reducing overall force effectiveness because of the resultant reduced quantities.

A way out of this dilemma ap­pears to be through better applica­tion of advanced technology not only to improve performance but si­multaneously to reduce costs. In re­cent years, the commercial world has been able to achieve these dual objectives—for example, in elec­tronics. Here, the cost of comput­ers, data-processing systems, com­munications equipment, etc., has been falling rapidly, while the per­formance has been increasing dra­matically. The military can learn from such commercial practices.

The Packard Commission recom­mended that commercially based “design-to-cost” techniques be uti­lized for defense weapon systems. The design-to-cost philosophy is geared to keeping costs down, but it doesn’t necessarily mean that per­formance will be traded away. In many cases, such new technology as structural composite materials and very-high-speed integrated cir­cuit (VHSIC) electronics can be used to improve the performance of next-generation military aircraft systems as well as to make it possi­ble to build them at low cost.

This “design-to-cost” technique was tried initially on the F-16 air­craft, with a considerable degree of success. However, meeting a low-cost objective in next-generation aircraft has historically proven to be a lower-priority objective. We have tried to incorporate rapid advances inexpensive and high-risk technolo­gies—often before they are “ready.” Despite our initial success in meet­ing F-16 design-to-cost goals, sub­sequent modifications have driven up the cost, pushing it closer to the curve on Chart 2.

Off the Curve

The Air Force’s management is determined to move the cost of its next-generation fighter aircraft (the Advanced Tactical Fighter, or ATF) “off the curve.” By looking at the data in Chart 2 and performing pre­liminary analyses of the cost for the ATF in the absence of any design­-to-cost philosophy, one could ex­pect that, by the time of its deploy­ment, a unit production cost ap­proaching—or even exceeding—$100 million would have been likely. This is plotted on Chart 2 as “Option A.” Instead, the Air Force has chosen a number in the $35 million to $40 million unit production-cost range—shown as “Option B” on Chart 2—and will use this as a prin­cipal criterion in the selection of the winning designs and contractors.

Meeting these dual goals of ad­vanced performance at an “afford­able” price will be a formidable en­gineering challenge when you con­sider, for example, the difficulty of fabricating stealth airframes. To succeed, it will undoubtedly also re­quire the early application of ad­vanced manufacturing technology.

Finally, to keep costs down while continuing to improve performance as the program evolves will likely require market incentives, such as continuous competition between two producers (of both the aircraft and its principal subsystems). This technique (“dual sourcing”) has his­torically been found to have very significant performance and cost benefits when it has been applied to defense weapon systems and is usu­ally well worth the added invest­ment costs for the second pro­ducers.

Clearly, new aircraft must move off of the historical cost curve. The reason is shown by the data in Chart 3, which illustrates the decline in the average number of fighters bought by the US each year over the last four decades. Similar quantity reductions have been found for bombers and for our NATO allies.

Only the significant increases in de­fense budgets brought about by the Reagan Administration prevented this quantity trend from dropping further over the last few years.

It is the data in Chart 3 that has the most critical implications for military effectiveness. We could manage to fight a war with fewer types of aircraft, and if we had suffi­cient resources, we could afford to pay for enough aircraft, no matter how high their individual cost. How­ever, with the limited resources that the nation is willing to set aside for security, it is obvious that even though we continue to spend bil­lions of dollars for military aircraft each year, the number of aircraft that we can buy will fall as the unit cost goes up.

The military issue is that numbers do matter. Whether you believe that overall force effectiveness goes up as the numbers are squared (as did Frederick W. Lanchester, a fa­mous British military historian) or believe that numbers—like the per­formance of individual systems—simply combine to create overall force effectiveness, the logical ex­tension of the data in Chart 3 is a war in which the US and its allies have very few aircraft with which to fight.

As a matter of fact, Norm Au­gustine [Norman R. Augustine, who has been a DoD R&D manager, an Under Secretary of the Army, and president of a major defense contractor and who is the author of the wise and witty Augustine’s Laws, published in 1982 by the American Institute of Aeronautics and Astronautics] has taken the data from Chart 3 and projected it forward to show that—given the likely resources available in the fu­ture—by the year 2054 the DoD will buy one fighter per year. This will obviously be a very-high-perfor­mance aircraft, but not adequate to win in the high attrition environ­ment likely for future warfare.

The less-expensive/higher-perfor­mance route being pursued by the Air Force in the ATF program is clearly preferable. It represents a challenge for our technologists, but it is the way the commercial world has been operating for some time, and the approach is one that the mil­itary world needs to adopt.

“Internationalization” of Industry

A final observation, based on these long-term military aircraft trends, is that there is a rather signif­icant shift toward multinational ven­tures in the military aircraft arena. This is a direct consequence of the extremely high cost of developing and producing new aircraft. As the data in Chart 4 shows (for the same 132 new aircraft types produced by NATO nations in the last three de­cades), there has been a reduction of almost four to one in the number of single-country new aircraft to the point where, in the 1980s, the number of multinational new air­craft types equaled that of the sin­gle-country new aircraft.

Considering that, historically, most nations have believed it impor­tant to have a self-sufficient defense industry, this result may seem quite surprising. Nonetheless, it is con­sistent with broad trends toward in­ternationalization that are being seen across the full spectrum of de­fense equipment. In the US, for ex­ample, we have recently “discovered” that large (and growing) shares of our critical weapon sys­tem components and subsystems—especially electronics—are now produced offshore. It is also consis­tent with trends in commercial air­craft (for example, with the Euro­pean Airbus and the more recent joint venture between Boeing and its Japanese partner on the next large commercial aircraft).

What is unique to the military case, however, is that these multina­tional aircraft programs are often not done for purely economic con­siderations. The dual—and conflict­ing—objectives of self-sufficiency and economies of scale often result in multinational developments that conclude with each participating nation independently—and non­competitively—building its own air­craft in very limited quantities, thereby losing the potential for mul­tinational economies of scale. Over­all, this internationalization of the defense industry—both at the com­ponent and system levels—is a pol­icy area crying for attention.

In conclusion, it is fair to say that none of the trends pointed out here should surprise anyone who has been following the aircraft industry. Rather, what may come as a surprise is the magnitude of the shift and the consistency of the long-term trends. What is necessary now is for people to face these realities and their im­plications (in terms of structural ad­justment of both the aircraft indus­try and of our military strategy and posture) and/or for people to work seriously on ways to attempt to re­verse these trends (by actually uti­lizing advanced technology to lower the basic cost of weapon systems and by using advanced manufactur­ing technology and competitive market forces to drive down these costs still further). This is obviously a formidable challenge, but the al­ternatives are even less appealing.

Dr. Jacques S. Gansler is Vice President of The Analytic Sciences Corp. (TASC). He is a former Deputy Assistant Secretary of Defense, a former industrial executive, and the author of The Defense Industry (MIT Press, 1980). He is also a faculty member of the Kennedy School of Government at Harvard University. His most recent contribution to AIR FORCE Magazine was “What Ails the Acquisition Process?” in the July ’85 issue.