Estimates of Unit Cost Reductions of the F-16 Fighter as a Result of U.S. Arms Export Production

Abstract

Arms exports have increasingly become an attractive option for reducing escalating unit costs of new weapon systems to the United States Department of Defense. However, while there is no lack of conjecture, there is little data that show weapon system costs to the United States actually decrease when the same weapon is sold to a foreign buyer. The authors use the sale of the F-16 multi-role fighter aircraft to foreign nations as a case study to quantify the financial gains realized through learning and economies of scale attributed to export production. Using a rate-adjustment cost improvement analysis, the authors' case study shows the unit costs the United States Department of Defense would have incurred without the concurrent export production of F-16s. Estimates suggest that the production savings resulting from export production were in excess of the research, development, test, and evaluation costs of the F-16 for the period 1975 to 1991. The potential benefits associated with keeping the F-16 production line “warm” through export production and the limits of applying the findings to other weapon systems are discussed.

Acknowledgments

The authors would like to dedicate this article to the memory of the late Dr. Stephen Book, for his many accomplishments and contributions to the cost estimating community. The authors also owe many thanks to the following people who offered their time and assistance in pursuit of this article. We would like to thank the two reviewers for their helpful comments and recommendations. We would also like to thank the editor, Dr. Edward Tony White, for all of his comments and recommendations that greatly improved the quality of the paper. We would also like to thank Fred Timson of The RAND Corporation, who contributed his time and expertise to discuss the theoretical approach to identifying F-16 cost savings through export production. Mark Lorell, Kevin Brancato, Mark Arena, and Obaid Younossi of The RAND Corporation also provided much needed guidance and thoughtful feedback during the beginning of the research. Larry Axtell and Adam Hugentober of the Office of the Undersecretary of Defense (Acquisition, Technology and Logistics) were helpful in providing the series of Selected Acquisition Reports (SARs) for the F-16 program that provided data on F-16 procurement and deliveries. Bjorn Claes of F-16.net graciously lent the F-16 aircraft database that he compiled over the years for the F-16 case study. Finally, we also wish to thank Anne Ward of the Aerospace Industries Association provided data for post-1995 USAF F-16 deliveries.

Notes

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