Over the next several months the Pentagon will award the contract for the Long Range Strike Bomber. If the Department of Defense’s history repeats itself, cost overruns on the project seem likely.
According to 2010 estimates each new plane is officially expected to cost $550 million. More recent estimates are higher. A 2014 report from the Congressional Research Service included estimates of up to $810 million per bomber. The Air Force is expected to buy 100 planes, which would cost a total of $55 billion even if the low official estimate per plane panned out.
One reason for the projected overruns is that there are only a few suppliers of military aircrafts to the Department of Defense (DoD), and so companies take advantage. The Washington Post describes the situation:
'Given the steep barriers to entry, it is not surprising that no one has disrupted the combat aircraft market,' [Todd] Harrison [Director of Defense Budget Studies at the Center for Strategic and Budgetary Assessments] said. Unlike the space launch industry, which also flies commercial satellites, the market for combat aircraft is dominated by a single customer: the U.S. government.
The technical challenges are great, the costs high, the industry highly regulated. And barriers to exit are low: Lose one major contract and you could be out of an industry forever. All of which is why many companies have left the business but “nobody has entered the business of building aircraft since 1969 to any meaningful degree,” said Richard Aboulafia, an aerospace analyst with the Teal Group.
And so while Silicon Valley innovation and verve upends industry after industry, the companies vying for the bomber contract are the same stalwarts that have dominated military aviation for decades.
The Government Accountability Office (GAO) warned about this issue last year, and highlighted the interconnectedness of DoD and its contractors.
Concerns about cost overruns on the bomber project come in the wake of large cost overruns on the F-35 Lighting II or Joint Strike Fighter. GAO called this project DoD’s “most costly and ambitious acquisition program.”
When the program originally launched, costs were estimated at $233 billion with aircraft in production by 2012. The most recent projections estimate costs at $396 billion for 2,400 aircrafts, with full production delayed until 2019. Annual costs averaging $12 billion would continue until 2037 during production. A recent Pentagon report estimated the 50 year life-cycle costs to exceed $1 trillion for the advanced aircraft.
DoD is not expected to cancel this program even though it is $160 billion over budget. According to Lieutenant General Chris Bogdan, who now oversees the F-35 program, “I don't see any scenario where we're walking back away from this program… I would tell you we're going to buy a lot of these airplanes.”
DoD had similar cost overrun problems with its attempt to purchase new presidential-use helicopters following September 11th. The project began in early 2002 with hopes of new helicopters in the field by 2011. Subsequent requests from the White House wanted new helicopters by 2008. Costs doubled to almost $13 billion. In a striking move for a DoD acquisition project, the Navy scrapped the program in 2009, but not before $3.2 billion had been spent.
The Pentagon hopes the new Long Range Strike Bomber will allow it to replace part of its aging bomber fleet. But if it follows the path of recent procurements, taxpayers should expect a bill much larger than originally promised.