By Adam J. Hebert
Editor in Chief, Air Force Magazine
Decades of compound inflation do amazing things.
Excerpt
…. The headlines were predictable: “F-35 Strikes Trillion-Dollar Mark for Maintenance Bills,” wrote Flight International. “The $1 Trillion Fighter-Jet Fleet,” said the Wall Street Journal. And in the damning with faint praise category, Bloomberg reported: “Lockheed Sees F-35 Lifetime Operating Cost Below $1 Trillion.”
Take a deep breath, everybody. The trillion-dollar operation and maintenance cost everyone is hyperventilating about is hardly worth the paper it is printed on. It counts every possible cost to operate and modernize the F-35 during a 25-year production run, followed by a 30-year operational life. It represents a half-century’s worth of fuel, parts, upgrades, and even related construction costs.
This time horizon extends until 2065. What makes the estimate particularly worthless is that it is computed in “then-year” dollars—an estimate that measures cost not by 2011 standards, but by what they will cost in the year they are spent. This includes 55 years of inflation at the tail end of the computation, an enormous multiplier that is especially damaging because all of these costs are still, psychologically, perceived as 2011 dollars.
All one has to do is think about the references to what a gallon of gas or a loaf of bread cost in some long-past year to appreciate the effect of decades’ worth of inflation. Just as 2065 is 54 years in the future, 1957 is 54 years in the past. The iconic 1957 Chevrolet cost roughly $2,500 at the time, while the average paid for a new car today is more than $28,000. Decades of compound inflation do amazing things, and anyone who claims to know what inflation rates or fuel prices will be 25 and 50 years hence is a fool.
The Pentagon’s most recent selected acquisition report for the fighter pegs its O&M cost at 1.005 trillion then-year dollars. A comparison using 2011 dollars was not available, but the same O&M cost in 2002 dollars (the baseline year used for constant comparisons) was $420 billion. This is far from cheap, but less than half the $1 trillion estimate.
Historically, Carter said, roughly 30 percent of a weapon’s cost derived from buying it, while 70 percent comes from owning it. “You should not believe them,” said Carter of the Pentagon’s own O&M numbers, because “we have not really begun to manage them yet. … Nobody is going to pay that bill.”
In fact, he added, “If you thought that was really going to be the bill for sustaining the airplane, we might as well all get up and … leave now.”
The expense is not in a vacuum: If the F-35 program were canceled and replaced by new F-16s and F-18s, to cite one common suggestion, those aircraft would also accrue massive expenses over more than half a century of use. Critics of defense spending, however, will naturally gravitate to the largest possible number in attempts to discredit weapons programs and brand them as wasteful and unaffordable…..
http://www.airforce-magazine.com/MagazineArchive/Pages/2011/July%202011/0711edit.aspx
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