Over the last decade, Bloomberg News has emerged as the dominant news-gathering enterprise in the United States. It has gradually surpassed the Associated Press in influence while eclipsing perennial also-ran Reuters. Many reporters have left well-known outlets such as Forbes andTime to work at Bloomberg, and its 2009 purchase of Business Week provided a prestigious print platform for the company’s diverse products. Bloomberg’s cable business channel is often more informative and interesting than competitors. Its defense coverage is the best in the business, with reporters like Tony Capaccio and Roxana Tiron regularly breaking important stories.
However, the Bloomberg business model calls for the company to be both a dispassionate news provider and a marketer of business intelligence, roles that have the potential to come into conflict. This week the company generated a study on propulsion options for the tri-service F-35 Joint Strike Fighter that illustrates the tension. The study contradicts half a dozen assessments conducted by the Pentagon and independent organizations about savings that might be realized from buying two competing engines, and thus turns one part of Bloomberg into a news creator that the other part must presumably cover. To make matters worse, the study is wrong.
The study concludes that even after paying the added costs for dual production lines and supply chains, the military could save between $181 million and $3.3 billion over the lifetime of the engine program as a result of competition. It arrives at this conclusion after postulating purchase of 3,591 engines by domestic and foreign users through 2034, roughly two-thirds of which would be bought by the U.S. Air Force, Navy and Marine Corps.
There are two basic problems with the Bloomberg analysis. First, it assumes a volume of production for the F-35 program that is unlikely to be achieved, and thus underestimates how splitting production between two teams would diminish economies of scale during the production phase of the program. Second, it focuses exclusively on production costs, when most of the life-cycle costs for the engines will be generated by maintenance, spare parts, training and other post-production factors associated with operational use. The study dismisses post-production costs with a single sentence, pleading lack of analytic tools.
Because splitting production between different designs would require the government to sustain parallel maintenance systems for many decades, sustainment costs would be increased and the potential for engine improvements would be diminished. Engine users would need to purchase and distribute twice as many parts for core engine elements, train maintainers in the support of dissimilar engine configurations, and cover the costs of many other complications to the military logistics system. Thus, a 2007 study by the federally-funded Institute for Defense Analyses (IDA) warned that “in the support phase of the system’s life cycle, the second engine would increase the costs of depot repair, sustaining engineering, software support, and component improvement programs.”
IDA was not alone in coming to this conclusion. The Pentagon’s Cost Analysis Improvement Group reported in 2007 that costs “do not provide a compelling case for or against use of a competitive acquisition strategy.” The successor Cost Assessment and Program Evaluation (CAPE) office reiterated that finding in 2010. Two Program Management Advisory Group studies on the subject at the beginning of the F-35 program both found the cost argument for competing engines “marginal.” It’s not that cost savings are impossible, just that they are dependent on unprovable assumptions about how the fighter program will progress in the future. The one thing that can be said for sure is that developing two engines rather than one will definitely cost the government billions of dollars more in the near term.
So it shouldn’t come as a surprise that no other military aircraft developed in the last quarter-century has relied on competing engine suppliers, and that no other item on the F-35 (like the radar or the landing gear) is being bought from multiple sources. The business case for doing so is too weak. As for Bloomberg’s reporters, they now have a problem on their hands. How do they explain that their company has generated a 16-page report which disagrees with the much more detailed research of government think tanks and the policy positions of two different presidential administrations without sounding like they are helping military contractors to save their canceled engine program? Sounds like an ethical dilemma to me.
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