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The U.S. Navy and Air Force have been developing and procuring guided missiles to be used by aircraft to attack other aircraft for more than three decades. In recent years, there has been concern in the Congress that increasing costs of these Air Intercept Missiles may be jeopardizing the ability of the services to procure sufficient quantities. Currently, much of this concern is focused on the Advanced Medium Range Air-to-Air Missile (AMRAAM), which entered full-scale development in early 1982.

The Research and Development Subcommittee of the House Committee on Armed Services has requested this CBO study of topics related to the development and procurement of Air Intercept Missiles in order to aid that Subcommittee in deciding about the future of the AMRAAM program. This paper, which examines the history of procurement of AIM systems, is a partial fulfillment of that request. This study was undertaken to ascertain what lessons, if any, could be derived from history which would be useful to the Congress in judging AMRAAM. In accordance with CBO's mandate to provide objective and impartial analysis, the paper offers no recommendations.

The paper was prepared by Alan H. Shaw of CBO's National Security and International Affairs Division, under the general supervision of Robert F. Hale and John J. Hamre. It was reviewed by Dr. John Transue and received internal CBO review. The cooperation of the U.S. Navy and Air Force in supplying data is gratefully acknowledged. The assistance of external reviewers and of the Air Force and Navy implies no responsibility for the final product, which rests solely with CBO. Francis Pierce and Robert Faherty edited it; Janet Stafford typed it.

October 1982
 
 

SUMMARY

CHAPTER I. INTRODUCTION

• Scope

CHAPTER II. BACKGROUND

CHAPTER III. HISTORICAL TRENDS IN MISSILE COSTS AND QUANTITIES PROCURED

• Aggregate Trends in Total AIM Procurement
• Trends Exhibited by Sidewinder and Sparrow Individually
• Interpretation of Trends

CHAPTER IV. GROWTH IN DEVELOPMENT AND PROCUREMENT COSTS

• Reported Cost Growth in AIM-7E, AIM-7F, AIM-7M, AIM-9L, AIM-9M, and AIM-54A
• Comparison of AIM Cost Growth with That of Other Weapon Systems
• Correlation of Development Cost Growth with Unit Cost Growth
• Cost Growth by Category

CHAPTER V. IMPLICATIONS FOR AMRAAM

APPENDIX A. SHORT STATISTICAL ANALYSIS OF GROWTH IN DEVELOPMENT AND UNIT COSTS
 

TABLES
1.	THE SIDEWINDER MISSILE
2.	SPARROW MISSILE HISTORY
3.	THE SPARROW MISSILE
4.	COST GROWTH
5.	COST GROWTH
A-1.	COST GROWTH IN AIM SYSTEMS
A-2.	LEAST SQUARES FIT OF COST GROWTH DATA
FIGURES
1.	SIDEWINDER MISSILE HISTORY
2.	THE NUMBER OF AIR INTERCEPT MISSILES PROCURED EACH YEAR
3.	THE NUMBER OF AIR INTERCEPT MISSILES PROCURED EACH YEAR
4.	FRACTION OF THE DEFENSE DEPARTMENT PROCUREMENT BUDGET SPENT ON AIR INTERCEPT MISSILES
5.	SIDEWINDER PROCUREMENT HISTORY
6.	UNIT COSTS OF AIR INTERCEPT MISSILES
7.	AVERAGE UNIT COST OF EACH SIDEWINDER MODEL
8.	SPARROW PROCUREMENT HISTORY
9.	UNIT COSTS OF SPARROW MISSILES
10.	AVERAGE UNIT COSTS OF SPARROW MODELS AND AMRAAM
11.	DISTRIBUTION OF COST GROWTH FOR SEPTEMBER 1981 SARS
12.	CORRELATION OF DEVELOPMENT COST GROWTH WITH UNIT COST GROWTH FOR SIX AIR INTERCEPT MISSILE MODELS
13.	CORRELATION OF DEVELOPMENT COST GROWTH WITH UNIT COST GROWTH FOR SEPTEMBER 1981 SARS
14.	EFFECT ON YEARLY BUY RATE OF INCREASES IN ESTIMATED UNIT COST

 

Soon after World War II, the Navy and the Air Force began development of guided missiles to be used by fighter aircraft in attacking other aircraft. Compared with the guns used by fighters up until that time, such air intercept missiles (designated AIM) offer greater range, greater accuracy, and the opportunity to engage an enemy aircraft over a greater range of relative positions. Although air intercept missiles entered the inventory too late to be used in the Korean War, they were used extensively in the Southeast Asian conflict. This paper examines the history of AIM procurement in order to provide a framework to aid the Congress in making decisions concerning the Advanced Medium Range Air-to-Air Missile (AMRAAM), currently under development.
 

INTRODUCTION TO AIR INTERCEPT MISSILES

Beginning in the mid-1950s, the Navy introduced two families of missiles, the AIM-9 Sidewinder and the AIM-7. Sparrow, and the Air Force produced the Falcon missile (designated AIM-4 and later AIM-26). In the 1960s, the Air Force began to buy Sidewinders and Sparrows, and terminated Falcon production. In 1971, the Navy initiated procurement of the long-range AIM-54 Phoenix missile. The Phoenix, Sparrow, and Sidewinder remain in production, the latter two having undergone several model changes.

The Sidewinder is carried on all currently operational U.S. Air Force, Navy, and Marine Corps fighters and interceptors. With a maximum range of about four miles, it is the principal weapon for engagements within visual range. The missile homes on the infrared emissions of the target aircraft. The missile seeker acquires the target prior to launch; once launched, the missile is independent of the launch aircraft. The 25-year evolution of the Sidewinder has resulted in numerous improvements. The principal ones have been increased seeker sensitivity to allow the missile to detect the target from any angle (all-aspect capability), the ability to detect a target not directly in front of the launch aircraft (off-boresight capability), and greater capability to detect the target in the presence of other infrared signals (operations in clutter). The major limitations of the Sidewinder are its range and the degradation of seeker performance under certain weather conditions.

Engagement range is extended by the 25-mile Sparrow carried on F-4, F-14, F-15, and F/A-18 aircraft. The Sparrow is a beyond-visual-range missile that homes on the radar signal broadcast by the launch aircraft and reflected from the target. Operating the Sparrow requires the pilot to illuminate the target continuously with his radar from the time the missile is launched to the time of impact. Like the Sidewinder, the Sparrow has gone through a progression of model improvements since it was introduced in 1957.

The long-range Phoenix missile (maximum engagement range about 100 miles) is carried only on the Navy's F-14. For part of its flight, the Phoenix is guided the same way Sparrow is. For the last part of its flight, however, it uses its own on-board radar for guidance, freeing the launch aircraft from further interaction with the missile. This active terminal homing, plus features of the F-14 radar, allow the F-14 to engage several targets simultaneously.

Experience has shown that there are some fundamental problems associated with operating the Sparrow that stem primarily from its mode of guidance. Operating the Sparrow restricts the flight path of the pilot during missile flight, making him vulnerable to counterattack by his target or by another aircraft. A pilot attacking a target can fire several Sparrows at that target, but cannot engage another target while his attack is still in progress. Finally, the Sparrow is not compatible with the F-16, which will be the most numerous U.S. fighter.

In order to overcome these deficiencies, the Air Force and Navy have been developing a new Advanced Medium Range Air-to-Air Missile as a successor to the Sparrow. AMRAAM will employ active terminal homing similar to that used on the Phoenix to allow it to operate autonomously after launch. It will be operational on all modern U.S. fighters and interceptors: F-14, F-15, F-16, F/A-18. The Phoenix itself would not be a viable substitute for the Sparrow since it is twice the weight and about six times the cost of the Sparrow, and requires a very costly radar on the launch aircraft in order to achieve long-range performance.

AMRAAM entered full-scale development in early 1982, and is expected to enter production in the mid-1980s. The current program calls for an $800 million development program followed by the production of 20,000 missiles at $190,000 each (in fiscal year 1982 dollars), approximately one-half more than the unit cost of the most recent Sparrow model, AIM-7M.
 

SCOPE

Progressive improvements in AIMs have been accompanied by significant increases in unit costs. There has been concern in the Congress that, no matter how effective AMRAAM is, it may be ultimately too costly to buy in the quantities necessary to supply U.S. forces adequately. Congressional decisions regarding AMRAAM will be made against the backdrop of several widely held perceptions. These are:

• As time has progressed, the procurement of AIMs has consumed an increasing share of the defense budget while the number procured has decreased;
  
  
• Actual unit costs of AIM systems are always much more than initial estimates;
  
  
• This has led to difficulties in achieving inventory goals.

The implications of these hypotheses for AMRAAM seem clear: if they are true, the actual unit cost of AMRAAM will be much greater than that of the Sparrow, either increasing the impact of AIM procurement on the defense procurement budget, slowing progress toward reaching inventory goals, or both. This paper uses the history of AIM procurement to test these hypotheses and to ascertain what can be learned from history that may be useful to the Congress in judging the AMRAAM program. In particular, the paper examines:
 

• Long-term trends in the number of AIMs procured and the impact of that procurement on the defense procurement budget;
  
  
• The pattern of changes in the estimated costs of AIM systems as they have proceeded through full-scale development and into procurement.

LONG-TERM PROCUREMENT TRENDS

Contrary to some perceptions, DoD has not been devoting an ever increasing share of its procurement dollar to a diminishing number of AIMs. While it is true that compared to the early years of AIM procurement DoD is spending about the same fraction of its budget for one-fourth as many missiles, since about 1970 both numbers and budget share have increased at about the same rate. During the 1960s, the cost of missile improvements was absorbed by buying fewer missiles, while during the 1970s it was accommodated by increasing the budget share devoted to AIMS. This is illustrated in Summary Figure 1. In addition, the budget share allotted to procuring the Sidewinder and the money allotted for the Sparrow (not shown in the figure) have individually followed the same general trend as the aggregate.

Two main causes underlie the divergence of the trends in numbers and costs. First, the constant-dollar unit cost of the AIM-9 Sidewinder, which has usually been procured in greater numbers than the AIM-7 Sparrow, increased fivefold from the early 1960s to the late 1970s. Second, there has been a gradual shift toward buying fewer Sidewinders and proportionately more Sparrows. The Sparrow missile, although its cost has been moire nearly constant over time, has always been more expensive than the Sidewinder. In addition, the introduction of the very costly AIM-54 Phoenix is responsible for a large share of cost growth, as indicated in the figure.

If a long-term linear trend can be discerned over the more than two decades that AIMs have been procured, on the average, the impact on the defense budget of expenditures for AIM procurement has been roughly constant. If history is any guide, the budget share devoted to AIMs is not likely to change much in the near future. Therefore, cost control in AMRAAM becomes an important consideration.
 

GROWTH IN DEVELOPMENT AND PROCUREMENT COSTS

While history cannot predict the future costs of AMRAAM, it can yield an important perspective. Cost growth in development and procurement for six air intercept missile programs (AIM-7E, AIM-7F, AIM-7M, AIM-9L, AIM-9M, AIM-54A), as reported in constant dollars in the Defense Department's Selected Acquisition Reports (SARs), has been analyzed and compared to growth for all the programs reported in recent SARs. Growth in development cost is of interest both of itself and because of its possible utility as an indicator of procurement cost growth.

Development Cost Growth

Development cost growth for these six AIM systems followed a rather irregular pattern. Three showed no growth; two showed extremely high growth of 300 percent to 400 percent, which is seven to ten times the average for all the systems reported in recent SARs (that is, 40 percent); and one (AIM-54A) grew at just over the average rate for all current SAR systems. The two that showed very high growth represented, in general, greater technical departures from their predecessors than did those that showed no cost growth, while the AIM-54A program developed an entirely new missile--clearly a technical departure.

The data suggest a pattern with implications of AMRAAM, but are not conclusive. Development cost growth is qualitatively correlated with degree of technical departure. One possible interpretation of the data is that the cost of AIM developments that involve important technical departures, such as AMRAAM, are wildly unpredictable. Another is that the cost of such developments are likely to be several hundred million dollars, as AIM-7F, AIM-9L, and AIM-54A were, and that the AMRAAM estimate of $800 million for development is likely to be a realistic one. The data provide no statistical basis for choosing one interpretation over the other. While the AIM-54A program seems closest to AMRAAM based on degree of technical departure and the magnitude of the initial estimate of development costs, a single data point has no statistical significance.

Unit Cost Growth

Unlike development cost growth, the growth in unit cost for the originally planned quantities of the six systems was distributed in a manner consistent with all current SAR systems. The lowest growth in unit cost of the AIM systems was 10 percent and the highest was 90 percent; the average of 43 percent is very close to the average for all SAR systems. The fact that the unit cost increases displayed by so many systems follow a fairly well-defined distribution indicates a reasonable likelihood that future programs will follow the same pattern. Without a detailed understanding of the mechanisms that produce this cost growth, it is not possible to predict what the growth of any particular system will be.

Furthermore, there is an apparent correlation between unit cost growth and development cost growth. The average unit cost growth for the three systems with no development cost growth was 28 percent, while the average for the other three was about 56 percent. An examination of all systems in the current SARs as well as the historical AIM data indicates that unit cost increases are generally correlated with development cost increases. Indeed, it can be generally concluded that increases in development cost almost always mean increases in unit cost, though a lack of increase in development cost does not guarantee low unit cost increase. Development cost growth appears to be an indicator of unit cost growth to come.

The unit cost growth of systems with the same development cost growth typically shows a wide variation, however, making a precise numerical prediction of one from the other fairly meaningless. While the data do not support an accurate prediction of unit cost growth from development cost growth, the data are more strongly supportive of a minimum value of unit cost growth as a function of development cost growth. The data strongly support a minimum value of unit cost growth of 25 percent or half of development cost growth, whichever is lower.

The data confirm intuitive expectations. Since the earliest estimates of development and procurement costs published in a SAR are made at the same time, whatever factors operate to produce a low estimate of one would be expected to produce a low estimate of the other. The competition for funds provides an incentive to err on the low side of the region of uncertainty of both estimates.
 

IMPLICATIONS FOR AMRAAM INVENTORIES

History presents no hard and fast conclusions that can be applied directly to AMRAAM. It does, however, provide a useful framework for examining the program.

On the basis of historical precedent, AMRAAM is a good candidate for growth in both development cost and unit cost, but history provides no firm prediction that AMRAAM costs will grow. Based on past experience with AIMs and current SAR systems, unit cost growth on the order of 50 percent would not be surprising. Unit cost growth of less than 10 percent or more than 100 percent would be surprising, but is certainly not impossible. As time progresses, it may be possible to form a better judgment of what unit costs are likely to be by monitoring the development program.

There are currently shortfalls in inventories of both Sidewinders and Sparrows, especially in the later models. There has been concern in the Congress about the rate at which the inventory objectives for the newest missiles, especially the AIM-7M, will be approached. If past patterns of funding continue in the future, AMRAAM, which is currently estimated to cost about 50 percent more than AIM-7M, would be procured at rates less than or equal to its predecessor. If AMRAAM unit costs are ultimately significantly greater than currently predicted, either the impact of AIM procurement on the defense budget will have to be increased beyond what it has traditionally been, or AMRAAM will have to be procured at a lower rate than the AIM-7M it is due to follow. In this regard, it is important to note that reductions in buy rates below those planned in a program cause further cost increases and yet further rate reductions.

In making decisions regarding AMRAAM, other important factors need to be considered. The program is not being pursued in a vacuum. The program management has 25 years of service experience in developing AIMs and other missiles to draw upon, and has introduced several management initiatives to control development and production costs. Finally, cost is not the only factor in procuring defense systems. If the system is really needed, its procurement should be seriously considered despite any cost problems which may arise. In doing so, however, the Congress (and DoD) ought to keep in mind that significantly increased costs and constant or rising inventory objectives cannot be easily accommodated within a relatively constant share of the budget, and that procuring a system under these circumstances will have important implications for the rate at which it is procured and the funds available for other defense procurement.

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