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.