ACCUMULATING PERIPHERALS


What’s your bottom line on that Raptor? by mattsteinglass
February 27, 2009, 9:56 am
Filed under: Uncategorized

Say you were buying an F-22 Raptor air superiority fighter at a street market in West Africa. (If you’ve ever been to Nigeria, you’ll know this is not as unlikely a scenario as it sounds.) How would you reach an agreement on the price? Here’s how: you would make an obscenely low offer, far lower than you were actually prepared to pay — a thousand bucks, say. The merchant would laugh at you, and refuse to even state his price. You would laugh too, and cajole, and he would finally name you a price — a billion dollars, say. You would shrug and get up to leave. The merchant would call you back — hold on, hold on. How much can you pay, really? You would name a price — a million dollars. And at some point before the bargaining was over, you would name another ridiculously low price and, if it was not accepted, start to walk away, and wait to see whether the merchant called after you.

The F-22 is in production. The research and development is a sunk cost, and while the cost of the total buy of 183 planes works out to some unconscionable price upwards of $200 million each, the cost to order additional planes now is dramatically lower — in the merely obscene range of $120 million each. But the thing is, it’s not really clear that we need any more F-22s, since nobody else in the world has a plane in its class and old-fashioned state-vs.-state warfare is increasingly rare and unlikely. So throwing away $120 million on one more plane seems hard to justify when compared to using those funds to, say, fund Head Start for the entire city of Atlanta, or what have you.

But the F-22 has exactly one customer. If the US government ends its buy, Lockheed and Boeing have to shut down the whole production line, maybe fire some people, and so on.

So why don’t we offer Lockheed and Boeing $50 million a plane for another 100 fighters? If we don’t buy more F-22s we’re going to end up buying a lot of the less-amazing F-35s instead, and while the F-35 was originally supposed to be much cheaper, its program costs are mounting and it’ll be years before it makes it to production. In the end it could easily cost $60 million a plane. So why not offer $50 million bucks for more F-22s, take it or leave it? If Lockheed and Boeing don’t think they can do it for that price, let them say no, and they can shut down their production line and take the hit to revenue and the lost jobs. It’s up to them.

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