the 60,000 pound airplane and negotiate on equitable adjustment. At this point the task is one of determining what is equitable. The range is from 0 to $90,000,000 in the government's view. In the contractor's view, it is 0 to $10,000,000. At anything near $10,000,000 the contractor will argue that he might as well proceed with the correction and incur the penalty. Further, he may argue that since the government can perform all of its critical missions with a 60,000 pound airplane, it has not been severely damaged and therefore the equitable adjustments should be small. From this point on the negotiation rests on the relative bargaining strengths of the parties.

Another major factor in the determination of an equitable reduction is the indirect effect of other performance capabilities. As an illustration, weight standing alone is not of major importance. It is the effect of weight on range, take-off distance and aircraft performance with which we are concerned. If the adverse effects of increased weight are off-set (by greater lift from the wings, for instance) the Air Force would be less damaged by the increased weight and less able to exact a large profit reduction. The contractor has raised a further point in these discussions, and that is that he should not be compelled to agree to an equitable reduction during contract performance until he has had a chance to fully perform. He can cite examples of instances where a potential deficiency was subsequently corrected at little cost. A pump, for example, that is required to perform for 1000 hours without failure, failed at 500 hours. Subsequent pumps were produced that lasted 1000 hours that cost no more than the original pumps. The Air Force has not forced the negotiations of equitable adjustments while the development and test program is still in progress. Supplies are accepted, however; with the express reservation that specifications have not in all instances been met, and the contractor is not relieved of his obligation. Procurement quantities

The initial planning quantities of F-111 series aircraft was 876 in October 1961. Planning quantities increased to 1726 aircraft in July of 1962 and to 1923 aircraft in May of 1963. The first Aircraft Production Planning Schedule which reflected F-111 program quantities was issued in March 1964. This schedule which includes test aircraft, will be the baseline for our discussions today. A total of 2411 aircraft was indicated comprising 1406 F-111As, 300 RF-111As and 705 F-111Bs for the Navy. The peak production rate was 51 aircraft per month. On 9 April 1965, a letter contract was issued for production aircraft. The quantities of aircraft on the letter contract were 407 F-111As and 24 F-111Bs. Schedules issued during the period of time between 1965 and 1968 reflected approximately 1350 total aircraft with monthly production peak rates of 30 aircraft. The most recent schedule dated 28 March 1969, reflects a total of 728 aircraft with a peak monthly production rate of [deleted] aircraft.

A description of the significant schedule changes to the F-111 Program are outlined below. In 1963 we planned for 1406 F-111 As, whereas today we are programmed for (deleted) As, (deleted) Es, and (deleted) Ds, for a total of 567 aircraft. The E version was a result of establishment of a cut-off point for incorporation of improvements on the F-111A production line. In 1967 the D model was established with an original requirement for 497 aircraft incorporating the Mark II avionics systems. Program quantity reduction subsequently reduced the D total to the present [deleted] figure.

The FB-111 SAC version was first programmed in 1966 for 263 aircraft and was reduced to 77 including one test aircraft. This reduction resulted from a reprogramming in the total FB-111 SAC Wing force structure from 7 to the present 2 Wing force.

The 12 March 1964 schedule called for 300 RF-111As, Reprogramming reduced the quantity to 60 aircraft which were subsequently redesignated RF111Ds with the Mark II avionics package. Also included in this plan were 705 F-111Bs for the Navy. Cancellation of the Navy program occurred in 1968. 50 F-111Ks were an added program in 1966 and were subsequently cancelled in early 1968.

Of the original 24 aircraft planned for the RAAF, 18 of these were F-111As with an option for 6 reconnaissance versions. All 24 aircraft were manufactured to an F-111C configuration which is similar to the F-111A.

The above is only a synopsis of the program changes. By reviewing Figure 7, "F-111 Program Quantity Variations", the exact schedule fluctuations for each F-111 series aircraft are reflected from program inception to current schedule planning.

INFORMATION

The original F-111 Program envisioned total production of 2411 aircraft including 1370 USAF tactical fighters, 300 USAF reconnaissance fighters, 705 Navy fighters, 18 Australian fighters and 18 RDT&E aircraft. Although the November 1963 cost estimate (PCP 63-159) contained cost for only the 1370 USAF tactical fighters, the costs were premised on a total production of 2411 aircraft with a peak production rate of 51 aircraft per month, and deliveries ending in early CY 74.

The current F-111 Program contains a total of 728 aircraft, including 574 F-111A/E/C/Ds, 76 FB-111s, 60 RF-111Ds and 18 RDT&E aircraft. The total sustained production rate has been reduced to [deleted] aircraft/month. Although many configuration changes have occurred since 1963, a major portion of the increase in the unit cost of the F-111 aircraft is due to the changes in total quantity and production rate.

F-111A/E/D/C

The original USAF production program for the tactical aircraft consisted of 1370 aircraft at a total cost of $4,643M. This program was for one model and was to be delivered over a six year period with a sustained production rate of 30 aircraft per month. The current program consists of 574 aircraft at a total cost of $5,631M for a total increase of $988M. This program includes four separate models; F-111A, F-111E, F-111C (RAAF) and F-111D, and extends over an eight year period at a sustained rate of [deleted] aircraft per month. The effect of this severe stretchout of the program in a period of unusually high economic escalation resulted in a major cost increase to the program. Figure 8 shows the cost changes that have occurred since 1963.

During the development program and the early phase of the production program numerous changes were made to the configuration for improved effectiveness, the result of enemy threats, the increased emphasis on conventional warfare and refinements of the original specifications. Many of the specification refinements were to correct design difficulties and were accomplished at no profit to the contractor and with his sharing of the cost, e.g., the SWIP (Super Weight Improvement Program) and the air inlet engine matching problem and the wingbox failure problem.

The transition from the F-111A/E Program to the F-111D Program required an almost duplicate test program due to the major change in avionics and the development of the more powerful engines. New AGE development was also required for the improved avionics. The impact of these changes on program costs is detailed in Figure 9 using the 1963 baseline as a point of departure.

Figure 10 summarizes the changes in FB-111 funding from 1965 to the current budget submission. The FB-111 production program was originally_estimated in Dec. 1965 at $1697M for 263 aircraft. This program has been reduced to $993M for 76 aircraft for a net reduction of $704M. The effect of the quantity reduction applied against the original estimate is $923M plus $75M in support costs, but this is offset by increases in other areas amounting to $295M. (see Figure 11) The principal reasons for these increases are the engine increases, due to the improved engine and price increases, the incorporation of partial Mark II avionics and the impact of the F-111K and Navy program cancellation which had a high commonality with the FB-111. In addition to these items, the FB-111 has been impacted by the schedule slip of the F-IIIA/D/E Program and the high economic growth of the recent years. The effect of the changes required for the correction of the wing-box failure and air inlet-engine matching problem are also applicable to the FB-111.

The RDT&E program increase of $149M from the original estimate of $85M is due primarily to the SRAM incorporation, Mark II support requirements, and the development of the P-7 engine. These new developments required an expanded test program.

The changes made to the FB-111 Program and the resulting cost impacts are detailed in Figure 11.

The current RF-111 Program provides funds to adapt the F-111D aircraft to fulfill a tactical reconnaissance mission, and the development and test of improved sensors. The reconnaissance changes will be made to the basic F-111D