Defence Studies, 2018 VOL. 18, NO. 1, 19–38 https://doi.org/10.1080/14702436.2017.1417736 Striking a deal on the F-35: multinational politics and US defence acquisition Stéfanie von Hlatky and Jeffrey Rice Department of Political Studies, Queen’s University, Kingston, Canada ABSTRACT Why does joint defence production of advanced weapons systems, which appears like a logical choice at first, become harder for both the primary production state and its allies to manage and justify as the acquisition process runs its course? To answer this question, we analyze the multinational politics of the F-35 JSF with a focus on how secondary states who have bought into the program are affected by domestic politics within the primary production state. We find that US congressional and bureaucratic politics, cuts to US defence spending, and a desire to retain tight control over the program has locked allies into a program with which they have little leverage. Potentially losing the ability to fight along side the US if they don’t follow through, coupled with inter-Alliance pressures, leaves secondary states who are involved with the F-35 program, vulnerable to the whims of US domestic politics. ARTICLE HISTORY Received 3 May 2017 Accepted 12 December 2017 KEYWORDS Procurement; defence; F-35 Since 2001, the F-35 Joint Strike Fighter (JSF) program, developed by Lockheed Martin, has frequently made the headlines as “The Jet that Ate the Pentagon” or “The Lost Fighter” (Wheeler 2012, Warwick 2011). More than a decade and a half into the program’s launch, observers are increasingly pessimistic about the F-35’s appeal. The development phase, which took longer than expected, threw both the calendar and the budget off the mark. Although setbacks are not necessarily atypical when looking at defence acquisition in the United States, the F-35 is unique in that it is the most expensive procurement program of all time. To put the program in fiscal context, the total program costs is expected to reach $379 billion for the planned 2443 aircraft (US Department of Defense 2016a). The program also stands apart because of its multinational structure, which is unprecedented in both its scope and depth. Though led by the United States, eleven other international partners joined the development and production efforts: Australia, Canada, Denmark, Italy, Israel, Japan, the Netherlands, Norway, South Korea, Turkey, and the United Kingdom.1 In principle, multinational participation in US defence production is beneficial to the parties for a number of reasons. Due to the sheer scale of production, invested parties benefit from economies of scale for a given weapons system. There are also advantages in terms of interoperability, since a good number of American allies will be flying (and maintaining) the CONTACT Jeffrey Rice j.rice@queensu.ca © 2018 Informa UK Limited, trading as Taylor & Francis Group 20 S. VON HLATKY AND J. RICE same aircraft. This begs the question: why does joint defence production, which appears like a logical choice at first, lead to suboptimal outcomes as the acquisition process runs its course? The article answers the question by adopting Putnam’s two-level game framework. In doing so, it uncovers the coping mechanisms available to allies who find themselves vulnerable to unforeseen changes within the primary production state and who become locked into unpredictable procurement dynamics, with material and political costs that exceed what was initially anticipated. We argue that domestic political barriers are the primary drivers of multinational procurement problems. With the F-35, the United States faced hurdles as it tried to reconcile its desire to retain its technological edge while at the same time securing F-35 customers, banking on its close allies. At the core of our argument lies an under-examined area of inquiry: the nexus between domestic and multinational politics in the acquisition process of major weapons systems. The scholarly literature on defence economics has highlighted that the US dominance of the international economy can have a profound impact on states’ domestic politics, (Milner 1998) yet our research also shows how the US is itself beholden to the F-35 because it depends on allies buying into the scheme in order to recover some of the costs associated with the program. While the F-35 is unprecedented in scope and scale, it is not necessarily unique; there are many previous examples of countries developing weapon systems with other nations, as well as through multinational institutional settings such as the EU and NATO (Moravcsik 1990, Hartley 2006). In most cases, the multinational politics of procurement is subject to unpredictable political dynamics at the national level. To be sure, there are international rules and norms, which are meant to make these cooperative schemes more stable and predictable (Simmons 2000). There are also powerful economic incentives to pursue procurement with allies, as it rationalizes defence cooperation, pools resources for research and development, and promotes greater technical interoperability (Milner 1998, Massie 2011). As well, the (arguably) hegemonic influence that the US wields through the sheer size of both its military and economy cannot be underestimated and factors into the decision-making processes of states who might otherwise seek other viable alternative (Vucetic and Tago 2015). Our article builds on these contributions by showing that the perceived benefits at the outset of multinational procurement programs can lose their luster because of unforeseen events, attributable to domestic political factors, including bureaucratic dynamics in the lead states. In turn, secondary states fear that these events will imperil the procurement program’s initial arrangements and choose to stay the course, stall or back track, potentially leading to the politicization of the acquisition process.2 The argument of this article is built in four parts: the first part explores the benefits of joint defence production, to set the stage for the theoretical and empirical analysis. The second part introduces the dynamics of multinational defence procurement through the lens of Putnam’s two-level game. The third part, building upon the two-level game model, identifies domestic constraints as barriers to multinational defence acquisition programs from the perspective of US and congressional bureaucratic politics. The fourth part demonstrates how domestic politics in secondary states can interfere with the perceived benefits of multinational defence production and examines the strategies available to second tier partners to offset and protect themselves from unforeseen economic and reputational costs. We find that secondary states – especially those entrenched in a formal alliance system – can find themselves in a “catch-22” whereby the pressures of being a member (or ally) in DEFENCE STUDIES 21 “good-standing” and developing the capacity to continue to operate alongside other alliance partners, not just the US, comes into conflict with domestic politics in both the lead state and secondary state. The F-35 experience serves as a cautionary tale for multinational defence cooperation, highlighting both the well publicized advantages of the joint multinational program and why things can go so far off budget, off schedule, and out of favour in the United States and in allied countries. The benefits of joint defence production The twin dynamics of more robust global production networks and the proliferation of dualuse technology has led to greater opportunities for interdependence in the defence field. In fact, the trend toward a more deeply integrated and international defence industry appears almost inevitable, especially between countries that have an already established tradition of military cooperation. However, even closely allied states have not fully exploited the benefits of globalization in the defence industry, even when the economic logic is compelling. The major hurdle to greater interdependence in defence stems from a nation’s fear of losing autonomy by foregoing the indigenous capability of weapon systems production. By buying foreign military technology, states may save money but will in turn be funding another country’s defence industry rather than their own. This problem becomes more salient in an era of fiscal restraint. Countries around the world have been slashing their defence budgets in response to the continuing aftereffects of the 2008 global financial crisis. Even the United States will be forced to do the same in the years to come – defence spending in the United States has fallen from 20.9% of the federal budget in 2011 to 15.9% in 2015, with upticks more recently. Even still, no other country outspends America when it comes to defence. The US Department of Defense’s discretionary budget in 2016 alone totaled $582.1 billion (US Department of Defense 2016b). In reaction to American leadership in the defence industry, European countries have emerged as both partners and competitors. For example, the UK is both a customer of the F-35 and part of the multinational procurement team behind the Eurofighter. For this and other reasons, transatlantic defence cooperation has been uneven. Political hurdles on both sides of the Atlantic are stalling the creation of a more interdependent defence market. Mind the gap: the defence industry on both sides of the Atlantic The “two fortresses” analogy has often been used to characterize the lack of progress on the development of a truly transatlantic defence community. Fortress America stands to protect its national defence industry and to guarantee its military supremacy across the globe. Even when the United States operates with partner states, such as its NATO (North Atlantic Treaty Organization) allies, it is very cautious when exporting military technology. On the other side of the Atlantic, there is Fortress Europe, a model of European defence that strives for autonomy from the United States in the post-Cold War world. The 1998 Franco-British summit in Saint-Malo embraced this perspective and sought a plan to incite European states to bulk up their military force and to be less reliant on their American ally. This transition has been slow in coming. Even with the Common Security and Defence Policy and various attempts at capability pooling, European defence budgets have not matched the professed enthusiasm for a more capable and autonomous military force (Matlary 2009). Reliance on the United 22 S. VON HLATKY AND J. RICE States and the prioritization of NATO remains, and will likely remain the default position for the foreseeable future. Even in NATO, the development of allied capabilities under the banner of Smart Defence has suffered some of the same setbacks as the EU’s pooling and sharing initiatives (von Hlatky 2014, pp. 32, 33). Though highly evocative of transatlantic defence relations, the fortress analogy may be a bit overdrawn. Europe and the United States have both demonstrated the political will, though unevenly at times, to increase military interoperability. This was apparent especially after the 1999 War in Kosovo, during the 2011 crisis in Libya and now, with the coalition bombing campaign against the Islamic State. The US has, for its part, consistently expressed its concerns over more equitable burden-sharing and the need for greater interoperability with its closest allies after having carried the brunt of the war effort (Perry 2011). Yet, turning this realization into action has proven particularly challenging. Declining defence budgets have shown states the imperatives of capability-pooling, cost sharing, and enhancing interoperability through multinational procurement projects. In spite of the political and strategic incentives to work more closely together, there are also competing incentives to develop and protect one’s own national (or regional, in the case of the EU) defence capabilities. Nevertheless, a desire to achieve greater interoperability should push NATO allies towards closer cooperation among their respective defence industries. Since the onset of the American Revolution in Military Affairs, or Transformation, interoperability is increasingly viewed as a multidimensional concept, involving greater sharing of data and information, as well as the development of common strategies, operational cultures, and battlefield tactics (O’Halon 2000, p. 2, Vickers and Martinage 2004).3 This adds to the complexity of developing a more globally integrated defence industry, given the United States’ still possesses an undeniable technological advantage. It is for these reasons the F-35 program can be seen as an ambitious step in the continued development of a globally integrated defence industry, by fostering greater cooperation and integration in the areas mentioned above. Unfortunately, the program has so far proven more controversial than successful, in part as a result of the manner in which the procurement process has unfolded, and also due to the role that the media has had in framing the acquisition of the F-35 in allied countries (Vucetic 2016). Transatlantic defence cooperation still appears to flow one way, with the US expressing reluctance to rely on European military technology or to even share its own (Johnson 1992). Certain European firms have managed to overcome such barriers, but the examples are limited. BAE Systems, for example, based in the United Kingdom, has a productive professional relationship with the Pentagon through its subsidiary in Arlington, Virginia. The French Thales-Raytheon joint venture is another example. These two initiatives speak to the importance of companies having a physical presence in foreign countries in order to overcome domestic political barriers and to fully penetrate their defence market. The US has the leading defence industry in the world, with its total defence budget continuing to be unmatched. An increasingly complex security environment following the end of the Cold War and, and more recently, austerity measures imposed after the 2008 economic crisis, however, are causing the United States to seriously think about ways of cutting the costs of major acquisition programs (US Department of Defense 2014). And, one way of doing this has been to seek out the participation of allies in the production phase of major weapons systems. The F-35 program, which will be discussed in a later section, could serve as a model for greater defence cooperation early in the acquisition process, since partner DEFENCE STUDIES 23 states are involved in the design and development phase. But, are the benefits and incentives of co-development and co-production sufficient to offset the coordination costs involved in more ambitious multinational defence cooperation? Economic incentives For the United States and its allies there is a clear economic rationale to engage in collaborative defence production. Multinational programs promise to bring the costs of development and production down by having more participants acting as financial backers. In addition to this, more participants, generally speaking, means more orders of the final product. From a national security standpoint, to even reach this point, a certain level of trust must exist between participating partners, given the sensitive nature of military technology. However, even the world’s closest military allies have yet to exploit the full potential offered by globalization in the defence field. The defence industry is different from other sectors of the economy, because it is at the service of the military and is forced to put government national security objectives first. In spite of efforts to raise levels of interoperability between allies, a tension exists at the heart of those considerations with the somewhat paradoxical, yet understandable, desire to maintain a lead in military technology over other countries, especially rival countries. Therefore, the proliferation of military technology, even if desirable from a globalization perspective, can be seen as detrimental to a country’s national security. For the United States, with security interests around the globe, maintaining its position of leadership in military affairs is a paramount goal and is clearly articulated in the 2014 Quadrennial Defense Review (QDR): “… our technical advantage must be closely monitored and nurtured” (US Department of Defense 2014, p. 9). This has led Washington, chief among all capitals, to enact laws that protect its defence industry from foreign penetration. For this reason, US defence cooperation with other countries has been tightly controlled, even with its closest allies. Strategic imperatives In addition to the economic incentives mentioned above, there are also strong strategic imperatives to entice countries into joint defence production. The idea is to promote greater interoperability among allies that participate in military operations together. In the case of NATO, interoperability is a major concern for the United States, as it continues to grapple with burden-sharing issues when military cooperation is at stake. Both the United States and its allies have come to appreciate that a military cooperation arrangement where the focus is on interoperability is more valuable than one where the focus is elsewhere (Wallander 2000, pp. 714-715). However, the requirements of interoperability became increasingly demanding as American military transformation led to a gap in military technology when compared with its NATO allies. This gap is set to remain because European defence budgets are unlikely to grow by much, let alone match the world-leading US Department of Defense (DoD) budget. Although this steep investment disparity has been the norm since the end of the Cold War, it is certainly not a new phenomenon. 24 S. VON HLATKY AND J. RICE Shifting the goal posts: alliance expansion and interoperability Adding to the challenges of achieving interoperability is NATO’s expansion. With more member states party to the alliance, interoperability becomes increasingly complex in practice. And, although development costs may come down with more partners, the greater the number of states means an increasingly complicated procurement process. As well, newer states, which may lack the institutionalized cooperation that other Alliance members have enjoyed, now have to catch up with their alliance counterparts. While NATO members can agree on a Strategic Concept or Summit communiqué, each country also has their own national defence objectives, which do not always perfectly align. A NATO report summarizes this strategic disparity: … the European allies do not put high-intensity conflict at the center of their planning … Hence, their strategic focus is on peace operations and crisis response. The result is proportionately lower investment, relative to the United States, in developing and acquiring advanced military systems. (Switzer and Stropki 2005, p. 166) The implications for international defence cooperation are clear: if there is no unity of purpose, then the prospect of jointly producing future military technologies to accomplish these strategic objectives becomes difficult (Vucetic and Nossal 2013, p. 5). Nevertheless, following American leadership appears compelling, if not for the economic and strategic reasons mentioned above, then to abide by the dictates of followership – states will continue to align their procurement policies with the dominant state – a form of “procurement bandwagoning” (Henrotin 2011, p. 49). Although the economic costs may be considerable, it is easier to align with the dominant power than it is to defect and go it alone. And, rather than simply buying into a shared weapons system, being involved in a joint procurement program gives you a seat at the table in future military operations. For its part, the United States goes to considerable lengths to encourage its allies to buy American in order to promote greater interoperability within coalitions. Allies that do not meet US requirements in this respect risk being excluded from future American-led operations. This section has introduced the various incentives that are central to joint defence production, with a focus on the transatlantic context. The next section turns to the theoretical framework, based on Putnam’s two-level game, to understand the domestic and international negotiation space that has defined F-35 decision-making processes for the US and its allies. The two-level game of multinational procurement To structure our analysis of the largest multinational procurement project of all time, the F-35, we rely on an adapted model of the two-level game. This approach is appropriate because of the multiple negotiation settings that are involved in multinational procurement. The two-level game is also useful to uncover how power asymmetries between countries play out during the negotiation process, impacting outcomes. Putnam’s two-level game has become a classic of foreign policy analysis and has been used in various empirical domains, including EU negotiations and bargaining in the context of international organizations. The case of the F-35 offers to push the theoretical boundaries of this model by looking at multinational negotiations that are really the combination of multiple bilateral interactions with the United States. DEFENCE STUDIES 25 When Putnam refers to the entanglement of domestic and international politics, he has the world of summit diplomacy in mind, whereby the external pressure exerted by a state’s bargaining partners can impact the decision-making process at the domestic level and vice versa. Putnam identifies three different types of interests which are present during the bargaining game: shared interests between the negotiation partners, the national interest of each state and, finally, the political interest of each government, as these decisions often have consequences at the ballot box. At the time, Putnam was building on the works of Haas on European regional integration (1958), Nye and Keohane on regimes (1977), as well as Allison on bureaucratic politics (1971) to show the different ways in which domestic and international factors could be combined to produce compelling accounts of international negotiations and agreements but that these, and comparable works, were limited in their understanding of reciprocal causation (Putnam 1988, p. 433). To remedy this, he proposes the two-level game, whereby: At the national level, domestic groups pursue their interests by pressuring the government to adopt favorable policies, and politicians seek power by constructing coalitions among those groups. At the international level, national governments seek to maximize their own ability to satisfy domestic pressures, while minimizing the adverse consequences of foreign developments. (Putnam 1988, p. 434) This model therefore neatly accounts for all plays impacting dynamics at the domestic and international levels: parliamentarians, interest groups, statesmen and diplomats from other states, as well as a plethora of special advisers and representatives. The next section draws on this theoretical framework to examine the domestic and international factors that have shaped the trajectory of the multinational F-35 program. The F-35 model After the post-Cold War budget cuts in defence, the US looked across the Atlantic for business opportunities for its aerospace industry. To get allies on board, a new model of defence collaboration had to be designed where allies would become early stakeholders in future American projects. This early-collaboration strategy was put into practice with the launch of the F-35 Joint Strike Fighter (JSF) program. Ethan B. Kapstein summarizes the appeal of the F-35 model for the United States and collaborating countries: The solution was found in co-development and co-production of the most advanced aircraft that the United States had ever built. As it was structured, the JSF project would provide foreign partners with a windfall opportunity to acquire American defence technology, while promoting aerospace-related jobs at home. (Kapstein 2004, p. 137) With this goal in mind, the United States targeted some of its closest allies to be part of the “JSF Club”, a group of countries that would be part of the acquisition process from the outset. There are clear benefits to partnering up with the United States on a sophisticated platform like the F-35. Depending on the level of participation, of which there are four, partners could influence the design according to their needs, obtain lucrative sub-contracts for their industrial base and, of course, they could buy and own the platform itself (ibid.). The level of participation was determined first and foremost by the size of the financial contribution. A participant’s contribution level, then, is influenced by the number of national representatives on the project, access to sensitive information, even if the latter is still tightly controlled 26 S. VON HLATKY AND J. RICE by the US. Participating in both the development and production phases means that partners can also profit from future orders of the fighter. The Memorandum of Understanding concerning the production, sustainment, and follow-on development of the Joint Strike Fighter (JSF PSFD MOU) set a model for international cooperative acquisition programs (Joint Strike Fighter Program 2010). It detailed the collaborative arrangements taken by participants of the program. The document firmly established the United States as the leader in all aspects of the project, with the US DOD in charge of contracting and the emphasis placed on upholding export control laws and regulations (ibid., p. 82) This MOU created an important innovation in the way defence acquisition is funded and was almost a decade in the making. Indeed, the 1990s represented a particular set of economic incentives for both the US and Europe. The concept of involving foreign partners in the development and production phases of the JSF had not previously been tested on this scale. Under a different economic and political environment, it is unlikely that this level of collaboration would have taken shape. If the US managed to win entry onto the European market with its F-35, it was not without compromise. It had to convince foreign economic lobbies that they would gain if their governments joined the program. For governments, having the support of the domestic industrial base provided a strong political rationale for joining at an early stage, since they could both please the defence industry lobby and create jobs in the process. However, winning JSF sub-contracts proved challenging for some states. It is important to stress that, given the best value practice, DoD could not guarantee that participants would get work shares proportional to their investment level. This represented a departure from the offset model, which was based on compensation in the form of assured sub-contracts, attributed in accordance to initial financial contributions to the project. The United States also had to convince its European partners that the American-led F-35 would be technologically superior to the Eurofighter (multinational), Rafale (French) and Gripen (Swedish). Without access to cutting-edge technology at a lower cost, why would European countries want to buy American? In terms of airframes, the European fighters are comparable to the F-35, but the F-35 excels in terms of stealth technology and avionics. Dubbed a fifth generation aircraft, as opposed to its fourth generation competitors, the F-35 is the first multi-role fighter with a very low observable stealth rating and integrated network-centric warfare capability. Moreover, a number of F-35s (yet to be determined) will also be nuclear capable, as announced in the 2010 Nuclear Posture Review. Therefore, countries like Italy, the Netherlands and Belgium could replace their aging dual-capable aircrafts with the F-35 to uphold their nuclear-sharing commitments within NATO. The military advantages set the F-35 apart from its competitors, but are these worth the price tag? States might also opt for the F-35 to replace their aging American-made fighters. European countries that purchased the F-16 in the mid-1970s (Belgium, Denmark, Norway and the Netherlands) are top candidates for the F-35 – the Royal Danish Air Force has recently committed to buying 27 aircraft of the F-35A variant (Lockheed Martin 2016). The F-16 program was largely viewed as a procurement success. Through co-production, not co-development, clients won offsets proportional to their financial contributions, which was beneficial for their domestic industrial base. Moreover, if the United States holds up its commitment of purchasing 650 F-16s, it will bring the cost of the program down and, consequently, the price of each aircraft. The fact that American F-16s were stationed on the European continent also represented an advantage. For now, Belgium and Germany have decided against DEFENCE STUDIES 27 purchasing the F-35. Putnam’s two level-game helps explain Germany’s decision to opt out of the program. Germany’s decision is explained, in part, by the fact that Germany’s defence industry has always been of strategic importance to Berlin, owing to its highly-developed (and highly-regulated) defence industry. German officials, when compared regionally, have historically favoured locally-manufactured defence equipment over foreign imports. That being said, the robustness of the German defence industry places Germany in the position of being able to develop its own capabilities, rather than having to rely on imports (Castellacci et al. 2014). As mentioned before, the F-35 program promises contracts to partner states, but on a competitive or “best value” basis, rather than relying on offsets. With the F-16 setting a strong precedent, the United States could lobby European countries on the basis of prior success. However, some challenges remain when collaborating with the American defence industry, which changed the rules on multinational production by introducing the “best value” framework. Some partner states expressed reservations about the “best value” approach to subcontracting, where they are not guaranteed a work share proportional to their investment. F-35 program participants also complained that the bureaucratic process to bid on sub-contracts proved prohibitively cumbersome. Norway, Italy and Denmark criticized the “best value” approach, saying that firms are targeted by the US, which makes the competition less than “open and fair” and that the information is not shared evenly with all participants that are part of the JSF Club (Masson 2004, pp. 81, 82). Moreover, since the US controls the management, contracting and technology transfers, this leaves participants with little leverage over the program. In sum, the F-35 remains a top contender in the fighter market, despite some problems with the implementation of its multinational production scheme. At first glance, there appear to be other options on the fighter market, but the F-35 has a leg up on the competition. The Eurofighter, Gripen and Rafale are the European fighters available for purchase, but they are not as technologically sophisticated. Although, stealth fighters are also being developed in Russia (PAK-FA) and China (J-20), their prospects for a successful delivery are just as uncertain and definitely not before 2020, not to suggest these options would be considered by US allies. In the aerospace industry, no European firm can currently risk developing a 5th generation aircraft. The likely trend will be to “buy American” when those capabilities are needed. If one looks at the research and development budgets comparatively, the US dwarfs European investments by a long shot, meaning that this state of affairs is unlikely to change. Despite much uncertainty plaguing the F-35 program, aborting it is an option the United States can no longer afford. US allies have also invested a lot, having agreed to finance the development of the F-35 without any guarantee that the plane will be delivered on time or on budget. In addition to the states that have officially signed onto the F-35 program, Lockheed Martin is confident it will export an additional 4000 F-35s to future clients. Potential clients will be chosen by the US according to a set of criteria, such as foreign policy compatibility, financial means, technical capabilities to support the program, and abidance with American confidentiality rules (ibid., p. 120) Potential clients include Belgium, Finland, Greece, Switzerland, Portugal and Spain, which have purchased American fighters in the past (F-18s, F-16s, F-4s, F-5s). The new NATO members are also being targeted, such as Poland, Hungary and Croatia (Poland has already purchased F-16s). As for the JSF Club, international purchases were estimated at 750 aircraft but this number has been volatile. For its part, DoD has yet to confirm the exact number of aircraft to be ordered by the Air Force, Navy and Marine 28 S. VON HLATKY AND J. RICE Corp. The total number is estimated at 2443 F-35s at a cost of $382 billion over the next two decades. Meanwhile, the fiscal constraints faced by Washington are daunting: the Pentagon has been asked to cut $400 billion over the next decade or so (US Department of Defense 2014, p. IV). With so much invested in the F-35 since its inception, modifying the program is a high-stakes game. A brief look at the program’s history will offer some insight into how this became the most expensive acquisition program in history. This was certainly not the intention back in 1996, when the idea of developing the JSF emerged. The military rationale for the F-35 is pretty straightforward. The fighter program was pursued as a matter of necessity since its current fighters are 30 years old and need replacing. Given budgetary constraints, the idea was to acquire an aircraft that would meet the needs of the Air Force, Navy and Marine Corp. By developing a single joint strike aircraft, the goal was to purchase a new advanced fighter despite a decreasing procurement budget. The program proposed to achieve this and also boost the aerospace industry in the process, which had been reduced to three firms with the end of the Cold War: Lockheed Martin, Boeing and Northrop Grumman. The economic and industrial rationales for the F-35 appeared sound. Where did things go wrong? Why cost overruns? In July 2011, the Economist reported that the JSF’s spiraling costs would reach an estimated $380 billion (The Economist 2011) US allies participating to the F-35 program must now face criticism at home for buying such expensive American fighters during times of professed austerity. The program is as politically controversial in the lead country as it is elsewhere. In the US, massive defence were announced in 2010 and in response to the debt crisis of August 2011 and seeing only very modest increases beginning in 2015. Indeed, these will be the most important defence cuts since the end of the Cold War. Although defence budgets do decrease when wars end, which is also the case with Iraq and Afghanistan, former Defence Secretary Leon Panetta expressed some concerns over the maintenance of current military capabilities. The Pentagon may have to rethink its military doctrine in order to make sensible cuts. Op-eds have proliferated on the topic of where to cut and on what a leaner American military could look like and do. In the context of massive defence cuts, observers are scrutinizing the over-budget and off-schedule F-35 program, in addition to personnel costs, overseas deployments, and just about everything else. The debate has mostly been framed as a “boots vs. bombers” trade-off. The F-22 program has already been halted, but is the F-35 program too big to fail? Despite some posturing, the big players in Washington appear unwilling or unable to halt F-35 procurement. On the matter of unrealistic cost estimates, other initiatives have been introduced to undo damaging habits. During open competitions for defence contracts, companies would bid with low estimates to win. Because the numbers are unrealistic, there are inevitably overruns. This practice has been placed under scrutiny and addressed through the Weapon System Acquisition Act of 2009, which introduced reforms to make estimates more accurate. By creating the position of Director of Cost Assessment and Program Evaluation, DoD will be able to provide independent cost estimates. Would the program have been approved had the numbers more closely matched reality? Probably, since the Pentagon views the F-35 requirements as absolutely necessary for the American military and has testified as much before Congress. DEFENCE STUDIES 29 The number one reason for the huge overrun in costs is linked to delays in development and production. Given the nature of the contract that DoD had negotiated with the contractors, cost reimbursement contracts, the American government was not protected from the dual risks of increased costs and delays. In 2010, as the program faced restructuring under former Defence Secretary Gates’ leadership, an alternative was sought with fixed contracts for the remainder of the program. Other factors imposed further delays. For instance, the initial timetables proposed by Lockheed Martin were incredibly aggressive and apparently unrealistic. Perhaps the new manufacturing and evaluation approaches chosen for the program proved unpredictable. The manufacturing model was borrowed from the automotive industry and relied on a high degree of automation and a single assembly line, given that the three F-35 variants have a great majority of their parts in common. At the same time, the fact that the aircraft were simultaneously being tested and produced made costs almost impossible to predict, not to mention the schedule. In addition, unforeseen design changes resulted in additional costs and further delays. One of these changes was the inclusion of anti-tampering technology to prevent foreign clients from copying American technology. This change was required by the military. Finally, development problems also resulted in additional costs and delays. The F-35B, or Short Take-Off/Vertical Landing (STOVL) variant, has been the most technologically challenging. Finally, technical problems have also plagued F-35 flight tests and groundings are common. In the summer of 2016, for example, the USAF declared initial operational capability of the F-35A variant of the JSF, only to have its fleet grounded in September 2016 as a result of “non-conforming insulation […] found on coolant tubing carrying Poly-Alpha-Olfein (PAO) throughout the jet’s wings” (Lockheed Martin 2017). These problems were increasingly made public by the Government Accountability Office, which published several reports that were very critical of the F-35 program. Though a number of the reports’ findings have been refuted, it has led to greater public scrutiny over the biggest military contract in history. Moreover, the violation of Nunn-McCurdy’s rules (because the program exceeds its initial budget by more than 50%) meant that Congress would review the F-35 program. In anticipation of the Nun-McCurdy breach, Former Secretary of Defence Robert Gates initiated a restructuring plan, which promised to place a greater financial burden on the contractors rather than on the taxpayer, at least for the remainder of the program. Concerns have also been expressed by American allies, which have pledged their financial support from the start. A number of countries have changed their orders or are reconsidering their participation altogether. So far, there has been a 14% drop in the estimated total number of aircraft to be built since the program was launched, meaning that the unit cost for the F-35 has risen by 82% (Harrison 2015, p. 37). In sum, the F-35 promises to do a lot. However, cutting edge technology does not guarantee success. The F-22 Raptor, the United States’ most advanced stealth aircraft suffered from severely revised orders. The current fleet, numbered at 187, was once estimated to reach 750, but the production line has now been shut down. This is also a worry plaguing the F-35 program. The countries partnering up with the US on the production of the fighters can still hope from some benefits to trickle down to their domestic industrial base. Since different parts of the plane are being built in different countries, partner states can give a boost to their defence industry through sub-contracts from the lead country. In practice, participating countries have had to overcome American reservations about technology transfers. The US government is renowned for imposing 30 S. VON HLATKY AND J. RICE cumbersome rules and restrictions to control the parameters of these transfers. These bureaucratic impediments have been widely criticized but have proven remarkably resilient, which will be discussed in the next section. US domestic politics – congress Congressional oversight and inter-agency management of export licenses, have made the process of multinational acquisition unpredictable by tying it to American bureaucratic processes. In addition, programs that go wrong are subject to public debates in the opinion pages, with the defence industry protecting itself against attacks from non-proliferation advocates and, increasingly, fiscal conservatives. It is striking to see how allies, who see the initial benefits of cooperation, must manage the negative consequences of US procurement dynamics and the political hurdles that inevitably ensue. Both the Pentagon and the main contractors have a mutual interest in offloading some of the program’s risks onto international partners, since any losses would then be shared in the event of failure. The chances of Congress pulling the plug have been reduced, however, by the international nature of the program, since American credibility is seen as being tied to the program’s success and eventual completion. So far, participation from allies has been forthcoming, with the UK having invested the most. The resolve of the UK to participate in the acquisition of the F-35 has not always been strong. As a way to hedge against the initial uncertainty of the STOVL variant of the F-35, the Brits changed their orders, opting instead for the F-35C, or CV model (Harrington 2011). This decision was announced in the Strategic Defence and Security Review, unveiled in October 2010, but was later abandoned in May 2012 (Harrington 2011). As of November 2015, the RAF announced that it was committed to the full programme-of-record with the eventual purchase and acquisition of 138 F-35Bs (Lockheed Martin 2017). The JSF has undeniably captured European markets through co-development, in addition to co-production arrangements, even more so than the popular F-16 program. The lure of sub-contracts and technology transfers are appealing from both a political and military viewpoint. However, should the F-35 face cuts or cancellation from Congress, both the US and its partners could lose what they have invested thus far. As a recent article in Jane’s notes, “the US military is planning to buy a total of 2443 jets, but Congress could at any time enact laws that reduce the overall F-35 buy or restrict production rates in a given year” (Harrington 2011). Pentagon officials will have to continue to make the case for the F-35 before Congress, to protect the program (Harrington 2011). Pulling funding from the program would adversely impact allies, which have a stake in the F-35, and negatively impact future co-development/co-production deals. In addition, the appeal of foreign sales is also encouraging Congress to stick with the program. A special taskforce, the JSF Steering Group was set up by DoD, to oversee foreign military sales (Bolkcom 2005, p. 25). The role of Congress is central to our understanding of American acquisition dynamics. Generally speaking, Congress boosts DoD’s development budgets through earmarks. The total research, development, test and evaluation budget is typically higher than the amount requested by the administration precisely for this reason. From 2007 until 2011, Congress overturned requests from the Pentagon, as well as the Bush and Obama Administrations, to cancel the production of the F-35’s alternate engine, the F-136 by GE/Rolls-Royce (Murch and Bolkcom 2008, Gertler 2012). The alternate engine was a Congressional initiative dating DEFENCE STUDIES 31 back to 1996 and was meant to protect the F-35 program from the budgetary pitfalls of operating in a single-supplier environment for the engine. These concerns were finally dismissed in 2011, when Congress ended funding for the alternate engine, at the Pentagon and White House’s insistence (Rutherford 2011). With the F-35 under public scrutiny, both the House and Senate Armed Services Committees have expressed reservations about how the program has evolved and should be funded. The F-35 has benefited from consistent Congressional support since the program was launched, but mounting pressures to cut defence spending is causing a reversal of that trend. Decisions made by members of Congress will undoubtedly have a major impact on the program, but also the entire aerospace industry. In addition to budgetary concerns, some members of Congress have questioned the desirability of foreign participation in building a fifth-generation fighter. 9/11 impacted the extent to which Congress was open to foreign participation in major weapon programs, such as the F-35. The House of Representatives harbors increasingly protectionist aims, especially when the transfer of sensitive technology is at play, even with close allies. Concerns over leakages topped the list of concerns, which pushed certain members of Congress to speak out against International Traffic in Arms Regulations waivers. The House sought first and foremost to protect the American industrial base. The American strategy is to deal with its F-35 partners bilaterally, by negotiating core agreements with participants through memoranda of understanding or letters of intent. The goal is to retain maximum control over sensitive technologies, especially stealth technologies. The UK has understood this dynamic and has sought to gain preferential treatment by providing the US with assurances, and dealing separately with European states. On the whole, the UK is hedging its bets when it comes to acquiring new fighters: it is also a core participant in the Eurofighter program, in addition to the F-35 program (Masson 2004, p. 115). But even the UK has not been immune to the bureaucratic hassles plaguing countries participating to the F-35 program. The US has been forced to revisit the way it does business. US domestic politics – the bureaucracy Growing political pressures to slash defence budgets have made cooperative arrangements like the F-35 program all the more attractive. In response to growing dissatisfaction from it allies, Washington has been forced to revisit the cumbersome process of export controls and foreign licenses. Government or industry-led transatlantic linkages have emerged as a response to those bureaucratic hurdles. So far, the political will to pursue a more integrated transatlantic defence industrial market has varied over time. While President Bill Clinton favored closer cooperation between US and European defence industries, the Bush Administration that followed was not keen on keeping with the trend (Switzer and Stropki 2005, p. 164). Congressional initiatives have also encouraged deeper collaboration with European allies. The 1977 Culver-Nunn amendment stresses the importance of interoperability with allies and encourages US defence firms to pursue greater collaboration with partner states (Kapstein 2010, p. 8). More recently, Congressional activity has sought to prevent military transfers to allies, in reaction to 9/11. Can the US afford to curtail international defence cooperation? Since the end of the Cold War, the American domestic defence industrial base has shrunk significantly, though to a 32 S. VON HLATKY AND J. RICE lesser extent than it has in Europe. The advantages of globalization for the defence industry are essential for turning a profit. However, Americans concerns that globalization will erode its lead in military technology has resulted in various strategies to limit those effects, chiefly through export controls and cumbersome licensing (Congress has statutory authority to regulate commerce). The fear is that “the results of unchecked weapons technology proliferation could lead to a serious erosion of US military dominance” (Bennett 2003, p. 2). Multinational collaboration on weapon systems appears as a key solution to secure access to international markets for the American defence industry, while export controls and licenses exist to prevent the proliferation of military technology. Are export controls hurting the competitiveness of American industry? The Obama administration is inclined to think so. In the 2010 QDR, there is an entire section entitled “Reforming How We Do Business” which identifies the problems with the defence acquisition process. Reforming the export control system is one of the stated objectives: “the current system impedes cooperation, technology sharing, and interoperability with allies and partners” (US Department of Defense 2010, p. 83). In addition to export controls, the QDR identifies a number of inefficiencies in the acquisition process. One of the main causes of delays and spiraling costs associated with new weapon systems is that the requirements at the outset are too technologically ambitious. In addition, the QDR expresses concerns over the Pentagon’s acquisition workforce, which needs to be bolstered in order to provide effective oversight of the acquisition process. Finally, the review tackles the problem of off-the-mark cost estimates. It stresses the importance of independent cost estimate mechanisms in order to reform the practice of unrealistic cost assessments (ibid., p. 76). Domestic politics vs. alliance politics As Kapstein notes, US allies that become program participants in the development phase of a new weapon system will want to reap the benefits of their investment in the production phase, since they are compensated through the sub-contracts they receive (Kapstein 2010, p. 8) By bidding high early on, allied states are locked in – they have a compelling motive to see the program through, or lose what they have invested. Partner states, therefore, are often helpless against the intervention of domestic players in the lead state. The United States dominates the market of defence acquisition by being the world leader in defence spending. It can therefore design a multinational acquisition scheme where it will have considerable leverage over participants. Nevertheless, delays and cost overruns do impact collaboration among participants, since they attract greater public scrutiny, which results in new political hurdles for multinational participation in US defence production. Behind the F-35 program, then, is an elaborate strategy to support the American defence industry while securing foreign markets in allied countries. Why do allies stick it out when delays and costs overrun? Defence spending in most participating countries is on the decline. However, participation from allies remains forthcoming, with the UK having invested the most. The resolve of the UK to participate in the acquisition of the F-35 has not always been strong. In 2010, facing a considerable deficit, then Prime Minister David Cameron, elected on a majority, aimed to reduce spending in most areas, leading to the (temporary) decision to opt for the F-35C, or CV model over the more expensive STVOL (F-35B) variant (Harrington 2011). Following the Wales Summit, uncertainty over the future of British defence spend was renewed when British generals failed to publicly recommit the UK to meeting the new DEFENCE STUDIES 33 NATO targets. And yet, in spite of all indications to the contrary, fears of significant cuts have not necessarily borne out – though uncertainty remains with respect to the direction of British spending (Richter 2016). Since November 2015 – when the RAF reaffirmed the purchase of all 138 F-35Bs, the RAF has maintained its commitment to the full programme-of-record (Lockheed Martin 2017). The JSF has undeniably captured European markets through co-development, in addition to co-production arrangements, even more so than the popular F-16 program. The future of the F-35 in Canada has seen a similar level of uncertainty. Canada formally joined the F-35 programme in 1998 along with seven other states. The commitment was re-affirmed in 2002 and 2006 when Canada signed onto the next phases of the development process. When the question of a formal competition began to emerge, however, Canada’s defence bureaucracy began to exert influence on former Prime Minister Stephen Harper. According to Nossal (2016), National Defence Headquarters (NDHQ) persuaded Harper in 2010 to forego a formal competition to choose the next replacement, instead made the decision to acquire the “F-35 as a sole-source contract” (Nossal 2016, p. 73). Amid a number of setbacks in the development of the F-35, further strains began to emerge in 2011 with cuts to defence beginning a downward trend that would continue up until 2015. The trend would begin to be reversed in 2015, when the final Conservative federal budget increased defence spending. Following several years of ambiguity with respect to the future of the F-35 in Canada, further doubt was cast with the election of the Liberal party to office and Justin Trudeau as Prime Minister in 2015. Amid internal pressure from the NDHQ, the Liberal government was placed in the precarious position of needing to reassure its largest ally, while navigating the domestic pressures brought by defence officials as well as the Canadian public. To do so, the Liberal Party promised a review of the decision to acquire the F-35, in an attempt to offset at least some of the unpopularity surrounding the programme. In spite of public rhetoric, however, decisions have not always been consistent with official policy. In 2016, after promising a review, Canada paid $36 million to remain involved in the F-35 project. In spite of this, Canada announced in 2016 that it would acquire several F-18s from Boeing in the interim to help ease the burden on the aging fleet of CF-18s, sending an array of confusing and mixed signals with respect to whether Canada will ultimately purchase the F-35 (Nossal 2016). The F-35, however, once again appears the main contender for Canada, as a trade disagreement between Boeing and Bombardier has resulted in the Liberals breaking off negotiations with Boeing over the F-18 replacements (Pugliese 2017). And, with a majority mandate, however, and the support of NDHQ and Public Works, the Liberal government is less vulnerable to the domestic pressures that Harper’s minority government had faced. Indeed, the main source of opposition within the House of Commons regarding the acquisition of the F-35 – the Liberals – has been removed by virtue of the fact that they are now the ones in charge of the decision. The Australian case follows a similar trajectory to that of the UK and Canada. The decision to acquire the F-35 through a sole-source contract precedes the Canadian decision by eight years. In 2002, Prime Minister John Howard, enjoying a majority mandate with the election of the Liberal-National coalition, made the decision to end the “search for a new aircraft by buying into the development of the F-35 Joint Strike Fighter” (Lockyer 2013, p. 80). The decision to acquire the F-35 through a sole-source contract was, in part, influenced by the Minister of National Defence Robert Hill. Facing ever increasing delays, the Australia government in 2006 opted to buy an interim fleet of 24 F-18 Super Hornets which entered service 34 S. VON HLATKY AND J. RICE in 2011 (Lockyer 2013, p. 84). In each of these three cases, similar trends are observable: shrinking defence budgets and internal pressure from both constituents and the various ministries of defence create a situation wherein the executive of each state needs to balance the interests of multiple parties. Although uncertainty abounds regarding the decision to acquire the F-35, Allies are clearly hesitant to abandon the project altogether. Accordingly, some coping measures have emerged, which will be discussed in the next section. Alliances in alliances To protect themselves from overbearing US control over the program, some participants have decided to join forces. For example, Norway, Denmark and Canada have formed a tri-national industrial team to lobby the United States (Masson 2004, p. 83). Participating governments must be actively involved in lobbying efforts to maximize the benefits of the JSF partnership. In this way, states can achieve more contracts, but they are still limited in terms of technological transfers. Even the Unites States closest allies do not have access to sensitive technologies. Strategies such as the tri-national industrial team might pay off in the short term, but they do not drastically improve participants’ autonomy. Since there is a single assembly line, in Fort Worth, Texas, participants will be highly dependent on American infrastructure for maintenance. Having multiple assembly lines would no doubt improve participant concerns over the lack of operational autonomy, but would increase the program costs, due to duplication. When looking at the options that states have when facing acquisition decisions, autonomy is only possible for a few states with robust aerospace industries (Sweden, France, UK). States that must opt for co-development, co-production or imports, usually favor the US proposal (Kapstein 1991, p. 660). Because the US can promise to purchase such a large quantity of planes, they can reduce the risk for program partners and future clients. In practice, participants are not protected from the uncertainty related to the number of orders. Alliance ties explain, in part, why these countries stay on, despite an increasingly unattractive deal. For political reasons, it makes sense to criticize the F-35 program and its spiraling costs. In fact, politicians in the US and in states with F-35 involvement have made a habit out of doing so, especially in these harder economic times. The F-35 is losing some of its initial appeal, but the US and its allies are locked in. Given the size of the investments made, it is too late to cancel everything. Instead, the US will need to exercise more discipline to keep future costs down. Another option is that orders will be cut down further. It is becoming increasingly obvious that there is no alternative to the F-35 program. The Pentagon has stated that, despite cost overruns and delays, the F-35 is still a top priority in terms of the capabilities provided. For the US allies, alternatives on the international fighter market are either less sophisticated technologically, or are presently as uncertain as the F-35. Regardless, both the US and participating allies have already invested so much in the F-35 that backing out in the interest of saving money is no longer feasible. A catch 22 for allies? The complex procurement system involved in the JSF program creates a trap for current and potential partner states. At this point, whether the F-35 venture is successful or fails, allies are locked into a process they have little control or leverage over. In a sense, participating DEFENCE STUDIES 35 states are faced with two unattractive options: stay in and suffer economic/political consequences; or opt out and suffer reputational/strategic consequences, which may sully future cooperative procurement programs, in addition to having to deal with sunk costs (Ettinger and Rice 2016). An early exit, too, from a large procurement program can be said to be associated with risks similar to those faced by allies participating in multinational military operations. There is a practical side of procurement – updating technology to have the capability of being a reliable ally and increasing interoperability. Participation can serve to demonstrate solidarity and reliability as an alliance partner (Massie 2011, p. 8). Reneging on promises and agreements in terms of final outcome may incur similar reputational costs as those of exiting from a military campaign (Nossal 2009, p. 158). Yet, added pressures are placed on states to “stick it out” in these procurement programs, as the steepest reputational and economic costs may lie in the final outcome, i.e. the decision whether or not to purchase the aircraft and, if so, how many. Conclusion The benefits of international defence collaboration seemed obvious when the F-35 program was launched in the 1990s. As the program evolved and the number of participants increased, this assumption was revisited. To summarize the argument advanced in this article, the United States is reluctant to exploit the benefits of globalization in the defence sector. The Pentagon has worked out a compromise with the co-production model and now, the co-development/co-production model, as Lockheed Martin leads the multinational F-35 program. Negotiating with allies to launch such acquisition programs is complex. Tensions are inevitable as US control over these programs is strong, while participants call for greater autonomy once weapon systems are fielded. With the F-35 program, participants have only limited leverage because they placed a high bid on the JSF early in the process (during the system development phase). And, threats of full-withdrawal from the project become less credible as the project progresses, participating states face significant economic and political costs should they choose to withdraw, including: sunk costs, a potential loss of “good standing” within the Alliance and bilaterally, and most significantly, potentially losing the ability to fight along side other member states in future operations. Though the US had to make concessions to win over its allies at the outset, program participants are now locked in. When participants contribute early on, it makes withdrawal a costly decision. This article shed light on the domestic and international factors that skew the initial incentives for joint defence production. In addition to the two-level negotiation game for allied countries, this article showed how domestic politics in the lead state, the United States, can further complicate the decision for allies. From this standpoint, the F-35 is an interesting case study because it highlights the intersecting influences of domestic politics and alliance-level imperatives that are central to major foreign and defence policy decisions. Notes 1. Although having joined the F-35 program in 2003, Singapore made the decision in August 2016 to postpone its acquisition of the F-35B. 36 S. VON HLATKY AND J. RICE 2. See 2012–2013 special issue in International Journal by Srdjan Vucetic and Kim Nossal (coeditors). 3. See Michael E. O’Hanlon, “Technological Change and the Future of Warfare”. See also G. Michael Vickers and Robert Martinage, The Revolution in War. 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