How much profit do companies make per fighter aircraft?

[Gremlin29]

I see. So typical gross profit margins on a given contract will be 3.97-4.11%, and that the upgrades for production facilities are indirectly worked into the contract?

Yes and no, it depends. For the sake of this conversation lets say company X needs a peculiar state of the art lathe in order to make a landing gear for Fighter X. They can buy that lathe outright and recapture the cost as OH, but that OH rate is used on everthing the company bills for, military, commercial etc. So even though that machine cost $1M the Fighter X project is only going to pay $10k for the use of the machine by virtue of the OH rate. If the lathe is purchased for the project, and it's total $1M cost is built into the project estimate it belongs to the goverment when the job is done.

How would they know? Easy. A bidder will include a schedule of values that details the costs for the project, and I mean details. Also when you start doing this kind of work, the government is going to have auditors at your location full time anyway.

As far as the plant goes, again that's pretty much up to the company to keep it state of the art, in fact that could very well be the competitive advantage they have over their rivals, offering a "best value" to the customer, or so it's said.

 

[Feanor]

So the cost of the lathe is placed on the government. I see. That's why they can get away with such low profit margins.

 

[StevoJH]

So the cost of the lathe is placed on the government. I see. That's why they can get away with such low profit margins.

But, if they do that, the government gets the lathe at the end of the program and it can probably only be used by that one program (unless the company "buys" usage time for other projects.

If the company buy the lathe, they can reuse it themselves for whatever they want.

 

[gf0012-aust]

But, if they do that, the government gets the lathe at the end of the program and it can probably only be used by that one program (unless the company "buys" usage time for other projects.

If the company buy the lathe, they can reuse it themselves for whatever they want.

If its specialised equipment then the Govt can provide it as furnished material on behalf of the company, the company gets to use it to complete the task but must give it back.

if they lose it, break it etc then they have to compensate the Govt - and the Govt will still get any remaining artifacts/pieces... They don't get to keep it.

If its US gear then there is a disposal process to abide by. Don't abide by it and you can expect suits to visit your company,

I should add, that furnished material cannot be "kept" by the company. If its provided under FMS provisions, then they definitely cannot keep it once the job is completed. To do so requires some blessing and release from US State.

Likelihood - next to zero

 

[Gremlin29]

It's typical for companies of this size to have accounting codes for everything, even toilet paper. A piece of equipment will be billed to a job on an hourly basis using the accouting codes. The hourly cost is extrapolated by the theoretical life of the equipment, cost to maintain, devaluation etc. Fighter X isn't going to have the cost to purchase all new equipment for it's production, unless it's a highly speciallized single use item. The FAR's are very explicit regarding what can and can't be charged to a job. Additionally, change orders or contract modifications further restrict costs that can be charged and these typically reduce what's allowed for overhead.

It really goes back to accounting principles. It costs a company X dollars to operate regardless of whether they do any work or not, these costs and others are overhead that "cost" everthing the company does. Therefore these costs are shared equally by all customers. Some things will be fixed (like a long term loan for a new building) while others are incremental to revenue.

 

[Feanor]

So in other words the cost of technical re-equipping is factored into the projects where this equipment will be used.

 

[gf0012-aust]

So in other words the cost of technical re-equipping is factored into the projects where this equipment will be used.

absolutely, the capability refresh is factored in as part of the absolute through life accounting process.