J-20 5th Gen Fighter Thread VI

[Inst]

It's the classic SDF circlejerk - a "fact" of unknown origin and highly dubious veracity gets beaten to death, resurrected, then beaten to death again for 10 pages. The J-20 unit cost is actually $25 million. How do I know this? Exactly the same way some here know that the price is $110 million. Let's discuss for 10 pages.

Here's some further substantiation. The actual picture should be on this forum somewhere.

Please, Log in or Register to view URLs content!

Unit costs basically fly into how many J-20s you expect. If the J-20 is $25 million (so China never has to buy the Su-57!), then you'd expect a thousand or more J-20s in the production batch. If the unit cost is $110 million, then 400-600 J-20s become reasonable as inventory (44-66 billion in J-20 units, not including spares and maintenance costs).

The information we have about production lines (4 x 12) suggest that mass production of the J-20 a la F-35 is unlikely.

The US will probably end up spending around 160 billion on the F-35 in procurement costs alone (2000 * 80 million).

 

[Gatekeeper]

The rumored production rate is about 48 / year. In fact, the main problem with J-20 production is that the mass production variant hasn't been finalized (or was only recently finalized), so it doesn't make sense to assume that there's 200 J-20s in the air. The J-20 only recently hit frontline duty, so we should assume that actually hitting mass production rates has either already begun or will start soon.

The rumored acquisition count is 400-600 units.

So we do have the numbers.

I'll also point out that the Soviets had (and I'll dig out the source) a comparative advantage in terms of production costs:

Please, Log in or Register to view URLs content!

Oh boy, where do I start!

Ok, first rumored production rate of 400 -600. Tgats a good start. Its important to know exactly is it 400 or ist 600? Because that's a difference of 200 units, or 50% of the 400 number. And assuming China operate the same accounting standards as the rest of the world (and there's no reason to doubt they don't as my own chartered accountancy body also operate in China). You are talking about a big difference for cost, particularly fixed costs to be absorbed! (i know I'm boring the pants off the lot of you, but Inst make me do it).

For now, we still haven't got a clue of this fixed cost are. The research and development cost is simply unknown, even to the insiders, (this cost must be huge) may I add. In addition, the development costs as we have witness have spread over the best part of the decade. I remember first flight around 2010, to now. Also, we got no ideal how much of these cost have been armorticed, and how much have been written off by the government!

To answer your second part regarding research paper from Hoover institute by Mr Harrison, who is a professor at Warwick uni. But with only a BA in econ. (same ad me).

Now I'm not professing I know more than him, but his suggestion of the Solviets have comparative advantage. Well guess what, I agreed. And In fact, this is what Manqing was saying, that the cost for the chinese units could be lower, because of this comparative advantages.

And what's more, as I stated in my previous post, as well as comparative advantage, China has the market size advantage which the Soviets NEVER had! Which is why Soviets cost per units is higher despite their comparative advantage. What Mr Harrison hasn't take into the account is Soviets government have underwritten all research and development cost, leaving only the marginal production cost to be covered by the selling price, therefore selling price can be substantially lower!

Sorry, guys for boring you all to death, but they don't call us boring accountants for nothing!

 

[Gatekeeper]

Here's some further substantiation. The actual picture should be on this forum somewhere.

Please, Log in or Register to view URLs content!

Unit costs basically fly into how many J-20s you expect. If the J-20 is $25 million (so China never has to buy the Su-57!), then you'd expect a thousand or more J-20s in the production batch. If the unit cost is $110 million, then 400-600 J-20s become reasonable as inventory (44-66 billion in J-20 units, not including spares and maintenance costs).

The information we have about production lines (4 x 12) suggest that mass production of the J-20 a la F-35 is unlikely.

The US will probably end up spending around 160 billion on the F-35 in procurement costs alone (2000 * 80 million).

Gee! Please stop it already!

I repeat, I'm a Chartered Accountant!! And you are arguing against someone who did this for a living!

Your simplification of dividing total cost into number of units, is.... how should I put it..... my first year students classic mistake!

As i said, the largest part of the aircraft cost is the ten years research and development cost, which needs to be accounted for!

We now saying your guesstimate is wrong, or we are saying is right. We are just saying there's noway of knowing, because we don't have all the info!

 

[AndrewS]

The rumored production rate is about 48 / year. In fact, the main problem with J-20 production is that the mass production variant hasn't been finalized (or was only recently finalized), so it doesn't make sense to assume that there's 200 J-20s in the air. The J-20 only recently hit frontline duty, so we should assume that actually hitting mass production rates has either already begun or will start soon.

The rumored acquisition count is 400-600 units.

So we do have the numbers.

I'll also point out that the Soviets had (and I'll dig out the source) a comparative advantage in terms of production costs:

Please, Log in or Register to view URLs content!

This is interesting.
Can you expand further on the rumoured production rate.

Also, if they are producing 48 per year, it means a production run of 400-600 units will be done within the next 12 years.
I would expect J-20 production to continue beyond that timeframe.

 

[Inst]

Gee! Please stop it already!

I repeat, I'm a Chartered Accountant!! And you are arguing against someone who did this for a living!

Your simplification of dividing total cost into number of units, is.... how should I put it..... my first year students classic mistake!

As i said, the largest part of the aircraft cost is the ten years research and development cost, which needs to be accounted for!

We now saying your guesstimate is wrong, or we are saying is right. We are just saying there's noway of knowing, because we don't have all the info!

Ummm, I think you know a lot about your subject but not about this specific subject. The PLAAF financed the R&D costs of the J-20, just like the USAF financed the R&D costs of the F-35. The figures being thrown around are flyaway costs, and flyaway costs matter. Say, if Xi Jinping all of a sudden decided "I want another 100 J-20s", he's not paying the R&D costs as part of the fixed costs of the J-20 in the flyaway cost, because the PLAAF already paid for it during the J-20's development program.

Now, surely you're thinking, the flyaway cost doesn't matter that much because the PLAAF is paying for program costs (capital goods for production line, R&D costs, pilot costs, maintenance costs). But in a military context, it does, because if a J-20 gets shot down by a F-35, the damage to the PLAAF's inventories does not include R&D costs, it's simply the cost needed to replace the J-20, and the R&D cost has already been paid for.

And FYI, you do have a valid complaint that I'm not using unit costs in a technical sense (unit costs include fixed and variable costs), but I'll also point out that in 2018, the J-20 R&D program cost reached 4.4 bn. My back-of-the-envelope calculation put the F-22's R&D program cost at 35 billion.

===

In other words, the mistake you're making is that you're assuming that defense procurement is like that of a conventional enterprise, where the cost of the R&D is borne by the vendor. In defense procurement, this cost is shared between the vendor and the customer. And in China, the vendors are all SOEs, so the government is basically selling stuff to itself, so we can treat the R&D as sunk costs.

 

[Brumby]

but I'll also point out that in 2018, the J-20 R&D program cost reached 4.4 bn. My back-of-the-envelope calculation put the F-22's R&D program cost at 35 billion.

The F-22 development cost was $67 Billion. I seriously question that the J-20 development cost is only $4.4 Billion.

I do question your attrition strategy argument on logic, technical considerations and that the underlying financials are so rubbery that your derived conclusion is correspondingly weak.

Btw, I also question your light weight vs heavy weight fighter reasoning but it is so OT that it warrants a separate thread for it.

 

[stannislas]

Ummm, I think you know a lot about your subject but not about this specific subject. The PLAAF financed the R&D costs of the J-20, just like the USAF financed the R&D costs of the F-35. The figures being thrown around are flyaway costs, and flyaway costs matter. Say, if Xi Jinping all of a sudden decided "I want another 100 J-20s", he's not paying the R&D costs as part of the fixed costs of the J-20 in the flyaway cost, because the PLAAF already paid for it during the J-20's development program.

Now, surely you're thinking, the flyaway cost doesn't matter that much because the PLAAF is paying for program costs (capital goods for production line, R&D costs, pilot costs, maintenance costs). But in a military context, it does, because if a J-20 gets shot down by a F-35, the damage to the PLAAF's inventories does not include R&D costs, it's simply the cost needed to replace the J-20, and the R&D cost has already been paid for.

And FYI, you do have a valid complaint that I'm not using unit costs in a technical sense (unit costs include fixed and variable costs), but I'll also point out that in 2018, the J-20 R&D program cost reached 4.4 bn. My back-of-the-envelope calculation put the F-22's R&D program cost at 35 billion.

===

In other words, the mistake you're making is that you're assuming that defense procurement is like that of a conventional enterprise, where the cost of the R&D is borne by the vendor. In defense procurement, this cost is shared between the vendor and the customer. And in China, the vendors are all SOEs, so the government is basically selling stuff to itself, so we can treat the R&D as sunk costs.

May I please know how you get the figure of j-20 RnD cost?

 

[latenlazy]

Oh boy, where do I start!

Ok, first rumored production rate of 400 -600. Tgats a good start. Its important to know exactly is it 400 or ist 600? Because that's a difference of 200 units, or 50% of the 400 number. And assuming China operate the same accounting standards as the rest of the world (and there's no reason to doubt they don't as my own chartered accountancy body also operate in China). You are talking about a big difference for cost, particularly fixed costs to be absorbed! (i know I'm boring the pants off the lot of you, but Inst make me do it).

For now, we still haven't got a clue of this fixed cost are. The research and development cost is simply unknown, even to the insiders, (this cost must be huge) may I add. In addition, the development costs as we have witness have spread over the best part of the decade. I remember first flight around 2010, to now. Also, we got no ideal how much of these cost have been armorticed, and how much have been written off by the government!

To answer your second part regarding research paper from Hoover institute by Mr Harrison, who is a professor at Warwick uni. But with only a BA in econ. (same ad me).

Now I'm not professing I know more than him, but his suggestion of the Solviets have comparative advantage. Well guess what, I agreed. And In fact, this is what Manqing was saying, that the cost for the chinese units could be lower, because of this comparative advantages.

And what's more, as I stated in my previous post, as well as comparative advantage, China has the market size advantage which the Soviets NEVER had! Which is why Soviets cost per units is higher despite their comparative advantage. What Mr Harrison hasn't take into the account is Soviets government have underwritten all research and development cost, leaving only the marginal production cost to be covered by the selling price, therefore selling price can be substantially lower!

Sorry, guys for boring you all to death, but they don't call us boring accountants for nothing!

Sharing a few thoughts here. First, a big portion of R&D for the J-20 is probably not treated as exclusive to the project but as general technology investment, spending, and development. It’s very clear that a lot of component technologies and systems are being leveraged for other projects. In this particular way the Chinese defense industry shares some similarity with the Soviet system. This makes it very tricky to determine what belongs in the program cost column and what is general asset acquisition costs for the firm or firms.

Of the deficiencies of the Soviet system in relation to reducing unit costs, in addition to all the other factors stated, a big one by far was that the Soviet system was persistently capital constrained, and that meant it didn’t even have the marginal capacity to procure the capital stock to develop scale production. The essential problem the Soviets had in their defense cost, as with pretty much most of their industrial production elsewhere, was a factor productivity problem that came from the way their system inhibited capital formation.

 

[stannislas]

The F-22 development cost was $67 Billion. I seriously question that the J-20 development cost is only $4.4 Billion.

I do question your attrition strategy argument on logic, technical considerations and that the underlying financials are so rubbery that your derived conclusion is correspondingly weak.

Btw, I also question your light weight vs heavy weight fighter reasoning but it is so OT that it warrants a separate thread for it.

I think the 4.4bn is the r&d cost...whereas the 67bn is the development cost, which include r&d, production and revenue?

 

[stannislas]

Sharing a few thoughts here. First, a big portion of R&D for the J-20 is probably not treated as exclusive to the project but as general technology investment, spending, and development. It’s very clear that a lot of component technologies and systems are being leveraged for other projects. In this particular way the Chinese defense industry shares some similarity with the Soviet system. This makes it very tricky to determine what belongs in the program cost column and what is general asset acquisition costs for the firm or firms.

Of the deficiencies of the Soviet system in relation to reducing unit costs, in addition to all the other factors stated, a big one by far was that the Soviet system was persistently capital constrained, and that meant it didn’t even have the marginal capacity to procure the capital stock to develop scale production. The essential problem the Soviets had in their defense cost, as with pretty much most of their industrial production elsewhere, was a factor productivity problem that came from the way their system inhibited capital formation.

You are not wrong, Chinese have a fixed 5% revenue margin for their military product based on their production cost, and the RnD cost are funded separately, whereas Lockheed or Boeing got an entire estimated figure of development including RnD, production, and revenue, thus when more unit got produced their RnD per unit is less and total development cost per batch is fixed.