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B-2 Bomber: Proposed Revision to Fiscal Year 1991 Budget Request

Published by the Government Accountability Office on 1990-09-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United   States   General   Accounting   Office

                            Briefing Report to the Chairman,
                            Committee on Armed Services,
                            House of Representatives


         September   1990
                            B-2 BOMBER
                            Proposed Revision to
                            Fiscal Year 1991
                            Budget Request




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      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division
      B-241182


      September        24,    1990

      The Honorable  Les Aspin
      Chairman,  Committee on Armed Services
      House of Representatives
       Dear Mr.       Chairman:
      As you requested,       this report   compares the procurement  plan
      and a revised    fiscal     year 1991 budget request   for the B-2
      aircraft   proposed by the Secretary        of the Air Force in July
      1990 with the procurement        program approved by the Congress
      through  fiscal    year 1990.
       BACKGROUND
       In 1986, the Depariment          of Defense (DOD) estimated           that it
       would cost about $58 billion             to procure     133 B-2 aircraft--6
       development      and 127 production         aircraft.     Since that time,
       schedule and funding         problems have resulted          in a series    of
       revisions    to the program quantity             and schedule,    as well as
       in increases      to the program cost estimate.              Through fiscal
       year 1990, 10 production           aircraft      have been both authorized
       and funded.       The fiscal     year 1991 Defense budget submitted
       in early 1990 requested          authorization        and funding   for an
       additional     five B-2 aircraft.
       A significant          change to the procurement             schedule was
       proposed in April           1990 by the Secretary            of Defense.      In
       announcing        the results      of a Major Aircraft           Review, the
       Secretary       proposed reducing          the B-2 aircraft        production
       quantity      from 127 to 70 and the request                 for procurement
       authorization          in fiscal     year 1991 from 5 to 2 aircraft.             The
       then-revised         estimate     of the total         program cost for the 6
       development        and 70 production          aircraft      was $61.1 billion,
       including       military      construction       costs.
       According     to Air Force officials,          the costs associated      with
       the Secretary       of Defense's     changes to the program and with
       prior    changes to the procurement           schedule were not fully
       reflected     in the $61.1 billion        estimate.       The cumulative
       impact of schedule changes increased               the estimated    cost of
       the 10 production        aircraft    authorized      and funded by Congress
       prior    to fiscal    year 1990 by $1.4 billion          more than was
       appropriated       for them.      The Secretary      of the Air Force,    in a
B-241182


appropriated    for these two aircraft         in prior   years will     be
used to pay for cost increases          on the other eight aircraft
in process.    The plan's     characterization       of the two B-2s in
the fiscal   year 1991 budget request          as new aircraft      is,
therefore,   a misnomer.      Funding appropriated        in fiscal     year
1991 could be approved directly           to cover the increased        costs
of the 10 aircraft     authorized     and funded in fiscal        years
1990 and before.
THE REVISED BUDGET REQUEST
The Air Force's    revised    request  includes    funding    for
development,   procurement,      and construction.       The planned
uses of the requested      funds are shown in table        1.
Table     1:      Planned     Use of Requested         Fiscal     Year 1991 Funding
Dollars         in millions
Appropriation                                                            Request
Development                                                             $1,751.0
Procurement
   Two aircraft                                                          1,989.oa
  Advance Procurement                                                       767.0
     Preservation  of fixed-price                   options     558.0
     Long lead for six aircraft                                 209.0
Construction                                                                141.0
        Total                                                           $4,648.0
aIncludes          credits    for   fiscal   year     1990 advance       procurement
funding.
Development      funds are requested       to continue      the development,
testing,     and acquisition      of the six development         aircraft,
including     increases     in the cost of the aircraft          resulting   in
part from program restructuring.              In addition      to the funds
needed to pay for aircraft          currently    in process,       $414
million    in procurement      funds are requested        for support
equipment.
About $767 million    is requested     for advance procurement,
which is used to begin purchasing         aircraft   parts to ensure
that the aircraft,    once authorized       (usually  in the next
fiscal  year),   can be delivered    in   accordance    with the
program schedule.

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Force; the Director,      Office   of Management   and Budget;    and
other interested    parties.
Please contact   me on (202) 275-4268 if you or your         staff
have any questions    concerning    this report.    Major
contributors   to this report    are listed    in appendix   I.
Sincerely   yours,



LI!+z!c&y
Director
Air Force    Issues




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APPENDIX I                                                                  APPENDIX I


                            MAJOR CONTRIBUTORS TO THIS REPORT
National    Security          and International       Affairs   Division,
Washington,    D.C.
Norman J.         Rabkin,     Associate    Director
Cincinnati         Regional     Office
Robert       D. Murphy, Assistant       Director
Robert       P. Kissel,     Jr.,  Issue Area Manager
Robert       Repasky, Evaluator-in-Charge
Marvin       Bonner,    Evaluator




 (392583)
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The Air Force requests         $209.0 million       for advance
procurement      funding  in fiscal    year 1991 for six aircraft
that are scheduled       for procurement       in fiscal    year 1992.     For
fiscal    year 1990, Congress approved the funding              needed for
advance procurement        of five B-2 aircraft.         Air Force
officials     said there was a credit        of fiscal    year 1990
advance procurement        funding   against     the procurement     request
for fiscal     year 1991.
The request       also includes      $558 million       to order subsystems
and parts for aircraft          that are scheduled          for procurement
after   fiscal     year 1992.       Northrop    Corporation,        the B-2's
prime contractor,         has negotiated      fixed-price        options     in
certain     subcontracts      based on the original           delivery
schedule.        To preserve     the favorable      prices     in these
subcontracts,        Northrop must purchase certain              items in
minimum quantities,          even though the parts are scheduled                 for
use on aircraft        not yet authorized.          The Air Force has
requested      funding    for this purpose in the past.                For
example,     some parts have been acquired              for aircraft       that,
under the revised         Air Force plan, will          not be requested
until   fiscal     year 1993.       We did not evaluate          the potential
savings that could result            from exercising        the options.
SCOPE AND METHODOLOGY

We reviewed program data and records              and interviewed
officials    at the B-2 System Program Office             at Wright-
Patterson    Air Force Base, Ohio; the Northrop             B-2 Division,
Pica Rivera,     California;      the Office     of the Secretary      of
Defense, and Air Force Headquarters,              Washington,    D.C.     We
reviewed   the methodology        for estimating      costs and identified
the sources of major cost increases.               We did not validate
the Air Force's       assumptions     or the data.      We performed      our
review in August and September 1990 in accordance                 with
generally    accepted government        auditing    standards.


Because of time constraints,     we did not obtain    written
comments from the Department     of Defense.    However, we
discussed  a draft  of this report    with Department    of Defense
officials  and incorporated   their   comments where appropriate.
We are sending copies of this letter     to the Chairman,     Senate
Committee on Armed Services;    the Chairmen,   Subcommittees    on
Defense, of the House and Senate Committees      on
Appropriations; the Secretaries     of Defense and the Air
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July 1990 revised       budget request,          stated     that these
aircraft,   which are currently            in the process of being built,
would have to absorb a larger              portion     of overhead and fixed
costs than previously         intended.         The Secretary       attributed
these cost increases        to "repeated         reductions       in the numbers
of aircraft    funded in each year subsequent                  to FY 87/88."
The costs will      increase     because fewer aircraft             Will be in
production   while current        aircraft       are completed.           The Air
Force revised     the estimated        total     program cost, including
the $1.4 billion       and other adjustments,             to $62.8 billion.
The Air Force considered         various     methods of providing
additional   funds in fiscal        year 1990 and previous        fiscal
years to cover the $1.4 billion            in additional     costs.      These
methods included     use of expired       appropriations,      reprogrammed
unobligated    balances     from prior     fiscal   years,   and
supplemental    appropriations.         According     to the Secretary      of
the Air Force, however, the Congress was not in favor of
using any of these methods.            Accordingly,      the Secretary
decided to further      restructure      the B-2 program to provide
the needed funds.
In his July 1990 revision               to the B-2 budget request,         the
Secretary      informed      the four congressional          defense committees
that the Air Force had developed                  a plan that provided       for
production       of 8 aircraft        rather    than the 10 authorized        and
funded by the Congress through                fiscal    year 1990.     This plan,
the Secretary        stated,      "would involve       moving two aircraft       to
FY97, one from FY88, which is already                   on contract    and
definitized,        and one from FY89 for which long lead
procurement       has been released.            This would allow us to use
these appropriations            to cover the estimated          unfunded
requirement        in FY90 and prior         at the time it becomes a true
liability      in the fiscal        year it must be recognized."             The
plan then requests           authorization        and funding    for two
aircraft     in 1991.
OBSERVATIONS
The Air Force plan appears to be needlessly                   complicated.
Although      the plan states        that two aircraft      would be "moved"
from prior       years to 1997, those aircraft            have already      been
funded and are being built.               The 10 aircraft      in process
will   be the first        10 production     aircraft.       In effect,     the
plan artificially         eliminates      two aircraft     authorized      and
funded in prior         years and requests        them again for
authorization        in fiscal     year 1991 so that 1991
appropriations         can be used to pay for them.            Funding
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