oversight

Navy A-12: Cost and Requirements

Published by the Government Accountability Office on 1990-12-31.

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

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                                                                           Cost and Requirements




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

             National Security and
             International Affairs Division

             B-240524

             December 31,199O

             The Honorable Les Aspin
             Chairman, Committee on Armed Services
             House of Representatives

             Dear Mr. Chairman:

             As you requested, we reviewed the Navy’s (1) projected requirements
             and (2) cost estimates for the A-l 2 program. Our objectives did not
             include and we did not examine recent events that have overtaken the
             A-l 2 program. We do not know the ultimate impact these events will
             have on requirements or costs.


             The Navy’s A- 12 medium attack aircraft is being developed to replace
Background   its A-6E aircraft. The first version of the A-6, the A-6A, was introduced
             into the fleet in 1963 as the Navy’s only day/night, all-weather, medium
             attack aircraft. The A-6 is also used to refuel other carrier-based air-
             craft. The latest version of the A-6, the A-6E, was introduced into the
             fleet in 1972. However, in the early 1980s wing cracks caused many of
             the A-6Es to be restricted to less demanding flight maneuvers or to be
             removed from flight status until appropriate repairs could be made. In
             fiscal year 1988, the Navy awarded a contract for the last A-6E produc-
             tion lot of eight aircraft to be delivered in 1991. The Navy has no plans
             to buy additional A-6Es. This issue was addressed in our recent classi-
             fied report on the A-6E.

             In 1988, the Navy awarded General Dynamics and McDonnell Douglas
             Aerospace Corporations a $4.8 billion fixed-price incentive contract for
             full-scale development of the A-12. The Navy expects that the A-l 2 will
             be significantly more capable and survivable against increasingly
             sophisticated integrated air defense systems being deployed by the
             Soviets and third world countries. Figures 1 and 2 show the A-l 2 and
             A-6E, respectively.




             Page 1                                     GAO/NSIAD-91-98   Navy’s A-12 Avenger
                   B-240524




Figure
 1:
 The
  A-12
   Avenger

                                                        -,.,   _’




  :   ,*/ ’   I




                  Source, Navy




                  Page 2         GAO/NSLAD-91-98   Navy’s A-12 Avenger
       B-240524




Figure
 2:
 The
  A-6E
    Intruder




       Source, Navy


       In December 1989, the Secretary of Defense directed a Major Aircraft
       Review of four aircraft programs, including the A-12. During his
       April 26, 1990, testimony on the Major Aircraft Review, the Secretary of
       Defense proejected that first flight of the A-12 would take place by early
       199 1 and t,hat the full-scale development program would be completed
       within the current fixed-price incentive contract ceiling. On *June 1,
       1990, the contractor team advised the Navy that a significant slip
       occurred in the schedule for the first flight, the full-scale development
       effort would overrun the contract ceiling by an amount that the con-
       tractor team could not absorb, and certain performance specifications of
       the contract could not be met. On *July 9, 1990, the Secretary of the




       Page 3                                     GAO/NSIAD-91-98   Navy’s A-12 Avenger
                   B-240524




                   Navy ordered an inquiry to determine the facts and circumstances sur-
                   rounding the variance between the current status of the A-12 program
                   and representations made to the Office of the Secretary of Defense on
                   behalf of the Navy regarding the program during the course of the Major
                   Aircraft Review.

                   The investigation determined that the Navy and the Office of the Secre-
                   tary of Defense had information that should have been considered
                   during the Major Aircraft Review but was not. The investigation con-
                   cluded that the Navy and the Office of the Secretary of Defense were
                   negligent. This resulted in the removal of three high-level Navy officers
                   involved with the A-12 program. Shortly thereafter, the Under Secre-
                   tary of Defense for Acquisition resigned, and the Secretary of Defense
                   gave the Navy until January 4, 1991, to show why the A-l 2 program
                   should not be canceled.

                   Since the contractor team announced the significant slip in the A-12’s
                   development schedule, the first flight, originally planned for June 1990,
                   has been delayed at least 2 years. The estimated cost of each A-12 has
                   grown from approximately $87 million in December 1989 to more than
                   $100 million. Program requirements have dropped from 858 to’620
                   aircraft.

                   The Navy’s projected requirements and cost estimates for the A-12 air-
Results in Brief   craft changed considerably from December 1989 to April 1990. These
                   changes were based on decisions to lower the number of Navy aircraft
                   carriers, which reduced A-12 requirements and total cost but increased
                   the projected unit cost. Other factors point to possible further reduc-
                   tions in A-12 requirements, Also, some cost estimates have not been                .
                   included in the cost projections, and others have changed.

                   In December 1989, the Navy reported a need for 858 A-l 2 aircraft to
                   support 15 aircraft carriers with 15 carrier air wings. In April 1990, the
                   Secretary of Defense testified that due to budget constraints the number
                   of aircraft carriers would be reduced from 15 to no more than 14 and
                   that requirements for the A-12 would be reduced to 620 aircraft. The
                   Secretary also indicated that future budget constraints may bring about
                   additional reductions in the number of aircraft carriers. Given the rela-
                   tionship between the number of aircraft carriers and the number of air-
                   craft, this should further reduce A-12 requirements.

                   The increased capability, survivability, reliability, and maintainability
                   of the A-l 2 over the A-GE may allow the Navy to accomplish the current


                   Page 4                                     GAO/NSIAD-91-98   Navy’s A-12 Avenger
                     E-249624




                     medium attack mission with fewer aircraft. Navy plans to use another
                     aircraft, the S-3, for refueling could be limited because of a shortage of
                     S-3s. However, shifting of any of the refueling mission from the medium
                     attack community may reduce overall A-l 2 requirements.

                     The Navy’s A-l 2 total program cost estimates do not include operation
                     and support costs or the cost of developing and incorporating certain
                     improvements to enhance the performance of most A-l 2 aircraft. In
                     addition, changes to a number of cost projection variables have
                     occurred. First, cost projections, which are based on guaranteed produc-
                     tion lot prices, may be voided and renegotiated in a noncompetitive envi-
                     ronment if certain funding levels are not obtained. Second, a decision to
                     delay the Air Force’s participation in the A-12 program is expected to
                     place an additional cost burden of about $2.4 billion on the Navy. Third,
                     changes in the inflation indexes used to project program cost have
                     resulted in a program cost increase, and the indexes will likely change
                     again during the program’s life. Finally, increases in the A-12’s weight
                     and other developmental difficulties have increased costs and delayed
                     first flight and initial deployment by more than a year.


                     In December 1989, the Navy planned to buy 858 A-12s to support 15
A-1 2 Requirements   aircraft carriers, with 15 carrier air wings, each with 20 A-12s. This
Fluctuate            total includes aircraft for maintenance, training, and attrition. The buy
                     of 858 A-12s was projected to have a total cost of $74.3 billion and a
                     program acquisition unit cost of $86.6 million. However, due to budget
                     constraints, the Secretary of Defense initiated the Major Aircraft
                     Review of four systems planned for procurement, including the A-12. On
                     the basis of this study, the Secretary testified on April 26, 1990, that it
                     would be necessary to reduce the number of aircraft carriers to no more
                     than 14 through the rest of the century and A-12 requirements to 620.
                     According to Navy officials, 620 A-12s would support 12 active and 1
                     reserve carrier air wings. The Secretary estimated that if only 620 A-12s
                     are procured, total costs will be reduced to about $57 billion. (In the
                     next section, we discuss issues that will contribute to raising projected
                     A-12 program acquisition unit cost to over $100 million.) As of August
                     1990, the Navy had not received official guidance from the Secretary of
                     Defense to change A-l 2 procurement plans. However, according to A- 12
                     program office officials, a preliminary fiscal year 1992 budget based on
                     620 A-12s has been developed.

                     The Secretary also testified that “it may be necessary to scale back fur-
                     ther our active aircraft carrier force structure in order to accommodate


                     Page 6                                      GAO/NSIAD-91-98   Navy’s A-12 Avenger
                       B.240624




                       DOD'S [Department of Defense] declining future budgets.” If the Navy
                       reduces the number of its aircraft carriers to 12, we calculate that only
                       573 A-12s would be needed. Besides fewer aircraft carriers, other fac-
                       tors that affect requirements that should be considered are as follows.

                       On the basis of a 1984 carrier air wing composition study, the Navy
                       plans to replace all current air wing configurations with the Roosevelt
                       air wing, which calls for an increase in the number of A-6E aircraft from
                       the 10 currently assigned to most aircraft carriers to 20. Accordingly,
                       Navy plans call for 20 A-l& in each air wing to replace the A-6&. How-
                       ever, the A-12 is planned to be significantly more capable and surviv-
                       able than the A-6& and it is expected to have double the reliability of
                       the A-6E, while needing only half the maintenance staff-hours. Conse-
                       quently, fewer A- 12s may be required to perform the missions the A-6&
                       now accomplish.

                       Some aircraft in medium attack squadrons (KA-6Ds or A-6Es) perform
                       refueling operations. On certain aircraft carriers, the S-3 aircraft pcr-
                       forms part of that operation. The Navy told us during our review that it
                       planned to accomplish refueling operations with the S-3 aircraft begin-
                       ning in fiscal year 1994. The Navy now states that a shortage of S-3
                       aircraft will not allow it to shift all refueling to the S-3. The Navy con-
                       tinues to have refueling as an attack aircraft mission. Therefore,
                       shifting of any of the refueling mission from medium attack may result
                       in an overall reduction in A-12 requirements.

                       The Navy calculated its requirements for 858 A-l 2s based on using the
                       aircraft for 30 years. According to Navy officials, it is likely the aircraft
                       will be kept in service for 30 years, considering the history of the A-6
                       and the foreseeable budget constraints, However, the A-12 will be engi-
                       neered to last only 20 years. Based on Navy figures, total requirements
                       would be reduced by approximately 25 percent if the A-12 is kept in
                       service for 20 years rather than 30 years because fewer replacement
                       aircraft would be included in the program’s requirements.


                       In addition to Navy requirements, there are a number of other changing
A-12 Costs Not Fully   variables, some of which are not included in cost projections, that affect
Defined                A-l 2 costs. Two contractor teams submitted bids on the program.
                       According to Navy officials, provisions in the contract require that cer-
           u
                       tain minimum funding levels be maintained to preserve the pricing guar-
                       antees of certain production lots. IIowever, recent technical difficulties



                       Page 6                                        GAO/NSIAD-91-98   Navy’s A-12 Avenger
B-240524




have slowed A-12 development and may impact the ability of the pro-
gram to obtain the minimum funding needed to ensure that contract pro-
visions beneficial to the U.S. government are maintained. Navy program
officials state that insufficient funding will void the production lot price
guarantees in the contract and allow the contractors to renegotiate costs
and specifications in a noncompetitive environment. They believe this
will result in a significant increase in the cost of the A-12 program.

Navy A-12 cost projections assume that the Air Force will procure a ver-
sion of the A-12-the Advanced Tactical Aircraft (ATA)-beginning in
fiscal year 1993 and will share in nonrecurring costs related to A-12
production. The total buy for the Air Force is projected to be 400 air-
craft. According to the Navy, the Air Force agreed to a 50/50 split of
nonrecurring costs, such as tooling, for those years in which the Air
Force participates. However, the Secretary of Defense testified that (1)
because of a change in the threat and possible delays in the deployment
of Soviet air defense systems and (2) because the F-15Es and F-l 1 Is,
which the ATA will replace, will not reach the end of their service lives
until after the turn of the century, the Air Force would not begin buying
the ATA until fiscal year 1998 or later. The Navy estimates that its costs
will increase by about $2.4 billion with delayed Air Force participation
because these nonrecurring costs, which are highest early in the pro-
gram, will now be funded by the Navy alone.

The Navy originally planned to procure 48 A-12 aircraft annually. The
Secretary of Defense, in his 1990 testimony, proposed reducing the
yearly production rate to 36 A-12s. Navy A-l 2 cost estimates assumed
there would be competition between the two prime contractors as a
means of controlling cost. The Navy believes that an A-12 production
level of 36 aircraft per year may allow it to compete the work load
between the two contractors, but total A-12 program costs will increase
by about $1 billion, However, these officials state that further reduc-
tions in annual production levels will not allow them to compete the
A-12 work load. According to Navy officials, the contractors have
expressed an interest in not competing the A-12 between them. If this
occurs, current A-12 cost estimates will have to be revised further.

DODinflation indexes, which attempt to predict the level of inflation in
future years, are applied to current program costs to calculate A-12
costs. An increase in projected inflation rates between fiscal years 1988




Page 7                                       GAO/NSlAD-9188   Navy’s A-12 Avenger
                 E249524




                 and 1989 resulted in an $11.5 million increase in A-12 program acquisi-
                 tion unit cost.1 If A-12s are in production for many years as currently
                 planned, further changes in the inflation indexes may occur, which
                 could affect the cost of the A- 12.

                 According to Navy officials, problems in maintaining the planned weight
                 of the A-12 and in manufa.cturing the A-12 have resulted in program
                 delays and cost increases. According to Navy estimates, weight growth
                 increased program acquisition unit costs by $8 million from fiscal years
                 1988 to 1989. Attempts to control weight growth and other production
                 difficulties have delayed the first flight and fleet introduction of the
                 A-12 by more than a year. Navy officials are concerned that the A-12’s
                 weight will increase further and that other manufacturing problems
                 may cause additional program delays. If these problems continue, the
                 assumptions used to project initial production costs will change, making
                 future production cost estimates invalid.

                 Total program acquisition cost estimates are important to deci-
                 sionmakers who must make budget and program decisions. Yet, A-12
                 program estimates do not include total operation and support or
                 preplanned product improvement costs. The Navy has not finalized an
                 estimate for operation and support costs for 620 aircraft, but for a total
                 program buy of 858 aircraft it projected operation and support costs of
                 $28.7 billion in fiscal year 1990 dollars. Further, all cost estimates to
                 date are for the baseline A-12. The Navy has identified, partially esti-
                 mated, but not reported as part of A-12 costs the amount needed to
                 develop, incorporate, and support preplanned product improvements to
                 enhance performance in the A-12 fleet. The costs of these upgrades,
                 which are expected to be significant, will add to the total cost of the
                 program.


                 We recommend that the Secretary of Defense update A- 12 program
Recommendation   requirements and cost estimates and periodically provide the Congress
                 with the latest information needed to make decisions on A- 12 procure-
                 ment/In updating A-12 requirements and cost information, the Secre-
                 tary should consider the possibility of further reductions in the number
                 of aircraft carriers from the 14 currently in the fleet to 12 or fewer.‘fiHe
                 should also consider the possibility of using fewer than 20 A-l 2s in each

                 ‘This cost equals the total estimated cost for research, development, test, and evaluation; procure-
                 ment; acquisition-related operations and maintenance; and system-specific military construction for
                 the acquisition program, divided by the program acquisition quantity.



                 Page 8                                                      GAO/NSIAD-91-98     Navy’s A-12 Avenger
    - _.__...-. -.-... I,
                                B-240524




                                air wing, given the A-12’s increased capability, survivability, maintain-
                                ability, and reliability over the A-G& and the transfer of a portion of
                                the refueling mission to the S-3 or other aircraft.

                                In reporting A- 12 costs, the Secretary should include all expenditures
                                associated with the procurement and ownership of the aircraft,
                                including

                            l total A- 12 operation and support costs and
                            . the development, and introduction of preplanned product improvements
                              to the A-l 2 fleet.

                                Further, in calculating and reporting A-l 2 costs, the Secretary should
                                recognize the potential cost impact of

                            . losing the competitively obtained prices for the A- 12 aircraft,
                            l delaying the procurement of the Air Force version,
                            . lowering the A-12 production rate from 48 to 36 aircraft per year and
                              possibly losing the ability to compete production, and
                            l delaying t/he A-l 2’s first flight and fleet introduction schedules.


                                The focus of this report and the intent of its recommendations is that
Agency Comments and             the Navy should provide the Congress with the latest information to
Our Evaluation                  make informed *judgments on the A-12 program. DOD’Sresponse that it
                                either partially concurs or does not concur with most of the report cen-
                                ters on the availability of current program data in the Selected Acquisi-
                                tion Reports that ~)ODsubmits to the Congress. Since 1969, Selected
                                Acquisition Reports have been the primary means by which IWD informs
                                the Congress of the status of major weapon system acquisitions.

                                I)(X) said that its .June 1990 Selected Acquisition Report incorporated all
                                cost impacts that were quantifiable at the time. However, the *June 1990
                                Selected Acquisition Report was not transmitted to the Congress until
                                October 29, 1990. The IIouse and the Senate had already passed the
                                Defense Appropriation bill on October 25 and 26, respectively, and
                                ad.journed on October 28, 1990. Thus, the latest detailed information
                                included in the Selected Acquisition Report was not available to the Con-
                                gress before it finished debates on the defense budget.

                                The previous Selected Acquisition Report, dated December 1989, which
                                was the most current report available at the time of congressional delib-
                                erations, was transmit,ted to the Congress on April 25, 1990. It showed


                                Page 9                                      GAO/NSIAD91-98 Navy’s A-12 Avenger
B240524




an inventory requirement of 858 aircraft and included detailed program
data based on that number. This was 1 day before the Secretary of
Defense testified that A-12 requirements were reduced to 620 as a result
of the Major Aircraft Review.

The December 1989 Selected Acquisition Report also showed that the
A-12’s first flight was scheduled for June 1990. At about that same
time, it was unofficially reported that the first flight was slipping to
December 1990. However, shortly after the Secretary of Defense’s testi-
mony the first flight was slipped further to June 1992. As these exam-
ples show, the official program reporting to the Congress has not been
timely, and the data available have not accurately reflected the condi-
tion of the program. A subsequent DOD investigation determined that the
Navy and the Office of the Secretary of Defense had information that
should have been considered during the Major Aircraft Review but was
not. The investigation concluded that the Navy and the Office of the
Secretary of Defense were negligent. This resulted in the removal of
three high-level Navy officers involved with the A-12 program. Shortly
afterward, the Under Secretary of Defense for Acquisition resigned.

We reported that the Secretary of Defense reduced A-12 requirements to
620 aircraft after the Major Aircraft Review and that this requirement
was based on supporting 14 aircraft carriers. DOD'S response indicated
that the Secretary’s decreased requirement was based on support for 12
carriers. We believe the Secretary meant 14 carriers and Navy officials,
with whom we discussed this point at the time, agreed that the Secre-
tary referred to 14 carriers. In fact, DOD'S response seems to agree with
this point when it states that the inventory requirement of 620 A-l 2s is
based on 12 deployable carriers, 1 carrier in overhaul, and 1 training
carrier. Our point is that if the number of carriers is reduced below 14,
there could be further reductions in A-l 2 requirements.

The Navy believes that the A-12 will be more survivable, reliable, main-
tainable, and less vulnerable than the A-6E it will replace. On the basis
of the Navy’s assessment, we concluded that the Navy might not need to
replace A-6Es on a one-for-one basis with A-12s. DOD did not agree with
our rationale, but it did state that reduced requirements were being con-
sidered based on other factors. We continue to believe the above-men-
tioned factors should also be considered in setting A-12 requirements.
DOD'S comments appear in appendix II.




Page 10                                    GAO/NSIAD-91-98 Navy’s A-12 Avenger
B-240624




Our objectives, scope, and methodology are described in appendix I. We
plan no further distribution of this report until 7 days from its issue
date. At that time, we will send copies to the Chairmen, Senate Com-
mittee on Armed Services and Senate and House Committees on Appro-
priations; the Secretaries of Defense, the Air Force, and the Navy; and
the Director, Office of Management and Budget.

Please contact me at (202) 275-6504 if you or your staff have any ques-
tions concerning this report. Major contributors to this report are listed
in appendix III.

Sincerely yours,




Martin M Ferber
Director, Navy Issues




Page 11                                    GAO/NSIAD-91-98   Navy’s A-12 Avenger
  Appendix I

ii Objectives, Scope, and Methodology


                     Our objectives were to examine the Navy’s (1) projected requirements
                     and (2) cost estimates for the A-12 aircraft. In performing this review,
                     we examined documents and interviewed officials at the following
                     locations:

                 l A-12 Project Office, Washington, D.C., to obtain data on A-12 cost,
                   requirements, schedule, and performance;
                 . Office of the Under Secretary of Defense for Acquisition, Washington,
                   D.C., to obtain data on the conduct and results of the Major Aircraft
                   Review;
                 . Office of the Chief of Naval Operations, Washington, D.C., to examine
                   A- 12 requirements;
                 l Naval Strike Warfare Center, Fallon, Nevada, to obtain information on
                   the need for and required operating characteristics of the A-12 from the
                   perspective of fleet operators; and
                 l General Dynamics Corporation, Fort Worth, Texas, and McDonnell
                   Douglas Aerospace Corporation, St. Louis, Missouri, to collect data on
                   the cost and progress of their contractual A-12 development efforts

                     Our review was performed between August 1989 and July 1990 in
                     accordance with generally accepted government auditing standards.




                     Page 12                                     GAO/NSIAD-91-9s   Navy’s A-12 Avenger
Appendix II

Comments From the Department of Defense



                                 DIRECTOR   OF    DEFENSE      RESEARCH         AND    ENGINEERING

                                                 WASHINGTON,      DC      20301-3010




                                                                                        December     4,   1990


                  Mr. Frank C. Conahan
                  Assistant      Comptroller   General
                  National Security        and International
                         Affairs    Division
                  U.S. General Accounting Office
                  Washington, D.C. 20548
                  Dear Mr. Conahan;
                         This is the Department of Defense (DOD) response to the
                  General Accounting Office         (GAO) Draft Report, "NAVY A-12:    cost
                  and Requirements",       dated October 15, 1990 (GAO Code 394325/0SD
                  Case 8506).       The report serves to apprise Congress of the factors
                  affecting     inventory   requirements   and costs of the Navy
                  A-12 aircraft      based on the timeframe of the GAO analysis.       The
                  Department has reviewed the findings          and recommendations attached
                  and partially      concurs or nonconcurs with most of the report,      but
                  recognizes that the A-12 program has gone through a number of
                  recent changes and that the June 30, 1990 Selected Acquisition
                  Report was not available        to the GAO until   after its report had
                  been prepared.
                          The A-12 inventory       requirement,     as stated in the December
                  31, 1989 Selected Acquisition            Report, was for 858 A-12s to fill
                  14 active and 2 reserve Navy Roosevelt Air Wings (20 A-12s each)
                  and 5 Marine Squadrons (10 A-12s each) for 30 years.                  The
                  Secretary testified         during the Major Aircraft        Review that about
                  620 A-128 would be required for 12 carriers               with no Marine Corps
                  requirement,     but no specific        schedule for reducing to 12 carriers
                  was provided and the Secretary left open the option to revisit
                  carrier    force structure.        The draft GAO report incorrectly
                  implies that the 620 A-128 refer to 14 carriers                and that further
                  reductions     in the numbers of A-12s are possible,            as carriers   are
                  further    reduced below 14. Additionally,            the GAO report makes no
                  mention    of the relationship        between the total number of carriers,
                  "deployable"     carriers,      and assigned air wings.        The Navy long
                  range planning to conform to the Secretary's               April 26, 1990
                  Congressional     testimony is to reduce the force structure              to
                  12 deployable     carriers:      one carrier    in comprehensive overhaul,
                  refueling     or Service Life Extension Program; and the training
                  carrier.
                         The report also suggests that further  reductions in A-12$
                  may be appropriate    because the A-12 is more capable, survivable,
                  reliable,   and maintainable  than the A-6.  While it is true the
              Y




                   Page 13                                                             GAO/NSIAD-91-98Navy'sA-12Avenger
      Appendix II
      Comments From the Department   of Defense




A-12 is a significant       improvement over the A-6, there are a
number of other factors that must be considered in determining
the number of each type of aircraft           assigned to an air wing.
Those factors      include changes in threat,       aircraft   missions,
warfighting    requirements,     and air wing composition.         The
requirement    for effective     and affordable     use of the carrier     deck
space in order to optimize the fighting            potential   of the carrier
battle    group is the only constant.        As directed     by the Defense
Planning Resources Board, the Navy is conducting a study to
determine the most cost effective          carrier   air wing composition.
The results    will be incorporated      into the rebaselining       of the
A-12 program at the Defense Acquisition            Board program review.
        The report appears to imply that the Navy has not recognized
or reported all A-12 program costs or cost growth.          The GAO
report reflects      A-12 cost growth due to the Major Aircraft     Review
decisions    in the spring and summer timeframe.      The June 1990
A-12 Selected Acquisition      Report incorporates   cost impacts
identified     within the GAO report that were quantifiable     at the
time the Selected Acquisition       Report was prepared.
      Detailed comments on the GAO findings              and recommendations
are enclosed.   The Department appreciates             the opportunity   to
review the report in draft form.
                                        Sincerely,


                                          ti/hbfQ
                                        Charles      M. Herzfel



Enclosure




      Page 14                                               GAO/NSIAD-91-98   Navy’s A-12 Avenger
                 Appendix11
                 (Comments From the Department      of Defense




                                 GAO DRAFT REPORT - DATED OCTOBER 15, 1990
                                      (QAO CODE 394325) OSD CASE 8506

                                    "NAVY      A-12:   COST AND REQUIREMENTB"

                                       Department           of       Defense     Comments
                                                        *        +   .   l   l


                                                            FINDINQS

             o   FINDING    a:   Btatus     of A-6 Aircraft.       The GAO reported that the
                 A-6A first    was introduced       into the fleet in 1963 as the Navy's
                 only  day/night,       all weather, medium attack aircraft,         and the
                 latest version,        the A-6E, was introduced        in to the fleet in 1972.
                 The GAO noted that the A-6 is also used to refuel other carrier
                 based aircraft.          The GAO found, however, that in the early 198Os,
                 wing cracks caused many of the A-6Es to be restricted                to less
                 demanding flight         maneuvers or to be removed from flight        status
                 until   appropriate       repairs could be made. The GAO reported that,
                 in FY 1988, the Navy awarded a contract              for the last A-6E
                 production    lot of eight aircraft          to be delivered    in 1991--and the
                 Navy has no plans to buy additional             A-6Es.    The GAO observed that
                 the A-12 will replace the A-6.              The GAO noted that awarding the
                 A-12 contract,       while also continuing        to procure A-6Es, was due in
Now on p 1       part to the uncertainty          of fielding    the A-12. (pp. l-2/GAO Draft
                 Report)
                 POD REBPONBE:     Partially        Concur.

                 -- With respect to the flight        status    of the A-6E, once an A-6E
                    uses 67 percent of its wing life and is restricted                 to a
                    maximum of 3 Gs, it remains restricted            (i.e.,    not combat-
                    capable) until        retired or until   the aircraft     is re-winged.
                    Also, the Navy may need to procure additional               A-6 composite
                    wings    in order to solve its critical        near-term      inventory
                    shortfall,     particularly    if the A-12 Initial       Operational
                    Capability     slips.
                 -- The Navy continued to procure A-6 aircraft    after A-12 contract
                    award because the Medium Attack inventory    was still   well below
                    requirement,  not because of any uncertainty   in fielding    the
                    A-12.
             0   FINDXNQ   4: A-12.                                  The GAO reported that,
                 in December 1989, the Navy reported a need for 858 A-12 aircraft
                 to support 15 aircraft     carriers     with 15 carrier   air wings.   The
                 GAO observed, however, that due to budget constraints,             the
                 Secretary    of Defense initiated     a major aircraft    review of four
                 systems   planned for procurement,        including  the A-12.   The GAO
                 noted that, in April    1990, the Secretary of Defense testified
                 that the number of aircraft       carriers     would be reduced from 15 to
                 14 and that requirements       for the A-12 would be reduced to

                                                                                                       Enclosure




                 Page15                                                            GAO/NSIAD-Sl-98Navy'sA-12Avenger
                         Appendix II
                         Comments From the Department   of Defense




                620 aircraft.       The GAO also noted that, according to Navy
                officials,     the 620 A-12 aircraft    would support 12 active and one
                reserve carrier      air wings.   The GAO found, however, that as of
                August    1990, the Navy had not received official          guidance from the
                Secretary of Defense to change A-12 procurement plans.               The GAO
                further    noted that the Secretary of Defense had also indicated
                that future budget constraints       might bring about additional
                reductions     in the number of aircraft     carriers.      The GAO
                calculated     that, if the Navy reduced the number of its aircraft
                carriers    to just 12, only 573 A-12 aircraft         would be needed.
                The GAO speculated that the increased capability,            survivability,
                reliability,   and maintainability      of the A-12 aircraft       over the
                A-6E may allow the Navy to accomplish the current medium attack
                mission with fewer aircraft.        The GAO also found that, beginning
                in FY 1994, current Navy plans are for the S-3 aircraft               to
                perform all refueling     operations --which may eliminate         the need
                for additional    A-12s to perform refueling.        In addition,       the GAO
                found that the Navy calculated       its requirements     for the initial
                858 A-12 aircraft     based on using the aircraft      for 30 years;
                however, the A-12 will be engineered to last only 20 years.
                Based on Navy figures,      the GAO concluded that total requirements
                would be reduced by approximately        25 percent,   if the A-12 is kept
                in service for 20 years rather than 30 years--because              fewer
                replacement aircraft     would be included in the program
Naw on pp 4-6   requirements.     (pp. 2-6/GAO Draft Report)
                QoD REBPON~:         Nonconcur.
                -- The 858 total A-12s were needed to support 16 Navy air wings
                   and five Marine Corps A-12 squadrons, not 15 carriers      with
                   15 air wings, as stated by the GAO. Also, the Secretary of
                   Defense equated 12 carriers    (vice 14) and no Marine Corps
                   participation  with the reduction    to 620 A-12s and indicated
                   that no final decision   on carrier    force structure had been
                   made.
                -- The GAO implies that A-128 can replace A-6s based on some
                   ratio of increased capability,        survivability,        reliability, and
                   maintainability.        That is not the case.        The Navy is
                   considering      a reduced A-12 requirement,        but it is based on the
                   most cost effective       utilization  of the carrier        deck space.
                   The recommended number of A-12s per air wing will be reflected
                   in a change in the total A-12 inventory             requirement.
                -- The S-3 aircraft        will not perform llallll refueling       operations.
                   The S-3 is not available           in sufficient   numbers to meet the air
                   wing    refueling    requirements     and it is incapable of flying          at
                   the high tactical         airspeeds characteristic      of tactical     strike
                   aircraft.        In addition,    there are no dedicated "refueling
                   mission** A-129, so additional          aircraft   will not be procured
                   for that mission area.
                -- The GAO should        also   recognize   that     the development/replacement




                         Page16                                               GAO/NSIAD-91-98   Navy’s A-12 Avenger
                          Appendix II
                          Comments From the Department    of Defense




                          costs        of a new aircraft must be taken   into     account,        if   the
                         A-12     is     used for only 20 years.

                0   PINDINa:       a-12 Costar    Am   Not FUUY   ~Mine4      . The GAO found that
                    the Navy total program cost estimates           for the A-12 do not
                    included operation      and support costs-- or the cost of developing
                    and incorporating     certain    improvements to enhance the performance
                    of most of the A-12 aircraft.          In addition,      the GAO observed that
                    changes to a number of cost projection            variables   have occurred
                    since the estimates        were prepared.
                    First,   the GAO found that current cost projections,          which are
                    based on competitively     obtained prices,     may be voided and
                    renegotiated   in a noncompetitive      environment if certain       funding
                    levels are not obtained.       The GAO noted it is the Navy position
                    that the reduction     in yearly production     rates from 40 to 36 may
                    still   allow competition    in production,    but will cost about
                    $1.03 billion    more. The GAO also reported,         however, that
                    according to Navy officials,       a further   reduction    in the rate will
                    not allow the workload to be competed--and that the contractors
                    have expresses an interest      in not competing.        The GAO concluded
                    that a lack of competition      would require a further       revision    of
                    estimated costs.
                    Second, the GAO found that Navy A-12 cost projections               assume that
                    the Air Force will procure a version of the A-ll--the              Advanced
                    Tactical     Aircraft--beginning     in FY 1993 and will split       50/50
                    nonrecurring       cost related to A-12 production.       The GAO observed,
                    however, that the Secretary of Defense testified            that the Air
                    Force would not begin buying the Advanced Tactical             Aircraft     until
                    FY 1998 or later.          The GAO noted the Navy estimates     that    its
                    Costs will      increase by about $2.4 billion     with delayed Air Force
                    participation       because the nonrecurring   costs, which are highest
                    early in the program, will now be funded by the Navy alone.
                    Third, the GAO found that an increase in projected        inflation
                    rates between FY 1988 and FY 1989 resulted       in an $11.5 million
                    increase    in A-12 program acquisition   unit cost.    The GAO observed
                    that, if the A-12 aircraft     are in production   for many years--as
                    currently     planned--further changes in the inflation     indices may
                    occur,    which could also affect the cost of the A-12.
                    Finally,   the GAO reported that increases in the weight of the
                    A-12 aircraft,   as well as other developmental   difficulties,       have
                    increased costs and delayed first    flight and initial       deployment
                    by approximately   one year.
                    The GAO concluded that total program cost estimates are important
                    to decision   makers who must make budget and program decisions--
                    yet the A-12 total program cost estimates do not include total
                    operation   and support or preplanned product improvement costs.
                    The GAO noted that the Navy has yet not finalized    an estimate for
Now on pp 6.6       operation   and support costs for the 620 aircraft.   (PP. 3-4,




                         Page17                                                 GAO/NSIAIk91-98        Navy’s A-12 Avenger
                         Appendix II
                         Comments Prom the Department    of Defense




                 //pp.      6-lo/GAO   Draft   Report)
                 DoD:                   Partially    Conour.
                 -- The finding    appears to imply that the Navy has not recognized
                    or reported all A-12 program costs or cost growth.          The June
                    1990 A-12 Selected Acquisition       Report incorporates  cost
                    impacts identified     within the GAO report that were
                    quantifiable    at the time the Selected Acquisition     Report was
                    prepared.    In addition,    A-12 acquisition   related costs will be
                    incorporated    as they are identified.
                 -- The statement regarding competition         is correct,   except that
                    elimination    of airframe/engine    competition     and deferral  of the
                    top 29 cost component competition         to coincide with Air Force
                    production    remains viable and will be considered during the
                    DOD A-12 Program Review.        The effect    of reduced competition
                    has already been included in program cost estimates and is
                    reflected   in the June 1990 Selected Acquisition         Report.
                     The statement regarding       increased Navy costs is correct
                     except that nonrecurring        tooling    requirements  is the
                     responsibility      of the Service causing the increase and,
                     therefore,     will not be split      50/50.    The cost increase to the
                     Navy is primarily      related to having to procure more aircraft
                     earlier    in the program without the increased quantity           and
                     learning     curve benefits   the earlier     Air Force production
                     program would have provided.
                 -- The statement regarding the general effect      of inflation is
                    correct.     The specific $11.5 million increase due to inflation
                    effects    between FY 1968 and FY 1989 cannot, however, be
                    substantiated.


                                                         *   l   l   *   l


                                                    RECONMENDATIONB
             0   RECOMMENDATION2 The GAO recommended that the Secretary         of the
                 Navy update the A-12 program requirements  and cost estimates,      and
                 periodically  provide the Congress with the latest  information
Now on p 8       needed to make decisions  related to A-12 procurement.    (p. lo/GAO
                 Draft Report)
                 -2                 Conour.  The recommendation is, however,
                 essentially   moot. While initially      considered a highly sensitive
                 classified   program, the A-12 has been reported as a special
                 access Selected Acquisition      Report since 1988, in compliance with
                 section 127 of the National      Defense Authorization    Act for fiscal
                 years 00-09.     The June 1990 Selected Acquisition     Report
                 incorporates    all cost impacts identified     within the GAO report
                 that were quantifiable     at that time.    The DOD is currently




                         Page 18                                             GAO/NSIAD-91-98   Navy’s A-12 Avenger
                       Appendix II
                       Comments From the Department           of Defense




                 reviewing  the A-12 program and the outcome will serve as the
                 basis for new baseline requirements     and cost estimates to be
                 reported in the December 31, 1990 Selected Acquisition       Report.
                 The Deputy Director,  Acquisition   Policy and Program Integration
                 (Cost Management) is responsible    for monitoring   compliance.

                 -ION               2: The GAO recommended that, in updating the
                 A-12 requirements      and cost information,      the Secretary of the Navy
                 consider the possibility       of further    reductions   in the number of
                 aircraft  carriers--from     the 14 currently       in the fleet to 12 or
Now on p 8       fewer.   (p. lo/GAO Draft Report)
                 QpD R-l          Nonconcur. First of all,  force level decisions
                 (such as suggested in this recommendation) are made at the DOD
                 level and proposed to the Congress in the President's     budget.
                 Second, the Secretary already determined,   during his Major
                 Aircraft  Review, that 620 A-12 aircraft  would be required   for 12
                 deployable carriers.

                 -3:                 The GAO recommended that the Secretary of the
                 Navy also consider  the possibility    of using fewer that 20 A-12s
                 in each air wing,  given the increased A-12 capability,
                 survivability, maintainability,     and reliability   over the A-6Es--
                 and the planned FY 1994 transfer     of the refueling   mission to the
Now on p 8       S-3 aircraft.   (p. lo/GAO Draft Report)
                 DoD:                 Partially    conour:. The Secretary of the Navy is
                 conducting     a Defense Planning        Resources Board-directed        study to
                 consider changes from the Roosevelt Air Wing configuration
                  (20 A-12s), but not for the reasons suggested in the
                 recommendation.         The air wing mix is based on optimizing             the
                 fighting    potential      of the carrier      battle group and factors being
                 considered     include threat,       affordability,    aircraft     missions,
                 warfighting      requirements,     and air wing composition.          As discussed
                 in the DOD response to Finding 8, the refueling                 mission cannot be
                 transferred     completely      to the S-3.

                 -I:                   The GAO recommended that, in reporting   the
                 A-12 costs, the Secretary of the Navy include all expenditures
                 associated   with the procurement and ownership of the aircraft,
                 including  the following:
                         total     A-12 operation           and support    costs:    and
                         the development and introduction                  of preplanned        product                   '1
Now on p 9               improvements to the A-12 fleet.                   (PPl.    lo-ll/GAO      Draft    L' q,!I ,'i   "'
                         Report)

                 POD*                   Partially          Concur.     The Secretary of the Navy will
                 continue        to provide         acquisition,      and operating  and support cost



             w




                       Page 19                                                      GAO/NSIAD-9188     Navy’s A-12 Avenger
                     Appendix II
                     Comments From the Department   of Defense




                  data to the Congress through Selected Acquisition       Reporting and
                  the budget process.      In addition,  A-12 acquisition   related costs,
                  such as costs for preplanned product improvements, will be
                  incorporated   as they are identified.      The Deputy Director,
                  Acquisition   Policy and Program Integration     (Cost Management),
                  within the Office of the Under Secretary of Defense for
                  Acquisition,   will monitor A-12 Selected Acquisition      Reports to
                  ensure that all costs are properly      reported and that any
                  additional   data required are included.

              0   ~NDATION         5,: The GAO recommended that, in calculating  and
                  reporting   A-12 costs, the Secretary of the Navy should recognize
                  the potential   cost impact of the following:
                         losing the competitively       obtained      prices     for   the A-12
                         aircraft,
                         the delay   in procurement     of the Air      Force version:
                         lowering the A-12 production            rate from 48 to 36 aircraft
                         per year and possibly  losing           the ability to compete
                         production: and
                         delays in the first  flight    of the A-12 aircraft  and fleet
Now on p 9.              introduction schedules.     (p. ll/GAO Draft Report)
                  PoD:                  Partially Conour.     The Navy already adjusted costs
                  caused by the Major Aircraft         Review decisions,     such as the
                  delayed Air Force procurement,          delay in first   flight,   and
                  production      rate/quantity   reductions.     Effects of losing the
                  competitively       obtained "not-to-exceed"     options currently     are
                  being   evaluated by the DOD. The Defense Acquisition            Board is
                  scheduled to review the A-12 program and the results             will be
                  reflected     in subsequent Selected Acquisition        Reports as
                  appropriate.




                      Page 20                                                  GAO/NSIAD9198Navy'sA-12Avenger
Appendix III

Major Contributors to This Report


                             Brad IIathaway, Associate Director
National Security and        William C. Meredith, Assistant Director
International Affairs        *Jerry W. Clark, Evaluator-in-Charge
Division,      Washington,   .Joseph I’. Ibffa, I<valuator

DC.




                    Y




                             Page 2 1                                  GAO/NSlAD-91-98   Navy’s A-12 Avenger
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