F-22 Restructuring

Published by the Government Accountability Office on 1997-02-28.

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

National Security and
International Affairs Division

February 28, 1997

The Honorable William S. Cohen
The Secretary of Defense

Dear Mr. Secretary:

We are terminating our assignment regarding the Air Force’s F-22 advanced
tactical fighter program in view of the Air Force’s December 1996 decision to
restructure the F-22 program. That decision rendered moot many of the issues
on which we had planned to report. There remain, however, three issues that
we would like to bring to your attention. They involve the inflation rates the
Department of Defense (DOD) directed the Air Force to use to estimate the cost
of the F-22 program, the requirement for two-seat F-22s for training, and the
plan to buy 70 F-22s during the low-rate initial production phase.

For budgeting purposes, DOD directed the Air Force to use inflation indices that
may cause an understatement of the estimated cost of the F-22 program. DOD
required the Air Force to assume an inflation rate of about 2.2 percent per year
for all years after 1996. The Air Force, however, in estimating the most
probable cost of the F-22 program, used an estimated inflation rate of 3.2
percent. Increasing the inflation rate from 2.2 percent to 3.2 percent for the
production program prior to its restructuring would have added about $4 billion to
its estimated cost. Moreover, the higher inflation indices could have significant
budgetary implications for more than the F-22 program. We are concerned that
the use of the 2.2 percent rate on all defense acquisition programs could cause
a substantial understatement of funding requirements. We issued a report in

                                       GAO/NSIAD-97-1 OOR F-22 Restructuring

December 1996’ that discusses the overall impact of inflation indices on the
defense budget.


For a number of years, the F-22 program has included a requirement to develop
and produce some aircraft in a two-seat configuration for training crews.
However, to reduce funding requirements, the activities to develop and produce
42 aircraft in a two-seat configuration have been deferred and the applicable
costs deleted from the estimated total cost of the program. The 42 aircraft are
now planned to be delivered in a single-seat configuration. It is unclear why
funding for the two-seat configuration was deleted when activities to develop and
produce the two-seat configuration have merely been deferred. Moreover, the
Defense Appropriation Act for fiscal year 1997 required the Air Force to make
available at least $1 million to assess the budgetary, cost, technical, operational,
training, and safety issues associated with a decision to eliminate development
of the two-seat aircraft. If a decision is made to go forward with development
and production of the two-seat F-22, the estimated total cost of the program will
increase by over $500 million.

M      I

The Air Force’s F-22 restructuring plan calls for buying 70 F-22 aircraft during
the low-rate initial production (LRIP) phase of the program. This represents
about 16 percent of the total planned production quantity. For programs
entering the engineering and manufacturing phase after 1994, 10 U.S.C. 2400
requires the Secretary of Defense to explain to the Congress why any planned
LRIP quantities need to exceed 10 percent of the procurement quantity.
Although this provision of 10 U.S.C. 2400 is not retroactive to the F-22 program
because the program entered that phase in 1991, the restructuring of the
program is closely related to the issues that culminated in that legislation. Also,
we issued a report in February 1997’ recommending that the Secretary of
 Defense revise DOD’s weapon acquisition policies to require that (1) annual
quantities of weapons bought during LRIP be limited to the minimum necessary

1                                                                 ..
me    Years Defense Proaram: Lower Inflation Outlook Was Most S an icant
Change From 1996 to 1997 Proq    (GAO/NSIAD-97-36, Dec. 12, ,b96;.

    Page 2                               GAO/NSIAD-97-l OOR F-22 Restructuring

to complete initial operational testing and evaluation and prove the production
line and (2) rates and quantities not be increased during low-rate production to
ease the transition into full-rate production unless DOD clearly establishes that
the increase is critical to achieving efficient, realistic, and affordable full
production rates and can be accomplished without affecting the efficient
production of proven systems. Accordingly, it would seem appropriate to provide
Congress an explanation of the rationale for buying 16 percent of the total
planned production of F-22s under LRIP. Providing such an explanation would
demonstrate DOD’s intent to comply with the spirit of the law.

We would appreciate your response to the issues discussed in this letter within
30 days. A copy of this letter is being sent to the Secretary of the Air Force, the
congressional defense and budget committees, and Members of Congress who
have specifically requested reports concerning tactical aircraft.

Although we are terminating the assignment, we plan to continue monitoring the
program and the restructuring activities. We will advise you of our plans for
monitoring them as they develop. Please contact me on (202) 512-4841 if you
have any questions or concerns about this letter.

Sincerely yours,

 ouis J. Rodrigues
         Defense Acquisitions Issues


Page 3                                  GAOINSIAD-97-IOOR F-22 Restructuring
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