oversight

Military Airlift: Options Exist for Meeting Requirements While Acquiring Fewer C-17s

Published by the Government Accountability Office on 1997-02-19.

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

                  United States General Accounting Office

GAO               Report to the Honorable
                  Elizabeth Furse, House of
                  Representatives


February 1997
                  MILITARY AIRLIFT
                  Options Exist for
                  Meeting Requirements
                  While Acquiring Fewer
                  C-17s




GAO/NSIAD-97-38
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-272608

      February 19, 1997

      The Honorable Elizabeth Furse
      House of Representatives

      Dear Mrs. Furse:

      This report responds to your request that we review the basis for the November 1995
      recommendation by the Defense Acquisition Board that a fleet of 120 C-17s be acquired to meet
      airlift needs. Specifically, the report addresses the basis for the November recommendation,
      explores whether less costly options exist to meet airlift needs, and identifies an issue
      concerning the use of the C-17 to support a strategic brigade airdrop.

      As you requested, we plan no further distribution of this report until 5 days after its issue date.
      At that time, we will send copies to the Chairmen and Ranking Minority Members, Senate
      Committee on Armed Services; House Committee on National Security; Senate Subcommittee
      on Defense, Committee on Appropriations; and House Subcommittee on National Security,
      Committee on Appropriations. We will also send copies to the Secretaries of Defense and the
      Air Force; the Director, Office of Management and Budget; and other appropriate parties. We
      will make copies available to others on request.

      Please call me at (202) 512-4841 if you or your staff have any questions about this report. Major
      contributors to this report are listed in appendix III.

      Sincerely yours,




      Louis J. Rodrigues
      Director, Defense Acquisitions Issues
Executive Summary


             The Congress had expressed concern about whether the C-17 was the
Purpose      most cost-effective airlifter for the Air Force to procure, given the
             aircraft’s history of cost, schedule, and performance problems. The
             Congress had required the Department of Defense (DOD) to establish a
             Non-Developmental Airlift Aircraft program to acquire a commercially
             available transport aircraft as a substitute for or complement to a fleet of
             C-17s. As a result of a November 1995 decision by the Defense Acquisition
             Board, DOD plans to buy 120 C-17s and no commercially available transport
             aircraft. DOD concluded that the advantages of buying the C-17 outweighed
             any potential cost savings from acquiring a mixed fleet. Given the
             $43 billion price for the C-17 program, Congresswoman Elizabeth Furse
             asked GAO to explore whether less costly alternatives to procuring 120
             aircraft exist while still satisfying the nation’s airlift requirements. This
             report responds to that request.


             The C-17 aircraft, an air refuelable, four-engine jet transport, is being
Background   manufactured by the McDonnell Douglas Corporation. The C-17 is to
             replace the C-141 transport in the current fleet and complement the larger
             but less maneuverable C-5 aircraft. When the program began in 1982, the
             Air Force planned to acquire 210 C-17s to augment its strategic airlift fleet.
             In 1990, as part of DOD’s Major Aircraft Review, the Secretary of Defense
             reduced the program to 120 aircraft. In December 1993, due to ongoing
             concerns with the C-17’s growing cost and continuing technical problems,
             the Secretary of Defense announced that the program would be stopped at
             40 aircraft unless McDonnell Douglas could demonstrate that program
             cost, schedule, and performance improvements warranted completing the
             120-aircraft program. Moreover, in March 1994, at congressional direction,
             DOD initiated a program to acquire a transport aircraft using commercial
             practices as a possible alternative or supplement to the C-17.

             The Under Secretary of Defense for Acquisition and Technology convened
             a Defense Acquisition Board in October/November 1995 to determine
             (1) whether the C-17 aircraft program should continue past 40 aircraft and
             (2) how many additional C-17s and commercial transport aircraft should
             be procured. The Board decided to procure 120 C-17s and no commercial
             transports. The decision was based on several studies and analyses,
             including the results of the Joint Chiefs of Staff’s 1995 Mobility
             Requirements Study Bottom-Up Review Update (MRS BURU), the Air
             Mobility Command’s Strategic Airlift Force Mix Analysis, DOD’s Tactical
             Utility Analysis, and C-17 cost and performance information presented by
             the Air Force.



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                   Executive Summary




                   An option not considered by the Defense Acquisition Board, which may
Results in Brief   satisfy strategic airlift requirements, would be to acquire 100 C-17s and no
                   commercial transport aircraft. This option would save the government
                   over $7 billion in life-cycle costs (fiscal year 1996 dollars). The savings
                   would consist of over $4 billion in acquisition costs and over $3 billion in
                   operating and support costs. Airlift needs could be met with this reduced
                   number of C-17s if DOD implemented other individual measures, such as
                   increasing prepositioning of Army combat support and combat service
                   support materiel that would otherwise be delivered by air, using training
                   aircraft (assumed to be unavailable in the MRS BURU to support major
                   regional contingencies, increasing the use of Civil Reserve Air Fleet
                   aircraft, increasing slightly the time frame for delivery, or by adopting
                   some combination of these measures. Costs for implementing the
                   measures would not be significant compared with the potential savings
                   and have been accommodated in our estimate of the potential savings. A
                   fleet with 100 C-17s would also be sufficient to support missions that
                   require the unique military capabilities of the C-17, such as landing on a
                   short runway.

                   The only mission that would require more than 100 C-17s in conjunction
                   with the current fleet is an extended range brigade airdrop mission to a
                   small, austere airfield directly from the continental United States. Until
                   fiscal year 2004, when at least 114 C-17s will be available, the Air Force
                   will not be able to support an extended range brigade airdrop to a small,
                   austere airfield as called for in the Army’s concept of operations. In the
                   interim, the Air Force and the Army are considering other alternatives to
                   perform the extended range brigade airdrop mission now required in DOD’s
                   Defense Planning Guidance. GAO believes alternatives could be used, with
                   a fleet with 100 C-17s and modified C-5s, to support an extended range
                   airdrop to either a small, austere or larger airfield either indefinitely or
                   until the Air Force begins replacing the C-5—currently planned to begin in
                   2007. If DOD and the Congress determine that an extended range brigade
                   airdrop, to a small, austere airfield is a valid need, this need could be
                   considered in choosing a replacement airlifter for the C-5.

                   Further, for safety reasons, the Army has imposed a restriction on
                   paratroopers jumping from C-17s in close airdrop formations due to
                   turbulence created by the C-17. Until this safety concern is resolved, the
                   C-17 cannot be used to support the brigade airdrop mission.

                   Although the Congress has approved and DOD has awarded a multiyear
                   contract with an accelerated production schedule for the final 80 C-17s,



                   Page 3                                           GAO/NSIAD-97-38 Military Airlift
                                          Executive Summary




                                          that contract contains a clause that would permit the government, if full
                                          funding for a production lot under the multiyear contract were not
                                          available, to revert to single-year options without paying cancellation
                                          costs. While there would be an increase in program discontinuation costs
                                          to close out the contract at 100 rather than at 120, those additional costs
                                          have been accounted for in our estimate of the potential savings.

                                          Finally, DOD and McDonnell Douglas have implemented initiatives to
                                          reduce the total program cost of the 120 C-17 program. However, the
                                          current estimated cost of $43 billion is about the same as that estimated in
                                          1994. Although production costs have decreased, costs for planned
                                          modifications and retrofit, further testing, and contractor support of
                                          fielded aircraft have increased. In addition, the contract prices for the last
                                          50 aircraft could increase by about $1 billion if ceiling prices on those
                                          contracts are reached.



Principal Findings

Strategic Airlift                         The MRS BURU recommended that, to meet strategic mobility requirements
Requirements Can Be Met                   for a scenario involving two nearly simultaneous major regional
With 100 C-17s                            contingencies, an airlift fleet with 120 to 140 C-17s, or their equivalents, be
                                          used and that afloat prepositioning be increased. The Strategic Airlift
                                          Force Mix Analysis showed that an acceptable option to meet strategic
                                          requirements was to acquire 100 C-17s and 18 commercial transport
                                          aircraft, which would save $300 million compared with a fleet with 120
                                          C-17s.

                                          On the basis of GAO’s analysis, a fleet with 100 C-17s and no commercial
                                          transport aircraft may also be a viable alternative that could save the
                                          government over $7 billion in life-cycle costs as shown in table 1.


Table 1: Potential Life-Cycle Cost Savings From Acquiring 100 Instead of 120 C-17s
In millions of fiscal year 1996 constant dollars
                                                              Military
                                          Acquisition    construction    Operating and    Discontinuation
Number of aircraft beyond 40                   costs            costs    support costs              costs        Total costs
80                                          $16,881.7          $ 162.0       $19,604.0             $ 118.0         $36,765.0
60                                           12,840.1            137.0        15,820.0               360.0          29,157.1
Difference                                   $4,041.6            $25.0        $3,784.0             $(242.0)         $7,608.6




                                          Page 4                                             GAO/NSIAD-97-38 Military Airlift
    Executive Summary




    This smaller fleet would provide sufficient outsize cargo carrying
    capability and could adequately deal with potential constraints such as
    reduced airfield availability and ramp space. A fleet with 100 C-17s would
    be sufficient if DOD implemented one or a combination of the following
    alternative measures:

•   Increase the amount of Army combat support and combat service support
    materiel planned for prepositioning. For example, DOD could slightly
    increase the amount of prepositioned materiel planned for afloat
    prepositioned ships beyond that recommended in the MRS BURU.1
•   Use airlift assets not considered available in the study, such as C-17 and
    C-5 training aircraft and increased numbers of Civil Reserve Air Fleet
    aircraft.
•   Extend by a day or two the time frame in which a small amount of Army
    combat support and combat service support materiel would be delivered
    during the initial phase of the Mobility Requirements Study’s major
    regional contingencies.

    Increased costs attributable to these measures would be minor when
    compared with the potential savings. Increased prepositioning aboard
    ships results in only minor cost increases since sufficient space will be
    available on the ships to accommodate tonnage not delivered by a fleet,
    including 100 C-17s. Since trainer aircraft will be part of the inventory and
    in use, increased costs from their use would only be the additional flying
    hours in direct support of the major regional contingency. The Civil
    Reserve Air Fleet has historically been recognized as a low cost airlift
    option.

    Although GAO cannot estimate these costs exactly, it has accommodated
    them, to the extent it could identify them, in the estimate of potential
    savings. DOD would have to determine the effect of a delay of 1 or 2 days in
    delivery of a small amount of combat support and combat service support
    materiel to the second major regional contingency.




    1
     “Afloat prepositioning” is the use of ships loaded with combat equipment and support items located
    near potential trouble spots. This enables the ships to respond more quickly than if they were deployed
    from the United States. The MRS BURU recommended regenerating (reloading) these ships after their
    cargo has been used in an initial major regional contingency.



    Page 5                                                           GAO/NSIAD-97-38 Military Airlift
                            Executive Summary




100 C-17s Would Suffice     The purpose of DOD’s Tactical Utility Analysis was to quantify the C-17’s
for Lesser Regional         benefits in responding to lesser regional contingencies such as
Contingencies and           humanitarian relief, peacekeeping, and peace enforcement missions;
                            providing intratheater airlift and direct delivery to small, austere airfields;
Strategic Brigade Airdrop   and performing a strategic brigade airdrop. The analysis found that, with
                            the exception of an extended range brigade airdrop, 100 C-17s or fewer
                            would be sufficient. The Tactical Utility Analysis had found that about 120
                            C-17s would be needed to conduct this mission directly from the
                            continental United States to a small, austere airfield, as desired by the
                            Army.


Alternatives Can Be Used    The Air Force does not currently have the capability to support an
to Meet Strategic Brigade   extended range brigade airdrop mission as envisioned by the Army within
Airdrop Requirements With   the desired time frame. This capability will not exist until fiscal year 2004,
                            when at least 114 C-17s are available and 50 C-5s have been modified for
100 C-17s                   airdrop. The Air Force is currently considering alternatives for performing
                            this mission. Options include moving some equipment and supplies to a
                            base or bases closer to the targeted destination as an initial step in the
                            airdrop mission or conducting the mission to a larger airfield accessible to
                            the C-5. GAO believes such options would allow a fleet with 100 C-17s and
                            50 modified C-5s to perform the extended range brigade airdrop mission.

                            As of July 1996, there were 74 C-5As in the airlift fleet. The Air Force’s
                            long-range airlift modernization plan calls for replacing the C-5As
                            beginning in 2007. The Air Force plans to begin replacing C-5As just
                            3 years after enough C-17s are scheduled to enter the inventory to support
                            the Army’s concept for an extended range brigade airdrop. An option that
                            could result in saving billions would be to extend the alternative methods
                            for accomplishing the extended range brigade airdrop—using only 100
                            C-17s—until C-5A replacement has begun and, if the Army’s concept of
                            operations for the extended range brigade airdrop is considered a valid
                            requirement, consider making some of the replacements capable of
                            airdropping equipment to replace C-17s in the equipment airdrop role. This
                            would reduce the number of C-17s needed for airdropping equipment and
                            make them available for the follow-on role of bringing equipment and
                            troops into the captured small, austere airfield. The Air Force would then
                            be able to support an extended range brigade airdrop with only 100 C-17s.


C-17 Airdrop Capability     The C-17 has not yet demonstrated the capability to safely perform a mass
Not Proven                  airdrop of personnel while flying in close formation. Due to the dangers



                            Page 6                                             GAO/NSIAD-97-38 Military Airlift
                            Executive Summary




                            posed to paratroopers during their descent by the C-17’s wake turbulence,
                            the Army has not approved the use of the C-17 for this mission. Until this
                            problem is resolved, the C-17 cannot be used to support the brigade
                            airdrop mission. Further, the C-17 does not meet paratroop exit rate
                            requirements when airdropping personnel along with equipment bundles,
                            which could extend the time required for all paratroopers to get on the
                            ground and increase their separation. Increased separation would further
                            delay organizing troops on the ground making it more difficult to execute
                            the mission.


Estimated Program Costs     DOD and McDonnell Douglas have taken the following actions to reduce
Remain at $43 Billion and   prices for the last 88 aircraft of a 120 aircraft program: (1) imposed
Could Increase              competitive pressure on McDonnell Douglas through the
                            Non-Developmental Airlift Aircraft program, (2) performed a should cost
                            analysis to serve as a basis for negotiating lower prices for the last 88
                            aircraft, (3) implemented cost-reduction initiatives, (4) accelerated the
                            procurement rate, and (5) obtained congressional approval for a multiyear
                            procurement of the last 80 aircraft.

                            GAO  found that these actions held total program costs for 120 C-17s to
                            about the $43 billion amount estimated by the Air Force in January 1994.
                            Although production costs have decreased, costs for planned
                            modifications and retrofit, further testing, and contractor support of
                            fielded aircraft have increased. Also, the contract prices for the last 50
                            aircraft could increase. The production lots for the last 50 aircraft are
                            covered by not-to-exceed ceiling prices, which exceed the negotiated
                            target prices by about $1 billion. Further, the contract provides for
                            adjustments in the prices for the last 72 aircraft to account for changes in
                            costs that could not be accurately foreseen at the time the multiyear
                            contract was negotiated.


                            Because of the potential savings of over $7 billion and the relative
Matters for                 contribution of the final 20 C-17s, the Congress may wish to consider
Congressional               funding only 100 C-17s and requiring DOD to reexamine the decision to
Consideration               acquire 120 C-17s. DOD can meet mission requirements by employing
                            various low-cost options and by extending the use of alternatives for
                            accomplishing the extended range brigade airdrop. Further, before
                            approving the acquisition of the final 20 C-17s primarily to support the
                            brigade airdrop mission, the Congress should require that DOD certify that
                            the aircraft’s wake turbulence problems have been solved.



                            Page 7                                           GAO/NSIAD-97-38 Military Airlift
                       Executive Summary




                       In commenting on a draft of this report, DOD maintained that a fleet
Agency Comments        providing the capability of 120 C-17 equivalents is the minimum fleet
and GAO’s Evaluation   required based on the MRS BURU and that all of the alternatives suggested
                       by GAO were operationally unacceptable. DOD agreed that the C-17 has a
                       wake vortex problem and has not yet demonstrated the capability to safely
                       perform a mass airdrop of personnel while flying in close formation.

                       While the MRS BURU recommended that a fleet with the capacity of 120
                       C-17s be acquired, the basis for that recommendation included a set of
                       assumptions concerning the expected level of prepositioning and the
                       timing of the scenarios. GAO is suggesting that there are measures that DOD
                       could implement that would change those assumptions. That is,
                       alternatives that could be used either separately or in combination to
                       offset the need for the additional 20 C-17s. For example, increased use of
                       Civil Reserve Air Fleet aircraft and KC-10s and the employment of C-17
                       and C-5 trainers all have been used as short-term solutions to meet airlift
                       needs in the past. DOD’s assertion that GAO’s suggested alternatives
                       increase risk to an unacceptable level is not based on analysis. While DOD’s
                       analyses offer increased flexibility as a rationale for acquiring 120 C-17s,
                       they do not preclude the alternatives GAO has proposed.

                       DOD also recommended that GAO withdraw its suggestion that the Congress
                       require DOD to certify that the aircraft’s wake turbulence problems have
                       been solved prior to approving acquisition of the final 20 C-17s. Since DOD
                       agrees that there is a wake turbulence problem and that the aircraft has
                       not demonstrated the ability to safely support a mass formation airdrop,
                       GAO believes that the reasons for requiring such certification remain valid.




                       Page 8                                          GAO/NSIAD-97-38 Military Airlift
Page 9   GAO/NSIAD-97-38 Military Airlift
Contents



Executive Summary                                                                                    2


Chapter 1                                                                                           12
                      C-17 Expected to Modernize Airlift Fleet                                      12
Introduction          Specifics of DOD Contract With McDonnell Douglas                              13
                      Objective, Scope, and Methodology                                             15

Chapter 2                                                                                           17
                      C-17 Program Showed Needed Improvement                                        17
C-17 Defense          Results of the DAB                                                            18
Acquisition Board
Decision
Chapter 3                                                                                           23
                      100 C-17s Can Meet Strategic Mobility Requirements                            24
Less Expensive        Tactical Utility Analysis Indicates That 100 C-17s Are Sufficient             30
Options for Meeting   Multiyear Contract Cancellation Provisions                                    36
                      Conclusion                                                                    36
Requirements Could    Matters for Congressional Consideration                                       37
Save Billions         Agency Comments and Our Evaluation                                            37

Chapter 4                                                                                           40
                      Government and McDonnell Douglas Cost-Reduction Initiatives                   40
C-17 Program Cost     C-17 Program Costs Remain at $43 Billion                                      46
Could Exceed $43      Agency Comments and Our Evaluation                                            47
Billion Despite
Savings
Appendixes            Appendix I: DOD-Approved C-17 Program Cost and Schedule                       50
                        Aircraft Performance Criteria for Continuing the Program
                        Beyond 40 Aircraft
                      Appendix II: Comments From the Department of Defense                          51
                      Appendix III: Major Contributors to This Report                               62


Tables                Table 1: Potential Life-Cycle Cost Savings From Acquiring 100                  4
                        Instead of 120 C-17s
                      Table 1.1: Minimum and Maximum Production Schedules                           14
                        Included in the Lot VIII and Beyond Contract




                      Page 10                                          GAO/NSIAD-97-38 Military Airlift
Contents




Table 1.2: Accelerated C-17 Production Schedule Included in the            15
  Multiyear Contract
Table 2.1: Force Mix Options Considered in the SAFMA                       20
Table 3.1: Potential Life-Cycle Cost Savings From Acquiring 60             29
  Instead of 80 C-17s
Table 4.1: McDonnell Douglas C-17 Production Price for Last 88             41
  Aircraft
Table 4.2: Impact of Cost-Reduction Initiatives on C-17                    43
  Production Prices for the Remaining 88 Aircraft
Table 4.3: Comparison of Contract Procurement Baseline Profile             45
  With Accelerated Procurement Profile for Last 88 Aircraft
Table 4.4: Total C-17 Program Costs for 120 Aircraft                       46




Abbreviations

AMC          Air Mobility Command
CRAF         Civil Reserve Air Fleet
DAB          Defense Acquisition Board
DOD          Department of Defense
LMSR         Large Medium-Speed Roll On Roll Off
MRS BURU     Mobility Requirements Study Bottom-Up Review Update
NDAA         Non-Developmental Airlift Aircraft
PE/PI        Producibility Enhancement/Performance Improvement
SAFMA        Strategic Airlift Force Mix Analysis


Page 11                                       GAO/NSIAD-97-38 Military Airlift
Chapter 1

Introduction


                    In the post-Cold War period, the Department of Defense (DOD) must be
                    able to provide troops, equipment, and supplies throughout the world in
                    response to conflicts or crises affecting U.S. interests. DOD relies on sealift,
                    prepositioned assets, and airlift to accomplish this mission. DOD plans to
                    use airlift to rapidly transport troops and supplies to link up with
                    prepositioned equipment, thus speeding the deployment of heavier units
                    early in a conflict.

                    Airlift is classified as either intertheater (from one theater of operation to
                    another) or intratheater (operations within a theater). Strategic
                    intertheater airlift services are provided by the Air Force’s Air Mobility
                    Command (AMC), which has a fleet of C-5, C-141, KC-10, KC-135, and C-17
                    aircraft to carry out that mission. AMC also uses the Civil Reserve Air Fleet
                    (CRAF) to augment its military airlift capacity during contingencies. The Air
                    Combat Command is responsible for operating C-130 aircraft, which
                    provide intratheater airlift.


                    To meet a need for additional long-range airlift, the Air Force contracted
C-17 Expected to    with McDonnell Douglas Corporation in July 1982 to develop and produce
Modernize Airlift   the C-17. The C-17 is an air refuelable, four-engine jet transport designed
Fleet               to operate in both the intertheater and intratheater roles. It is to replace
                    the C-141 in the current air fleet and complement the larger but less
                    maneuverable C-5. The C-17 is currently contracted to carry a payload of
                    119,125 pounds 3,200 nautical miles unrefueled and perform the full range
                    of airlift missions, including landing on small, austere airfields; airlifting
                    outsize cargo, such as tanks; and airdropping troops and equipment.

                    When the program began in 1982, the Air Force planned to acquire 210
                    C-17 aircraft. However, in April 1990, the Secretary of Defense, citing the
                    post-Cold War environment and fiscal constraints, reduced the program to
                    120 aircraft. During development and initial production, the C-17 program
                    experienced ongoing cost growth and technical problems and the
                    contractor fell behind schedule in delivering the production aircraft. In
                    December 1993, because of concerns with the C-17’s growing cost and
                    continuing technical problems, the Secretary of Defense announced that
                    the program would be stopped at 40 aircraft unless McDonnell Douglas
                    could demonstrate that program cost, schedule, and performance
                    improvements warranted completing the 120 aircraft program. The
                    contractor was given a 2-year probationary period to improve its
                    performance.




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                    Chapter 1
                    Introduction




                    In March 1994, DOD (at congressional direction) established a
                    Non-Developmental Airlift Aircraft (NDAA) program to procure a transport
                    aircraft using commercial practices as a possible alternative or
                    supplement to the C-17. Although eight companies or teams expressed
                    interest in providing a commercial NDAA, only one, the Boeing Company,
                    responded to a request for proposal. Boeing proposed two variations of its
                    747-400F—one that included an enlarged door and a strengthened floor
                    and an unmodified version. The Air Force named the aircraft proposed by
                    Boeing the C-33. DOD also obtained information from the Lockheed Martin
                    Corporation on costs for an upgraded version of the C-5, a C-5D model
                    with improved avionics and significantly improved reliability and
                    maintainability.

                    In October 1995, DOD convened a Defense Acquisition Board (DAB) to
                    determine whether the C-17 program should be continued beyond 40
                    aircraft, and if so, what mix of additional C-17s and NDAA should be
                    procured.1 In November 1995, the Under Secretary of Defense for
                    Acquisition and Technology announced that as a result of the DAB review,
                    DOD planned to procure 80 more C-17s for a total of 120 and not to
                    purchase any NDAA aircraft. In a separate action, in February 1996, the
                    Under Secretary of Defense approved an Air Force plan for a multiyear
                    procurement for the last 80 of the 120 C-17 buy at a maximum affordable
                    production rate of up to 15 aircraft a year during fiscal years 1997 through
                    2003. The Congress approved this 7-year plan in April 1996.

                    In January 1994, the C-17 Program Director estimated that total program
                    costs for 120 C-17s would be about $43 billion in then year dollars. As of
                    November 1996, McDonnell Douglas had delivered 29 C-17 aircraft for
                    operational use.


                    Prior to the C-17 full-rate production decision in November 1995, the Air
Specifics of DOD    Force had contracted with McDonnell Douglas, under seven different
Contract With       production lots, for the production of 32 of the 120 C-17s that it plans to
McDonnell Douglas   buy. As part of the program restructuring that occurred during the
                    probationary period, the Air Force negotiated four separate sole-source
                    contracts with McDonnell Douglas that covered aircraft production,
                    program and product improvements, and support. Previously, the Air


                    1
                     In January 1995, we reported that because of changes in the C-17’s intended role, less than anticipated
                    performance, and continued program cost growth, the Congress should not support the C-17 program
                    beyond the minimum number needed to fulfill unique military requirements. (See C-17 Aircraft: Cost
                    and Performance Issues (GAO/NSIAD-95-26, Jan. 26, 1995.))



                    Page 13                                                           GAO/NSIAD-97-38 Military Airlift
                                        Chapter 1
                                        Introduction




                                        Force had included improvements and support tasks in the development
                                        contract or the individual contracts for the first seven production lots.

                                        The four contracts were (1) a producibility enhancement/performance
                                        improvement (PE/PI) contract for funding projects aimed at reducing
                                        production costs and for funding C-17 performance and capability
                                        improvements; (2) a field support contract to provide for depot repair
                                        management and sustaining support to maintain fielded aircraft in
                                        operational condition (including retrofitting aircraft, repairing parts, and
                                        procuring support equipment and spare parts); (3) a single-year contract
                                        for production lot VIII, increasing the number of C-17s under contract
                                        from 32 to 40; and (4) a multiyear contract for the next 80 aircraft that
                                        increased the number of C-17s under contract from 40 to 120.

                                        In July 1995, the Air Force awarded a cost-plus-award-fee PE/PI contract to
                                        McDonnell Douglas to fund cost-reduction initiatives that include both
                                        improvements to the aircraft such as an improved engine enclosure that
                                        costs less to build and install and improvements to the manufacturing
                                        process, which would reduce the cost to assemble the aircraft. This
                                        contract has a maximum value of $1.1 billion. As of July 1996, the Air
                                        Force had provided the contractor about $385 million for various PE/PI
                                        tasks under this contract. In February 1996, the Air Force awarded
                                        McDonnell Douglas the field support contract. The value of this contract
                                        as of August 1996 is $121.6 million for the period January through
                                        December 1996.

                                        Also, in February 1996, the Air Force and McDonnell Douglas agreed to a
                                        $1.9 billion firm fixed-price contract for production of eight aircraft under
                                        production lot VIII, increasing the number of C-17s to be produced from 32
                                        to 40. This contract, referred to as the lot VIII and beyond contract, also
                                        contained separate firm fixed-priced options for the next three production
                                        lots (lots IX through XI), and separate options, with not-to-exceed ceiling
                                        prices, for the remaining production lots through 120 aircraft. The contract
                                        contained a variation in quantity clause allowing for an extensive range of
                                        production schedules. The minimum and maximum production schedules
                                        allowed by this clause are shown in table 1.1.


Table 1.1: Minimum and Maximum Production Schedules Included in the Lot VIII and Beyond Contract
Fiscal year profile    1996    1997     1998    1999      2000       2001       2002    2003     2004      2005       2006
Minimum                   8        8        8          8       8        8        8        8          8         8         8
Maximum                   8        9        9          13     15       15       15        4




                                        Page 14                                            GAO/NSIAD-97-38 Military Airlift
                                         Chapter 1
                                         Introduction




                                         However, as a result of the Congress approving DOD’s C-17 multiyear
                                         procurement plan, the Air Force changed its C-17 procurement plan for
                                         the last 80 aircraft from the single-year contract options, included in the
                                         lot VIII and beyond contract, to a multiyear contract. The total value of the
                                         multiyear contract, dated June 1996, is $14.2 billion and is based on an
                                         accelerated production schedule as shown in the table 1.2.

Table 1.2: Accelerated C-17 Production
Schedule Included in the Multiyear       Fiscal year       1997     1998      1999     2000     2001      2002       2003
Contract                                 Number                8        9       13       15       15         15         5



                                         We undertook this review, at the request of Congresswoman Elizabeth
Objective, Scope, and                    Furse, to determine whether less costly alternatives exist to procuring 120
Methodology                              C-17 aircraft while still satisfying airlift requirements.

                                         To determine whether less costly alternatives existed, we reviewed three
                                         different analyses that provided the basis for determining the number of
                                         additional C-17s to acquire beyond the 40-aircraft program. These were the
                                         Joint Chiefs of Staff’s 1995 Mobility Requirements Study Bottom-Up
                                         Review (MRS BURU); the Strategic Airlift Force Mix Analysis (SAFMA),
                                         completed by AMC; and the Tactical Utility Analysis undertaken by DOD’s
                                         Director, Program Analysis and Evaluation. We met with representatives
                                         of the Joint Chiefs of Staff Logistics Directorate, AMC, and DOD to discuss
                                         the results of the studies and obtain the underlying support, assumptions,
                                         and methodologies used in performing each of these analyses. We were
                                         also briefed by representatives from Boeing and Lockheed Martin on their
                                         NDAA aircraft proposals.


                                         To assess the Air Force’s and McDonnell Douglas’s efforts to reduce C-17
                                         costs, we analyzed the Air Force’s 1994 C-17 should cost review and the
                                         Air Force and McDonnell Douglas’s cost-reduction initiatives for the
                                         production lot VIII contract and multiyear contract for the last 80 C-17
                                         aircraft. In performing this work and analyzing the technical performance
                                         of the C-17, we interviewed officials from the C-17 program office; the
                                         NDAA program office; McDonnell Douglas; the Air Force Operational Test
                                         and Evaluation Center; and DOD’s Office of the Director, Operational Test
                                         and Evaluation.

                                         We also met with representatives from the Army’s Director of
                                         Requirements, Office of the Deputy Chief of Staff for Plans and
                                         Operations; AMC; and the Air Force’s Deputy Chief of Staff for Plans and




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Introduction




Operations, Mobility Forces Division to discuss the strategic brigade
airdrop concept of operations.

We performed our audit between February 1995 and October 1996 in
accordance with generally accepted government auditing standards.




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C-17 Defense Acquisition Board Decision


                              The decision to purchase more than 40 C-17s was based on reports
                              showing first, that the aircraft and McDonnell Douglas had met the cost,
                              schedule, and aircraft performance criteria required to continue
                              production beyond 40 aircraft and second, that C-17 operational testing
                              rated the aircraft operationally effective and suitable. The decision to
                              acquire 120 C-17s and no NDAA was based on the DAB’s conclusion that 120
                              C-17s would provide a greater degree of flexibility at an increased cost of
                              only $300 million over the mixed fleet option the DAB considered
                              acceptable—100 C-17s and 18 C-33s (modified Boeing 747-400Fs).1
                              Specifically, the DAB found that the 120 C-17 option would (1) provide a
                              hedge against the potential reductions in the amount of cargo delivered
                              due to such things as reduced airfield availability, ramp space, and
                              services and (2) maximize the benefits provided by the military
                              capabilities of the C-17, which are not possessed by the C-33 (a
                              commercial air transport).


                              In November 1994, DOD established evaluation criteria for the C-17 full-rate
C-17 Program Showed           production decision by the DAB. These included (1) acceptable dates for
Needed Improvement            completing development and operational testing and establishing initial
                              C-17 operational capability, (2) the level of acceptable cost performance
                              for the approved 40-aircraft program, and (3) the key aircraft performance
                              indicators that would need to be met. These criteria generally included an
                              objective criterion (a goal that DOD would like to have seen achieved) and
                              a threshold criterion (a minimal performance expectation below which the
                              program would be in danger of being canceled). For example, an objective
                              was established to declare initial operational capability by January 1995; a
                              threshold of July 1995 was established for this event. DOD met the
                              objective, declaring initial operational capability in January 1995.

                              The C-17 Program Manager reported to the DAB that the C-17 program had
                              successfully met the criteria for cost, schedule, and contractor and aircraft
                              performance that DOD had established in order for the program to proceed
                              beyond 40 aircraft. (See app. I for a complete listing of the criteria.) He
                              also reported that the Air Force and McDonnell Douglas had negotiated
                              significantly lower prices for production lot VIII and the remaining
                              production lot options to complete the 120-aircraft program.


Results of C-17 Operational   As a result of a multiservice initial operational test and evaluation, the Air
Testing                       Force Test Director reported that the C-17 was operationally effective and

                              1
                               Life-cycle costs stated in fiscal year 1996 dollars.



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                            suitable and met or exceeded all the key aircraft performance parameters
                            established for the DAB.

                            Although the Test Director informed the DAB that the C-17 was
                            operationally effective and suitable, he also identified areas needing
                            improvement. These included (1) overcoming Army safety concerns that
                            preclude paratroopers from jumping from C-17s flying in close formation
                            and meeting established performance criteria for paratroop and equipment
                            bundles exiting the aircraft during personnel airdrops;2 (2) redesigning the
                            litter capacity and fixing various oxygen equipment problems needed in
                            order to perform the aeromedical evacuation mission; (3) correcting
                            inadequacies with the aircraft’s mission computer and associated
                            operating manuals, which caused the mission computer to fail repeatedly,
                            thereby increasing pilot workload; and (4) fixing inadequacies with the
                            aircraft’s integrated diagnostics causing high rates of false failure
                            indications or failures that could not be duplicated.


                            Determining the appropriate C-17/NDAA mix was a primary goal of the DAB.
Results of the DAB          That determination was based on the following analyses:

                        •   The Joint Chiefs of Staff’s MRS BURU which established a strategic airlift
                            requirement for supporting two nearly simultaneous major regional
                            contingencies.
                        •   The SAFMA, an AMC study of possible airlift force mix options that could
                            meet the strategic airlift capability recommendations of the MRS BURU.
                        •   The DOD Tactical Utility Analysis designed to quantify the benefits of using
                            (1) C-17 capabilities such as landing on austere airfields and airdropping
                            cargo and troops and (2) the C-17s strategic airlift capabilities in support
                            of lesser regional contingencies not modeled in the MRS BURU.


The Strategic Airlift       The MRS BURU study made recommendations regarding strategic mobility
Requirement                 requirements, including airlift. The study’s objectives were to determine
                            the capability of the fiscal year 2001 programmed strategic mobility forces
                            to deploy and sustain combat and support forces, identify shortfalls in that
                            capability, and recommend solutions to eliminate identified shortfalls.
                            Employing a baseline airlift fleet projected for the year 2001 that included
                            C-17s, C-141s, C-5A/Bs, KC-10s, KC-135s, and CRAF, the MRS BURU
                            estimated the mobility requirements for the initial halting phase of four

                            2
                             The Army imposed this restriction because the air turbulence created in the wakes of C-17s flying in
                            close airdrop formation poses risks to paratroopers jumping from following aircraft.



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        different scenarios involving either a single major regional contingency or
        two nearly simultaneous major regional contingencies.3

        The most demanding MRS BURU scenario, for which additional airlift
        capacity was recommended, was one involving two nearly simultaneous
        major regional contingencies. To meet the strategic mobility requirements
        for this scenario, the MRS BURU recommended additional afloat
        prepositioning and, after the retirement of C-141s, an airlift fleet with the
        capacity of between 120 and 140 C-17s. This fleet would provide a delivery
        capability between 49.4 and 51.8 million ton-miles per day.4 The MRS BURU
        did not recommend a particular type of aircraft to meet its recommended
        airlift capability. The DAB would later make this decision based on the
        results of the SAFMA.


SAFMA   The SAFMA compared the relative performance of mixed fleets with C-17s
        and NDAA against fleets with 120 C-17s and 140 C-17s to determine which
        mixed fleets could meet the airlift performance capability of a fleet with
        120 or 140 C-17s during the MRS BURU’s most demanding scenario. This
        analysis also evaluated the cost-effectiveness of each of the fleet
        alternatives.

        DOD  developed a detailed listing of equipment, munitions, and supplies that
        would be airlifted using the MRS BURU recommended airlift requirements.
        It then modeled the operations of the strategic airlift fleet during the initial
        phases of the two major regional contingencies scenario. Air refueling and
        delivery to locations other than main operating bases were not considered
        in the SAFMA.

        AMC  used an airlift fleet with 120 C-17s as its primary performance criteria
        in the SAFMA. To be acceptable, mixed fleets of C-17s and C-33s had to
        deliver as much or more outsize, oversize, and bulk cargo as an airlift fleet
        with 120 C-17s.5 The force mix evaluations began with 40 C-17s and
        progressed in squadron size intervals up to 140 C-17s. The Lockheed C-5D

        3
         The halting phase is the initial phase of a major regional contingency during which the advance of an
        enemy force is halted and the loss of territory and critical facilities is minimized.
        4
         Million ton-miles per day is an aggregate, unconstrained measure of airlift capacity. It is based on
        aircraft utilization rate, average ground speed, average payload weight, and a standard productivity
        measure. This measure does not take into account the type of the payload, airfield limitations such as
        runway and parking ramp size, and aircraft ground servicing time.
        5
         Outsize cargo, such as Apache helicopters and M1 Abrams tanks, can be carried only by the C-17 and
        C-5. Oversize cargo exceeds the dimensions of a 463L pallet but is smaller than outsize. Examples
        include 2-1/2 ton trucks and Bradley Fighting Vehicles. Bulk cargo, such as ammunition and food, will
        fit on a 463L pallet.



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                               was evaluated only at the 40 C-17 quantity breakpoint (40 C-17s and 50
                               C-5Ds). The final SAFMA combinations of C-17s and C-33s are shown in
                               table 2.1.

Table 2.1: Force Mix Options
Considered in the SAFMA
                               C-17                   40       58        72   86    100      120      132      140
                               C-33                   56       42        30   30     18        0       18        0

                               The SAFMA study found that within the scope of fleet mixes being actively
                               considered (up to 120 C-17s) only two of the mixed fleet alternatives, one
                               with 86 C-17s and 30 C-33s and another with 100 C-17s and 18 C-33s,
                               performed as well or better than a fleet with 120 C-17s. These mixed fleets
                               delivered as much outsize cargo but more oversize and bulk cargo than a
                               fleet with 120 C-17s. For example, a fleet with 100 C-17s and 18 C-33s
                               delivered 5,000 more tons of oversize cargo and about 2,000 more tons of
                               bulk cargo in the required time frame. A fleet with 40 C-17s and additional
                               C-5Ds would not deliver as much outsize cargo as an airlift fleet with 120
                               C-17s.

                               The AMC cost analysis showed the potential savings from the acceptable
                               mixed fleet options ranged from $300 million in fiscal year 1996 dollars for
                               a mixed fleet of 100 C-17s and 18 C-33s to $1.85 billion for a fleet of 86
                               C-17s and 30 C-33s.


Airfield Constraints Favor     The SAFMA also addressed the impact of airfield constraints due to reduced
C-17s                          airfield availability, ramp space, and services; and other limitations on the
                               number of aircraft that can be accommodated and serviced on the ground
                               at one time. The term maximum on ground refers to the maximum number
                               of aircraft on the ground that can be parked, unloaded, and serviced in a
                               given time period. In this regard, the MRS BURU and SAFMA studies assumed
                               a moderate maximum on ground, a reduced level of capability based on
                               the experience of Desert Shield/Desert Storm, AMC operation plans, and
                               maximum on ground assumptions used in a C-17/NDAA cost and
                               operational effectiveness analysis completed by the Institute for Defense
                               Analyses in December 1993. Constrained maximum on ground conditions
                               favored the more maneuverable C-17 over the larger C-33 aircraft.

                               Maximum on ground constraints and uncertainties were an important
                               consideration in the DAB’s decision to procure 120 C-17s. As part of the
                               force mix analysis, AMC examined the impact of reducing maximum on



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                            ground below the levels assumed in the MRS BURU. AMC found that force
                            mixes with more than 100 C-17s offered a better hedge against
                            uncertainties about airfield availability, congestion, and ground support.
                            For example, when maximum on ground values were reduced by
                            15 percent in Northeast Asia during the halting phase, all fleet options
                            delivered less outsize cargo than the MRS BURU-established requirement,
                            but an airlift fleet with 120 C-17s delivered more of the outsize cargo than
                            the mixed fleets.


Tactical Utility Analysis   In preparation for the November 1995 C-17 DAB, DOD also wanted to ensure
                            that the planned analysis for the DAB recognized the potential benefits of
                            the military capabilities of the C-17 that could not be provided by a NDAA.
                            In December 1994, the Under Secretary of Defense for Acquisition and
                            Technology directed DOD’s Director, Program Analysis and Evaluation, in
                            concert with the Army and the Air Force, to complete a Tactical Utility
                            Analysis. This analysis was to quantify the C-17’s benefits in responding to
                            lesser regional contingencies such as humanitarian relief, peacekeeping,
                            and peace enforcement missions; providing for intratheater delivery and
                            direct delivery to austere airfields; and performing a strategic brigade
                            airdrop. These capabilities were not addressed in the work done in the
                            SAFMA.


                            The Tactical Utility Analysis found that the most demanding of the lesser
                            regional contingencies was the peace enforcement mission. This mission,
                            as modeled in the study, could be accomplished with varying numbers of
                            C-17s. The analysis showed that as more C-17s were provided less total
                            time was required to deliver troops and equipment. According to the study
                            leader, in the peace enforcement scenario, there were no time
                            requirements and the delivery time saved was not critical to completing
                            the mission. Also, the analysis showed that the time saved between the 86
                            and 120 C-17 fleet levels was only a few days.

                            The Tactical Utility Analysis also evaluated the use of the C-17 in an
                            intratheater airlift role. It indicated that a squadron of aircraft dedicated
                            specifically to this role might be beneficial. However, study analysts
                            acknowledged that these aircraft would be in addition to the 120 C-17
                            equivalents the MRS BURU found were required for strategic airlift. There is
                            no requirement for using C-17s in an intratheater role in DOD’s fiscal years
                            1998 to 2003 Defense Planning Guidance. The Joint Chiefs of Staff
                            completed a study of intratheater airlift needs and concluded that one
                            squadron of C-17s dedicated to the intratheater mission would be useful.



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                    However, that study recommended further analysis of the issue. The Air
                    Force is currently conducting additional intratheater airlift analyses. That
                    analysis is planned to be completed in late spring 1997.

                    Lastly, the Tactical Utility Analysis evaluated the need for C-17s to
                    accomplish a strategic brigade airdrop. On the basis of the then existing
                    Defense Planning Guidance, which called for a limited strategic range
                    capability, an airlift fleet with 100 C-17s, along with modified C-5s, would
                    be sufficient to accomplish this mission. The Tactical Utility Analysis,
                    however, also analyzed the number of C-17s that would be used to conduct
                    an extended range brigade airdrop. It found that acquiring 120 C-17s would
                    allow the Air Force to support a strategic brigade airdrop directly from the
                    continental United States to a small, austere airfield located beyond the
                    range required by the Joint Chiefs of Staff at the time of the C-17 DAB.


DAB Determination   The DAB determined that the C-17 program and McDonnell Douglas’s
                    performance had improved sufficiently to warrant continued production
                    of the C-17. From the options considered, the DAB found two acceptable
                    options that would provide sufficient strategic airlift capability and a
                    minimum of 100 C-17s to perform the strategic brigade airdrop mission
                    analyzed in the Tactical Utility Analysis. These were 120 C-17s and no NDAA
                    and 100 C-17s and 18 NDAA. The DAB chose the 120 C-17 option because of
                    the relatively small savings from acquiring a mixed fleet—$300 million in
                    life-cycle costs—and the advantages in increased flexibility from acquiring
                    20 additional C-17s.




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Requirements Could Save Billions

              Our analysis of the strategic airlift requirement defined in the MRS BURU
              and the information developed in the SAFMA and the Tactical Utility
              Analysis indicate that DOD could save over $7 billion (fiscal year 1996
              dollars), by acquiring and operating an airlift fleet with 100 C-17s and no
              NDAA. With 100 C-17s and the remaining airlift fleet of C-5s, KC-10s,
              KC-135s, and CRAF, lower cost options exist to meet strategic airlift
              requirements. These include small increases in the amount of materiel
              prepositioned afloat, the use of airlift aircraft assumed not to be available
              in the MRS BURU, or the use of a slightly longer delivery time frame on
              some combat support and combat service support materiel. Increased
              costs attributable to these lower cost options and to discontinuing the
              program at 100 rather than 120 C-17s have been accommodated in our
              estimate of savings.

              Further, although DOD revised its Defense Planning Guidance in April 1996
              to require an extended range strategic brigade airdrop, options also exist
              to meet this requirement, although not necessarily as identified in the
              Army’s concept of operations. The Army’s concept of operations envisions
              accomplishing the extended range brigade airdrop from the continental
              United States directly to a small, austere airfield.1 However, an extended
              range brigade airdrop to a small, austere airfield is not specifically
              required by the current Defense Planning Guidance and cannot be
              supported with the Air Force’s current airlift fleet.

              According to the Tactical Utility Analysis, performing the extended range
              airdrop mission as envisioned by the Army will require at least 114 C-17s.
              The Air Force is currently exploring alternatives to meet the requirement
              until 114 C-17s can be fielded in 2004.

              Although the Congress has approved and DOD has awarded a multiyear
              contract with an accelerated production schedule for the final 80 C-17s,
              that contract contains a clause that would permit the government to revert
              to a contract with single-year options, allowing for variations in quantity, if
              a production lot under the multiyear contract is not fully funded. While
              there is an increase in program discontinuation costs to close out the
              program at 100 rather 120 aircraft, those additional costs have been
              accounted for in our savings estimate.




              1
               The Air Force defines a “small, austere airfield” as one with limited taxiway, ramp space, and services.
              Runways, paved or semi-prepared, are occasionally longer than 5,000 feet, but are usually less than
              4,000 feet and normally 60 to 110 feet wide.



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                       In the MRS BURU, the Joint Staff identified a small, potential airlift shortfall
100 C-17s Can Meet     in the capability of mobility forces to deliver the total tonnage of unit
Strategic Mobility     equipment scheduled for delivery early in the halting phases of two nearly
Requirements           simultaneous major regional contingencies. The shortfall was about
                       4 percent of the unit equipment tonnage delivered. According to the
                       Army’s Office of the Assistant Deputy Chief of Staff for Operations and
                       Plans, this shortfall is marginal. It occurred in only one of the two major
                       regional contingencies and consisted of prepositionable combat support
                       and combat service support materiel. To deliver the entire shortfall by air
                       would have required more than 140 C-17 equivalents. The study, however,
                       recommended that a portion of the shortfall be prepositioned afloat and
                       that the remainder be airlifted into the theater. The solution recommended
                       in the MRS BURU required at least 120 C-17s, or the equivalent capacity
                       provided by a mix of C-17s and NDAA.

                       With some additional measures, an airlift fleet with 100 C-17s could
                       provide sufficient airlift capability, including the delivery of outsize cargo,
                       to meet the MRS BURU mobility requirements. These include (1) slightly
                       increasing prepositioning, for example, by placing the shortfall not
                       delivered by 100 C-17s on prepositioned ships when regenerating these
                       ships between the two major regional contingencies; (2) using airlift assets
                       that were assumed not to be available in the MRS BURU; (3) increasing
                       slightly the time frame in which the MRS BURU shortfall would be
                       delivered; or (4) adopting a combination of these measures.

                       Further, an airlift fleet with only 100 C-17s also provides a hedge against a
                       more constrained airfield environment than that modeled in the
                       MRS BURU. A sensitivity analysis done as part of the force mix analysis
                       showed that under a more constrained airfield environment, an airlift fleet
                       with 100 C-17s delivered only 3 percent, about 500 tons, less outsize cargo
                       than a fleet with 120 C-17s.


Additional Afloat      Prepositioning heavy combat equipment and supplies, both ashore and
Prepositioning Would   afloat, can greatly reduce both the time required to deploy forces to
Reduce the Airlift     distant regions and the number of airlift sorties devoted to moving such
                       supplies. Afloat prepositioning is a flexible means of transporting materiel
Requirement            to where it is needed in a contingency. Ships loaded with combat
                       equipment and support items are located near potential trouble spots,
                       enabling them to respond more quickly than if they were deployed from
                       the United States. As a result of the Bottom-Up Review in October 1993,




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DOD expanded the amount of planned prepositioning needed for two nearly
simultaneous major regional contingencies.

According to DOD, the MRS BURU reconfirmed the validity of the
Bottom-Up Review and the programs under way to meet those
requirements. Besides verifying that expanded prepositioning of heavy
Army equipment in the Persian Gulf and Korea was warranted, the
MRS BURU recommended the addition of 15,000 tons of afloat
prepositioning and other prepositioning measures to support the Army’s
afloat prepositioning program.

Although the MRS BURU recommended airlifting a portion of the 4-percent
materiel shortfall, it found that the entire shortfall could be delivered to
the theater on afloat prepositioning ships. Our review indicates that the
additional prepositioning needed, in conjunction with an airlift fleet with
only 100 C-17s, would add only about a half percent to the 4-percent
materiel shortfall identified and the increased afloat prepositioning
already assumed to be necessary in the MRS BURU. Sufficient space will be
available on the Army’s prepositioned ships to accommodate tonnage not
delivered by an airlift fleet with 100 C-17s.

The 1992 Mobility Requirement Study recommended the addition of 19
Large Medium-Speed Roll On Roll Off (LMSR) ships to accommodate the
requirement for increased lift capability needed to support a two major
regional contingency scenario. Five of the ships are to be refurbished, and
14 are to be newly acquired. The MRS BURU recommended that several of
the new ships be used to support afloat prepositioning of Army materiel
for use in the major regional contingencies and that others be used to
provide a surge sealift capability. The MRS BURU recommended
prepositioning ships would have about 3.5 million square feet of cargo
space. According to planning factors used by the Army, these ships can be
loaded to 80 percent of capacity. As a result, there will be about 2.8 million
square feet of space available for prepositioned materiel.

Current planning calls for the use of about 2 million square feet for a
brigade set of equipment and additional combat support and combat
service support materiel. There will also be space needed for some other
planned prepositioned materiel besides the amount we are recommending.
While the exact numbers are classified, the additional materiel and our
recommended additional prepositioned materiel can be accommodated in
the 800,000 square feet of available space on the LMSRs recommended by
the MRS BURU for afloat prepositioning.



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                              The MRS BURU’s general officer steering committee rejected an option to
                              preposition the entire 4-percent shortfall. In its opinion, this alternative
                              would limit a theater commander’s flexibility to adjust the planned flow of
                              equipment and materiel into the theater. However, there is only about
                              2 percent of the planned force affected by the proposed increased
                              prepositioning. Therefore, the 120 C-17 equivalents solution would
                              increase a theater commander’s flexibility to change the structure of the
                              force by only about 2 percent over what it would be if the entire shortfall
                              was prepositioned. This limited increase in flexibility would come at a
                              significant increase in cost.


Additional Airlift Aircraft   Another option to alleviate the small shortfall in combat support and
Are Available                 combat service support materiel would be to use aircraft that were
                              assumed not available in the MRS BURU. These include training aircraft
                              (C-5s and C-17s), additional KC-10s, and increased CRAF assets.

                              In the MRS BURU, eight C-17s and six C-5s set aside for training purposes
                              were not used for strategic airlift. A DOD official told us that, for planning
                              purposes, training aircraft are assumed not to be available to support
                              contingencies. However, U.S. Transportation Command officials stated
                              that, in a two nearly simultaneous major regional contingency scenario
                              such as that envisioned in the MRS BURU, it is likely that these aircraft
                              would be used. Training aircraft, for example, were used in Operation
                              Desert Shield/Desert Storm to enhance strategic airlift capability.

                              The 59 KC-10s in AMC’s airlift fleet are dual-role aircraft, performing both
                              cargo-carrying and aerial refueling missions. Only 37 of the 59 KC-10s in
                              the Air Force inventory are dedicated to strategic airlift. In a two-major
                              regional contingency scenario, however, DOD would have the option of
                              using some of the remaining KC-10s to supplement the airlift flow. U.S.
                              Transportation Command officials told us that, in such a contingency, they
                              would consider using more KC-10s to provide strategic airlift. However,
                              these officials also pointed out that these aircraft would be available only
                              if they were not needed for aerial refueling.

                              The CRAF program is more robust than assumed in the MRS BURU, and
                              additional CRAF aircraft would be available to deliver cargo during a two
                              major regional contingency scenario. The CRAF capacity under contract for
                              1996 is 19.50 million ton miles per day, which is about 1 million ton miles
                              per day greater than projected in the MRS BURU. The Secretary of the Air




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                           Force has reported that, although future years’ commitments are not
                           certain, the calendar year 1996 level is sustainable.

                           In addition to these aircraft, a number of military airlifters are held in
                           reserve during contingencies for other priorities as determined by the
                           Joint Chiefs of Staff. In the MRS BURU and SAFMA studies, operational C-5s
                           and C-17s were withheld to carry out other airlift missions (such as
                           providing presidential support). If needed, the Joint Chiefs would have the
                           option of using CRAF aircraft or KC-10s and KC-135s to fulfill some of these
                           missions, thus freeing the more effective military airlifters to meet
                           contingency requirements.


Extend MRS BURU Time       Another alternative that could reduce the need for C-17s would be to
Frame Slightly             slightly extend the time frame required in the MRS BURU to deliver the
                           small remaining shortfall in Army materiel. The Joint Staff considered an
                           option to increase the warning time between the start of deployment and
                           the onset of hostilities as a way to eliminate the shortfall. They rejected
                           this option, however, because of the reduced flexibility it would provide to
                           respond if the assumption was not valid.

                           The Joint Staff did not consider extending the time frame to deliver the
                           Army equipment once hostilities commenced. The Joint Staff did not
                           model an alternative with 100 C-17s and therefore did not provide a
                           specific number of days by which this materiel would be delayed in
                           arriving in the theater of operations. On the basis of our analysis of data
                           from the SAFMA, we estimate that the delay would be 1 to 2 days. Further,
                           since the Army characterized the shortfall as marginal, a slightly increased
                           delivery time might not significantly affect war-fighting capability.
                           However, this determination would have to be made by DOD based on its
                           war-fighting models.


100 C-17s Provides         An airlift fleet with 100 C-17s would provide sufficient outsize capacity to
Sufficient Outsize Cargo   meet the MRS BURU requirements. The delivery of outsize cargo is
Capability                 important because a large part of most combat units’ fighting power
                           consists of outsize cargo. Only the C-17 and the C-5 are designed to carry
                           outsize loads. AMC, on the basis of a sensitivity analysis done in
                           conjunction with the SAFMA, found for example, that in a projected Korean
                           scenario, an airlift fleet with 120 C-17s, while delivering around 4,400 tons
                           in total cargo, only delivered about 250 more tons of outsize cargo during
                           the halting phase than a fleet with 100 C-17s.



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                            The relatively small difference in outsize cargo delivered is due to the
                            outsize cargo capacity of the C-5s. With only 100 C-17s available, C-5s were
                            able to compensate for the loss of 20 C-17s and carry the vast majority of
                            the outsize tonnage delivered by a fleet with 120 C-17s in an equivalent
                            time frame.


Dealing With Maximum on     Major factors in the DAB’s decision to procure 120 C-17s were maximum on
Ground Constraints          ground constraints and uncertainties. The Air Force showed the DAB that,
                            compared with mixed fleets of C-17s and NDAA, an airlift fleet with 120
                            C-17s could deliver more cargo within the required time frame when
                            maximum on ground was constrained below the already reduced levels
                            assumed in the MRS BURU. However, in Korea, the more maximum on
                            ground constrained theater, an airlift fleet with 100 C-17s delivered only
                            3 percent less outsize cargo and 2 percent less oversize and bulk cargo
                            than 120 C-17s under the more constrained maximum on ground
                            reductions.

                            In a sensitivity analysis accompanying the SAFMA, AMC compared the ability
                            of various airlift fleet alternatives to meet the required delivery timeline
                            when maximum on ground was reduced by 15 percent in one theater. The
                            analysis showed that a fleet with 120 C-17s performed slightly better in
                            delivering outsize cargo during the halting phase of a Korean contingency
                            than did the mixed fleet alternatives. Under these same maximum on
                            ground constraints, an airlift fleet with 100 C-17s carried only about
                            3 percent less outsize cargo (500 tons) and 2 percent less oversize and
                            bulk cargo (1,700 tons) than a fleet with 120 C-17s. Delaying this amount of
                            outsize cargo would add about one day to the scenario’s cargo delivery
                            timeline.


Options for Meeting         The SAFMA, conducted by AMC, developed life-cycle cost comparisons for
Strategic Airlift           each of the force mixes to be considered by the DAB. Based on those cost
Requirement Will Increase   comparisons, acquiring and operating 60 rather than 80 C-17s beyond the
                            40 that were already committed to prior to the DAB decision would save
Some Costs                  about $7.6 billion as shown in table 3.1.




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Table 3.1: Potential Life-Cycle Cost Savings From Acquiring 60 Instead of 80 C-17s
In millions of fiscal year 1996 constant dollars
                                                             Military
                                     Acquisition        construction      Operating and     Discontinuation
Number of aircraft                        costs                costs      support costs               costs       Total costs
80                                     $16,881.7             $ 162.0            $19,604.0            $ 118.0        $36,765.0
60                                      12,840.1               137.0             15,820.0             360.0          29,157.1
Difference                              $4,041.6               $25.0             $3,784.0            $(242.0)        $7,608.6

                                           In addition to potential discontinuation costs (costs of terminating the
                                           program), implementing several of the individual measures that would be
                                           needed to meet the MRS BURU requirement, along with an airlift fleet
                                           having 100 C-17s, would require some additional expenditures. The
                                           additional costs that would result from increased prepositioning would
                                           vary depending on the prepositioning method chosen. In our example, the
                                           increased prepositioning would be part of the planned afloat
                                           prepositioning regeneration recommended by the MRS BURU. Since space
                                           is available on the planned LMSR ships, the costs would only be those
                                           needed to maintain the materiel during the period it is prepositioned.

                                           On the basis of planning factors used by DOD to estimate the average cost
                                           of maintaining prepositioned materiel afloat, we estimate this cost to be
                                           less than $1 million. If DOD chose to preposition the materiel on land, these
                                           costs would be greater because materiel would have to be procured for
                                           prepositioning and maintained for its estimated useful life. We estimate
                                           that acquiring the needed materiel would cost about $43.3 million (on the
                                           basis of our extrapolation of Army estimates of acquiring the types of
                                           materiel that make up the MRS BURU shortfall) and maintaining the
                                           materiel for its useful life would be about $166.4 million (based on Army
                                           planning factors for the maintenance of prepositioned materiel) for a total
                                           of $209.7 million. We estimate, therefore, that the potential life-cycle cost
                                           savings from acquiring 100 rather than 120 C-17s would range from
                                           $7.6 billion ($7,608.6 million less the cost of increased afloat
                                           prepositioning) to $7.4 billion ($7,608.3 million less the estimated cost of
                                           prepositioning on land).

                                           There are also some increased costs associated with the use of trainer
                                           aircraft or the increased use of CRAF. These costs, however, should not be
                                           significant since trainer aircraft are already allotted a certain level of flying
                                           hours. The cost increase would only be the additional flying hours needed
                                           to support a surge rate for the scenario. The increased CRAF costs would




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                     depend on the extent of additional use and the agreed-on contract prices
                     in effect at the time of the contingency. Since we cannot estimate how
                     many additional flying hours or additional CRAF flights would be needed or
                     the trade-off in costs between these options and the prepositioning
                     options, we are assuming that the increased use of trainers and of CRAF
                     would be offset by decreases in the additional prepositioning costs we
                     estimated.


                     The Tactical Utility Analysis, which quantified the benefits of the military
Tactical Utility     capabilities of the C-17, considered the use of the C-17 in responding to
Analysis Indicates   lesser regional contingencies ranging from humanitarian relief to peace
That 100 C-17s Are   enforcement missions, providing intratheater airlift and direct delivery
                     capability, and performing the strategic brigade airdrop mission required
Sufficient           at the time of the DAB. While the Tactical Utility Analysis identified the
                     number of C-17s that could be used in a variety of scenarios with the
                     commensurate benefits, it found that the most demanding mission it
                     evaluated in terms of the number of C-17s required was the strategic
                     brigade airdrop. The analysis reported that about 100 C-17s along with
                     modified C-5s would be required to perform the then defined limited range
                     strategic brigade airdrop.

                     The Tactical Utility Analysis also determined that acquiring a fleet of 120
                     C-17s, along with modifying C-5s, would provide the capability to conduct
                     an extended range brigade airdrop directly from the continental United
                     States to a small, austere airfield. The extended range brigade airdrop was
                     subsequently (April 1996) included as a requirement in the Defense
                     Planning Guidance for fiscal years 1998 to 2003. However, the requirement
                     does not specify that the airdrop will be to a small, austere airfield. The Air
                     Force will not have the airlift capability to carry out this mission to a
                     small, austere airfield, as envisioned by the Army, until fiscal year 2004
                     when at least 114 C-17s will have been delivered.

                     Air Force and Army officials are currently evaluating alternatives to
                     perform this mission with fewer numbers of C-17s. Options, including
                     staging from forward operating bases and using C-5-capable airfields for
                     airland missions, would allow the Air Force to conduct an extended range
                     brigade airdrop with 100 C-17s. Further, the C-17’s ability to perform a
                     strategic brigade airdrop has not yet been demonstrated under
                     operationally realistic conditions.




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100 C-17s Sufficient for     While deterring and defeating major regional aggression is the most
Lesser Regional              demanding scenario identified in the United States’ post-Cold War defense
Contingencies                strategy, U.S. forces may be involved in operations short of declared or
                             intense war. These lesser regional contingencies include peace
                             enforcement, peacekeeping, humanitarian assistance, and noncombatant
                             evacuation operations. Sufficient airlift is needed to transport and
                             resupply combat forces involved in such missions.

                             The Tactical Utility Analysis evaluated the ability of mixed airlift fleets of
                             C-17s and NDAA to support lesser regional contingency operations. The
                             study found that airlift fleets with between 40 and 100 C-17s would be
                             sufficient to support the scenarios identified in the fiscal years 1996-2001
                             Defense Planning Guidance.

                             The most demanding lesser regional contingency missions for airlift are
                             peace enforcement missions. DOD officials told us that an airlift fleet with
                             100 C-17s and no NDAA would be within the range of acceptable mixes to
                             meet airlift requirements for these missions.


Intratheater and Direct      The Tactical Utility Analysis analyzed opportunities for using the C-17 to
Delivery Airlift Needs Can   provide intratheater lift to complement the C-130 fleet during a major
Be Met With 100 C-17s        regional contingency. The study director told us that an airlift fleet with
                             100 C-17s could complement the C-130 fleet in providing intratheater lift,
                             on an ad hoc basis, without significantly impacting the strategic airlift
                             flow, particularly after the halting phase. The use of the C-17 to perform
                             strategic airlift combined with intratheater shuttle missions is consistent
                             with the aircraft’s concept of operations, which envisions the C-17
                             performing intratheater shuttle missions as a leg of a return flight before
                             returning to the strategic airlift flow. A recent RAND study also showed
                             that combining strategic airlift missions with intratheater shuttle missions
                             is an alternative to dedicating C-17 aircraft solely to intratheater lift.

                             Direct delivery to other than main operating bases was not used in the
                             MRS BURU and SAFMA. On the basis of the Tactical Utility Analysis, 100
                             C-17s would be more than would likely be required for directly delivering
                             equipment and supplies from onload points to airfields closer to their final
                             destinations in the MRS BURU scenarios.


Strategic Brigade Airdrop    At the time of the November 1995 C-17 DAB, DOD’s Defense Planning
Requirement                  Guidance required the Air Force to have the airlift capability to support a



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                             limited range strategic brigade airdrop. The Tactical Utility Analysis
                             showed that an airlift fleet with 100 C-17s, along with modified C-5s, could
                             meet this requirement. In April 1996, however, DOD incorporated an
                             extended range strategic brigade airdrop requirement in its Defense
                             Planning Guidance for fiscal years 1998 to 2003.

                             The Army’s concept of operations for an extended range brigade airdrop
                             envisions accomplishing the mission from the continental United States
                             directly to a small, austere airfield. The Tactical Utility Analysis found that
                             acquiring 120 C-17s would provide sufficient capability to accomplish the
                             extended range brigade airdrop. However, because the Air Force will not
                             have a sufficient number of C-17s available to perform both airdrop and
                             airland missions until 2004, the Air Force is exploring alternatives that will
                             enable it to support this mission in the interim.

                             Alternatives for supporting the extended range brigade airdrop with less
                             than 120 C-17s include (1) staging a portion of the brigade at locations
                             closer to the final destination and (2) using C-5s and C-17s to perform the
                             airland portion (bringing in follow-on troops and equipment) of the
                             mission into larger airfields.

Army’s Extended Range        Prior to the Tactical Utility Analysis, the Army had not clearly defined the
Brigade Airdrop Concept of   strategic brigade airdrop’s required personnel, equipment, and supplies,
Operation                    nor had AMC determined the airlift capability needed to deliver that force.
                             In support of the analysis, the Army reported that it would use a
                             medium-sized airborne brigade as the baseline force for planning this
                             mission. The Army’s concept of operations envisions the deployment of an
                             airborne brigade in two phases. First, the Army would airdrop 2,552
                             paratroopers, 116 wheeled vehicles, 10 Sheridan tanks, 18 105mm
                             howitzers, and 54 equipment bundles. Second, within 24 hours, additional
                             aircraft would land at the captured airfield to deliver the balance of the
                             brigade, about 690 more troopers, and 224 wheeled vehicles, 28
                             helicopters, along with 33 equipment and supply pallets. According to AMC,
                             43 C-17 missions would be needed to deliver the airland follow-on force
                             into a small, austere airfield.

                             The Army foresees using the strategic brigade airdrop capability, mainly in
                             third world areas, to capture a small, austere airfield. The Army would
                             prefer to conduct both the airdrop and airland portions of the mission
                             directly from the continental United States, without staging at locations
                             near the final destination. Army officials believe that they would be better




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                               able to maintain an element of surprise by staging an airborne assault
                               directly from the United States.

                               The decision to define the mission as capturing a small, austere airfield
                               limits the follow-on deliveries to C-17s from strategic distances, or C-130s
                               and C-17s if staging is used. However, the current Defense Planning
                               Guidance does not require a small, austere airfield capability for the
                               extended range airdrop mission.

                               AMC,  in support of the Tactical Utility Analysis, used the Army’s concept of
                               operations to determine the number of C-17s and other aircraft needed for
                               an extended range strategic brigade airdrop. According to AMC’s analysis,
                               delivering the medium-sized brigade directly from the continental United
                               States to an airfield beyond Central America or the Caribbean requires 114
                               C-17s plus 50 modified C-5s. The C-5’s role would be limited to airdropping
                               equipment. Since the Army’s concept of operations envisions the capture
                               of a small, austere airfield, C-5s are assumed not to be suitable for the
                               airland mission.

Options to Meet Army Brigade   The Air Force does not currently have the capability to airdrop the
Airdrop Requirement With 100   medium-sized brigade, defined above, over an extended distance to an
C-17s                          austere airfield within the Army’s specified time requirement. The Air
                               Force will not possess such a capability until fiscal year 2004, when at
                               least 114 C-17s will be available and 50 C-5s have been modified for
                               airdrop.2 The Air Force is currently devising other methods to meet the
                               Army’s requirement.

                               Options to enable the Air Force to support an extended range brigade
                               airdrop with 100 C-17s include (1) moving a portion of the brigade’s
                               equipment and supplies to bases closer to their final mission destination as
                               an initial step in the mission and (2) using C-5s to conduct some of the
                               airland missions to a larger C-5-capable airfield.

                               From forward bases, the Air Force could recycle some of the C-17s
                               participating in the initial airdrop to do follow-on airland missions.
                               According to AMC analysis, about 15 of the 43 C-17 airland missions would
                               have to be conducted from closer bases with a fleet of 100 C-17s.
                               Alternatively, C-5s could be used to carry out some of the airland missions.
                               C-5s are operationally restricted in wartime to landing on runways
                               measuring at least 5,000 feet long by 90 feet wide.

                               2
                                Of the 114 C-17s, 10 are spares to replace nonmission capable aircraft, 7 are needed to ensure an
                               80-percent probability of mission success, and 10 are assumed to be undergoing maintenance.



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                            We discussed the potential use of forward bases with both the Army and
                            the Air Force. The Army’s representatives said that the Army had not yet
                            evaluated the use of forward bases in support of an extended range
                            brigade airdrop. AMC analysts did not evaluate the use of forward bases in
                            the modeling it did in support of the Tactical Utility Analysis, but they plan
                            to explore the concept as a way to meet the strategic brigade airdrop
                            requirement before fiscal year 2004.

                            The Air Force does not plan to use the 74 C-5As to support the strategic
                            brigade airdrop mission because they are not considered sufficiently
                            reliable. As of July 1996, 16 of the 74 C-5As in the airlift fleet were
                            undergoing depot maintenance or used for training purposes. The Air
                            Force’s long-range airlift modernization plan calls for replacing the C-5As
                            beginning in 2007. Making at least some of the C-5A replacements capable
                            of airdropping equipment to replace some C-17s in the airdrop role would
                            provide the Air Force the capability to conduct an extended range
                            strategic brigade airdrop with an airlift fleet having only 100 C-17s. On the
                            basis of AMC’s analysis, assuming an airlift fleet with 100 C-17s, using
                            airdrop capable C-5A replacements in place of 16 C-17s to airdrop heavy
                            equipment would eliminate the need to recycle C-17 aircraft from the
                            airdrop to the airland role. This would allow the Air Force to conduct an
                            extended range airdrop directly from the continental United States to a
                            small, austere airfield within the specified time frame.


C-17’s Ability to Perform   The ability to safely perform a mass personnel airdrop while flying in close
Strategic Brigade Airdrop   formation is a key Air Force capability needed to conduct a strategic
Not Proven                  brigade airdrop. However, operational testers found that C-17 aircraft
                            wake air turbulence poses a danger to paratroopers jumping from aircraft
                            flying in close formation. As a result, the Army has not yet approved mass
                            airdrops of personnel from C-17s flying in close formation. Also, flight
                            parameters, imposed to reduce the risk of paratrooper entanglements,
                            increased pilot workload for conducting personnel airdrops and are not
                            conducive to flying large numbers of aircraft in formation. In addition, the
                            C-17 does not meet paratrooper exit rate requirements when airdropping
                            personnel along with equipment bundles.

                            During operational testing, the Air Force found that the air turbulence
                            created in the wake of C-17s, flying in close formation, can cause
                            parachutes dropping from following aircraft to oscillate, partially deflate,
                            or collapse. These conditions could result in serious injury or death to
                            paratroopers if they occurred at altitudes too low to allow time for



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recovery. Until this problem is resolved, the Army has not approved
operational mass personnel airdrops from C-17s flying in close formation.
Current Army safety restrictions require the Air Force to maintain a
5.5-minute or greater separation time between aircraft to avoid possible
injury to paratroopers.

The current 5.5-minute aircraft separation restriction essentially prohibits
formation flying, as it would take over 2.5 hours to conduct a strategic
brigade airdrop. Army officials told us that they were in the process of
formulating a time requirement of about 30 minutes for completing a
strategic brigade airdrop. This is longer than it takes using the C-141,
which was the standard initially desired by the Army. The C-141 can
complete a strategic brigade airdrop in approximately 11 to 22 minutes,
depending on visual conditions and formation spacing.

The Air Force, in June 1996, began a combination of follow-on
development and operational testing to better understand the impact of
C-17 wake turbulence on paratroopers and to identify operationally
acceptable aircraft formations that would mitigate the wake turbulence
problem. The follow-on C-17 testing includes conducting personnel
formation airdrop tests during daylight hours using visual flight rules. Air
Force officials estimate that this testing will be completed by
February 1997. However, these officials told us that formation personnel
airdrop testing under night or limited visibility conditions using instrument
flight rules will not be conducted until late 1997. While there is no hard
and fast rule, the Army generally tries to conduct airborne assaults under
the cover of darkness or limited visibility to protect its forces and surprise
the enemy.

Also, operational testing found that, because of turbulent airflows around
the C-17, paratroopers jumping from both sides of the aircraft, tend to
cross over behind the aircraft. This crossover increases the risk of
paratroopers colliding and becoming entangled in their parachutes and
could lead to serious or fatal injury if paratroopers are unable to quickly
free themselves. To prevent this crossover problem, C-17 pilots are
required to maintain strict flight parameters during personnel airdrop.
These parameters include a high-deck angle (the nose of the aircraft is
elevated 6 to 7 degrees as opposed to a normal elevation of 3 degrees or
less) and precise airspeed. Operational testers found that maintaining
these parameters created a high workload for C-17 pilots, who had
difficulty maintaining the desired combination of these flight parameters
at a constant altitude across the drop zone. DOD’s C-17 Operational Test



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                     and Evaluation Report (November 1995) indicated that these conditions
                     are not ideal when flying large numbers of aircraft in formation.

                     In addition, operational testing revealed that the C-17 does not meet the
                     Air Force and the Army requirement to airdrop equipment bundles and 102
                     paratroopers in a single pass over an average size drop zone. If this
                     requirement cannot be met, the Army would have to either increase the
                     length of the drop zone, require the aircraft to make a second pass over
                     the drop zone, or reduce the number of paratroopers dropped on a single
                     pass. None of these alternatives would be desirable to the Army because
                     they would delay landing troops in the drop zone and require additional
                     time to consolidate and reorganize troops once on the ground.


                     Although the Congress has approved and DOD has awarded a multiyear
Multiyear Contract   contract with an accelerated production schedule for the final 80 C-17s,
Cancellation         that contract contains a clause that would permit the government, if full
Provisions           funding for a production lot under the multiyear contract were not
                     available, to revert to single-year options without paying cancellation
                     costs. While there would be an increase in program discontinuation costs
                     to close out the contract at 100 rather than a 120, those additional costs
                     have already been accounted for in our estimate of the potential savings.
                     This clause was included at the direction of the Congress and would allow
                     DOD to continue acquiring C-17s under the conditions negotiated prior to
                     signing the multiyear contract.


                     An airlift fleet with 120 C-17s would cost over $7 billion more in
Conclusion           acquisition and operating and support costs than a fleet with 100 C-17s,
                     while, in our opinion, providing only a marginal increase in strategic airlift
                     capability and tactical utility. There are alternatives for delivering the
                     small amount of strategic cargo not delivered by an airlift fleet with 100
                     C-17s in the MRS BURU. Employing one or a combination of these relatively
                     low-cost alternatives could result in saving over $7 billion in life-cycle
                     costs for the additional 20 C-17s. These alternatives include a minor
                     amount of prepositioning beyond the amount currently planned, using
                     other airlift aircraft not considered available in the MRS BURU, extending
                     the delivery time frame slightly, or adopting a combination of these
                     alternatives.

                     DOD officials have expressed concern that additional prepositioning
                     reduces the flexibility of the field commander to determine the force mix



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                         that a major regional contingency will require. However, the additional
                         reduction in flexibility would be about 2 percent if the entire shortage
                         were prepositioned and less than 2 percent to the extent that training or
                         set-aside aircraft were also used.

                         The 100 C-17s would also provide sufficient military capabilities to fulfill
                         the missions modeled in the Tactical Utility Analysis with the exception of
                         an extended range strategic brigade airdrop directly from the continental
                         United States to a small, austere airfield. This capability, as set out in the
                         Army’s concept of operations, does not currently exist and until about
                         fiscal year 2004 would have to be accomplished through the use of
                         alternatives. Since this mission can be accomplished by moving some
                         portion of the planned follow-on equipment to bases closer to the planned
                         target or by making the C-5A replacement airdrop capable, we question
                         the cost-effectiveness of spending billions for additional C-17s.


                         Because of the potential savings of over $7 billion and the relative
Matters for              contribution of the final 20 C-17s, the Congress may wish to consider
Congressional            funding only 100 C-17s and requiring DOD to reexamine the decision to
Consideration            acquire 120 C-17s. DOD can meet mission requirements by employing
                         various relatively low-cost options and by extending the use of alternatives
                         for accomplishing the longer range brigade airdrop. Further, before
                         approving the acquisition of the final 20 C-17s primarily to support the
                         brigade airdrop mission, the Congress should require that DOD certify that
                         the aircraft’s wake turbulence problems have been solved.


                         In commenting on a draft of this report, DOD stated that the alternatives we
Agency Comments          suggested were operationally unacceptable. More specifically, DOD
and Our Evaluation       indicated that (1) CRAF aircraft cannot carry outsized or oversized
                         equipment, (2) KC-10s may be needed for refueling, (3) training aircraft are
                         needed to ensure a continuous pipeline of trained crews, (4) additional
                         prepositioning would reduce flexibility, and (5) extension of the delivery
                         time by 1 or 2 days would create unacceptable risks. (See app. II for DOD’s
                         complete comments.) However, careful review of DOD’s comments
                         indicates that its blanket rejection of any combination of these alternatives
                         fails to recognize the following:

                     •   Not all of the cargo to be delivered is outsized or oversized and additional
                         contributions of CRAF aircraft could free up C-5s and C-17s for the outsize
                         and oversize loads.



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•   Although the primary role of KC-10s is as refuelers, they could still make a
    contribution even if not dedicated to the airlift role, as they have in the
    past.
•   The eight C-17s and six C-5s set aside for training could be used on a
    short-term basis in two nearly simultaneous major regional contingencies,
    just as training aircraft were used during Desert Storm.
•   The reduction in flexibility from additional prepositioning is 2 percent or
    less of the planned force.
•   While asserting increased risk, DOD has not rerun its war-fighting model
    with a delay of 1 or 2 days in the delivery time to determine whether there
    is, in fact, a significant increase in risk. Further, DOD has assumed that risk
    will increase without allowing for any compensating effects through the
    use of the alternatives we have suggested.

    DOD agreed that 100 C-17s would be adequate to meet lesser regional
    contingency requirements. However, DOD indicated that an extended range
    brigade airdrop could not be accomplished with a fleet that included only
    100 C-17s. DOD stated that prepositioning airdrop forces is not a realistic
    option because of time constraints, the need to obtain agreement from
    other nations for use of their territory, and the loss of the element of
    surprise.

    We are not suggesting that prepositioning, that is permanent storage of
    equipment at forward bases, be used to support the brigade airdrop. We
    are suggesting that 15 or fewer loads of follow-on equipment could be
    moved to an appropriate base during the early part of the operation, close
    enough to the desired target to allow C-17s used in the initial airdrop to
    pick up that equipment and deliver it during the airland phase of the
    mission. We agree that use of third party bases would require obtaining
    permission for their use but believe that much of the groundwork for this
    type of agreement can be handled prior to the time when the bases would
    actually be needed. As regards to the element of surprise, we question
    whether the number of aircraft involved in an operation of this nature
    could be launched without attracting media attention during a crisis.

    DOD recognized the existence of a C-17 wake vortex problem but
    recommended that we withdraw our suggestion that the Congress require
    certification that the problem has been solved before authorizing the final
    20 aircraft. DOD maintained that the problem is not unique to the C-17 and a
    reporting requirement would be an inappropriate exaggeration of the
    issue. In our opinion, the ability of the aircraft to accomplish a key mission
    specifically called for in the justification for acquiring 120 C-17s (not just



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Less Expensive Options for Meeting
Requirements Could Save Billions




100) is critical and, therefore, certification that the wake vortex problem
has been resolved is a reasonable requirement.




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C-17 Program Cost Could Exceed $43 Billion
Despite Savings

                    The Air Force needs to achieve significant cost reductions to contain total
                    program costs for the 120 C-17 program at the $43 billion amount
                    estimated by the Air Force in January 1994. Even after the reductions in
                    production prices for the last 88 aircraft that the Air Force negotiated with
                    McDonnell Douglas, total program costs decreased by only about
                    $174 million from the $43 billion January 1994 Air Force estimate. Also,
                    negotiated ceiling prices for aircraft in production lots XII through XV
                    potentially could increase C-17 program costs by more than $1 billion if
                    individual production lots were to increase to their ceiling prices. Further,
                    the contract provides for adjusting the prices for the last 72 aircraft to
                    account for changes in costs that could not be accurately foreseen at the
                    time the multiyear contract was negotiated.


                    Initiatives undertaken by both the government and McDonnell Douglas
Government and      have significantly reduced prices for future C-17 aircraft. First, the
McDonnell Douglas   Congress created a competitive environment for the C-17 contractor by
Cost-Reduction      directing DOD to establish the NDAA program to explore the use of
                    nondevelopment aircraft as an alternative or supplement to the C-17.
Initiatives
                    Second, several Air Force initiatives contributed to lower C-17 production
                    prices. The Air Force (1) performed a should cost analysis to serve as a
                    basis for negotiating lower prices for the last 88 aircraft,1 (2) provided the
                    contractor an additional $372 million to fund cost-reduction initiatives,
                    (3) accelerated the production schedule, (4) negotiated fixed-price
                    contracts with McDonnell Douglas for the next four production lots
                    (VIII-XI) and not-to-exceed ceiling options for the balance of the
                    120-aircraft buy, and (5) obtained congressional approval to purchase the
                    last 80 aircraft using multiyear procurement.

                    Also, as a result of the 1994 settlement,2 McDonnell Douglas undertook its
                    own analysis to identify ways of reducing C-17 production prices and, as



                    1
                     The should cost analysis was designed to promote improvements in the contractor’s operations by
                    challenging such things as existing workforce, methods, materiels, and facilities and quantifying their
                    impact on price estimates.
                    2
                     In January 1994, DOD and McDonnell Douglas agreed to settle outstanding business and management
                    issues concerning the C-17. Under the settlement, the contractor agreed to a number of management
                    changes and improvements to ensure completion of the 120-aircraft program and reductions in the
                    aircraft’s cost. The government increased funding to cover additional testing and some management
                    improvements and to settle all outstanding claims both filed and not filed as of January 6, 1994. The
                    government also agreed to extend delivery schedules and revise various C-17 specifications. (See
                    Military Airlift: The C-17 Program Update and Proposed Settlement (GAO/T-NSIAD-94-166, Apr. 19,
                    1994.))



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                                        C-17 Program Cost Could Exceed $43 Billion
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                                        required by the settlement, will expend $100 million of its own funds for
                                        additional projects to reduce C-17 production costs.

                                        In the fall of 1994, as a part of their price reduction efforts, the C-17
                                        program office and McDonnell Douglas jointly developed a computer
                                        model for estimating and reaching agreement on production costs for the
                                        last 88 aircraft, starting with production lot VIII. As part of this effort, in
                                        January 1995, the C-17 program office and McDonnell Douglas agreed to a
                                        production price baseline of $24.2 billion ($275 million average unit price)
                                        to use in the model. The contractor used the model to determine the
                                        impact that its cost-reduction initiatives would have on C-17 production
                                        labor hours, costs, and prices.

                                        Table 4.1 summarizes the Air Force and contractor initiatives, which
                                        together reduced production prices for the last 88 aircraft by $7.3 billion
                                        (from $24.2 billion to $16.9 billion). The $16.9 billion ($192 million average
                                        unit price) is the negotiated contract price for the annual production buys
                                        included in the lot VIII and beyond contract assuming an accelerated
                                        production schedule. The $16.9 billion price excludes the cost of engines
                                        and other equipment furnished to McDonnell Douglas by the government.
                                        The multiyear contract, starting with production lot IX, reduced this price
                                        by another $827 million to $16.1 billion ($183 million average unit price).

Table 4.1: McDonnell Douglas C-17
Production Price for Last 88 Aircraft   Then-year dollars in millions
                                                                                                       Price for last 88 aircraft
                                                                                                                                     Unit
                                        Description                                                Reduction              Total (average)
                                        January 1995 baseline                                                          $24,196            $275
                                        Cost-reduction initiatives                                     $5,100
                                        Accelerated delivery                                             1,356
                                        Transferred to other contracts                                     827
                                        Total                                                          $7,283          $(7,283)           $(83)
                                                          a
                                        Lot VIII contract                                                              $16,913            $192
                                        Multiyear reduction                                                                (827)            (9)
                                        Lot VIII with multiyear                                                        $16,086            $183
                                        Note: This is the production contract cost for McDonnell Douglas. It does not include costs for
                                        government-furnished equipment such as engines.
                                        a
                                        The lot VIII contract value assumes an accelerated production schedule.




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The Air Force performed the should cost analysis to identify the most
probable production price for the remaining 88 aircraft. This analysis
evaluated ongoing as well as new cost-reduction ideas for McDonnell
Douglas and its suppliers. Following the should cost study, McDonnell
Douglas undertook its own detailed analysis and identified other initiatives
for reducing C-17 production costs. Program and contractor officials told
us that McDonnell Douglas reached agreement with the Air Force on many
of these initiatives and incorporated them into the joint C-17 production
cost model. These initiatives lowered the negotiated target price for the
remaining 88 aircraft by more than $5.1 billion from the January 1995
production price baseline.

Many of these initiatives, however, required additional funding by both
McDonnell Douglas and the Air Force. These additional costs are not
reflected in the lot VIII and beyond contract prices. For example,
McDonnell Douglas, as required by the 1994 settlement agreement, is
spending $100 million of its own funds to fund 40 of these cost-reduction
initiatives. The Air Force also provided McDonnell Douglas $372 million
for additional cost-reduction projects. Included in this amount are
(1) $112 million in incentive payments for cost-reduction projects affecting
production lots VIII and beyond that had been authorized by the initial
development and production contract and implemented by the contractor
prior to production lot VIII3 and (2) $260 million, under the PE/PI contract
to fund 37 new projects.

Table 4.2 summarizes by major cost categories how the cost-reduction
initiatives reduced the production prices for the remaining 88 aircraft.




3
 Normally these incentive payments would have been paid to the contractor at the time each
production lot under contract was awarded. However, the C-17 program office wanted to close out the
initial C-17 development and production contract that authorized these projects and chose to buy out
these payments rather than carrying the liability forward.



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                                        C-17 Program Cost Could Exceed $43 Billion
                                        Despite Savings




Table 4.2: Impact of Cost-Reduction
Initiatives on C-17 Production Prices   Then-year dollars in millions
for the Remaining 88 Aircraft                                                                                     Decrease
                                        Cost category                                                         Amount                  Percenta
                                        Intercomponent work orders                                              $1,805                       35
                                        Outside suppliers                                                          976                       19
                                        Overhead                                                                   968                       19
                                        Direct labor                                                               878                       17
                                        Other                                                                      473                        9
                                        Total                                                                   $5,100                       100
                                        a
                                        Percentages do not add due to rounding.




Reduction in                            The largest reduction (about 35 percent) comes from reducing the cost of
Intercomponent Work                     intercomponent work orders. These work orders are for C-17
Order Costs                             manufacturing done at other McDonnell Douglas divisions away from the
                                        main assembly facilities in Long Beach, California. At these other
                                        divisions, McDonnell Douglas is taking steps to reduce both direct and
                                        indirect costs by improving the manufacturing processes and efficiency at
                                        these facilities. It is also transferring work to either lower cost company
                                        facilities or to outside suppliers that can do it more efficiently.

                                        For example, McDonnell Douglas plans to achieve more than $1 billion in
                                        C-17 production costs reductions at its St. Louis, Missouri, facility by
                                        implementing a combination of cost-reduction initiatives to improve
                                        efficiency and by transferring a portion of the work done in St. Louis to the
                                        contractor’s Macon, Georgia, facility.4 The Macon facility has lower labor
                                        costs and higher productivity and efficiency rates than other company
                                        facilities.


Reductions in Supplier                  McDonnell Douglas also plans to achieve significant reductions in the
Costs                                   prices charged by its suppliers. The prime contractor is (1) working with
                                        its suppliers to improve their manufacturing processes and/or redesigning
                                        components provided by these suppliers, (2) transferring work to more
                                        efficient suppliers, and (3) eliminating middleman costs by directly
                                        procuring major parts and components from source suppliers. For
                                        example, McDonnell Douglas plans to achieve over $687 million in cost

                                        4
                                          In C-17 Aircraft: Cost of Spare Parts Higher than Justified (GAO/NSIAD-96-48, Apr. 17, 1996), we
                                        reported that the Air Force paid significantly higher prices for spare parts manufactured at the
                                        McDonnell Douglas St. Louis Division.



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                            C-17 Program Cost Could Exceed $43 Billion
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                            reductions at its largest supplier, Vought Aircraft Division of Northrop
                            Grumman Corporation. This amount includes an estimated $300 million
                            savings by improving the design and manufacturing of the C-17 engine
                            enclosure.


Reductions in Overhead      McDonnell Douglas plans to decrease its overhead expenses by more than
Costs                       $900 million. The contractor, for example, has initiated projects to reduce
                            the cost of indirect staffing supporting the C-17 program by $443 million
                            and to reduce the cost of group health insurance and workman’s
                            compensation by $266 million.

                            Specifically, the contractor plans to reduce the level of indirect staffing by
                            577 positions from 2,250 at the beginning of 1995 to 1,673 in 2001. For the
                            entire corporation, McDonnell Douglas revised its employees’ group health
                            insurance program to incorporate a new point-of-service primary care
                            program and to require supplemental premium contributions from
                            employees whose working spouses elect not to accept their own
                            employers’ health insurance program as primary coverage. The contractor
                            also projects significantly reduced costs due to a reduction in the State of
                            California workman’s compensation rates and improvements in the
                            contractor’s industrial accident safety record.


Direct Labor and Other      McDonnell Douglas expects to reduce its C-17 program direct labor costs
Cost Reductions             by $878 million through the implementation of several labor saving
                            projects. For the most part, these projects are being implemented at the
                            assembly facility in Long Beach to improve assembly labor and reduce idle
                            time and the time required for rework and repair.

                            Other reductions to the production price include decreases related to
                            profit/fee, warranty, facilities cost of money, and other nonlabor costs. For
                            example, the estimated profit for the last 88 aircraft decreased by over
                            $275 million.


Accelerating Procurement    The Air Force and McDonnell Douglas reduced the contract price by
Schedule Will Save Over a   $1.4 billion by accelerating the baseline procurement schedule. Both the
Billion Dollars             lot VIII and beyond and multiyear contracts contained an accelerated
                            procurement schedule approved by the Under Secretary of Defense for
                            Acquisition and Technology for use in planning and budgeting for C-17
                            production at the maximum affordable rate. The baseline procurement



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                                          C-17 Program Cost Could Exceed $43 Billion
                                          Despite Savings




                                          profile used in the joint cost model provided for nine production
                                          lots (VIII-XVI) with a maximum procurement rate of 12 per year. The
                                          accelerated procurement profile provides for eight lots with a maximum
                                          procurement rate of 15 per year. A comparison of the two procurement
                                          schedules with their respective prices is shown in table 4.3. According to
                                          the contractor’s proposal, the accelerated procurement rate buildup and
                                          higher quantities allowed the company to offer the reduced price.


Table 4.3: Comparison of Contract Procurement Baseline Profile With Accelerated Procurement Profile for Last 88 Aircraft
Then-year dollars in millions
Fiscal year                  1996      1997      1998     1999       2000      2001    2002      2003      2004    Total price
Baseline number                  8         8        8         8        10        12       12       12        10       $18,269
Accelerated number               8         8        9        13        15        15       15        5         0         16,913
Reduction                                                                                                               $1,356



Transfer of Development                   Contracts for C-17 development and prior production lots contained
and Support Costs                         provisions for improving the aircraft and for field support. The Air Force
                                          and the contractor estimated the cost of this work in the January 1995
                                          production price baseline to be about $827 million. Starting with the
                                          production lot VIII and beyond contract, the Air Force transferred this
                                          work to the PE/PI and field support contracts. This was done to have the
                                          production contract reflect only the cost of producing the aircraft and to
                                          increase management’s visibility and control over production costs.


Multiyear Procurement                     On the basis of a January 1996 proposal submitted by McDonnell Douglas,
Will Reduce Contract Price                the Air Force sought and obtained congressional approval for multiyear
                                          procurement authority to purchase the last 80 C-17 aircraft over a 7-year
                                          period. In June 1996, the Air Force awarded McDonnell Douglas a
                                          $14.2 billion 7-year multiyear contract for the last 80 C-17 aircraft starting
                                          with production lot IX in fiscal year 1997 and ending with production
                                          lot XV in fiscal year 2003.

                                          The multiyear contract reduced McDonnell Douglas’s target prices for the
                                          last 80 aircraft by $827 million. On the basis of an accelerated procurement
                                          profile, the contract provides for a 5.5-percent discount from the
                                          negotiated prices in the annual lot VIII and beyond contract for production
                                          lots IX through XV. McDonnell Douglas’s original proposal offered a
                                          5-percent discount, but the contractor increased it to 5.5 percent due to a
                                          congressional desire for a larger discount. McDonnell Douglas did not



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                                      C-17 Program Cost Could Exceed $43 Billion
                                      Despite Savings




                                      identify how it would achieve this additional reduction, and characterized
                                      it as a management challenge.

                                      The multiyear contract also allows the Air Force to revert to the lot VIII
                                      annual buy contract options without renegotiating prices, if any year’s buy
                                      under the multiyear contract is not fully funded. The lot VIII contract’s
                                      variation in quantity clause allows the Air Force to choose either a
                                      baseline or an accelerated procurement schedule.


                                      In April 1994, we testified that the $43 billion total program cost estimate
C-17 Program Costs                    to acquire 120 C-17s exceeded the last DOD estimate to acquire 210 aircraft.5
Remain at $43 Billion                 A 1996 Air Force estimate of total program costs for a 120 C-17s has
                                      decreased by only $174 million since that time. Although both the 1994 and
                                      the 1996 estimates include multiyear procurement, the 1994 estimate is
                                      based on a maximum procurement rate of 12 aircraft per year while the
                                      procurement rate in the 1996 estimate is 15 aircraft per year.

                                      Table 4.4 compares the 1994 and the 1996 estimates of total program costs.
                                      It shows that the Air Force reduced its budget estimate for C-17
                                      production costs for the 120-aircraft program by over $3 billion. This
                                      represents about a 10-percent decrease in production costs, or an average
                                      reduction of $26.5 million per aircraft. For the most part, this decrease is a
                                      result of the Air Force negotiating lower prices with McDonnell Douglas
                                      for the remaining 88 aircraft.

Table 4.4: Total C-17 Program Costs
for 120 Aircraft                      Then-year dollars in millions
                                      Description                                               1996              1994           Change
                                      Research and development                             $6,701.1           $5,709.9            $991.2
                                      Production                                           29,234.8           32,414.8           (3,180.0)
                                      Support                                                3,147.0           2,103.4            1,043.6
                                      Modifications                                          1,278.7                  0           1,278.7
                                      Spares                                                 2,197.2           2,523.3             (326.1)
                                      Military construction                                    346.0             327.4               18.6
                                      Total                                               $42,904.8         $43,078.8            $(174.0)

                                      The $3.2-billion decrease in production costs was offset by increased
                                      estimates for research and development, aircraft modifications, and field
                                      support. According to program officials, the $991-million increase in
                                      research and development funds is mainly for additional follow-on

                                      5
                                       Military Airlift: C-17 Proposed Settlement and Program Update (GAO/T-NSIAD-94-172, Apr. 28, 1994).



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                            C-17 Program Cost Could Exceed $43 Billion
                            Despite Savings




                            development and operational testing, and the $1.3-billion increase in
                            modification funds is for the development and incorporation of
                            modifications to the aircraft. Examples of planned funding for
                            modification improvements include: $247 million to improve the C-17
                            cargo compartment system, $205 million to upgrade the aircraft’s avionics,
                            and $150 million to enhance utilization of the cockpit.

                            According to the C-17 program office, the $1-billion increase in support
                            costs is due to (1) the extension from fiscal year 2001 to 2005 of
                            McDonnell Douglas interim contractor support for fielded C-17 aircraft
                            and (2) plans to fund many sustainment tasks under the weapon system
                            procurement account that were previously funded under the operation and
                            maintenance account.


Multiyear Contract Allows   The contract prices for the last 50 aircraft could increase about $1 billion
for Program Cost Growth     because of ceiling prices contained in the multiyear production contract.
                            On the basis of our analysis, the ceiling prices for contract options,
                            starting with lot XII, exceed the negotiated target prices by about
                            $1 billion.

                            Further, the multiyear contract contains contract clauses that allocate the
                            risk of unforseen events between the government and the contractor.
                            These clauses allow for increases or decreases in the price (for production
                            lots X and XI) and the target cost and ceiling price for production lots XII
                            through XV. For example, increases or decreases to materiel costs due to
                            changes in inflation or currency exchange rates would result in
                            adjustments to the price, target cost, target price, and ceiling price for a
                            lot. These contract amounts could also be adjusted for cost increases or
                            decreases to the prime contractor for changes in labor and overhead rates,
                            loss of suppliers, new government compliance requirements, and
                            extraordinary events such as earthquakes or fire if the net effect of these
                            changes (upward or downward) is 2 percent or greater of the applicable
                            fixed price or target cost amounts stated in the contract.


                            In commenting on a draft of this report, DOD agreed that the estimated
Agency Comments             program cost remains at $43 billion, but pointed out that the costs for
and Our Evaluation          additional research and development, testing, and modifications were not
                            included in the earlier estimates because the items being covered by these
                            costs were not known at that time. The need for the modifications was
                            identified during testing. We agree that these costs were not reflected in



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C-17 Program Cost Could Exceed $43 Billion
Despite Savings




the earlier estimates. However, major weapon systems generally require
modifications as a result of testing. Not including any potential costs of
these modifications ignores prior experience and understates potential
costs.




Page 48                                          GAO/NSIAD-97-38 Military Airlift
Page 49   GAO/NSIAD-97-38 Military Airlift
Appendix I

DOD-Approved C-17 Program Cost and
Schedule Aircraft Performance Criteria for
Continuing the Program Beyond 40 Aircraft

DOD-established criteria                                                Objective               Threshold            Compliance
  C-17 program milestone                                    Date
Complete development testing                                              Dec. 94                 June 95                 Dec. 94
Start operational testing                                                 Dec. 94                 June 95                 Dec. 94
Complete operational testing                                              June 95                  Dec. 95                June 95
Initial operational capability (12 aircraft)                               Jan. 95                 July 95                Jan. 95
Reliability, maintability, and availability evaluation                     July 95                 Jan. 96                Aug. 95
Full-rate production decision milestone IIIB                              Nov. 95                  May 96                 Nov. 95
Program costs for first 40 aircraft                         Estimate (fiscal year 1981 base-year millions)
Research and development                                                  $4,089.1                $4,702.5               $4,070.1
Procurement                                                                8,769.3                 9,207.8                8,462.8
Military construction                                                        138.0                   158.7                  133.0
Average unit procurement                                                  219.233                 252.118                   211.6
Program aircraft performance                                Performance parameter
Payload at 3,200 nautical miles                                        130,000 lbs             110,000 lbs            131,000 lbs
Maximum payload landing field length                        3,000 ft @ 160,000 lbs 3,000 ft @ 140,000 lbs 2,900 ft @ 160,000 lbs
Backup capability                                                        2% grade              1.5% grade             3+% grade
Turning capability (feet for 180-degree turn)                        96 ft unpaved             90 ft paved           80 ft paved/
                                                                                                                    96 ft unpaved
Rolling stock/outsize cargo                                            15 vehicles             15 vehicles            15 vehicles
Airdrop                                                              102 personnel          102 personnel          102 personnel
                                                                       110,000 lbs             60,000 lbs            110,000 lbs
                                                                   40 CDS bundles         30 CDS bundles         30 CDS bundles
Aircraft reliability and maintability                       (Projected range)
Mean time between maintenance, corrective                                       0.78                  0.75            0.88 to 1.37
(mean flight hours)
Mean time between removal                                                        2.8                   2.5            4.23 to 6.11
(mean flight hours)
Mean man hours to repair                                                        7.35                  7.35             3.7 to 4.45




                                                  Page 50                                         GAO/NSIAD-97-38 Military Airlift
Appendix II

Comments From the Department of Defense


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




See comment 2.




                             Page 51   GAO/NSIAD-97-38 Military Airlift
Appendix II
Comments From the Department of Defense




Page 52                                   GAO/NSIAD-97-38 Military Airlift
                 Appendix II
                 Comments From the Department of Defense




See comment 1.




See comment 3.




                 Page 53                                   GAO/NSIAD-97-38 Military Airlift
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                 Comments From the Department of Defense




See comment 2.




See comment 4.




See pp. 37-38.




                 Page 54                                   GAO/NSIAD-97-38 Military Airlift
                 Appendix II
                 Comments From the Department of Defense




See p. 38.




See comment 5.




See comment 6.




                 Page 55                                   GAO/NSIAD-97-38 Military Airlift
                 Appendix II
                 Comments From the Department of Defense




See comment 7.




See comment 8.




See comment 9.




                 Page 56                                   GAO/NSIAD-97-38 Military Airlift
                  Appendix II
                  Comments From the Department of Defense




See pp. 47-48.




See comment 10.




                  Page 57                                   GAO/NSIAD-97-38 Military Airlift
                 Appendix II
                 Comments From the Department of Defense




See comment 1.




See comment 9.




                 Page 58                                   GAO/NSIAD-97-38 Military Airlift
               Appendix II
               Comments From the Department of Defense




               The following are GAO’s comments on the Department of Defense’s (DOD)
               letter dated January 2, 1997.


               1. Although the Mobility Requirements Study Bottom-Up Review Update
GAO Comments   (MRS BURU) recommended that a fleet with the capacity of 120 C-17s be
               acquired, the basis for that recommendation was a set of assumptions
               concerning the (1) war fight, (2) expected levels of prepositioning, and
               (3) timing of the scenarios. Our review indicated that there are individual
               measures that DOD should implement to change the basis for those
               assumptions. DOD asserted that less than 120 C-17 equivalents would
               increase risk to an unacceptable level, without considering the MRS BURU
               scenario in terms of any of our suggested measures to offset a reduction in
               airlift. DOD’s assertion that there would be an increase in risk beyond the
               moderate range is not established by evidence or analysis.

               2. To ensure that no misunderstanding occurs, we have modified the
               report to identify the portion of the $7 billion expected savings that would
               come from reductions in acquisition and the portion that would be
               foregone operating costs over the life of the aircraft.

               3. We agree that replacing 234 C-141s with 100 or 120 C-17s will result in
               fewer aircraft in the fleet. However, DOD decided in April 1990 that a
               significant reduction in the number of aircraft was acceptable when it
               reduced the planned C-17 buy from 210 to 120. The reduction was based
               on the increased capability of the C-17 and the change in the threat. The
               Defense Acquisition Board’s decision was based on the findings of the
               MRS BURU, the Strategic Airlift Force Mix Analysis, and the Tactical Utility
               Analysis, which considered wartime requirements, not the Air Mobility
               Command’s peacetime operating tempo.

               4. DOD claims that additional prepositioning in support of two major
               regional contingencies is unacceptable because it would reduce flexibility.
               However, the MRS BURU found that the materiel shortfall could be
               delivered to the theater on prepositioning ships. The decision on how
               much to preposition afloat was based on the decision that the airlift fleet
               would include 120 C-17 equivalents. More prepositioning would diminish
               by 2 percent the theater commanders’s flexibility to alter the airlift flow.
               However, the Joint Staff could not provide any analysis to support why a
               2 percent or less decrease would be unacceptable. Further, our analysis
               has accounted for the costs involved in prepositioning either on land or on
               ships. Also, the increased risk is, in our opinion, minimal. The equipment is



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Appendix II
Comments From the Department of Defense




a very small portion of the amount of equipment involved in any
contingency operation, it would be located in areas that are the most likely
sites of potential trouble, and it would not be substantially further from
potential use sites than if it were retained in the United States.

5. DOD states that the use of staging bases during a brigade airdrop is not a
realistic option because of the time involved. However, we are not
suggesting that troops or equipment be prepositioned at an overseas base
for a potential strategic brigade airdrop. We are suggesting that some of
the equipment delivered as part of the airland follow-on phase of the
brigade airdrop—less than 15 C-17 loads—be moved first to staging bases
as part of the initial deployment so that it can be picked up by C-17s used
in the initial airdrop. This would eliminate the time needed by these C-17s
to return to the United States to pick up this equipment.

6. Although DOD considers this a realistic objective, DOD cannot currently
accomplish this directly from the United States to a small, austere airfield
as desired by the Army. Our point is not that this capability never be
acquired but that a delay in acquiring it will result in significant savings.

7. We have modified the report to reflect that there are 74 C-5As in the
airlift fleet of which 16 are undergoing depot maintenance or used for
training purposes.

8. The costs DOD refers to will occur as a result of replacing the C-5A
whether or not any other actions are taken.

9. DOD’s response states that the strategic brigade airdrop operational
capability release is targeted for February 1997, using 20-foot static lines
and 40,000 foot spacing between 3-ship C-17 elements. However, DOD’s
response fails to address two important points. First, the Army does not
have an operational 20-foot static line. It needs to be developed, tested,
and certified. Second, standard spacing for formation personnel airdrop
using C-141s is 6,000 to 12,000 feet between elements. The larger
separation of the C-17, in addition to the formation being wider than with
other aircraft, would result in a longer time to complete the airdrop, and a
greater dispersion of troops over a larger drop zone. This would delay
getting troops on the ground and require additional time to consolidate
and reorganize those troops into an effective fighting force, thereby
increasing the risk to the operation.




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Appendix II
Comments From the Department of Defense




10. We agree that it is in the contractor’s interest to maximize profit.
However, clauses included in the multiyear contract allocate risk between
the government and the contractor that arises from events over which they
may have little or no control. If these events occur, then the cost of the
contract to the government can increase.




Page 61                                        GAO/NSIAD-97-38 Military Airlift
Appendix III

Major Contributors to This Report


                        Thomas J. Denomme
National Security and   Penny D. Stephenson
International Affairs   Michele Mackin
Division, Washington,
D.C.
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