oversight

Navy Aviation: V-22 Cost and Capability to Meet Requirements Are Yet to Be Determined

Published by the Government Accountability Office on 1997-10-22.

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

                  United States General Accounting Office

GAO               Report to Congressional Committees




October 1997
                  NAVY AVIATION
                  V-22 Cost and
                  Capability to Meet
                  Requirements Are Yet
                  to Be Determined




GAO/NSIAD-98-13
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-272631

             October 22, 1997

             Congressional Committees

             This report conveys the results of our review of the V-22 Osprey program.
             The program is intended to provide 523 new tilt-rotor aircraft—425 for the
             Marine Corps, 50 for the Special Operations Command (SOCOM), and
             48 for the Navy. Since the program began over 15 years ago, Congress has
             continued to provide funding, while expressing concern that the planned
             low rate of production is inefficient. Our objective was to review the status
             of the program to identify areas of potential cost increases or performance
             challenges and assess whether the aircraft being developed will meet the
             stated requirements of each of the services. We are addressing the report
             to the congressional committees that have jurisdiction over the matters we
             discuss.


             The V-22 Osprey program was approved in 1982. The V-22 was being
Background   developed to meet joint service operational requirements that would
             satisfy various combat missions, including medium-lift assault for the
             Marine Corps, search and rescue for the Navy, and special operations for
             the Air Force. The program advanced into full-scale development in 1986.
             In December 1989, the Department of Defense (DOD) directed the Navy to
             terminate all V-22 contracts because, according to DOD, the V-22 was not
             affordable when compared to helicopter alternatives. DOD notified
             Congress that in order to satisfy the joint service requirements, the aircraft
             would require substantial redesign and testing. Congress continued to
             fund the program and in August 1992, the Acting Secretary of the Navy
             testified that a V-22 that met the joint service operational requirements
             could not be built with the funds provided. In October 1992, the Navy
             terminated the V-22 full-scale development contract and awarded a
             contract to begin engineering, manufacturing, and development (EMD) of a
             V-22 variant.

             During the FSD phase, five prototype aircraft were built.1 We have been
             monitoring the V-22 program for the past several years. Our reports2

             1
              Two of these prototype aircraft were destroyed in crashes. The cause of the first crash, which
             occurred in June 1991, was reported to be incorrect wiring in a flight-control system. The cause of the
             second crash, which occurred in July 1992, was reported to be an on-board fire due to component
             failures and design problems in the engine nacelles.
             2
              Defense Acquisition Programs: Status of Selected Systems (GAO/NSIAD-90-30, Dec. 14, 1989); Naval
             Aviation: The V-22 Osprey-Progress and Problems (GAO/NSIAD-91-45, Oct. 12, 1990); and Naval
             Aviation: V-22 Development Schedule Extended, Performance Reduced, and Costs Increased
             (GAO/NSIAD-94-44, Jan. 13, 1994).



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                   consistently discussed testing and development issues such as weight,
                   vibration, avionics, flight controls, landing gear, and engine diagnostic
                   deficiencies.

                   The current V-22 program, which entered EMD in 1992, is scheduled to
                   proceed with developmental testing through 1999. During the EMD phase,
                   the contractor is required to build four production representative aircraft
                   to Marine Corps specifications and deliver them to Patuxent River Naval
                   Air Station, Maryland, in 1997 for developmental and operational testing.
                   Operational testing for the Marine Corps’ V-22 is scheduled to extend into
                   fiscal year 2000.

                   After completion of operational testing to determine whether the EMD
                   aircraft will meet Marine Corps requirements, one of the aircraft will be
                   remanufactured and tested to determine whether it will meet SOCOM
                   requirements. Operational testing for the SOCOM variant is scheduled to
                   extend through fiscal year 2002.

                   In March 1997, one EMD aircraft was delivered to Patuxent Naval Air
                   Station to begin developmental and operational testing. Three more
                   aircraft are under construction and are expected to be delivered by
                   October 1997. DOD approved the program to begin low-rate initial
                   production (LRIP) in April 1997 and will purchase 25 V-22 aircraft in
                   4 LRIP lots of 5, 5, 7, and 8 through fiscal year 2000.

                   Full-rate production is scheduled to begin in fiscal year 2001 and continue
                   through fiscal year 2018. Initial operational capability (IOC)3 for the V-22
                   Marine Corps variant is scheduled for 2001 and in 2005 for the SOCOM
                   version. IOC for the Navy V-22 aircraft has not yet been specified.

                   Through fiscal year 1997, more than $6.5 billion has been provided for the
                   program.


                   The V-22 has been in development for almost 15 years. Although Congress
Results in Brief   has provided significant funding and support to DOD, the system has not
                   yet achieved program stability in terms of cost or aircraft design. There are
                   large disparities among the cost estimates from the program office, the
                   contractors, and the Office of the Secretary of Defense. These estimates
                   range from about $40 million to $58 million for each aircraft. The design of

                   3
                    IOC is the first attainment of the capability to effectively employ 12 aircraft, operated by an
                   adequately trained, equipped, and supported military unit.



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                      the aircraft will not be stabilized until further testing is completed and
                      several important performance and operational issues, such as payload
                      capability, aerial refueling, and downwash4 are resolved. Resolution of
                      these issues, which could also require mission trade-offs or changes to
                      planned operational concepts, will likely escalate program costs and
                      extend the program schedule. The April 1997 LRIP decision was based, in
                      large part, on the results of early operational testing using aircraft
                      produced under an earlier full-scale development program. However,
                      those aircraft are not representative of the aircraft currently being
                      developed during the engineering and manufacturing development phase
                      of the V-22 program. Furthermore, the DOD Director, Operational Test and
                      Evaluation, has characterized the tests on which the LRIP decision was
                      based as “extremely artificial” because of significant test limitations.
                      Future production decisions for the V-22 should be based on more realistic
                      testing.


                      The cost data reported in the December 31, 1996, V-22 Selected Acquisition
Cost Estimates Vary   Report (SAR) is different from the data in the program office submission to
                      support the fiscal year 1998-99 President’s Budget. For example, the SAR
                      indicates that average unit flyaway costs5 at program completion would be
                      about $55.4 million, while the program office estimate for the President’s
                      Budget shows that average unit flyaway cost will be about $57.5 million at
                      program completion. Table 1 provides a comparison of the various cost
                      estimates at different program milestones. (See app. I for a more detailed
                      comparison.)




                      4
                       The downward force from the V-22 proprotor blades while in a hover mode.
                      5
                       We used unit flyaway cost estimates for comparison because they are more standardized and
                      concentrate on those costs directly related to the production of the aircraft. This includes the cost of
                      the basic system equipment, as well as both recurring and nonrecurring costs associated with the
                      production of a usable end item of military hardware.



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Table 1: Comparison of V-22 Cost Estimates at Various Program Milestones (then-year dollars in millions)
                                                                         Program office data                              SAR data
                                                Units produced                Average unit flyaway cost         Average unit flyaway cost
Milestone                          Year       Annual          Cumulative         Annual         Cumulative         Annual         Cumulative
LRIP begins                        1997               5                   5      $116.0               $116.0       $112.3                $112.3
Last year LRIP                     2000               8                  25         76.4                 91.3         73.9                 88.5
Full-rate production/SOCOM
V-22 begins                        2001              16                  41         73.7                 84.5         71.2                 81.8
                 a
Production lot 9                   2005              31                158          53.9                 65.1         51.8                 62.7
Navy V-22 begins                   2010              26                299          52.2                 59.0         50.2                 56.8
Program completion                 2018              30                523          59.3                 57.5         57.0                 55.4
                                          a
                                           This lot is included because it contains production unit number 153, the point at which the
                                          program is expected to reach the contractor estimated unit cost of $40.9 million.



                                          Furthermore, the contractor is estimating that the average unit flyaway
                                          cost, in then-year dollars, for the V-22 will eventually get down to about
                                          $40.9 million. The contractor estimate is based on the assumption that the
                                          production quantities and cost will stabilize (commonly referred to as the
                                          production learning curve) at about the time that aircraft number 153 is
                                          produced. Thus, the contractor estimate of $40.9 million would occur at a
                                          point in time in the program when the program office estimate and the SAR
                                          indicate that the average unit flyaway cost would be about $53.9 million
                                          and about $51.8 million, respectively.

                                          These widely differing estimates indicate that the V-22 has not matured to
                                          the point that there can be reasonable confidence that the costs are stable.
                                          This is particularly true because, as discussed later, the aircraft design is
                                          not yet stable and further changes are expected as the test program
                                          continues. Resolution of performance and operational issues will likely
                                          increase V-22 program costs. In that regard, we and other organizations,
                                          such as the Congressional Budget Office and the Institute for Defense
                                          Analyses, have performed reviews of weapon systems over the years that
                                          have shown that, historically, the cost of major weapons programs
                                          increases by over 20 percent.6




                                          6
                                           Weapons Acquisition: A Rare Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec. 1992); CBO
                                          Papers: An Analysis of the Administration’s Future Years Defense Program for 1995 Through 1999
                                          (Jan. 1995); and The Effects of Management Initiatives on the Costs and Schedules of Defense
                                          Acquisition Programs, Volume 1: Main Report (IDA Paper P-2722, Nov. 1992).



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                            At this point in the V-22 program, it is questionable whether the aircraft
Unresolved Issues           being produced will be able to meet the multi-mission requirements
May Impact                  outlined in the current Operational Requirements Document (ORD). The
Multi-Mission               following are some issues that must be resolved before a determination
                            can be made as to whether the V-22 will satisfy the services’ stated
Requirements                requirements.


External Payload            The current Marine Corps medium-lift helicopter fleet, consisting of
                            CH-46E and CH-53D helicopters, is aging and now has an average age of
                            24 to 27 or more years. Navy and Marine Corps documents indicate that
                            this fleet is deficient in payload, range, and speed. In addition, the fleet is
                            incapable of providing the operational performance needed by the Marine
                            Corps. And, according to Marine Corps officials, the medium-lift aircraft
                            inventory is well below what is required.

                            While the V-22 is to replace the Marine Corps’ CH-46E and CH-53D
                            helicopters, its payload capabilities have yet to be demonstrated. The ORD
                            stipulates that the V-22 must be able to lift external loads up to
                            10,000 pounds. By comparison, the CH-46E and CH-53D are able to lift
                            8,000 to 12,000 pounds. Testing to evaluate the V-22’s lift capability, and to
                            measure structural load/stresses/strains in flight and the operational
                            capabilities to carry external cargo is planned to take place in fiscal year
                            1998. Moreover, it has yet to be determined if the high-speed capability of
                            the V-22 will enhance the Marine Corps’ external lift capabilities, since the
                            airborne behavior of operational equipment such as multi-purpose
                            vehicles, heavy weapons, and cargo vehicles carried at speeds at or in
                            excess of 200 knots has yet to be tested. If the V-22 cannot rapidly move
                            operational equipment, then its utility as an external cargo carrier to
                            replace current Marine Corps medium-lift assets will have to be
                            reevaluated.


Terrain Following/Terrain   The V-22 ORD requires that, at a minimum, the CV-22 have the capability to
Avoidance Capability        fly at 300 feet using terrain following/terrain avoidance, in all weather
                            conditions during both daylight and night-time environments. Testing done
                            with the FSD prototype V-22 aircraft has shown that the AN/APQ 174
                            multi-functional radar, which would provide this capability, interferes with
                            the V-22’s radar jamming system. Further EMD aircraft testing with the
                            AN/APQ 174 radar system is necessary to resolve this issue. That testing is
                            not scheduled to be completed until the middle of fiscal year 2001.




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Refueling Probe      According to the ORD, the V-22 must have an aerial refueling receiver
                     capability compatible with current Marine Corps and SOCOM tanker assets.
                     SOCOM personnel told us that it was vital for both the pilot and the co-pilot
                     to be able to see the probe during aerial refueling. However, the current
                     V-22 design prevents the pilot in the left seat of the aircraft from being able
                     to see the refueling probe. Testing to date with the full-scale development
                     version of the aircraft shows that the pilot in the left seat must either raise
                     the seat or lean forward in the seat to clearly see the refueling probe.

                     According to SOCOM officials, being able to readily see the refueling probe
                     from both pilot seats without the pilot having to make these physical
                     adjustments is essential to safe flight operations. From a mission and
                     training point of view, these officials claim that it is critical that both pilots
                     be able to see the entire refueling operation in the event that the pilot in
                     the left seat has to take over the operation. While SOCOM pilots perform
                     significantly more missions requiring refueling, Marine Corps officials told
                     us that they believe that as long as the pilot in the right seat can clearly see
                     the probe, the pilot in the left seat could make necessary adjustments to
                     safely conduct the refueling mission should the need arise.

                     V-22 program officials have agreed that if future testing shows that the
                     current design of the refueling probe is a problem, necessary steps will be
                     taken to correct the baseline aircraft. However, if a redesign is necessary,
                     it could have an impact on aircraft performance (weight, range, and speed)
                     or other aircraft systems, such as the radar.


Proprotor Downwash   The downward force from the V-22 proprotor blades while in the hover
                     mode (referred to as downwash) continues to be an area of concern.
                     Downwash is a concern for both the Marine Corps and SOCOM in areas such
                     as personnel insertions/extractions, external load hookups, fast rope
                     exercises, and rope ladder operations.

                     According to DOD documentation, the extremely intense rotor downwash
                     under the aircraft makes it a challenge to stand under the aircraft, let alone
                     perform useful tasks. According to the DOD Director, Operational Test and
                     Evaluation report issued in March 1997, resolution of this issue will
                     require further testing. Program officials told us that downwash is a
                     common concern with rotary aircraft and V-22 users will have to adjust
                     mission tactics while under the aircraft to compensate for downwash.




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Survivability Trade-Offs   Survivability is a critical concern as the services seek to perform their
                           missions, particularly in hostile environments. The V-22 ORD defines the
                           necessary capabilities that must be available on each configuration of the
                           aircraft. However, our review showed that in order for the aircraft to meet
                           key performance parameters, such as range, trade-offs are being
                           considered. Critical subsystems may be delayed or deleted, while others
                           may require future upgrades or modifications that may affect the
                           program’s cost and schedule.

                           One such subsystem is the AN/AVR-2A laser-warning receiver. By giving
                           the pilot advance warning, this subsystem would reduce the susceptibility
                           of the aircraft to laser illumination and attacks. The ORD requires that
                           consideration be given to protecting crew and electro-optical sensors from
                           low- to medium-powered lasers. While the Marine Corps V-22 aircraft will
                           have this capability, the SOCOM V-22 aircraft will only have space and
                           wiring provisions. Currently, the SOCOM variant will not have the
                           laser-warning receiver because, according to SOCOM officials, it would
                           prevent the aircraft from meeting its range requirements. In that regard,
                           the V-22 ORD states that a key performance parameter for the SOCOM variant
                           is the requirement for a mission radius of 500 nautical miles; that is, the
                           aircraft must have the ability to fly from a base station out to 500 nautical
                           miles, hover for 5 minutes, and return. According to SOCOM officials, the
                           V-22 will not meet this range requirement with the laser-warning
                           subsystem installed. SOCOM officials contend that the lack of the laser
                           warning receiver is a concern relative to successful mission
                           accomplishment and survivability of aircraft and crew.

                           Another survivability concern is the lack of a defensive weapon on the
                           V-22. The requirement document states that the V-22 must have an
                           air-to-ground and air-to-air weapon system compatible with night vision
                           devices. This is a required capability for the Marine Corps variant and a
                           desired capability for the SOCOM variant. Originally, the V-22 was to be
                           equipped with a 50-caliber machine gun; however, for affordability
                           reasons, it will now be produced without a defensive weapon system.

                           Finally, the ORD requires that the V-22 include a ground collision avoidance
                           and warning system with voice warning. Currently, the Navy claims that
                           this requirement was added to the ORD after the V-22 had validated its
                           design and, therefore, was not included in the planned production.
                           Instead, the system is a potential limitation to the Marine Corps’ V-22
                           configuration and will be included as a preplanned product improvement
                           to be evaluated through the course of the test program. The Navy intends



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                         to correct this deficiency, most likely through a retrofit process, and pay
                         for it within program baseline funding.


                         The V-22 program was approved to proceed with LRIP in April 1997. One of
More Realistic Testing   the primary criterion that the program was required to meet was the
Needed                   completion of an operational assessment endorsing potential operational
                         effectiveness and suitability7 of the V-22’s EMD design.8 Three series of
                         early operational assessments were used to support DOD’s LRIP decision.
                         Due to the significant limitations of these early operational assessments,
                         their reliability as the basis for deciding to proceed into LRIP is
                         questionable and future production decisions should be based on more
                         realistic tests.

                         The three operational assessments that have been conducted used aircraft
                         produced under the earlier full-scale development program. Previously,
                         DOD had determined these aircraft to be incapable of meeting V-22 mission
                         requirements and, at one point, the Secretary of Defense sought to cancel
                         the full-scale development program. V-22 program officials believe that
                         even though the full-scale development aircraft did not meet mission
                         requirements, the lessons learned from having produced them reduced the
                         risk associated with developing the current EMD aircraft.

                         The first of the three early operational assessments was conducted
                         between May and July 1994; the second assessment between June and
                         October 1995. These assessments were conducted jointly by the Navy’s
                         Operational Test and Evaluation and the Air Force’s Operational Test and
                         Evaluation Center. In both assessments, the joint test teams concluded
                         that the development aircraft demonstrated the potential to be
                         operationally effective and suitable. Although the third assessment was
                         not completed at the time of the decision to proceed with LRIP, an interim
                         report was prepared for this milestone. This report highlighted limitations
                         and risks remaining from previous assessments and cited additional areas
                         of concern, but still projected that the V-22 will be potentially
                         operationally effective and suitable.




                         7
                          Operational effectiveness is the degree to which a system can accomplish its missions when used as
                         expected. Operational suitability is the degree to which the system can be placed satisfactorily in field
                         use, considering such things as availability, reliability, and safety.
                         8
                          Additional criteria, which were met, were (1) empty weight would not exceed 34,182 pounds,
                         (2) complete ferry to Patuxent River Naval Air Station, and (3) demonstrate airspeed of 220 knots.



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    In March 1997, DOD’s Director for Operational Test and Evaluation issued
    the Fiscal Year 1996 Annual Report. In that report, the Director,
    Operational Test and Evaluation, concluded that V-22 testing had
    concentrated on system integration and flight envelop expansion, but had
    “not extensively investigated mission applications of tiltrotor technology
    and potential operational effectiveness and suitability of the EMD V-22.”
    The report also highlighted the following operational test and evaluation
    limitations relative to the operational assessments of the V-22. The aircraft

•   was not cleared to hover over unprepared landing zones,
•   could not hook up to or carry any external loads,
•   could not carry any passengers, and
•   was not cleared to hover over water.

    The Director, Operational Test and Evaluation report also stated that the
    aircraft configuration was not representative of any mission configuration.
    The Director, Operational Test and Evaluation said this combination of
    limitations to clearance and configuration results in an “extremely
    artificial” test environment for early operational test and evaluation. The
    Director, Operational Test and Evaluation also reported serious concerns
    regarding the effects of downwash previously mentioned in this report and
    recommended further evaluation in this area.

    The initial flight of the first of four EMD aircraft, originally scheduled for
    December 1996, was delayed until February 1997. As a result, the required
    ferry to Patuxent River was delayed until March 1997. The aircraft arrived
    at the test facility needing several changes before the test program could
    continue as planned. In order to meet the ferry date and thus obtain
    approval to proceed with LRIP, component changes and modifications were
    not completed at the contractor’s facility. Instead, they were to be
    completed at Patuxent River after the required ferry flight. During a visit to
    the Naval Air Station test facilities in April 1997, we observed the aircraft
    undergoing modifications by contractor personnel. According to test
    officials with whom we spoke, the modifications were originally only
    expected to take about 2 weeks. However, as of June 16, 1997, the
    modifications were still ongoing, nearly 2 months after they began.

    The next major milestone decision for the V-22 is the LRIP lot 2 production
    decision. That decision is scheduled for early 1998 and will represent DOD’s
    approval to procure the next five V-22 aircraft. The criteria that must be
    met for LRIP lot 2 approval are:




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                        •   delivery of two additional EMD aircraft and
                        •   completion of certain static tests to determine the structural strength of
                            the aircraft.


                            Congressional committees have expressed concern that the planned V-22
Impact of Accelerated       production schedule (4 LRIP lots of 5, 5, 7, and 8 aircraft with eventual
Production on               full-rate production of as many as 31 aircraft per year through 2018) is
Schedule and Testing        inefficient.9 (See app. I for complete V-22 program schedule and cost
                            estimates.)

                            In August 1996, the contractors submitted an unsolicited cost estimate to
                            the Under Secretary of Defense for Acquisition and Technology that
                            suggested that accelerated production rates, combined with a multi-year
                            procurement strategy, could result in savings of nearly 25 percent over the
                            life of the V-22 program. The contractor proposed accelerating the
                            production schedule to a rate of 24 aircraft by fiscal year 1999, instead of
                            the 7 aircraft currently planned in fiscal year 1999. DOD responded that
                            while this strategy had the potential for significant savings, it was
                            inappropriate to consider such an alternative until the aircraft design was
                            more stable. DOD indicated that to do otherwise would unnecessarily
                            increase technical risk to the program. In addition, DOD stated that such an
                            increase in annual procurement quantities would not be affordable within
                            the overall defense budget. Further, the May 1997 Quadrennial Defense
                            Review recommended lowering the number of V-22 aircraft to be procured
                            from 523 to 458 and increasing the planned production rate after the
                            program enters full-rate production. The recommendation retains the
                            limited LRIP rates currently planned by DOD.

                            According to V-22 program test personnel, accelerating the production
                            schedule and increasing the rate would add risk to the program in the
                            event the test program finds problems that require a significant amount of
                            time and resources to fix, and result in a larger number of aircraft to
                            retrofit or modify. These views are consistent with the conclusions in our
                            February 13, 1997, report that described the effects of increased
                            production during LRIP of 28 weapon systems and the cost and schedule
                            impact to these programs.10 This report showed that when DOD
                            inappropriately placed priority on funding production of unnecessary

                            9
                            H.R. Rep. No. 104-563, at 48 (1996) and S. Rep. No. 104-267, at 59 (1996) on the National Defense
                            Authorization Act for Fiscal Year 1997.
                            10
                             Weapons Acquisition: Better Use of Limited DOD Acquisition Funding Would Reduce Costs
                            (GAO/NSIAD-97-23, Feb. 13, 1997).



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                     quantities during LRIP, the result was a large number of untested weapons
                     that subsequently had to be modified. Moreover, it points out that because
                     of overall budgetary constraints, decisions to buy unnecessary quantities
                     of unproven systems under LRIP forced DOD to lower the annual full
                     production rates of proven weapons thereby stretching out full-rate
                     production for years and increasing unit production costs by billions of
                     dollars.


                     There is no consensus on the acquisition strategy for acquiring the V-22
Conclusions and      Osprey. Congress has been attempting to increase the annual production
Recommendations      rates to achieve more efficient production and DOD has been attempting to
                     keep the annual production rates at a more limited quantity. The key to
                     efficient production and the efficient use of the funds Congress has
                     provided for the V-22 is program stability. However, after 15 years of
                     development effort, the V-22 design has not been stabilized. To begin the
                     process of achieving consensus on the acquisition strategy for the V-22, we
                     believe that DOD needs to present Congress with a strategy for overcoming
                     the production inefficiencies that Congress views as present in the current
                     acquisition strategy. As part of that strategy, we believe that DOD needs to
                     introduce more realistic testing into the program to achieve aircraft design
                     stability. Ideally, this testing should be done as early as possible in the
                     program schedule and should be directed at ensuring that the required
                     capabilities of the V-22 are adequately demonstrated before a significant
                     number of aircraft are procured. In that regard, the next scheduled major
                     program milestone is the LRIP lot 2 production decision scheduled for early
                     1998.

                     Accordingly, we recommend that the Secretary of Defense provide in the
                     Department’s next request for V-22 funds an explanation of how it plans to
                     (1) introduce more realistic testing earlier into the V-22 program schedule
                     and (2) achieve the production efficiencies desired by Congress. An
                     agreement between Congress and DOD in this regard would be a significant
                     step toward reaching consensus on the acquisition strategy for the V-22
                     program.


                     DOD reviewed and partially concurred with a draft of this report. In its
Agency Comments      comments, DOD agreed to continually assess and correct operational
and Our Evaluation   deficiencies found during V-22 testing. However, DOD did not concur with
                     our recommendation to provide Congress an explanation of how it plans
                     to introduce more realistic testing earlier into the V-22 program schedule



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              and achieve production efficiencies. DOD stated that it considers test
              results, production efficiencies, and other factors in developing its budget
              and does not consider additional explanatory materials necessary. DOD
              also stated that the Defense Acquisition Board, in April 1997, determined
              that the V-22 test program was adequate and properly sequenced.

              We continue to believe that the V-22 test program and the criteria for
              proceeding with the low-rate production program should be made more
              realistic. Given the artificial nature of the prior operational testing that
              was used to justify LRIP lot 1 production and the fact that earlier tests were
              conducted using nonproduction representative aircraft developed under
              the earlier V-22 full-scale development program, we believe that DOD
              should expand the LRIP lot 2 criteria to introduce more realistic testing into
              the program, using aircraft produced under the EMD phase of the program.
              We believe that at a minimum, the limitations of the prior tests, which
              were disclosed by the Director, Operational Test and Evaluation in its
              March 1997 report, should be addressed before a decision is made to
              proceed into the next LRIP lot. This would allow the test program to
              validate the projected capabilities of the EMD-configured aircraft without
              injecting unnecessary risk into the program.

              DOD also emphasized in its comments on our draft report that the
              Quadrennial Defense Review (QDR) resulted in an accelerated production
              profile that addresses many of the production efficiencies desired by
              Congress. The QDR recommends an overall reduction in aircraft for the
              Marine Corps, from 425 aircraft to 360 with an increase in the rate of
              production during the full production phase of the program. The four
              low-rate production lots of 4, 5, 7, and 8 aircraft planned during the period
              1997-2000 are retained. It is during this LRIP phase of the program that we
              believe more realistic testing is needed and should be included as criteria
              for procuring the next EMD LRIP lots. Therefore, we believe our position is
              consistent with the intent of the QDR recommendation, which would not
              take effect until the full-rate production phase of the V-22 program.

              DOD’s comments and our evaluation of them are presented in their entirety
              in appendix II.


              We reviewed the status of the V-22 aircraft development and readiness of
Scope and     the program to proceed into production. We reviewed and analyzed test
Methodology   plans and reports, including the Test and Evaluation Master Plan and
              results of three V-22 Operational Assessments; cost and budget estimates,



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    including the SAR and President’s Budget Estimates for fiscal years 1997-99;
    and other program documentation, including the ORD and the EMD and LRIP
    contracts. We also obtained information on Marine Corps medium-lift
    requirements and capabilities of existing assets. In addition, we met with
    officials in the office of the Secretary of Defense and conducted interviews
    with program officials from the following locations:

•   U.S. Navy Headquarters, Washington, D.C.;
•   U.S. Marine Headquarters, Arlington, Virginia;
•   Office of the Chief of Naval Operations, Washington, D.C.;
•   U.S. Special Operations Command, Tampa, Florida;
•   V-22 Program Office, Crystal City, Virginia; and
•   Naval Air Warfare Station, Patuxent River, Maryland.

    Finally, we visited contractor facilities at Boeing Defense and Space
    Group-Helicopters Division, Philadelphia, Pennsylvania, and Bell
    Helicopter Textron, Fort Worth, Texas.

    We performed our review from March 1996 through June 1997 in
    accordance with generally accepted government auditing standards.


    We are sending copies of this report to the Secretary of the Navy; the
    Secretary of the Air Force; the Commandant of the Marine Corps; and the
    Director, Office of Management and Budget. We will also make copies
    available to others on request.




    Page 13                                          GAO/NSIAD-98-13 Navy Aviation
B-272631




Please contact me at (202) 512-4841 if you or your staff have any questions
concerning this report. Major contributors to this report were
Steven F. Kuhta, Assistant Director; Samuel N. Cox, Evaluator-in-Charge;
and Brian Mullins, Senior Evaluator.




Louis J. Rodrigues
Director, Defense Acquisitions Issues




Page 14                                          GAO/NSIAD-98-13 Navy Aviation
B-272631




List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ronald V. Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C. W. Bill Young
Chairman
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives




Page 15                             GAO/NSIAD-98-13 Navy Aviation
Appendix I

V-22 Procurement Schedule and Cost
Estimate


              (Then-year dollars in millions)
                                          Program office estimate           Selected acquisition report
                                            Program       Unit flyaway           Program Unit flyaway
              Fiscal year     Units     flyaway cost               cost      flyaway cost         cost
              1997                5             $579.9          $116.0             $561.3        $112.3
              1998                5              494.8              99.0             480.7          96.1
              1999                7              597.6              85.4             579.0          82.7
              2000                8              611.0              76.4             591.3          73.9
              2001               16             1,179.5             73.7           1,139.9          71.2
              2002               24             1,617.2             67.4           1,559.3          65.0
              2003               31             1,810.1             58.4           1,738.4          56.1
              2004               31             1,720.4             55.5           1,652.5          53.3
              2005               31             1,671.8             53.9           1,606.8          51.8
              2006               31             1,642.7             53.0           1,578.8          50.9
              2007               31             1,629.6             52.6           1,566.2          50.5
              2008               29             1,499.9             51.7           1,442.0          49.7
              2009               24             1,239.2             51.6           1,192.0          49.7
              2010               26             1,356.5             52.2           1304.9           50.2
              2011               26             1,371.2             52.7           1,318.9          50.7
              2012               27             1,440.7             53.4           1,385.9          51.3
              2013               27             1,463.4             54.2           1,407.6          52.1
              2014               27             1,478.9             54.8           1,422.4          52.7
              2015               27             1,500.2             55.6           1,443.2          53.5
              2016               30             1,690.3             56.3           1,626.2          54.2
              2017               30             1,715.0             57.2           1,649.9          55.0
              2018               30             1,778.4             59.3           1,710.8          57.0
              Total             523         $30,088.3            $57.5           $28,958.0         $55.4




              Page 16                                                      GAO/NSIAD-98-13 Navy Aviation
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.




                             Page 17   GAO/NSIAD-98-13 Navy Aviation
                      Appendix II
                      Comments From the Department of Defense




See comments 2 & 3.




See comment 4.




                      Page 18                                   GAO/NSIAD-98-13 Navy Aviation
                   Appendix II
                   Comments From the Department of Defense




                   The following are GAO’s comments on the Department of Defense’s (DOD)
                   letter dated August 27, 1997.


                   1. We recalculated the cost data obtained from the V-22 Selected
GAO Comments       Acquisition Report, using DOD inflation indices, to reflect then-year dollars
                   for comparison to program office budget estimates. The recalculated cost
                   data are reflected in the final report.

                   2. We agree that the Operational Requirements Document (ORD) validated
                   by the Joint Requirements Oversight Council in June 1995 does not specify
                   an airspeed requirement for carrying external loads. However, the V-22
                   program was justified on the basis that it would overcome the
                   shortcomings of the Marine Corps’ current medium-lift helicopters. In that
                   regard, the ORD is specific in identifying inadequate payload, range, speed
                   and survivability in the current medium-lift force that severely limit the
                   Marine Corps’ ability to accomplish the assault support missions in current
                   and future threat environments.

                   We also agree that the ORD does not identify the specific equipment that
                   the V-22 must have to protect the aircraft and crew from laser threats.
                   However, the ORD does require that the aircraft be designed for operations
                   in a hostile environment with features that increase aircraft, crew, and
                   passenger survivability. Specifically, it requires that consideration be given
                   to protecting crew and electro-optical sensors from low- to
                   medium-powered lasers. While the MV-22 will be equipped with an
                   AN/AVR-2A laser-warning receiver, the CV-22 will not be so equipped.
                   Instead, the aircraft will be produced with available space and wiring for
                   installation of laser protection capabilities.

                   3. We note that the approved CV-22 exit criteria is as follows:

               •   For lot 1 advanced procurement funding, flight testing of the first of two
                   CV-22 flight test aircraft must have started.
               •   For lot 1 full funding and advanced procurement for lot 2, flight testing
                   with the second CV-22 aircraft must have started and the terrain
                   following/terrain avoidance testing must have started using the first CV-22
                   aircraft.




                   Page 19                                           GAO/NSIAD-98-13 Navy Aviation
           Appendix II
           Comments From the Department of Defense




           We question the value of “flight test started” as sufficient criteria for
           making an informed decision to proceed with production of the CV-22
           model aircraft.

           4. This comment is consistent with the discussion in the report.




(707156)   Page 20                                           GAO/NSIAD-98-13 Navy Aviation
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