oversight

Status of the Air Force's C-17 Aircraft Program

Published by the Government Accountability Office on 1990-06-19.

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

                     United St&es Generai Accounting OfTlck / 4/w7
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                                                                    II  141616

For Release            Status   of    the    Air   Force's    .C-17     Aircraft             Program
on Delivery
Expected    at
9:30   a.m.   EDST
Tuesday
June.19,    1990




                      Statement       of
                      Nancy R.       Kingsbury
                      Director,       Air     Force    Issues
                      National       Security       and International              Affairs
                         Division

                      Before     the
                      Subcommittee         on
                      Projection        Forces    and Regional          Defense
                      Committee       on Armed Services
                      United     States     Senate




GAO/T-NSIAD-90-48
                                                                                   GAO Form 160 (12/87)
Mr. Chairman           and' Members of the Subcommittee:


I am pleased           to be here         today        to discuss           GAO's concerns           about        cost
increases,        schedule        problems,            and the      risks      of concurrency               in the"
C-17 aircraft           program.          In August           1989 we reported1             that       the
program       faced     significant            cost,     schedule,           and performance
challenges.            On April       26, 1990, the              Secretary        of Defense           proposed
to restructure              the C-17 program             significantly            by reducing              (1) the
program       from     210 to 120 production                   aircraft,         (2) the pending                 fiscal
year       1991 budget        request         from 6 to 2 aircraft                in fiscal          year        1991,
and (3)       advanced        procurement            funds     from     12 to 6 aircraft               in fiscal
year    1992.         We have continued                to review        the    program,       and our
testimony        provides       current         information            on the status          of the
program.


RESULTS IN BRIEF


Even though           some progress            has been made in developing                     the C-17
aircraft,        the program          still      faces        significant        cost     and schedule
challenges.            For example,            in the past          year,      before     the Secretary's
decision        to reduce       the number of C-17s,                    the    cost     estimate           for    the
original        210 production            aircraft           program       had increased           11 percent,
from    $37.5     billion       to $41.8 billion.                   Also,      the C-17's          first         flight
date    has slipped           from August            1990 to June 1991, and further                          delays


l-Military       Airlift:   C-17 Faces Schedule, Cost,                            and Performance
Challenges         (GAO/NSIAD-89-195, Aug. 18, 1989).
                                                         1
may occur          because          of continuing                    difficultieswith                      aircraft        assembly
and avionics'development                         and testing.                          In addition,           the projected
weight      of     the      ai,rcraft          could         still         adversely             affect       whether         the
contract          performance            requirements                     can be met.


On the         basis      of current            schedule                 delays         and the       resulting           funding
buildup,          we believe            that     Congress                 should         consider          further       reducing'
the proposed              fiscal        year     1991 buy of                    two C-17 aircraft                     and the
advanced          procurement            funds         for       6 aircraft               in     fiscal       year      1992.
This      could         provide      an opportunity                       to further             reduce       concurrency              in
the program              by having         the Air             Force           limit      production           commitments
until      the critical              elements           of a realistic                        and achievable              flight
test      program         are completed                and any identified                         problems            resolved.
DOD, Air          Force,        and contractor                   officials               have told           us that       any
further         reduction           in the fiscal                    year       1991 program               could       cause
problems          for     the      subcontractors.                        It     is     not    our    intention           to cause
difficulties              for      the subcontractors.                            However,           even with          the
reduction          to two aircraft                 in fiscal                   year      1991,       there      is still           a
high      degree         of concurrency                risk          in the program.                      Reducing        the. 1991
buy     could      reduce          the risk       of concurrency                         further.


BACKGROUND


The Air         Force       and Douglas           Aircraft                 Company (Douglas),                      McDonnell
Douglas         Corporation,             are developing                        the C-17 aircraft                   to modernize
and inpprove             the Air        Force's         intertheater                     (from       one area of

                                                                     2
operation             to another)                 and intratheater                    (operations                within        the same
area)       airlift           capability.                    The aircraft              is     expected            to improve             U.S.
capability             to rapidly                 project,        reinforce,                 and sustain                combat forces
worldwide.


The C-17 will                 be a four-engine,                        wide-body             aircraft            with     a three-
person        crew.           It          is being      designed              to airlift           substantial                 payloads
over       long       ranges          without         refueling.                 The C-17's             projected              ability
to airlift             the         full      range of military                       cargo      directly           into        small,
austere         airfields                 distinguishes                it     from     the      other       aircraft             in the
airlift           force,       such as the C-5,                     C-141,            and C-130.


The Air         Force         planned             to acquire                211 C-17 aircraft                    (1 test
aircraft           and 210 production                         aircraft)              through       fiscal          year        1999.
The program                is currently                in full-scale                  development                and
transitioning                 to concurrent                   development              and low-rate                 initial
production.                  The C-17's              first       flight          was planned               for     June 1991.              An
Air       Force       test     plan,          that      combined              development,              test,           and
evaluation             and initial                 operational                test     and evaluation                    was
scheduled             to be completed                   by June 1993.                    Initial         operational
capability             was also              scheduled           for         June 1993.


On April           26,       1990,          the Secretary                   of Defense          testified               before      the
House and Senate                      Committees              on Armed Services                    on the results                  of a
review        of      several             major      aircraft               programs,         including             the C-17.
During, his            testimony,                 the Secretary                recommended              that       the C-17

                                                                       3
program        be reduced              from 210 production                          aircraft            to 120 production
aircraft.              The change was based,                            in part,          on the results                 of the
major       aircraft             review       for         the C-17.           The recommendation                        is
estimated            to reduce             the President's                   fiscal            year     1991 budget            request
from about             $2.7       billion           for     6 aircraft              in     fiscal        year      1991 and
advanced        procurement                  funds         for     12 aircraft                 in fiscal         year        1992 to
about       $1.7       billion         for       2 aircraft              in fiscal              year     ,I991 and advanced
procurement             funds        for      6 aircraft                in fiscal              year     1992.      According
to the Secretary,                    these          reductions              would        allow        more time          for    flight
testing        before            the production                  rate       increases.                 The cost     to buy 120
aircraft             was estimated                 to      be    about       $29.9        billion,          or about           $11.9
billion        less       than       the current                 estimate         of      $41.8        billion      to buy 210
aircraft.              The Air        Force          is refining              the        recommended reduction                     by
calculating             specific            cost        and schedule              impacts.


PROGRAMCOST


The Secretary's                  decision            to reduce              the   number of aircraft                         in the
C-17 program              will       reduce          the estimated                cost          of    the program.
However,        based         on a history                  of significant                     cost    growth      in the
program        to buy 210 aircraft,                             DOD     and the          Air     Force      will    have to
take       actions        to ensure              that       the program               to buy 120 aircraft                      does
not also        have rapid                cost       growth.
Total          Program           Cost Growth


When full-scale                       development             of the C-17 began                         in 1985,       DOD
estimated                the     program        acquisition                 cost       would        be $34.5          billion         in
then-year                dollars.            In 1989 the estimate                          increased            by $3 billion
to $37.5.billion.                           The most recent                   estimate            for     the       210 aircraft
is $41.8             billion,             an increase            of $7.3              billion,          or 21 percent,
since          1985.           As reported              in DOD's December 31,                            1989 Selected
Acquisition                   Report,        the     latest           increase           of $4.3          billion        was caused
by increased                   projected            inflation              rates       and delays              in the program.
The recommended                       reduction          to 120 aircraft                     will        reduce       total      program
cost.           The Air             Force      is still          working              on new        estimates          of program
cost      and schedule                    to reflect            the recommended reduction.


Buildun             of Funds


Delays          in the           production            of C-17 aircraft                      have resulted               in a
buildup             of    unobligated               funds       for        the program.                 The Congress
appropriated                   $1.2       billion        in fiscal             year        1990 for            the production
of      four        C-17 aircraft.                   However,              as of April              30, 1990 (the halfway
point          of      this      fiscal        year),       only           about       $172 million               had been
obligated.                    The contract            award and release                          of procurement               funds        for
the      fiscal           year        1990 buy of four                     aircraft          is     not    scheduled            to occur
until          after          the    test     aircraft           is completed                    in December 1990.                 Also,
the Air             Force        does not plan              to provide                 Douglas          with      the fiscal           year



                                                                       5
1991 production                  funds       until         September            1991,        near      the end of the
fiscal       year.


Research        and Development                     Costs


You requested               specifically               that      we review             C-17 research               and
development           costs          to determine               why these            costs         seemed
proportionately                  high       for     an aircraft             that       employs           few technologies
that      have not             been used in other                    Air    Force       o'r commercial                  airplanes.
Our review           of     this        issue       is ongoing,             but     we can provide                 you with          a
summary of           our        findings           to date.


The Air       Force         estimate            of C-17 research,                   development,                test,      and
evaluation           (RDT&E) costs                  is about          $5.34        billion            as of.December
1989,     or about             13 percent            of the total               cost         for      210 aircraft.
About      $725 million                 of this        is for         initial          tooling           for    the C-17.
The October           15,        1986 Conference                 Report         on Making              Continuing
Appropriations                 for    Fiscal         Year 1987 required                        that     C-17 initial
tooling       be funded              with         RDT&E funds,             rather       than          with     production
funds.        Normally,              RDThE funds              are used for              engineering              development,
construction              of     the test           aircraft,          and testing.


Our analysis              shows that               the most significant                       contributors               to RDT&E
costs     are    related             to integrating                  the component                 systems       and
structures           into        a workable            aircraft,            testing            the component              systems
and stiuctures                 to ensure            that      the aircraft              will          be able      to meet

                                                                 6
specific        performance                requirements,             and procuring             the developmental
aircraft's           engines             and wing.         Although        the C-17 involves                 many
technologies            that        have been used in other                       aircraft,           Air   Force   and
Douglas       officials             consider          the C-17 to be a state-of-the-art
transportation              aircraft,           and not significantly                        complex.        However,
these      officials           have emphasized                that     the design             of a new military
airframe        and the         integration               of new components,                  even when the
technologies            are proven,             is a sophisticated                   and expensive            effort.


SCHEDULE


The first        flight         of the C-17 development                          aircraft       has been delayed
from August            1990 to at least                   June 1991.             The delay       was caused by
continuing           difficulties              with       aircraft       assembly            and avionics
development            and testing.


Assembly        Delays


Since      assembly        began in August                   1988,     Douglas         has continually
missed       major      assembly            milestones.              For example,             the milestone         of
joining       the wing          to the fuselage                   was originally              scheduled       to start
in June 1989,             but       it     started        in March 1990,             a delay          of 9 months.
Completion           of assembly             of the first             aircraft         was originally            planned
for   January          1990,     but        Douglas        currently        plans           to complete       assembly
by December            1990,    a delay              of   11 months.             Because       of production
problems,        at the end of 1989 the major                             milestones            for     the test

                                                              7
aircraft           were rescheduled.                    'According         to the Program               Director,                this
revised       assembly           schedule              is being     met.         For example,             Douglas
started       joining           the development                aircraft's           wing       and fuselage                 in
March 1990.             This      met the revised                  assembly         schedule           program.


In 1989 we reported                     that       slips      in the assembly                schedule           were
caused      by late'engineering                        drawings       and late         delivery           of tools               and
parts.        These problems                   still       exist    and have caused work                        that        was
planned       to be completed                   early        in the assembly                process       to be
postponed           and done further                   down the assembly               line.           Douglas'
current       plans      do not show how the deferred                               work can be completed
in time       to support           the planned               June 1991 first                 flight       date.             As a
result,       we believe           it         is difficult          to predict              when the first                  flight
of the C-17 will                 occur.


Avionics           Development           and Testing


In 1989 we reported                     that      subcontractors                were behind            schedule             in
developing           mission       computer              software      and electronic                  flight          control
system      hardware        and software.                     These delays            caused          Douglas          to
change       its     software           development            strategy          and delivery             schedules.


The C-17's           mission       computer              provides      the primary              electronic
communications             link         for      the aircraft's             avionics           systems,          controls
the pilot           displays,           and facilitates               other       mission-related
functions.             Mission          computer           software        is    critical         to completing

                                                               8
the integration                   of the C-17's            avionics              systems         before             the first
flight      test      of the development                     and production                     aircraft.


The Air      Force          originally             planned           to have all               of the mission
computer's          software            available          for        the    first          flight        test         of the
development           aircraft.                 The software               currently            available              for     the
first     flight           test     will        perform      about          40 percent               of the required
functions          and support                the first          6 months             of    flight        testing.'
Current      plans          call       for     most of the software                         to be available                   before
the first          production                aircraft      flight           test,          currently           scheduled             for
September          1991.


TO support          avionics            integration,                 mission          computer          software             is
being     delivered               in segments            between           February            and October                 of this
year.       Fully          qualified            flight     software              is    scheduled              for      delivery
in October          and fully                tested      hardware           and software                in early
December.           Douglas            officials          told        us that          first         flight          would be
jeopardized           if      the software               is late           and that,            even if          deliveries
are on time,               the     integration            test        schedule             is ambitious.                    According
to Douglas          officials,                recent      software           deliveries               have been on time
and the      integration                test       schedule           is    typical            of new development
programs.


The electronic                flight          control      system           is    a key element                     that     must be
integrated          with          the mission            computer.               The electronic                  flight
control      system          directs            and controls               the movement of the aircraft.

                                                                 9
Progress          has been made with                    this      system        since          our     last      report.             In
1989 Douglas             selected      a new subcontractor,                            centralized               flight
control          system       development           in a new organization,                             and added
managers          and engineers            with         experience            in electronic                   flight         control
system       development.            To date,              the      subcontractor                 is ahead of
schedule,          but    completing           and qualifying                  the      firs,t         version          of
electronic           flight      control          system software                  by October                 31, 1990,
remains          a challenge.


Concurrency


In 1989,          we expressed         concern             over      the concurrency                     that      was planned
in the C-17 program,                 that         is,      th,e extent           to which              development                 and
production          overlapped.             We noted              that     concurrency                 can be an
effective          technique        to expedite                fielding          a system.                   However,         it
must be well             planned     and managed or it                        can cause cost,                    schedule,
and performance                problems.


Under the program                to buy 210 aircraft,                         concurrency               would          have
increased.            For example,             delays          in the         flight           test     program           had
increased          the program's            concurrency                  to the point                 that      procurement
of 52 aircraft,                or about        25 percent                of the        total          production,             would
have been requested                 before         flight           testing       would           be completed.                     Even
with       the    Secretary's        recommendation                      to reduce         the number of
aircraft          from    210 to 120 and the fiscal                            year       1991 buy from 6 to 2
aircrdft,          concurrency         still            exists.

                                                               10
If     flight           testing            is    completed              as scheduled                 in June 1993 and the
1991 buy is                  carried            out      as proposed             by the             Secretary,          funds     for        30
C-17 aircraft,                      which        is      still       25 percent                of    the    revised          buy of 120
aircraft,               could         be authorized                 before            flight         testing          is completed.
However,           if        no aircraft                 are authorized                  in fiscal             year     1991,     2
aircraft           are authorized                        in fiscal             year      1992,         and 4 in fiscal                year
1993,       funds            for      only       16 aircraft              would          be 'authorized                for    production
before          flight             testing          is       scheduled          to be completed                  in fiscal            year
1993.           This         would         result            in significantly                   less       concurrency.               The
Air     Force           is    still          working             on a new production                       schedule.


CONTRACTORPERFORMANCE


The Air          Force             Plant        Representative                  Office          (AFPRO) assigned                 to
Douglas          is      responsible                   for       determining             whether           Douglas'
performance                  in areas            such as engineering                           and design         management,
manufacturing                      operations,                quality          assurance,              and subcontractor
management               is        effective.                 Over the last                2 years,            the AFPRO has
identified               problems               with      manufacturing,                   software            development,
quality          assurance,                  scheduling,                cost     estimating,                and subcontractor
management.                   The AFPRO believes                         Douglas          does not have the systems
in place           to effectively                        manage these             areas.               As a result,             the AFPRO
believes           that            Douglas        cannot           produce        the C-17 to either                         budgeted
cost       or planned                 schedule.                  GAO's observations                     on the C-17 program
suppor"t         the AFPRO's assessment.

                                                                        11
                                                                                                       I




A ccording        to       th e A F P R O , D o u g l a s '     lack      o f cohesive                and organized
system s resulted                 in late       drawings,           p a r ts       shorta g e s ,          late       supplier
deliveries,            a n d u n a c c e p ta b l e      quality.              T h e A F P R Obelieves                  th e s e a r e
th e reasons           th a t     th e C - 1 7 is b e h i n d schedule                     a n d over b u d g e te d
cost.        T h e A F P R O advised            D o u g l a s th a t      upper-level                 management
oversight,          planning,            a n d integration               are needed.                  D o u g l a s is
developing          plans         to address th e s e              issues.               T h e A F P R Obelieves                 th a t
D o u g l a s c a n n o t p r o d u c e th e C - 1 7 cost-effectively,                                with        a c c e p ta b l e
quality,         a n d o n a predictable                   schedule            u n til     th e s e    areas o f
d e ficiency        a r e corrected.


R e c e n tly,    th e A ssistant             S e c r e tary       o f th e A ir           Force for              A cquisition
o r d e r e d a review            o f c o n tractor         problems             i d e n tifie d       by th e A F P R O .
A s a result           o f th e review,               D o u g l a s a n d A ir           Force o fficials                 have
established            a n e x e c u tive       level       Q u a lity         Council         to resolve               th e s e
system p r o b l e m s .           In a d d i tio n ,       th e D e p u ty P resident                     for      Douglas
told     us M cDonnell             D o u g l a s C o r p o r a tio n      is c o m m i tte d           to correcting
th e p r o b l e m s       in th e p r o g r a m , as s h o w n by th e n u m e r o u s senior
managers and engineers                      th e corporatio n              h a s transferred                      to D o u g l a s .
A s w e c o n tin u e           assessing       th e C - 1 7 , w e will                  evaluate          th e i m p a c t o f
th e s e c h a n g e s .




                                                              12
PROJECTED AIRCRAFT WEIGHT


Aircraft         weight        is a principal              factor        that       determines              whether        an
aircraft         can meet payload,                    range,      and takeoff             and landing
performance            requirements.                  The program          office         believes            that       the
current        estimated             weight      of the C-17 will                cause       it      to fall         short        of
contract         requirements.                 The program            office        does not           intend        to
reduce        this     contract         requirement             and is working               with          Douglas        to
improve        aircraft         performance              and revitalize              Douglas'              weight        savings
program.             According         to the Commander-in-Chief,                           Military           Airlift
Command, the              C-17's       performance             will    be improved                by changing             the
jet   fuel       the      aircraft        would use.


REDUCTION IN REQUIREMENTS


When the         Secretary            of Defense          recommended a reduction                           in the
program        buy from         210 to 120 aircraft,                    he acknowledged                     that     airlift
requirements              had been reduced.                    He noted         that,       until          recently,           the
possibility            of a major             conflict         in Europe coupled                    with
simultaneous              action       in another          region       had driven                the demand for
military         air      transport           capacity.           He added that              although              changes
in Europe            have reduced             these      requirements,              the     most effective
means to deter               crises       in other         regions         is    to be able                to react        with
a rapid        buildup        of combat power.                    According          to the Secretary,                     the
C-17 remains              the most effective                   transport         aircraft            for     meeting



                                                            13
airlift         goals      because         of      its    ability         to utilize          the shorter                   runways
typical         of third         world       countries            and deliver            outsized           cargo.


In December 1989,                     the Secretary              of Defense         directed            a review             of
four       aircraft        programs          including            the C-17.            The House Committee                          on
Armed Services                has requested               that       we evaluate           the Secretary's
review        of the C-17.               We have just                begun our work,sbut                    we can
provide        you with          some initial                 information.             A DOD steering                   group
and four            working      groups         were established                 to review            the       four
aircraft            programs,          including          one for         the C-17.           The groups                were to
examine         (1)     the capabilities                  needed that            are     not provided                  on
current        aircraft,              (2) the extent              to which         the     aircraft             under        review
would provide              the needed capabilities,                            and (3) the            fiscal           and
acquisition             strategy         considerations,                  including         cost,        schedule,                 and
performance.               The group            reviewing            the C-17 developed                  and analyzed
seven alternatives                     involving          mixtures         of different               airlift
aircraft.             Resulting          airlift          capacity         and total          acquisition                   cost
were calculated                 for     each alternative.                      According       to DOD officials,
the Secretary              considered              this       analysis         and other       information                   when
making        his     recommendation                to reduce            the    number of aircraft                      in the
C-17 program.




                                                                14




                                                          .
IMPACT OF REDUCING FISCAL.YEAR
1991 PROGRAMFURTHER


The President's                   fiscal          year      1990 budget            requested        10 C-17 aircraft
in fiscal             year      1991,       but         the fiscal         year       1991 budget          submission
reduced          the'fiscal              year      1991 request              from 10 to 6 aircraft.                        The
Secretary             of Defense            has proposed                 a further       reduction          to two
aircraft          in fiscal              year      1991 and advanced                   procurement          funds         for
only       six    aircraft.                Preliminary              DOD estimates           show that             these
reductions             in aircraft                would      reduce        funding       requirements              in fiscal
year       1991 from            $2.7 billion               to $1.7 billion.                 According             to the
Secretary             of Defense,            this         reduction          should      also      allow     more time
for     flight         testing           before          production          is    increased.


As discussed                above,         the     program          is experiencing               schedule         delays--
completion             of assembly                of the first             aircraft       has slipped              11
months.           Also,         funding           for     the program             is building        up--over             85
percent          of the         fiscal       year         1990 funds          had not       been obligated
halfway          through          the fiscal              year.          Contributing            to the funds             buildup
problem          is    the      fact       that     contract             award and release            of funds             for
the fiscal             year       1990 program               will        not occur       until      after         December
1990 which             is     in fiscal            year      1991.         Even with        the     Secretary's
proposed          reduction,               concurrency              would     still      be a problem.                  Given
these       circumstances,                  we believe              that     Congress       should         consider
reducing          the        fiscal        year         1991 C-17 program               further.           This     would
provide          an opportunity                   to revise          the production              schedule,          reduce

                                                                    15
the amount of program                     funds     that      are unobligated,                      and reduce
concurrency            in the program              further          by allowing               additional             time     to
perform       flight          tests      before     production              is     increased.


On the other            hand,         delaying      the procurement                     of the C-17 could
increase       total          acquisition          costs      because             of     inflation,              unless
significant            production           efficiencies             are achieved.                       Air     Force      and
Douglas       officials              have told      us that          eliminating                  one year's
production,            while         continuing      research              and development                      and advanced
parts      procurement,               would      send the wrong signal                        to subcontractors.
They said        that         the subcontractors                may then               decide       to delay
purchasing           or not          to invest      in equipment                  they     would          need to
increase       C-17 production.                    They also          told         us that          a delay          could
result      in the         cancellation            of some subcontracts.                            It         is not our
intention        to cause             problems      for      the subcontractors.                               However,      even
with      the fiscal           year      1991 reduction              there         is     still          a great      deal        of
concurrency            risk     in the program.                 Additional                reductions              in funding
for      the fiscal           year     1991 program           could         reduce          concurrency              risk
further.         Therefore,             we believe           that     the possible                  negative          effects
of reduced           production           funding         in 1991 would                 be offset               by benefits
from a less            concurrent           program.


The Air       Force        is currently           developing               a new production                      schedule         for
the C-17.            Now      would     be a good time               for      the Air             Force         to develop         a
program       plan      that         reduces      concurrency              risk        as much as possible.



                                                           16
Further   reductions       in the   fiscal      year   1991 program    could   be a part
of a new program        that   reduces       concurrency.


This   concludes   my prepared         statement,      Mr. Chairman.     I will   be
happy to answer        any questions         you may have.




                                               17