Military Airlift

Costs for the C-17 military transport aircraft program continue to mount, having reached an estimated $7.45 billion by the end of 1991; the contract ceiling had been set previously at $6.63 billion. While McDonnell Douglas Corporation has a plan of work to be done with a specified budget, it reports that only $0.69 of planned work is being accomplished for every $1.00 the government spends. Further, both aircraft delivery and testing schedules are experiencing delays. McDonnell Douglas program data show that production efficiency is improving with each successive aircraft--meaning that McDonnell Douglas takes fewer production hours to build each aircraft. The rate of improvement, however, has not increased. A McDonnell Douglas production review team said that improvement in the rate would be necessary for the company to meet its cost and schedule objectives. McDonnell Douglas claims that the level of quality on the C-17 program has increased because the dollar value of rework and repair has decreased on each successive aircraft. Yet the cost of rework and repair per assembly hour of labor almost doubled between February 1991 and January 1992. In addition, off-standard work hours, the major component of which is rework and repair, are increasing as a percentage of total hours. GAO agrees that some quality improvements may be occurring, but it believes that McDonnell Douglas has not considered the effect of the improved production efficiency on reducing rework and repair costs.

GAO found that: (1) costs incurred by the contractor for development have exceeded the contract ceiling of $6.6 billion; (2) in December 1991, the completion cost estimate increased to $7.4 billion; (3) the constractor reports spending $1 to accomplish $.69 of planned work; (4) in July 1991, the Air Force modified the development contract to adjust the aircraft delivery schedule because both delivery and test aircraft were experiencing problems; (5) C-17 flight testing is behind schedule due to fuel leaks that caused the loss of 50 days of flight testing; (6) contractor program data showed that production efficiency is improving with each successive aircraft, but the rate of improvement has not increased; (7) the contractor claimed that the level of quality on the C-17 program improved because the dollar value of rework and repair decreased on each successive aircraft; and (8) off-standard hours account for about 40 percent of the work hours spent on each of the first two aircraft and trends on subsequent aircraft showed that the percentage of off-standard hours is increasing.