Commercial Practices

In fiscal year 1993, the Defense Department's (DOD) proceeds from the sale of commercial-type surplus aircraft parts averaged less than one percent of what DOD paid for them. In contrast, commercial airlines realized proceeds on the order of 40 to 50 percent from the sale of comparable parts. The large difference in proceeds reflects the different incentives and marketing practices at work within DOD and the private sector. DOD's system for selling surplus aircraft parts is largely driven by policies designed to dispose of the parts quickly. Maximizing sales proceeds is of lesser importance. Although not always directly comparable to DOD, commercial airlines have a system for selling surplus aircraft parts that reflects the profit incentive. Progressive commercial airlines provide the tools for their staff to maximize sale proceeds in the form of both the training and resources needed to effectively sell the property. Commercial companies also use marketing techniques that substantially enhance the visibility and marketability of their parts. Although it may not be practical for DOD to duplicate commercial marketing techniques, it appears that DOD could substantially increase its proceeds by adopting some basic marketing practices. Critical to the success of such practices, however, will be some establishment or realignment of incentives.

GAO found that: (1) although DOD proceeds from the sale of commercial-type surplus aircraft parts average less than 1 percent of what DOD paid for them, commercial airline proceeds average between 40 to 50 percent from the sale of comparable parts; (2) the difference in proceeds reflects the different incentives and marketing practices within DOD and the private sector; (3) DOD sales practices emphasize the quick disposal of surplus aircraft parts rather than maximizing proceeds; (4) DOD disposal staff lack sufficient monetary incentives and training to effectively market and optimize the prices received for the parts; (5) commercial airlines emphasize the profit incentive, expect to obtain reasonable rates of return on the surplus aircraft parts they sell, and are less concerned with how quickly surplus property is disposed of; (6) progressive commercial airlines provide their staff with the training and resources necessary to maximize surplus property sales; (7) commercial airlines use marketing techniques that substantially enhance the visibility and marketability of their surplus parts; (8) although DOD may not be able to duplicate commercial marketing techniques, DOD could substantially increase its proceeds by adopting some basic commercial marketing practices; (9) DOD lacks procedures that prevent the improper use of scrap that is sold; and (10) DOD could minimize the improper use and sale of scrap parts by adopting private-sector practices.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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