Defense Management

Under its bulk fuel program, the Defense Logistics Agency buys jet fuel from commercial suppliers and transports it via trucks, pipelines, barges, and railroads to military installations for use by military aircraft. The into-plane program involves individual contracts between the Defense Fuel Supply Center and fixed-base operators who provide jet fuel at contractually set prices. These prices are generally less than commercial prices charged at civilian airports. This report discusses (1) the pricing policies, rules, and regulations used for both fuel programs and whether the cost factors used for each are consistent with applicable policies; (2) whether bulk fuel usage and into-plane sales have changed in recent years and GAO's assessment of the reasons for any changes; and (3) the significance and validity of questions and complaints raised by into-plane contractors and the National Air Transportation Association about the effect on their businesses of Defense Department changes in the pricing of into-plane jet fuel.

GAO found that: (1) DBOF policies governed standard pricing for both the bulk and into-plane jet fuel programs; (2) while the current policies as applied to the into-plane program meet DBOF's original objectives that standard prices recover the total costs of goods and services provided to customers, they do not in the bulk fuel program; (3) in that program, the current standard price is based only on the direct costs incurred by the Defense Fuel Supply Center to supply jet fuel and, therefore, excludes the cost of fuel operations at military installations; (4) by statute, DBOF excludes such costs for installations that perform mission critical functions; (5) although most installations with training missions do not qualify for the exclusion, their number is small and inclusion of all their operation costs in the bulk fuel standard price would not materially affect the difference between bulk and into-plane fuel standard prices; (6) inclusion of these costs would only have a substantial impact on the price difference between bulk and into-plane fuel at specific locations if the installations were not part of a standard pricing system; (7) in recent years, DOD's consumption of jet fuel has declined significantly, and the reduction is consistent with force downsizing and related reductions in the number of military flying hours; (8) domestic into-plane fuel usage, however, declined only 7 percent; (9) the overall decline in jet fuel usage appears to account for much of the into-plane contractors' concerns about the effect of DOD fuel pricing policies on their businesses; (10) the implementation of separate standard prices for jet fuel in 1993 produced an into-plane price that was higher than the bulk price; (11) a number of into-plane contractors expressed concerns about the effect of the higher jet fuel prices on their businesses; however, although some military commands and units increased efforts to use bulk fuel, domestic into-plane jet fuel sales remained constant in FY 1994 and 1995, following a drop from 1993; and (12) information developed by the National Air Transportation Association and selected into-plane contractors suggested that concerns expressed about military aircraft stopping at their facilities and not buying fuel or paying for services provided were neither widespread nor systemic.