Air Force Depot Maintenance

The Air Force depot maintenance activity group provides the repair services needed to keep air force units up and running around the world. The group repairs and overhauls a wide range of items, from aircraft engines to missiles to software. For example, the Air Force reported that in 1998 the depot maintenance activity group did major overhauls on 670 aircraft, overhauled 980 engines, and repaired more than 800,000 inventory items. The report discusses (1) the Air Force activity group's price increase between fiscal years 1994 and 1999 and the primary reasons for it, (2) the activity group's financial losses during that period and the primary reasons for them, and (3) the Air Force's methods for recovering these losses.

GAO noted that: (1) the Air Force depot maintenance activity group's prices increased from an average of $92.60 per direct labor hour (DLH) in FY 1994 to $128.43 per DLH in FY 1999--a 39 percent increase; (2) the price increase occurred primarily because: (a) the direct material cost per direct labor hour increased; (b) workload declined faster than overhead costs; and (c) the average cost of civilian labor increased; (3) even though the prices increased 39 percent, the Air Force reported that the depot maintenance activity group lost about $623 million during fiscal years 1994 through 1998 on total sales of about $21.8 billion; (4) GAO's analysis indicates that these losses occurred primarily because the activity group: (a) did not accomplish as much work as expected; (b) had material costs that were higher than budget estimates; (c) developed prices based on anticipated savings that were not realized; and (d) incurred losses on its contract repair operations during fiscal years 1996, 1997, and 1998; (5) since FY 1995, the Air Force has tried different methods to recover the depot maintenance activity group's losses with varying success; (6) for fiscal years 1995 through 1997, the Air Force increased prices and requested a direct appropriation; (7) however, neither of these methods was successful in recouping losses; (8) beginning in FY 1998, the Air Force used two other methods, which were more successful in recovering losses; (9) the Air Force developed the depot maintenance activity group's fiscal years 1998 and 1999 prices based on the group's cost of operations plus an amount to recover $310 million in prior year losses; (10) the Air Force then separated the approved fiscal years 1998 and 1999 prices into two pieces; (11) the first piece was the amount the activity group charged individual customers for current year work; (12) the second piece was to recover the $310 million in prior year losses; (13) pursuant to a new Department of Defense policy that directs depot maintenance activities to recover losses that occurred during the year of execution, the Air Force reprogrammed funds and used other available customer appropriated funds to recover the depot maintenance activity group's losses; and (14) as a result, the Air Force recovered or plans to recover $313.4 million in losses that occurred in fiscal years 1998 and 1999.