Defense Acquisitions
Timely and Accurate Estimates of Costs and Requirements Are Needed to Define Optimal Future Strategic Airlift Mix
Gao ID: GAO-09-50 November 21, 2008
The Department of Defense's (DOD) C-5 Galaxy and C-17 Globemaster III aircraft play key roles in transporting weapons and other cargo. Since September 2001, these aircraft have delivered over 2.4 million tons of cargo to staging and operating bases in Iraq and Afghanistan. Yet determining the number and mix to meet current and future airlift requirements has become increasingly challenging given distinct differences between the two aircraft. While the C-5 can carry more cargo, the newer C-17 is more flexible since it can deliver to forward-deployed bases and has a higher mission capable rate. GAO was asked to identify the impact C-5 modernization cost increases have had on the mix of aircraft; assess the current C-5 modernization cost estimate; and identify C-17 production plans and issues related to production line shutdown. To conduct its work, GAO reviewed options DOD considered to meet its current and future strategic airlift requirements, and evaluated C-5 modernization and C-17 production line shut down cost estimates.
The Air Force has cut the number of C-5s it plans to fully modernize by more than half because of substantial cost increases in the C-5 Reliability Enhancement and Reengining Program (RERP) and plans to acquire more C-17s, with additional congressional funding. Currently, the Air Force plans to provide avionics upgrades to all 111 C-5s, limit RERP to 52 C-5s, and acquire 205 C-17s. However, this mix may change again, based in part on the results of a new mobility capabilities study, the findings of which DOD plans to release in May 2009. While the new study is expected to consider transport needs for the future force, DOD has not identified specific metrics it will use to make strategic airlift decisions--a concern GAO raised about DOD's previous mobility capabilities study and one DOD agreed to address in future studies. The Air Force currently estimates it will spend $9.1 billion on upgrading the C-5s. However, this estimate may be understated because DOD did not apply risk or uncertainty analyses to its RERP major cost drivers. Moreover, the current RERP is underfunded by almost $300 million and may be unachievable if the engine production schedule is not met. At the same time, the Air Force has not priced or budgeted for a new upgrade program it plans to begin in fiscal year 2010 to address certain modernization deficiencies and to add new capabilities. Some future costs, however, may be avoided should the Air Force justify retirement of some older C-5s and forego planned modifications. Careful planning is needed to ensure C-17 production is not ended prematurely and later restarted at substantial cost. Current production plans call for shutting down the C-17 production line in September 2010. However, results from the new mobility capabilities studies and potential C-5 retirements could lead to decisions to extend C-17 production beyond the 205 now authorized. Both the manufacturer and Air Force agree that shutting down and restarting production would not be feasible or cost effective due to the costs to reinstate a capable workforce, reinstall tooling, and reestablish the supplier base. At some point, the C-17 production line will shut down, and DOD will have to pay substantial costs that have not yet been budgeted. The manufacturer and Air Force shutdown estimates differ significantly--about $1 billion and $465 million, respectively--in large part because the manufacturer's estimate included assumptions about demolishing facilities and environmental remediation, while the Air Force's did not.
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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GAO-09-50, Defense Acquisitions: Timely and Accurate Estimates of Costs and Requirements Are Needed to Define Optimal Future Strategic Airlift Mix
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Report to the Subcommittee on Air and Land Forces, Committee on Armed
Services, House of Representatives:
United States Government Accountability Office:
GAO:
November 2008:
Defense Acquisitions:
Timely and Accurate Estimates of Costs and Requirements Are Needed to
Define Optimal Future Strategic Airlift Mix:
GAO-09-50:
GAO Highlights:
Highlights of GAO-09-50, a report to the Subcommittee on Air and Land
Forces, Committee on Armed Services, House of Representatives.
Why GAO Did This Study:
The Department of Defense‘s (DOD) C-5 Galaxy and C-17 Globemaster III
aircraft play key roles in transporting weapons and other cargo. Since
September 2001, these aircraft have delivered over 2.4 million tons of
cargo to staging and operating bases in Iraq and Afghanistan. Yet
determining the number and mix to meet current and future airlift
requirements has become increasingly challenging given distinct
differences between the two aircraft. While the C-5 can carry more
cargo, the newer C-17 is more flexible since it can deliver to forward-
deployed bases and has a higher mission capable rate.
GAO was asked to identify the impact C-5 modernization cost increases
have had on the mix of aircraft; assess the current C-5 modernization
cost estimate; and identify C-17 production plans and issues related to
production line shutdown. To conduct its work, GAO reviewed options DOD
considered to meet its current and future strategic airlift
requirements, and evaluated C-5 modernization and C-17 production line
shut down cost estimates.
What GAO Found:
The Air Force has cut the number of C-5s it plans to fully modernize by
more than half because of substantial cost increases in the C-5
Reliability Enhancement and Reengining Program (RERP) and plans to
acquire more C-17s, with additional congressional funding. Currently,
the Air Force plans to provide avionics upgrades to all 111 C-5s, limit
RERP to 52 C-5s, and acquire 205 C-17s. However, this mix may change
again, based in part on the results of a new mobility capabilities
study, the findings of which DOD plans to release in May 2009. While
the new study is expected to consider transport needs for the future
force, DOD has not identified specific metrics it will use to make
strategic airlift decisions”a concern GAO raised about DOD‘s previous
mobility capabilities study and one DOD agreed to address in future
studies.
The Air Force currently estimates it will spend $9.1 billion on
upgrading the C-5s. However, this estimate may be understated because
DOD did not apply risk or uncertainty analyses to its RERP major cost
drivers. Moreover, the current RERP is underfunded by almost $300
million and may be unachievable if the engine production schedule is
not met. At the same time, the Air Force has not priced or budgeted for
a new upgrade program it plans to begin in fiscal year 2010 to address
certain modernization deficiencies and to add new capabilities. Some
future costs, however, may be avoided should the Air Force justify
retirement of some older C-5s and forego planned modifications.
Careful planning is needed to ensure C-17 production is not ended
prematurely and later restarted at substantial cost. Current production
plans call for shutting down the C-17 production line in September
2010. However, results from the new mobility capabilities studies and
potential C-5 retirements could lead to decisions to extend C-17
production beyond the 205 now authorized. Both the manufacturer and Air
Force agree that shutting down and restarting production would not be
feasible or cost effective due to the costs to reinstate a capable
workforce, reinstall tooling, and reestablish the supplier base. At
some point, the C-17 production line will shut down, and DOD will have
to pay substantial costs that have not yet been budgeted. The
manufacturer and Air Force shutdown estimates differ significantly
”about $1 billion and $465 million, respectively”in large part because
the manufacturer‘s estimate included assumptions about demolishing
facilities and environmental remediation, while the Air Force‘s did
not.
Comparison of C-5 and C-17 Capabilities and Characteristics:
Loads:
C-5: 270,000 pounds of cargo;
C-17: 170,900 pounds of cargo.
Range (unrefueled):
C-5: 6,320 miles;
C-17: 2,700 miles.
Minimum runway length:
C-5: 6,000 feet;
C-17: 3,500 feet.
Crew:
C-5: 7;
C-17: 3.
Mission capable rate:
C-5: 53 percent;
C-17: 86 percent.
Cost per flying hour:
C-5: $23,100;
C-17: $11,300.
[End of table]
What GAO Recommends:
GAO is making recommendations to help DOD identify the appropriate
strategic airlift mix and improve cost estimates for the C-5 program
and C-17 production shutdown. DOD concurred with one recommendation and
partially concurred with another, but believes updated C-5 cost
estimates are not warranted. GAO believes this recommendation is still
valid.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-50]. For more
information, contact Michael J. Sullivan at (202) 512-4841 or
sullivanm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Mix of C-5s and C-17s Needed to Meet DOD's Strategic Airlift
Requirement Continues to Evolve:
C-5 Modernization Costs Have Not Been Fully Identified:
The Air Force Must Make a Decision Soon Regarding C-17 Acquisition and
Eventual Shutdown of the Production Line:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Defense:
Tables:
Table 1: C-5 RERP Quantity and Cost Changes:
Table 2: Estimated Million Ton-Mile per Day Capability Comparison:
Table 3: Comparison of a Modernized C-5 and C-17 Equivalent Airlift
Capabilities:
Table 4: Comparison of Boeing and Air Force Cost-estimating Assumptions
for C-17 Production Line Shutdown and Restart:
Table 5: Comparison of Cost and Assumptions Included in C-17 Production
Line Shutdown Cost Estimates:
Figures:
Figure 1: Comparison of C-5 and C-17 Capabilities and Characteristics:
Figure 2: Annual Funding Requirements for the C-5 RERP:
Abbreviations:
AMP: Avionics Modernization Program:
CAIG: Cost Analysis Improvement Group:
DOD: Department of Defense:
RERP: Reliability Enhancement and Reengining Program:
[End of figure]
United States Government Accountability Office:
Washington, DC 20548:
November 21, 2008:
The Honorable Neil Abercrombie:
Chairman:
The Honorable Jim Saxon:
Ranking Member:
Subcommittee on Air and Land Forces:
Committee on Armed Services:
House of Representatives:
Strategic airlift provides the capability to rapidly deploy, supply,
and sustain U.S. combat forces worldwide. The Air Force's C-5 Galaxy
and C-17 Globemaster III aircraft, supported by aerial refueling
tankers and the civil reserve air fleet, provide the "air bridge" to
transport weapon systems, equipment, cargo, and personnel from the
United States and staging bases to overseas locations in support of
military and humanitarian operations. Demands on strategic airlift have
increased since the end of the Cold War and subsequent closure of about
two-thirds of U.S. overseas bases, requiring more frequent deployment
of U.S. forces over greater distances. The two airlifters continue to
play a key role in supporting combat operations in the Middle East,
collectively delivering more than 2.4 million tons of equipment and
cargo to Iraq and Afghanistan in over 330,000 airlift sorties.
While there is a broad consensus for sustaining a robust and effective
strategic airlift capability, determining current and future airlift
requirements--and the specific numbers and optimal mix of aircraft
needed to meet those requirements--has become increasingly challenging
given affordability concerns and changes in threats, missions, and
future force structure. The 2006 Quadrennial Defense Report identified
plans to acquire and modernize a fleet of 292 strategic airlifters,
comprised of 180 C-17s and 112 modernized and reliability enhanced C-
5s. Subsequently, Congress provided additional funding that the Air
Force plans to use to procure 25 more C-17s for a future force of 205,
and 1 C-5 crashed, leaving 111 aircraft.[Footnote 1] However, the
Department of Defense (DOD) is currently rethinking its strategic
airlift plans, due in part to significant cost growth for modernizing C-
5 aircraft and a subsequent scaling back of modernization efforts. New
mobility requirements studies now under way and pending decisions on C-
17 acquisitions will further influence the department's airlift
investment strategy. In this context, you asked us to (1) identify the
impact C-5 modernization cost increases have had on the mix of aircraft
DOD needs to meet its strategic airlift requirement, (2) assess the
current C-5 modernization cost estimate, and (3) identify C-17
production plans and issues related to production line shutdown.
In conducting our work, we collected information on options DOD
considered to meet its strategic airlift requirement and on DOD's
efforts to determine its future airlift needs. We evaluated DOD and
contractor cost estimates for the C-5 Avionics Modernization Program
(AMP) and the Reliability Enhancement and Reengining Program (RERP),
and the report by the Institute for Defense Analyses to assess the
underlying assumptions and differences between various RERP cost
estimates. We compared the practices used by DOD's Cost Analysis
Improvement Group (CAIG) to develop the RERP cost estimate with
practices described in GAO's cost assessment guide to evaluate the
overall reliability of the new estimate. We discussed and evaluated C-
17 production plans, costs, and issues related to work force, tooling,
and suppliers for both a shutdown and a shutdown/restart scenario with
DOD and contractor officials.
We conducted this performance audit from February 2008 to November 2008
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. Appendix I includes
additional details about our scope and methodology.
Results in Brief:
The Air Force has cut the number of C-5s it plans to fully modernize by
more than half because of substantial cost increases in the
modernization effort and will acquire a total of 205 C-17s--25 more
than planned at the time of the Quadrennial Defense Review--with funds
added by the Congress. All 111 C-5s will receive the avionics upgrade,
while only 52 will receive the reliability enhancement and reengining
upgrade. This mix may change again, based on the results of DOD's new
mobility capabilities studies, possible C-5 retirements, and a revised
cost estimate for C-5 modernization.[Footnote 2] DOD's previous
mobility capabilities study, which was completed in December 2006, was
found by GAO to be inadequate, in part because it did not base the
number and mix of strategic airlift on a specific ton-mile[Footnote 3]
mobility requirement metric, a metric commonly used to quantify the
optimal mix of aircraft needed to meet a desired capability. DOD's new
study--the findings of which it plans to release in May 2009--is
expected to encompass transport needs for the future force. However, as
of this writing DOD officials have not decided what specific metrics
the department will use to make strategic airlift decisions.
The costs to modernize C-5 aircraft have not been fully identified and
are likely to increase. While the Air Force now estimates it will spend
$9.1 billion to modernize C-5s, the costs may be underestimated because
DOD did not apply risk or uncertainty analysis to its reliability
enhancement and reengining program major cost drivers. Moreover, that
particular effort is underfunded by almost $300 million and costs may
escalate if the Air Force has to stretch the program schedule to stay
within funding targets. At the same time, the Air Force has not fully
priced or budgeted for a new C-5 upgrade program it plans to begin in
fiscal year 2010 to address current avionics deficiencies and to add
new capabilities. Some future costs, however, may be avoided should the
Air Force justify retirement of some older C-5s and forego planned
modifications.
Results from the new mobility studies and potential C-5 retirements
could lead to decisions to extend C-17 production beyond the 205 now
authorized. According to current production plans, shutdown of the C-17
production line will occur in September 2010. Careful planning to avoid
shutting down the C-17 line prematurely is important. Both the Air
Force and the manufacturer believe that shutting down the line and
restarting production in the future would not be feasible or cost
effective because of the substantial costs to hire and train a new
workforce, reinstall tooling to proper working condition, and
reestablish the supplier base. Nonetheless, at some point the C-17
production line will shut down, and DOD estimates it will have to pay
substantial costs for the shutdown. However, DOD has not yet budgeted
for these costs. The manufacturer and Air Force developed significantly
different estimates for shutdown of about $1 billion and $465 million,
respectively. A large part of the difference can be attributed to the
assumptions related to facilities demolition and environmental
remediation, which the manufacturer included in its estimate but which
the Air Force did not.
To bring clarity to strategic mobility requirements, we recommend that
the ongoing mobility capabilities study specifically identify ton-mile
requirements, as well as other metrics, to quantify the number and mix
of C-17 and C-5 aircraft needed and to inform decisions on potential C-
5 retirements, the number of C-17s needed for both strategic and
tactical roles, and future procurement and modernization needs. We also
recommend updated, comprehensive, and fully funded estimates for C-5
modernization efforts and for C-17 production line shutdown. DOD
commented on a draft of this report and concurred with the
recommendation to update the C-17 production shutdown cost estimate.
DOD partially concurred with the recommendation to include a ton-mile
metric and other relevant metrics in its mobility capabilities study
effort because the department identified other offices responsible for
implementing this recommendation; accordingly, we redirected the
recommendation to the appropriate offices. DOD does not believe there
is a compelling need to update its C-5 modernization cost estimates and
therefore did not concur with that recommendation. We believe this
recommendation remains valid as it provides DOD leaders better
information to consider when making future budget decisions related to
the number and mix of strategic airlifters.
Background:
The Air Force's C-5 and C-17 strategic airlifters both possess
intercontinental range with aerial refueling and can carry weapons and
equipment too large for any other DOD aircraft. Each also has some
complementary characteristics that favor a mixed fleet. The larger C-5
can carry more cargo than the C-17 and is the only aircraft capable of
handling some equipment, such as the Army's 74-ton mobile scissors
bridge. The C-17 is more modern, has a higher mission capable rate,
[Footnote 4] and is more flexible in that it also provides tactical
(intratheater) airlift to austere, forward-deployed bases. Figure 1
compares the two strategic airlifters.
Figure 1: Comparison of C-5 and C-17 Capabilities and Characteristics:
[Refer to PDF for image]
This figure contains drawing of both aircraft, as well as the following
information:
Loads:
C-5: 270,000 pounds of cargo, (36 pallets), 81 troops;
C-17: 170,900 pounds of cargo, (18 pallets),102 troops.
Wingspan:
C-5: 223 feet;
C-17: 170 feet.
Length:
C-5: 247 feet;
C-17: 174 feet.
Maximum take-off weight:
C-5: 840,000 pounds;
C-17: 585,000 pounds.
Range:
C-5: 6,320 miles, (unrefueled); Unlimited (air refueled);
C-17: 2,700 miles (unrefueled); Unlimited (air refueled).
Speed:
C-5: 518 mph;
C-17: 572 mph.
Minimum runway length:
C-5: 6,000 feet;
C-17: 3,500 feet.
Crew:
C-5: 7;
C-17: 3.
Mission capable rate:
C-5: 53 percent;
C-17: 86 percent.
Cost per flying hour:
C-5: $23,100;
C-17: $11,300.
Source: GAO analysis of DOD data; graphics by Lockheed Martin
Corporation.
[End of figure]
The Air Force acquired the C-5 fleet in two production batches.
Aircraft designated C-5A were built between 1969 and 1974 and given new
wings in the 1980s.[Footnote 5] Aircraft designated C-5B were built in
a second production run in the 1980s. In 1999, the Air Force began
modernizing its C-5 aircraft to improve fleet reliability and mission
capable rates. The modernization is being done in two phases.
* The Avionics Modernization Program (AMP) upgrades capabilities,
including Global Air Traffic Management, navigation and safety
equipment, modern digital equipment, and an all-weather flight control
system.
* The Reliability Enhancement and Reengining Program (RERP) replaces
engines and modifies electrical, fuel, and other subsystems.
Together, these two upgrades were expected to improve the fleet's
mission capable rate to at least 75 percent, thereby increasing payload
capability and transportation throughput, and to reduce total ownership
costs over the life cycle by about $14 billion in 2008 dollars.
[Footnote 6]
DOD initially expected to spend about $12 billion on the C-5 AMP and
RERP efforts. However, both modernization efforts experienced cost
problems. AMP development costs increased by approximately 20 percent
and would have been higher had the Air Force not reduced requirements
and deferred some development activities to other programs. Officials
waived 14 operational requirements and deferred the correction of 250
deficiencies identified during testing, many of which will be addressed
and funded in RERP or future efforts. In 2007, DOD reported that RERP
average procurement unit costs grew more than 50 percent from the
original baseline estimate.
C-17 procurement began in 1988 and the Air Force's current plan is to
acquire a total of 205 C-17s for $66 billion. The first production C-17
aircraft was delivered to the Air Force in June 1993 and the service
has accepted delivery of 178 aircraft through October 2008. Delivery of
the 205th aircraft is projected in August 2010. One aircraft is
dedicated to provide airlift capabilities to the North Atlantic Treaty
Organization, effectively setting the Air Force's operational force at
204.
DOD periodically assesses global threats, the national military
strategy, and its force structure to determine future airlift
requirements and to judge the sufficiency of its acquisition and
modernization plans. The analytical basis for DOD's current airlift
requirements is the mobility capabilities study completed in December
2005. Officials used the study results to report in the 2006
Quadrennial Defense Review that 180 C-17s and 112 fully modernized C-
5s--i.e., those receiving both the AMP and RERP modification--would be
sufficient to meet national military strategy with acceptable risk. The
Air Force is now engaged in a new mobility capabilities study, the
results of which will be briefed in May 2009. A final written report is
expected to be issued in November 2009. According to Air Force
officials, the new study will take into account a variety of changes
that have occurred since the last mobility study was completed in 2005,
including the following:
* Addition of over 92,000 Marines and Army soldiers and their equipment
that will need to be transported to locations across the United States
and around the world.
* Establishment of a new African Command that will require the movement
of troops and equipment to a variety of locations around the second
largest continent in the world.
* Introduction of Mine Resistant Ambush Protected vehicles, which are
being used in Iraq to provide enhanced protection for U.S. troops.
* Increase in weight of the Army's Future Combat System vehicles, which
makes it no longer possible to transport some vehicles with C-130
aircraft (DOD's primary tactical airlifter).
In addition to the new mobility capabilities study, Congress in 2008
directed the Secretary of Defense to conduct a requirements-based study
on alternatives for the proper size and mix of fixed-wing strategic and
tactical airlift to meet the national military strategy for the 2012,
2018, and 2024 time frames.[Footnote 7] The study, accomplished by the
Institute for Defense Analysis, is due in January 2009.
Mix of C-5s and C-17s Needed to Meet DOD's Strategic Airlift
Requirement Continues to Evolve:
The numbers and specific mix of strategic airlifters continues to be in
a state of flux as DOD struggles to define and control costs and to
establish firm requirements. Over the past several years, DOD has made
changes in the number of C-5s and C-17s it says it needs to meet its
strategic airlift requirement. C-5 modernization cost increases
prompted DOD to reduce the number of C-5s it plans to fully modernize.
Subsequently, Congress provided additional funding that the Air Force
is using to procure more C-17s, which would offset the loss in
capability of modernizing fewer C-5s. While officials believe this mix
will allow DOD to meet its strategic airlift requirement, the number of
C-5s DOD modernizes and C-17s it procures may change again, pending the
results of ongoing mobility studies, potential C-5 retirements, and the
eventual cost estimates of C-5 modernization. Past efforts to identify
the appropriate mix have been hampered by the lack of sufficient
metrics, such as a million ton-mile metric, that quantify specific C-5
and C-17 needs. At this time, DOD officials have not determined what
metrics it will use to make strategic airlift decisions.
Fewer C-5s Will Be Fully Modernized Due to Significant RERP Cost
Increases:
C-5 modernization cost increases caused DOD to change its approach for
meeting its strategic airlift requirements. DOD had planned to meet the
requirements with 112 fully modernized C-5s--i.e., those receiving both
the AMP and RERP modifications--and 180 C-17 aircraft. The cost for the
C-5 modernization efforts was estimated to be approximately $12
billion--about $900 million for the AMP program and $11.1 billion for
the RERP program.
However, just prior to the RERP production decision in February 2007,
the prime contractor, Lockheed Martin, indicated that RERP costs
related to labor and supplier parts had significantly increased,
prompting new cost estimates. The Air Force's estimate of $17.5 billion
was $4.2 billion more than Lockheed Martin's estimate of $13.3 billion
at that time. The new estimate increased projected average procurement
unit costs by more than 50 percent compared to the original baseline
and triggered a statutory requirement for review and certification of
the program.[Footnote 8]
Following notification to Congress of the cost increase, the Under
Secretary of Defense for Acquisition, Technology and Logistics
requested that the CAIG estimate the cost of various options for DOD to
meet its strategic airlift mission. The CAIG analyzed 14 options
covering a range of scenarios for the RERP program in three broad
categories: modifying all C-5 aircraft, partially modifying the C-5
fleet, and canceling the C-5 RERP program. Each option also assumed
that the department would have at least 203 C-17 aircraft, 14 more than
the program planned to acquire at that time. The CAIG estimated the
cost of providing the RERP modification to all 111 aircraft to be $15.4
billion, halfway between the contractor's and the Air Force's
estimates. Based on this analysis, the Under Secretary of Defense for
Acquisition, Technology and Logistics concluded that the cost to RERP
all C-5 aircraft was unaffordable and opted to limit full modification
to 52 aircraft--47 C-5 Bs, both C-5 Cs, and 3 system development and
demonstration aircraft. While the Air Force is expected to spend $3.4
billion less under the restructured program, ultimately less than one-
half of the 111 aircraft will be modernized and at a much higher unit
cost than originally estimated (see table 1).
Table 1: C-5 RERP Quantity and Cost Changes:
Number of aircraft:
Initial estimate: 126[A];
Current estimate: 52;
Percentage change: -59.
Total cost:
Initial estimate: $11.1 billion;
Current estimate: $7.7 billion;
Percentage change: -31.
Program acquisition unit cost:
Initial estimate: $88 million;
Current estimate: $148 million;
Percentage change: 68.
Source: DOD selected acquisition reports.
[A] Since the initial estimate, the Air Force retired 14 C-5 aircraft
and 1 crashed, leaving a current fleet of 111.
[End of table]
Additional C-17s Offset Capability Loss from Modifying Fewer C-5s:
As part of the C-5 RERP restructuring, U.S. Transportation Command
identified a need for 205 C-17s, 25 more than were authorized at the
time the 2005 mobility capabilities study was completed. Subsequent to
the study, Congress provided additional funding that the Air Force used
to procure 10 more C-17s in 2007 and 15 more in 2008. The following
table shows the changes in the strategic airlift mix over the past 3
years and the impact the mixes have had on DOD's ability to meet its
strategic airlift mission (see table 2). While DOD did not use a
million ton-mile per day metric to determine how many C-5s and C-17s it
needed in its December 2005 mobility study, officials were able to
quantify for us the million ton-mile per day capabilities of the
scenarios identified below.
Table 2: Estimated Million Ton-Mile per Day Capability Comparison:
Strategic airlifters: Number of C-17;
December 2005: 180;
July 2007: 190;
February 2008: 190;
September 2008: 205.
Strategic airlifters: Number of C-5s;
December 2005: 112 fully modernized;
July 2007: 112 fully modernized;
February 2008: 59 avionics only; 52 fully modernized;
September 2008: 59 avionics only; 52 fully modernized.
Strategic airlifters: Estimated million ton-miles per day capability;
December 2005: 33.09;
July 2007: 33.95;
February 2008: 33.05;
September 2008: 34.80.
Source: GAO analysis of DOD data.
[End of table]
The fiscal year 2009 National Defense Authorization Act authorizes
procurement of 6 more C-17s, which will bring the total number to 211
aircraft.[Footnote 9]
Forthcoming Decisions Could Lead to a Change in the Strategic Airlift
Mix in the Near Future:
The number and mix of aircraft needed to support DOD's strategic
airlift mission could change again based on the results of ongoing
mobility studies, possible C-5 retirements, and the eventual cost of C-
5 modernization efforts. However, DOD's ability to make sound strategic
airlift portfolio decisions, including the number of C-5s to retire and
the number of additional C-17s that should be procured, may be hampered
if appropriate metrics are not included in the study efforts.
Mobility Requirements Studies:
DOD is currently studying its future mobility requirements. The
congressionally directed requirements study by the Institute of Defense
Analysis is due in January 2009, followed by the Air Force's mobility
capabilities study in May 2009. Some expect the studies will identify
increased demands on airlift, particularly for the C-17 since it can
perform both a strategic and tactical role. As Army equipment becomes
heavier and/or bulkier, the C-17 may be the only aircraft capable of
delivering major weapon systems to the front lines and to more austere
bases in the theater of combat. The results of both studies, if done
accurately and comprehensively, should provide the analytical
foundation for the future airlift force structure.
We previously reported on shortcomings in the Institute for Defense
Analysis' study plan that could make it difficult for decision makers
to know how much strategic airlift is needed. For example, the study
plan did not provide details on assumptions and the measures of
effectiveness, or metrics, the command officials would be using in
their evaluation. Measures of effectiveness are considered to be
especially important when evaluating alternatives, such as comparing
the results of two analyses that measure different airlift force mixes.
We recommended in April 2008 that DOD take action to ensure that the
final study plan included sufficient details to address all the
elements specified in the law and needed to inform decision makers on
airlift issues.[Footnote 10] DOD concurred with our recommendation.
We also identified shortcomings in DOD's 2005 mobility capabilities
study approach that, if not addressed, could be repeated again in the
current study. Unlike prior studies, the 2005 study did not recommend a
specific airlift requirement expressed in million ton-miles per day--a
common metric integral to prior capability studies that defines and
quantifies airlift requirements as a basis for computing the size and
optimal mix of airlift forces. Instead, DOD officials stated that it
expressed its airlift requirement in terms of specific numbers and
types of aircraft needed to meet the national defense strategy to take
into account real-world operating parameters that may cause aircraft
payloads to vary significantly from standard planning factors. Later,
in response to congressional direction, DOD translated the requirements
into a million ton-mile requirement. We also found the study did not
identify the operational impact of increased or decreased strategic
airlift on achieving warfighting objectives that would be associated
with different mixes of C-5 and C-17 aircraft. As a result, we could
not determine how the study concluded that the mix of C-5s and C-17s at
that time was adequate for meeting mobility requirements and for
supporting strategic airlift portfolio investment decisions. In 2006,
we recommended that DOD include mobility metrics, along with
warfighting metrics to determine air superiority, when completing
future mobility capabilities studies. DOD concurred with this
recommendation.[Footnote 11]
Although DOD concurred with the recommendation, a Transportation
Command official stated that a decision has not yet been made on what
specific metrics will be used to determine the number and mix of
strategic airlifters in the current mobility capabilities study. At the
time of this writing, the study plan had not been finalized and it is
unclear whether a million ton-miles metric will be used, though it is
being considered. DOD often uses the million ton-mile metric as an easy
way to compare the capacity of different fleet mixes. For example,
according to a DOD official, since C-130s, C-130Js, C-17s, C-5As, C-
5Bs, and C-5Ms all have different capabilities when it comes to payload
and range, it is difficult to compare different mixes of them without
using this metric.
Potential C-5 Retirements:
Congressional legislation would allow the Air Force to begin to retire
some C-5s, if appropriate, beginning October 1, 2008, as long as the
Air Force maintains a strategic airlift fleet of 299 aircraft.[Footnote
12] Prior to retiring any aircraft, DOD's Director of the Operational
Test and Evaluation must complete its assessment of a C-5A that had
received RERP modification.[Footnote 13] According to an Air Force
official, testing of a C-5A will begin in August 2009 and the final
report will be released in February 2010.
Air Mobility Command officials told us that while they are concerned
about the emerging global threats and requirements, fiscal and
personnel demands require that the command limit overall fleet size
once warfighting risk is reduced to a reasonable level. Therefore, the
Air Mobility Command will consider retiring C-5s, as the law and
requirements allow, on a one-for-one basis after 205 C-17s have been
procured to ensure the right combination of aircraft and capability is
balanced against cost and risk. A decision on whether and when to
retire C-5s will not likely be made until after the mobility study has
been completed.
Relative Capability Increases from Modernized C-5s and New C-17
Aircraft:
Finally, if the cost for C-5 modernization continues to increase, Air
Force officials may have to reconsider the mix within its airlift
portfolio or request additional funding. Additional investments in C-17
aircraft may become more attractive. Currently, a new C-17 would cost
about $276 million compared to $132 million to fully modernize a C-5.
Each new C-17 potentially adds 100 percent of its cargo capacity toward
meeting the total airlift requirement. Because the C-5s are already
part of the operational force, each aircraft's current capacity is
already counted toward the total requirement. Consequently, according
to DOD data, the C-5 modernization programs only provide a marginal
increase of 14 percent in capability over nonmodernized aircraft. Using
DOD's million ton-mile per day planning factors, we, working in
collaboration with DOD, calculated that DOD would need to fully
modernize 7 C-5s to attain the equivalent capability achieved from
acquiring 1 additional C-17 and the costs would be over 3 times more
(see table 3).
Table 3: Comparison of a Modernized C-5 and C-17 Equivalent Airlift
Capabilities:
C-5 fully modernized:
Unit cost[A]: $132 million;
Aircraft needed to provide equivalent capabilities: 7;
Total cost of equivalent capability: $924 million.
C-17 new: Unit cost[A]: $276 million;
Aircraft needed to provide equivalent capabilities: 1;
Total cost of equivalent capability: $276 million.
Source: GAO analysis of DOD data.
[A] Unit costs reflect procurement costs only. Data are rounded for
presentation purposes.
[End of table]
The analysis does not include the life-cycle costs of adding more C-17s
to DOD's airlift portfolio. However, previous DOD analysis indicated
that the life-cycle costs would be approximately the same if DOD
replaced 30 C-5s with 30 C-17s.
C-5 Modernization Costs Have Not Been Fully Identified:
The Air Force has not fully identified the funding needed to modernize
the C-5 aircraft, and costs are likely to increase. The current cost
estimate is $9.1 billion to AMP the entire fleet of 111 aircraft and
RERP 52 aircraft. However, we believe this is understated. The current
budget does not fully fund the revised RERP program and the CAIG's cost
estimate does not adequately address risk and uncertainty. Further, the
cost estimate does not include the costs for a new modernization
upgrade program slated to begin in fiscal year 2010 that would fix AMP
deficiencies and add new capabilities. Alternatively, some future
modification costs may be avoided should the Air Force justify
retirement of some older C-5s.
Current Estimate for C-5 Modernization Costs Is Questionable:
The current budget does not sufficiently fund the revised RERP program.
According to the CAIG's analysis, the C-5 RERP is underfunded by about
$294 million across the Future Years Defense Plan for fiscal years 2009-
2013. Approximately $250 million less is needed in fiscal years 2009
through 2011, and $544 million more is needed in fiscal years 2012 and
2013. According to program officials, the Air Force is committed to
fully funding the CAIG RERP cost estimate in the fiscal year 2010
President's budget yet to be submitted. However, program officials
could not identify sources for the additional funding needed in fiscal
years 2012 and 2013. Figure 2 provides the funding estimate developed
by the CAIG to support the restructured RERP program compared to the
fiscal year 2009 budget.
Figure 2: Annual Funding Requirements for the C-5 RERP:
[Refer to PDF for image]
This figure is a combination vertical bar and line graph depicting the
following data:
Fiscal year: 2009;
Fiscal year 2009 budget: $561.9 million;
CAIG estimate: $511.2 million.
Fiscal year: 2010;
Fiscal year 2009 budget: $866 million;
CAIG estimate: $711.5 million.
Fiscal year: 2011;
Fiscal year 2009 budget: $975.2 million;
CAIG estimate: $930.2 million.
Fiscal year: 2012;
Fiscal year 2009 budget: $936.9 million;
CAIG estimate: $1170.2 million.
Fiscal year: 2013;
Fiscal year 2009 budget: $932 million;
CAIG estimate: $1242.7 million.
Source: CAIG and DOD budget data, GAO analysis.
[End of figure]
While our review of the CAIG's cost-estimating methodology found it
generally well documented, comprehensive, and accurate, we found some
weaknesses that impair the credibility and overall reliability of the C-
5 cost estimate.[Footnote 14] Specifically, the CAIG did not take risk
or uncertainty into account for some major cost drivers, in particular
the propulsion system and labor. Because cost estimates predict future
program costs, uncertainty is always associated with them. For example,
there is always a chance that the actual cost will differ from the
estimate because of a lack of knowledge about the future as well as
errors resulting from historical data inconsistencies, assumptions,
cost-estimating equations, and factors that are typically used to
develop an estimate. Quantifying that risk and uncertainty is
considered to be a cost estimating best practice because it captures
the cumulative effect of risks and recognizes the potential for error.
In a memo documenting its independent cost estimate, the CAIG stated
that the biggest risk to the cost estimate was the purchase agreement
between Lockheed Martin and General Electric for the propulsion system
that is conditioned on specific annual procurement quantities. The CAIG
had estimated that the Air Force could save 18 percent by meeting the
quantity and schedule identified in the revised RERP. However, CAIG
officials stated that if the budget is not sufficient to meet these
agreed-to quantities, then anticipated price breaks would not occur,
resulting in increased costs of the C-5 RERP to the government. Despite
this significant risk, the CAIG did not perform a risk/uncertainty
analysis to determine the extent to which costs would increase should
the buy quantity be cut. CAIG officials stated that they believe
propulsion system procurement risk has been mitigated because they have
identified the quantities necessary to meet the conditions of the
purchase agreement and the Air Force plans to fully fund to this
estimate. Despite these assurances, however, we have found that DOD
often changes procurement quantities and there is a risk that
quantities for the C-5 RERP program may change. For example, DOD's
Selected Acquisition Report summary shows that of the 56 programs
currently in production, 38 (or 68 percent), have experienced a
quantity change since their production decisions.
In addition, the CAIG did not quantify or address uncertainty with its
$2.1 billion labor cost estimate associated with the installation of
the RERP on C-5 production aircraft. The RERP program experienced a 29-
month break in production between the last system development and
demonstration unit and the first production unit. As such, the CAIG had
to estimate inefficiencies due to loss of learning and how it would
affect the costs of future production. The CAIG's assumptions differed
from those used by the Air Force and Lockheed Martin, which caused the
CAIG estimate to be about $200 million more than Lockheed Martin's
estimate and about $400 million less than the Air Force's labor
estimate. As a result of the weaknesses discussed above, the Air
Force's basis for making strategic airlift portfolio investment
decisions is impaired, and the RERP program is at increased risk of
experiencing cost overruns.
A New Modernization Program for the C-5 Will Add Further Costs:
Additional modernization efforts not yet budgeted will add to future C-
5 costs. Air Force officials stated that a new C-5 upgrade program is
slated to begin in fiscal year 2010. The initial funding requirement is
$65 million--$40 million in research, development, test, and evaluation
funds and $25 million in procurement funds--to migrate all C-5s toward
a standard software configuration, based on changes made in the AMP and
RERP programs. Requirements previous waived on the AMP may also be
addressed in the initial block of this program. Additional funding will
be requested in 2012 and beyond to provide additional capabilities.
According to a program official, the total requirements and funding
needs for this modernization program have not been finalized. However,
at this time it is not expected to be as costly as the C-5 AMP or RERP.
The eventual costs for modernizing C-5 aircraft hinge upon the
decisions DOD officials make about the number and mix of strategic
airlifters DOD needs in the future. If additional C-5 capability is
needed, more C-5 aircraft may need to receive the RERP modification and
costs will increase. On the other hand, if decision makers believe
additional C-17 capability is needed in lieu of the C-5, the Air Force
may be able to reduce the number of aircraft that need the AMP
modification and additional modifications slated to begin in fiscal
year 2010.
The Air Force Must Make a Decision Soon Regarding C-17 Acquisition and
Eventual Shutdown of the Production Line:
Results from the two mobility studies, potential C-5 retirements, and
future modernization cost increases could lead to a decision to extend
C-17 production beyond the 205 now authorized. The production line is
currently scheduled to close in September 2010 with the supplier base
and portions of the line closing sooner. A well-reasoned near-term
decision on the final force size could avoid substantial future costs
from ending C-17 production prematurely and later restarting
production. Eventually, the Air Force is responsible for providing the
substantial funding for shutdown expenses. Contractor and Air Force
cost estimates vary widely, ranging up to $1 billion and more, and need
to be reconciled. Only $37 million has been budgeted thus far.
Careful Planning Needed to Avoid Shutting Down and Restarting the
Production Line:
Two alternatives to completely shutting down the C-17 production line
would be to slow down the rate of production or to close out current
production while preserving some ability to restart the line should
conditions change and additional C-17s are needed. Both options are not
attractive. Slowing down production raises unit costs due to smaller
annual quantities. Analysis indicates that, once closed, it would not
be feasible or cost effective to restart production due to costs for
hiring and training a new workforce, reinstalling tooling, and
reestablishing the supply base. Therefore, careful planning to firmly
and timely establish future C-17 fleet requirements is important to
avoid unnecessary costs associated with a slowdown or a premature
shutdown.
Our review of contractor and Air Force plans identified the following
major challenges and substantial costs for restarting production:
* A workforce of nearly 3,100 people would have to be hired and trained
following a complete shutdown. Boeing officials believe that the vast
majority of its current workforce will not be available for
reemployment 1 year after the shutdown. A union representative stated
that workers, whose average age is around 57 years, will either retire
or find other jobs during the shutdown period. Boeing does not have the
ability to move its workers to other production lines at its Long
Beach, California, plant because the C-17 is the last aircraft being
built at that facility.[Footnote 15]
* Production tooling would need to be dismantled, stored, and
maintained for the entire length of the shutdown. Tooling would then
have to be reinstalled and restored to its original working condition,
which officials believe would be no small feat considering the
significant amount of automation involved in the production process. In
addition, new tooling may need to be procured depending on design
changes that may occur during the shutdown period.
* Suppliers would have to be identified and their processes and parts
would have to be qualified. Boeing officials stated that some suppliers
it deals with now may not be available and many other suppliers may not
participate in the C-17 production program because they may develop
alternative business ventures following the shutdown. Suppliers of
certain specialty parts are of utmost concern.
Cost estimates to shut down and restart the C-17 production line are
very substantial. In 2006, when various shutdown options were being
evaluated, Boeing estimated that the cost to shut down and restart
would be about $918 million; the Air Force estimated $2 billion. Table
4 shows the main assumptions used to develop these estimates.
Table 4: Comparison of Boeing and Air Force Cost-estimating Assumptions
for C-17 Production Line Shutdown and Restart:
Then-year dollars:
Boeing estimate $918 million:
* 5-year production shutdown period, estimate only covers 24-month
shutdown period, a new contract would be required for the remaining 36
months;
* Includes 30 percent factor to cover risk;
* Did not include restart cost in the estimate.
Air Force estimate $2 billion:
* Restart spans 3 years and shutdown spans 48-month period and assumes
production restart decisions in October 2010.
* Includes 20 percent risk in the estimate;
* Includes restart cost in the estimate.
Source: GAO analysis of Boeing and C-17 Program Office data.
[End of table]
Boeing and the Air Force used different cost-estimating assumptions
when completing their production shutdown and restart estimates, and
neither estimate reflects all potential costs. For example, Boeing's
estimate only addresses mothballing the production facility in
anticipation of restarting production, whereas the Air Force's estimate
includes the costs to stop and restart production as well as a final
shutdown that would occur after a second production run is completed.
Neither Boeing nor the Air Force included costs to hire and train
approximately 3,100 workers or to make configuration changes that may
have occurred to the aircraft during the time period when the line was
shut down. According to Boeing and Air Force officials, these two cost
categories could add millions of dollars to their production shutdown
and restart estimates.
Air Force Has Not Budgeted Sufficient Funds for the C-17 Production
Shutdown:
At this writing, the Air Force has allocated $37 million in its
outyears budget for C-17 production shutdown, far less than what is
believed to be needed. As above, cost estimates vary and were not
consistently derived. Identifying and reconciling the full costs of
shutdown is needed. The Air Force plans to negotiate and issue a
postproduction contract to Boeing to identify the disposition of
tooling and other production assets and to ensure that a viable
sustainment supplier base has been established when production has
ended.
In 2006, Boeing and the Air Force developed considerably different
estimates of about $1 billion and $465 million, respectively, for the
cost of shutting down production completely. Table 5 below compares the
two cost estimates developed in 2006 and the underlying assumptions
that contributed most significantly to the differences.
Table 5: Comparison of Cost and Assumptions Included in C-17 Production
Line Shutdown Cost Estimates:
Then-year dollars:
Boeing estimate $1 billion:
* 5-year shutdown schedule beginning in 2006;
* Buildings would be demolished;
* Environmental remediation needed.
Air Force estimate $465 million:
* 4-year shutdown schedule beginning in 2008;
* No costs for demolishing facilities;
* No environmental remediation needed.
Source: GAO analysis of Boeing and C-17 Program Office data.
[End of table]
Differences between the two estimates can largely be attributed to the
underlying assumptions used. For example, in assessing alternatives for
shutting down the C-17 production facility at Long Beach, California,
Boeing considered three options for the site: redeploy the property to
Boeing for reuse, treat the property as an operating asset, or sell the
property. Boeing officials concluded that the current production
facility would not be used for future business and should be sold.
Therefore, they included costs to demolish facilities and for
environmental remediation in their estimate. Air Force officials
believe demolition and environmental remediation costs should not be
part of the shutdown costs and did not include them.
Since 2006, Congress has provided additional funding that the Air Force
is using to procure additional C-17s. Thus, DOD officials stated that
the requirement to shut down the production has been delayed 1 year and
now estimate the shutdown costs to be $505 million, due to inflation.
Boeing has not updated its estimate.
Conclusions:
Strategic airlift is an essential, key enabler of U.S. military
capability to rapidly project forces worldwide. The C-5 and C-17
provide complementary capabilities. However, DOD continues to struggle
with identifying the specific quantities and determining the optimal
mix of aircraft needed. Clarity is needed before committing additional
billions of dollars to C-5 modernization programs, establishing C-5
retirement schedules, and/or acquiring additional C-17 aircraft.
Careful planning is also important to avoid the costs of shutting down
the C-17 line prematurely and later deciding to restart the production.
The new mobility studies, if done correctly, could bring clarity to
strategic airlift capabilities needed to support the future force and
changed threats, as well as inform future tactical airlift requirements
because of the C-17's dual role. Important metrics left out of the 2005
capabilities study--such as specific ton-mile mobility requirements and
relative reliability rates--are considered critical factors in
quantifying and analyzing cost-effective force mixes. DOD concurred
with our prior recommendation to use mobility metrics to inform future
mobility capabilities studies. However, at this writing, it is unclear
whether DOD will use a million ton-mile metric in its current analysis
to determine the cost-effective mix of aircraft and guide important
investment decisions related to the expenditure of billions of dollars.
Until comprehensive requirements--supported by appropriate,
quantifiable metrics--and the full costs for alternate courses of
action are identified, DOD decision making on the future size and mix
of strategic airlift is hampered, thus increasing the risk of incurring
unnecessary costs and establishing a less than optimal mix of strategic
and tactical airlift forces.
Recommendations for Executive Action:
To better inform decision makers and provide improved and quantifiable
projections of airlift mobility requirements and investment needs, we
recommend that the Secretary of Defense direct the Office of the
Secretary of Defense (Program Analysis and Evaluation) and U.S.
Transportation Command to take the following action:
* Ensure that the new mobility capabilities study specifies the ton-
mile per day metric and other relevant metrics to support sound
strategic airlift decisions, including (1) the cost-effective mix of C-
5 and C-17 aircraft consistent with national security strategy; (2) the
number of C-5s required to airlift equipment that can only be carried
by that aircraft; (3) C-5A retirement schedules, if warranted by
analysis; (4) the number of C-17s needed to accomplish both its
strategic and tactical roles; and (5) future procurement and
modernization needs.
We also recommend that the Secretary of Defense direct the Secretary of
the Air Force to take the following two actions:
* Prepare updated, reliable, and comprehensive cost estimates for C-5
modernization to include risk and sensitivity analyses on major cost
drivers for the RERP, the costs of a new modernization program, and
potential savings should some C-5A retirements be warranted.
* Identify and budget for the full costs to shut down the C-17
production line in the time frame consistent with final decisions on
the future size of the C-17 fleet.
Agency Comments and Our Evaluation:
DOD provided us with written comments on a draft of this report. DOD
concurred with one recommendation, partially concurred with another,
and did not concur with one recommendation. DOD's comments appear in
appendix II. DOD also provided technical comments on our draft report
which we incorporated as appropriate in the report.
In its comments, DOD partially concurred with the draft recommendation
to ensure that the current mobility capabilities study specifies a ton-
mile per day metric and other relevant metrics to support sound
strategic airlift decisions. The department stated that the Office of
the Secretary of Defense (Program Analysis and Evaluation) and U.S.
Transportation Command, offices that are jointly working on the
mobility capabilities study, will specify metrics, including a ton-
miles per day metric, for the study. Accordingly, we redirected our
recommendation to these offices instead of the Air Force.
DOD did not concur with the recommendation to prepare updated C-5
modernization cost estimates. DOD stated that the modernization is
being accomplished in two phases--the AMP and RERP--and that the third
modernization effort we identified that is slated to begin in fiscal
year 2010 is a sustainment program that would fall below the ACAT II
threshold. Further, department officials believe that the most recent
cost estimates for the AMP and RERP are sufficient and areas of concern
and mitigating factors related to the RERP estimate were identified
during the Nunn-McCurdy process.
We continue to believe updated estimates are warranted. We are not
suggesting that the department revisit its RERP Nunn-McCurdy decision.
For the most part, we believe the CAIG did an adequate job identifying
the costs associated with 14 different RERP options, especially given
the short time frame in which the estimates had to be completed.
However, the CAIG did not perform risk or uncertainty analysis, which
is considered to be a cost-estimating best practice. Since the program
is not fully funded and the Air Force has not yet completed its
analysis of mobility requirements, there remains significant risk that
funding will not be available in outyears or that the quantities of C-
5s and C-17s could change. Therefore, we believe it is important that
DOD identify a range of potential costs based on different quantities,
so that decision makers will have adequate information for future
budget decisions related to the number and mix of strategic airlifters.
DOD concurred with our recommendation to identify and budget for the
full costs to shut down the C-17 production line consistent with final
decisions on the future size of the C-17 fleet.
We are sending copies of this report to the Secretary of Defense and
interested congressional committees. The report is also available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you have any questions about this report or need additional
information, please contact me at (202) 512-4841 or sullivanm@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors
to this report were Bruce Fairbairn, Assistant Director; Cheryl Andrew;
Marvin Bonner; John Crawford; Karen Sloan; Karen Richey; and Marie
Ahearn.
Signed by:
Michael Sullivan:
Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report examines the Department of Defense's (DOD) efforts to meet
its strategic airlift requirements. Specifically, we (1) identify the
impact C-5 modernization cost increases have had on the mix of aircraft
DOD needs to meet its strategic airlift requirement, (2) assess the
current C-5 modernization cost estimate, and (3) identify C-17
production plans and issues related to a production line shutdown.
To determine the impact C-5 modernization cost increases have on the
mix of aircraft DOD needs to meet its strategic airlift requirement, we
compared the mix of aircraft DOD planned to use to meet the strategic
airlift requirements identified in a 2005 mobility study to the mix of
aircraft DOD currently plans to use. We collected information on the 14
options DOD considered to meet its strategic airlift requirements
following the C-5 Reliability Enhancement and Reengining Program (RERP)
cost breach notification to Congress. We also obtained cost data from
the Cost Analysis Improvement Group (CAIG) related to the 14 options.
We met with appropriate officials from the Office of the Secretary of
Defense, the Office of the Secretary of the Air Force, and Air Mobility
Command to obtain their opinions on the mix of C-5 and C-17 aircraft
needed to meet the current mobility requirement. When available, we
obtained analytical documentation supporting the views of these
officials.
We also considered the impact decisions related to the current, ongoing
mobility studies, pending congressional legislation, and further C-5
cost increases could have on the future mix of C-5 and C-17s. We
identified issues related to DOD's 2005 mobility study and discussed
DOD's efforts to address these same issues in the current study with
DOD officials.
To determine the current cost estimates for the C-5 modernization
efforts, we collected cost estimates for the C-5 Avionics Modernization
Program (AMP) and C-5 RERP. We also gathered preliminary cost data for
the modernization program slated to begin in fiscal year 2010 from
program officials. We used C-5 AMP cost data from the December 2007
Selected Acquisition Report and C-5 RERP cost data from the June 2008
Selected Acquisition Report. The CAIG identified funding shortfalls for
the C-5 RERP program.
During our examination of C-5 RERP costs, we collected various cost
estimates and supporting documentation developed by Lockheed Martin,
the DOD CAIG, and the Air Force. We met with appropriate officials from
each of these organizations to determine the underlying assumptions of
their respective estimates and to understand key differences between
the estimates. Since the CAIG's estimate serves as DOD's official
estimate for the restructured C-5 RERP program, we compared how that
estimate was developed to GAO's guide for estimating and managing
program costs[Footnote 16] to determine the reliability of the DOD's
cost estimate. We also interviewed officials from the Institute for
Defense Analysis to discuss their analysis and findings related to the
various C-5 RERP cost estimates.[Footnote 17]
To identify C-17 production plans and issues related to the C-17
production line shutdown, we collected information on the number of C-
17s DOD is currently authorized to procure and discussed production
shutdown time frames with Boeing, the prime contractor. We collected
cost estimates and underlying assumptions Boeing and the Air Force made
in 2006 for shutting down the production line completely and shutting
down and restarting the production line at a later time. Additionally,
we obtained the opinions of Boeing and Air Force program officials
about the costs and challenges associated with shutting down and
restarting the production line. Our discussions with both of these
organizations focused on potential personnel, supplier, and tooling
issues. We also discussed this topic with Boeing union officials who
have dealt with downsizing efforts at Boeing's Long Beach, California,
facility and Lockheed Martin officials who were involved with shutting
down and restarting the C-5 production line during the 1970s and 1980s
at the Marietta, Georgia, plant. Finally, we reviewed DOD budget
documents to determine how much had been budgeted for the C-17
production line shutdown.
We conducted this performance audit from February 2008 to November 2008
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000
November 14, 2008:
Mr. Michael J. Sullivan:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Sullivan:
This is the Department of Defense (DoD) response to the GAO draft
report, GAO-09-50, "Defense Acquisitions: Timely and Accurate Estimates
of Costs and Requirements Are Needed to Define Optimal Future Strategic
Airlift Mix," dated October 15, 2008, (GAO Code 120718). DoD's
responses to the report's recommendations are enclosed.
The GAO draft report contains misleading information that leads one to
believe the Department did not apply proper rigor in its strategic
airlift cost-benefit analysis. The Department stands by the
restructured C-5 Reliability Enhancement and Re-enginning Program
following Nunn-McCurdy re-certification and the analysis behind that
decision. The Department's Cost Analysis Improvement Group properly
analyzed all 14 of the options proposed during the Nunn-McCurdy process
and identified areas of concern and mitigating factors. Additionally,
the Department found many of the GAO report's analyses and supporting
tables to be misleading and over-simplified.
The Department understands the criticality of its strategic airlift
capability in today's global environment. Proper stewardship of
resources is essential in ensuring we maintain this capability. The
upcoming Mobility Capabilities and Requirements Study will apply the
proper metrics necessary to aide the Department in determining the most
capable and cost-effective fleet to meet our global commitments. My
point of contact for this matter is Col AJ Murch, at 703-695-7565, e-
mail Anthony.Murch@osd.mil.
Sincerely,
Signed by:
David G. Ahern:
Director:
Portfolio Systems Acquisition:
Enclosure: As stated:
GAO Draft Report Dated October 15, 2008:
GAO-09-50 (GAO Code 120718):
"Defense Acquisitions: Timely And Accurate Estimates Of Costs And
Requirements Are Needed To Define Optimal Future Strategic Airlift Mix"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to ensure that the new mobility
capability study specifies the ton-miles per day metric and other
relevant metrics to support sound strategic airlift decisions,
including (1) the cost-effective mix of C-5 and C-17 aircraft
consistent with national security strategy; (2) the number of C-5s
required to airlift equipment that can only be carried by the aircraft;
(3) C-5A retirement schedules, if warranted by analysis; (4) the number
of C-17s needed to accomplish both its strategic and tactical roles;
and (5) future procurement and modernization needs. (p. 19/GAO Draft
Report)
DOD Response: Partially concur. The Mobility Capabilities and
Requirements Study - 2016 (MCRS-16) is a joint Office of the Secretary
of Defense (Program Analysis and Evaluation)/U.S. Transportation
Command effort. These offices, with support from the US Air Force, will
specify appropriate metrics (to include ton-miles per day) to support
sound strategic airlift decisions. The study will identify: (1) an
appropriate mix of C-5 and C-17 aircraft that is consistent with
national security strategy; (2) the number of C-5s required to airlift
equipment that can only be carried by the aircraft; and (3) the number
of C-17s needed to accomplish both its strategic and tactical roles.
The MCRS will set the stage to address the cost-effectiveness of the
strategic airlift mix, recommend C-5A retirements, and identify future
procurement and modernization needs. Any capability gaps in the
strategic airlift fleet identified in MCRS-16 will be addressed during
ensuing program and budget development processes.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to prepare updated, reliable, and
comprehensive cost estimates for C-5 modernization to include risk and
sensitivity analyses on major cost drivers for the RERP, the costs of a
new modernization program, and potential savings should some C-5A
retirements be warranted. (p. 19/GAO Draft Report)
DOD Response: Non-concur. Modernization of the C-5 fleet will be
accomplished in two phases, each of which is a separate Major Defense
Acquisition Program (MDAP). The C-5 Avionics Modernization Program
(AMP) represents the first phase. AMP is a mature program well into its
production phase, with no future acquisition milestones and only one-
third of the required total procurement funding remaining in FY 2010-
2015. The C-5 Reliability Enhancement and Re-enginning (RERP) Program
represents the second phase of the C-5 fleet modernization. In
preparation for its Milestone C, the Air Force cost estimate revealed a
critical breach of the unit cost metrics requiring the Department to
review and recertify the program to Congress under the Nunn-McCurdy
statute. A restructured RERP program excluding the older C-5A model
aircraft was certified to Congress in February 2008 and Milestone C
approval was granted in March 2008. The OSD Cost Analysis Improvement
Group (CAIG) developed an independent cost estimate of the restructured
program, to include areas of concern and mitigating factors, to support
its certification and its subsequent Milestone C. Finally, the "new
modernization upgrade program" referenced in the report is primarily a
sustainment effort which will initially focus on correcting
deficiencies in the software of the current C-5 AMP program. This
software block cycle sustainment program is common to many weapons
systems and should not be mistaken for a Major Defense Acquisition
Program (MDAP). The cost for this sustainment effort is currently
projected to fall below the ACAT II threshold. Given C-5 AMP's program
maturity, RERP's lack of technology elements which will become cost
drivers, and the block sustainment program being a "level of effort"
program, there is no compelling need for a new comprehensive cost
estimate of the C-5 fleet modernization efforts.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to identify and budget for the
full costs to shut down the C-17 production line in the time frame
consistent with final decisions on the future size of the C-17 fleet.
(p. 19/GAO Draft Report)
DOD Response: Concur. The future size of the C-17 fleet and
accompanying shutdown decisions will be addressed once the results of
the MCRS are available and additional analysis is completed.
[End of section]
Footnotes:
[1] While this report was out to DOD for comment, the President signed
the fiscal year 2009 National Defense Authorization Act, which
authorizes the procurement of 6 more C-17s, bringing the total number
of C-17s authorized to 211 aircraft. Accordingly, throughout this
report we refer to the 205 C-17s previously authorized. Duncan Hunter
National Defense Authorization Act for Fiscal Year 2009, Pub. L. No.
110-417, § 1501(b) (2008).
[2] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, § 132 (2003) includes provisions that DOD must meet before
it can retire C-5 aircraft.
[3] The million ton-mile measure is a common metric integral to prior
capability studies that defines and quantifies airlift requirements as
a basis for computing the size and optimal mix of airlift forces.
[4] Mission capable rate is a measure of an aircraft's readiness to
perform its missions.
[5] Two C-5As were later modified to carry National Aeronautics and
Space Administration components and other outsized cargo and were
redesignated C-5Cs.
[6] Throughput is defined as the amount of work that can be performed
or the amount of output that can be produced by a system or component
in a given period of time. For airlifters, it refers to the amount of
freight or passengers that can be carried by an aircraft during a
specified time period.
[7] National Defense Authorization Act for Fiscal Year 2008, Pub. L.
110-181, § 1046 (2008).
[8] 10 U.S.C. § 2433 establishes the requirement for unit cost reports.
If certain cost thresholds are exceeded (known as unit cost or Nunn-
McCurdy breaches), DOD is required to report to Congress and, in
certain circumstances, certify the program to Congress.
[9] Pub. L. No. 110-417, § 1501(b) (2008).
[10] GAO, Defense Transportation: DOD Should Ensure that the Final Size
and Mix of Airlift Force Study Plan Includes Sufficient Detail to Meet
the Terms of the Law and Inform Decision Makers, [hyperlink,
http://www.gao.gov/products/GAO-08-704R] (Washington, D.C.: Apr. 28,
2008).
[11] GAO, Defense Transportation: Study Limitations Raise Questions
about the Adequacy and Completeness of the Mobility Capability Study
and Report, [hyperlink, http://www.gao.gov/products/GAO-06-938]
(Washington, D.C.: Sept. 20, 2006).
[12] John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364, § 132 (2006).
[13] National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, § 132 (2003).
[14] Our prior research has identified a number of practices for
effective program cost estimating. We have issued guidance that
associates these practices with four characteristics of a reliable cost
estimate--well documented, comprehensive, accurate, and credible. GAO,
Cost Assessment Guide: Best Practices for Estimating and Managing
Program Costs, Exposure Draft, GAO-07-1134SP (Washington, D.C.: July
2007).
[15] This is a different situation than that experienced by Lockheed
Martin when it shut down and later restarted the C-5 production line.
When the C-5A line was closed in the 1970s, the company was able to
move C-5 workers to the ongoing C-130 production line at the same
facility. When the C-5B production line opened in the 1980s, company
officials were able to bring many of those experienced workers back,
thus minimizing hiring and training costs for the program.
[16] GAO, Cost Assessment Guide: Best Practices for Estimating and
Managing Program Costs - Exposure Draft, [hyperlink,
http://www.gao.gov/products/GAO-07-1134SP] (Washington, D.C.: July
2007). GAO was seeking input and feedback on the exposure draft from
August 13, 2007, through July 14, 2008, which was during the time frame
of our audit. GAO worked closely with experts throughout the cost
community to develop the draft.
[17] Institute for Defense Analysis: Review of Cost Estimates for the C-
5 Reliability Enhancement and Re-engining Program (RERP), IDA Paper P-
4336 (Alexandria, Va.: March 2008).
[End of section]
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