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38–845 PDF 2008

S. Hrg. 110–410

COST EFFECTIVE AIRLIFT IN THE 21ST CENTURY

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 27, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 

FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

TOM COBURN, Oklahoma 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

PETE V. DOMENICI, New Mexico 

JOHN E. SUNUNU, New Hampshire

JOHN KILVINGTON, Staff Director 

KATY FRENCH, Minority Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1

Senator Voinovich ............................................................................................. 7

Senator Coburn ................................................................................................. 10

WITNESSES 

THURSDAY, SEPTEMBER 27, 2007

Sue C. Payton, Assistant Secretary of the Air Force for Acquisition, U.S. 

Air Force, accompanied by Diane M. Wright, Deputy Program Executive 

Officer for Aircraft, Aeronautical Systems Center, Wright-Patterson Air 

Force Base ............................................................................................................ 8

General Norton A. Schwartz, Commander, U.S. Transportation Command, 

U.S. Air Force ....................................................................................................... 11

Christopher Bolkcom, Specialist in National Defense, Congressional Research 

Service ................................................................................................................... 13

Larry J. McQuien, Vice President of Business Ventures, Lockheed Martin 

Aeronautics Company, accompanied by George Schultz, Vice President, 

Lockheed Martin Aeronautics Company ............................................................ 36

ALPHABETICAL LIST OF WITNESSES

Bolkcom, Christopher: 

Testimony .......................................................................................................... 13

Prepared statement with an attachment ....................................................... 66

McQuien, Larry J.: 

Testimony .......................................................................................................... 36

Prepared statement .......................................................................................... 95

Payton, Sue C.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 49

Schwartz, General Norton A.: 

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 58

APPENDIX 

Questions and responses for the Record from: 

Mr. McQuien ..................................................................................................... 00

Charts submitted by Senator Carper ..................................................................... 00

Information from GE submitted by Senator Carper ............................................. 00

(1)

COST EFFECTIVE AIRLIFT IN THE 21ST 

CENTURY 

THURSDAY, SEPTEMBER 27, 2007

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:35 p.m., in Room 

342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Coburn, and Voinovich. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Good afternoon. The Subcommittee will come to 

order. We are to be joined by several of our colleagues here in a 

few minutes, but let me just start off before we introduce our witnesses. 

I just want to thank our witnesses for coming, and for your preparation. I am going to ask, Secretary Payton, if you and General 

Schwartz might stay around for the second panel, that would be 

much appreciated. If your schedules don’t permit you to do that, I 

understand, but if you could stay, I would be grateful. 

The Senate will soon complete legislation intended to equip our 

Armed Forces to meet our national security threats and to keep our 

country safe. This is really one of the foremost responsibilities of 

our body, the Senate and the House. 

Our Armed Forces are charged with providing our Commander 

in Chief and our military leaders with flexible options for responding to a wide variety of threats. 

In Iraq, our Armed Forces are keeping the lid on a civil war and 

protecting civilians from terrorists and from one another. In Korea, 

our Armed Forces are charged with guarding an ally’s border and 

deterring aggression on the part of a large conventional military 

force. In the Pacific and the Persian Gulf, our Armed Forces protect 

American interests through the projection of naval power and carrier-based air power. At home, our National Guard provides our 

Nation’s governors with critical response capacity to cope with natural disasters like Hurricane Katrina. 

At times, it can seem as though the demands on our military are 

practically limitless. Unfortunately, the resources available for 

equipping our military to meet these demands are not limitless. At 

2

a time when our Federal budget remains mired in red ink, we need 

to be looking for ways to meet our military requirements in a fiscally responsible manner. 

It is my hope that today’s hearing on ‘‘Cost Effective Airlift in 

the 21 Century’’ will help us determine the most cost-effective way 

forward as we ensure reliability and superiority of the U.S. Strategic Airlift Fleet. 

Though the men and women of the Strategic Airlift Fleet rarely 

receive the attention they deserve, the reality is that our military 

could not perform its many missions, some I just mentioned, if it 

were not for their hard work and dedication. Strategic airlift involves the use of cargo aircraft to move personnel, weaponry, and 

materiel over long distances, often to combat theaters on the other 

side of the globe. During the current War in Iraq, airlifted sorties 

have made up the majority of the nearly 30,000 total sorties made 

by U.S. aircraft. 

Strategic airlift enables our military to respond to threats wherever they occur in the world real time. Not only must our fighting 

men and women be transported to the fight, they must be continuously supplied, and airlifted, along with sealifted, makes that happen. Both the C–5 and the C–17 have fulfilled airlift duties admirably and the United States owes much of its rapid deployment capabilities to these machines. 

I want to let you know that right from the get-go, where I am 

coming from—I don’t know if others do, but I like to think of myself 

as an honest broker in this issue and this debate. I don’t pretend 

to be an expert on procurement. That is not my job. But I have 

spent about half my life around airplanes, an old Civil Air Patrol 

cadet, a Midshipman, Navy ROTC Midshipman, Naval flight officer 

on active duty and 5 years in—another 18 years in Reserves and 

got to be Commander in Chief, not of the U.S. Armed Forces but 

of the Delaware National Guard replete with its helicopters and its 

C–130s. 

Today, I am privileged to represent the State of Delaware in the 

Senate and that includes a big part of that responsibility is the 

Dover Air Force Base, where we are blessed to have both C–17s 

and C–5s. In fact, we are just getting the first squadron of C–17s, 

not as we speak, but literally this month. It started a month or two 

ago. 

I just want to stop for a minute and say C–17 is a terrific aircraft. The C–17 has a great mission capable rate anywhere from 

80 to 85 percent. The C–17 can go places where the C–5 cannot. 

The C–17 uses a smaller crew. They use less gas. And while they 

can’t carry as much as a C–5 or maybe fly as far as a C–5, they 

are a terrific plane and I am not here to question the value of the 

C–5. It is part of our airbridge, a big part of our airbridge. 

We have the seabridge, which moves mostly cargo, not so much 

personnel, and we have an airbridge, which moves mostly personnel and a fair amount of cargo. Some of the airbridge is provided by, on the commercial side, aircraft that we lease. Some of 

the airbridge is provided by—strategic airbridge is provided by the 

C–17 and the C–5. In my own view and I think the view shared 

by others is we need the capability of all of them, both of them, 

along with the capability of the C–130s. 

3

I have been around Dover Air Force Base long enough to know 

that the C–5 has had a checkered past. I have heard for years from 

crews that love the plane, in many cases. What I have heard for 

years are problems with reliability, largely engines, and when you 

have engines that you have to change every 1,000 flight hours instead of every 10,000 flight hours, I would be complaining, too. We 

have had problems with hydraulic systems. We have had problems 

with landing gear. Initially, we had problems with C–5A wings 

that have, I think, largely been addressed. 

I am not here to defend the C–5. It needs work. It needs a fair 

amount of work. And the question in my mind is, given the amount 

of work that needs to be done in terms of modernization, given how 

much money we have to spend, does it make sense to modernize 

fully the C–5 fleet? My hope is during the course of today’s hearing 

we will get a little closer to the truth. 

Over the past 10 years, the United States has reduced its cold 

war infrastructure. We have closed about two-thirds of our forward 

bases, including a lot of places I flew out of during the Vietnam 

War, or my crew and I flew out of during the hot war in Vietnam 

and the cold war after that. Therefore, to maintain the same level 

of global engagement, U.S. forces now must deploy more frequently 

and over greater distances. 

Since September 11, 2001, the scale and pace of operations has 

increased dramatically. Our current Strategic Airlift Fleet, including the aircraft currently flying and aircraft on order, consists of, 

I am told, 111 C–5s and, I believe, 190 C–17s. 

There have been several efforts in the last decade or so to quantify our military’s strategic airlift requirements. I think the most 

recent one was completed in 2006, the Mobility Capability Study 

commissioned by the Pentagon. I think we got their input early last 

year. And the conclusion, I am told, of that study was that the Nation’s airlift requirements could best be met with a fleet of, at the 

time, 112 C–5s—we have lost one—and 180 C–17s. 

As I said earlier, our current Strategic Airlift Fleet includes aircraft currently flying and aircraft on order, 111 C–5s and 190 C–

17s. An update to the Pentagon’s 2006 Mobility Capability Study 

included in the President’s budget this year confirmed this mix is 

sufficient to meet our airlift needs. 

At present, there is a big debate regarding the degree to which 

aging C–5s are replaced by smaller C–17s. The question is, what 

is the right mix of C–5s, the right mix of C–17s that will provide 

the most cost effective airlift for this country in the 21st Century? 

And I might add to that, what is the right mix of aircraft that we 

would lease from the commercial sector or maybe even from other 

countries? We will get to that later. 

We know the United States needs oversized cargo aircraft to help 

meet the strategic airlift needs that flow from our military commitments around the world. My colleague, Senator Biden, has made 

large portions for us to ramp up quickly the number of MRAPs that 

we purchase and ship overseas and cargo airlift helps us to get 

them over there. 

Several years ago, Congress and the Bush Administration directed the Air Force to fully modernize three C–5s, known as C–

5Ms. C–5Ms would be equipped with new engines, new hydraulics, 

4

new communications system, 70 other new systems in all, as well 

as a state-of-the-art cockpit. The 2004 defense authorization bill 

further directed the Air Force not to retire any additional C–5s 

until those three C–5Ms that had been modernized had been extensively tested and evaluated. 

To date, two C–5Bs and one C–5A have been fully modernized, 

as we know. They have flown a total of over 500 flight hours. The 

flight testing, I think, is a little more than halfway complete, 

maybe about two-thirds complete, and the flight testing on the 

three aircraft is to be completed, I think either next year or sometime maybe in the first part of 2009 and the full evaluation of that 

flight testing is to be sometime in 2010. 

Lockheed Martin, the prime contractor on the C–5 modernization 

program, is contractually bound to produce C–5Ms whose mission 

capable rate meets or exceeds 75 percent. Lockheed Martin reports 

that nothing—and let me just say, the mission capable rate, I am 

told, of C–5As, particularly those that are held in Guard and Reserve units, is below—may be as low as 50 percent or lower and 

the C–5s that are flying missions today around the world, their 

rate for mission capable is probably closer to 60, 65, maybe 70 percent. 

We shouldn’t be surprised with that. I flew in an active duty 

squadron. I flew in a Reserve squadron for 18 years, and I can assure you, when we were an active duty squadron on the line off the 

coast of Vietnam flying missions that our mission capable rate of 

our aircraft was a lot better because we had all the spare parts we 

needed. If we needed an engine, we got it. If we needed avionics, 

we got it. When our squadron returned to the United States and 

we were not going to be deployed for another 8 months, we didn’t 

get as much, and especially we didn’t get as much in the first few 

months after returning to the States. 

Our National Guard unit don’t have that kind of priority. Neither 

did my Reserve unit. Our National Guard units in Delaware and 

other States, they don’t have the kind of priority for parts, for 

spare parts, for maintenance. So we shouldn’t be surprised that as 

C–5As are moved into the Guard and Reserve squadrons, that their 

mission capable rate is going to be lower. They just don’t get the 

priority that the airplanes that are out there flying missions between here and Kuwait or Iraq or Afghanistan are going to get. 

I guess the remaining question, at least to me, is at what price 

per aircraft can Lockheed Martin modernize all or part of the remaining C–5 fleet of 108 aircraft? First of all, they have a contractual obligation at Lockheed Martin to meet a mission capable rate 

of 75 percent. Can they meet that? Or can they maybe exceed that? 

And second, can they produce consistently aircraft that will meet 

a 75 percent mission capable rate at a price that we as taxpayers 

are willing to pay, and can we count on it? Can we take that to 

the bank? 

The company, Lockheed Martin, offered this past summer to 

modernize the C–5 fleet at what they call a flyaway cost of less 

than $90 million per aircraft whether the Congress and the Administration choose to modernize half of the C–5s, two-thirds of the C–

5s, or the entire C–5 fleet. In my view, if Lockheed Martin can deliver C–5s consistently that meet or exceed a 75 percent mission 

5

capable rate at a flyaway cost of $85 million or $95 million, even 

$105 million, if they can do that consistently with the avionics and 

engine modifications that we are talking about here, then we would 

have at least a quarter of a century, if not more, on this aircraft, 

which is what the 2004 Fleet Viability Board estimates. 

If all of this is true, and if Lockheed Martin can meet this commitment, I just believe we would be foolish not to modernize all 

108 C–5s. If they can’t deliver, then we should find an alternative. 

The Air Force questions whether Lockheed Martin will actually be 

able to deliver what the company has promised. 

Mark my word, if we don’t modernize C–5s in the next decade 

or so, we are going to come back in 15, 20, or 25 years and somebody from the Air Force and somebody at the Pentagon, maybe one 

of my colleagues are going to say, we need a big new aircraft to 

carry big, oversized cargo. Do we pay $85 or $95 million or $105 

million a copy now for an aircraft that may be able to provide 75 

percent mission capable or higher, and arguably for the next 25 or 

30 years, maybe longer, do we pay that money now or do we wait 

until somewhere down the line, 15, 20 years from now when we are 

asked to pay maybe $485 million or $495 million or an even higher 

price? 

Again, our major goal in today’s hearing is to better ascertain 

whether Lockheed Martin can be contractually bound to produce 

what they promised, fully modernized, highly reliable C–5Ms at a 

price the Pentagon and our Nation can afford? 

Let me just finish by commending the leadership of the Armed 

Services Committee and the Seapower Subcommittee, which has 

jurisdiction over this issue. The leadership of the Seapower Subcommittee has been very gracious in working with us as we discussed this hearing. We appreciate the kind of cooperation that we 

have had and we appreciate particularly the input of the staff of 

the Senate Armed Services Committee as we prepared for this 

hearing. 

The Subcommittee, the full Armed Services Committee and particularly the Seapower Subcommittee has shown a commitment 

over the years to identify the facts on this issue and make decisions 

based on the facts. The defense bill reported out of the Senate 

Armed Services Committee retains the requirement in the 2004 

law that we flight test three fully modernized C–5s before retiring 

any C–5As or Bs beyond that. I thank the Members of the Subcommittee and their staff for their work on this issue. 

I am going to close where I started. I don’t pretend to be an expert on this, but I do know a little bit about airplanes. I spent a 

fair amount of my life in the military, most of it in aviation. I know 

enough about acquisition probably to be dangerous, which probably 

pertains to other issues, as well, that we are not going to get into 

today. But I have learned a bit in the last month or two or three. 

I am not here to defend C–17s. I am not here to defend C–5s. 

I want to make sure that at the end of the day, we get the most 

bang for our buck, and if that is a combination that includes a 

bunch of C–17s and C–5s fully modernized, good. If that is not 

where the chips fall at the end, we need to know that, as well. But 

if Lockheed Martin has the ability to produce on a consistent basis, 

if modernized C–5s can meet or exceed 75 percent mission capable 

6

rate for a price of $85 or $95 or even $105 million a copy, I think 

we would be foolish to pass up that deal. 

[The prepared opening statement of Senator Carper follows:]

OPENING STATEMENT OF SENATOR CARPER 

The Subcommittee will come to order. 

I would like to thank my colleagues, our witnesses and guests for joining Senator 

Coburn and myself today. 

The Senate will soon complete legislation intended to equip our Armed Forces to 

meet our national security threats and keep America safe. this is one of the foremost responsibilities of this body. 

Our Armed Forces are charged with providing our Commander-in-Chief and our 

military leaders with flexible options for responding to a wide variety of threats. In 

Iraq, our Armed Forces are keeping the lid on a civil war and protecting civilians 

from terrorists and from one another. In Korea, our Armed Forces are charged with 

guarding an ally’s border and deterring aggression on the part of a large conventional military. In the Pacific and the Persian Gulf, our Armed Forces protect America’s interests through the projection of naval power and carrier-based air power. At 

home, our National Guard provides our Nation’s governors with critical response capacity to cope with natural disasters, like Hurricane Katrina. 

At times, it can seem as though the demands on our military are practically limitless. At a time when our Federal budget remains mired in red ink, we need to be 

looking for ways to meet our military requirements in a fiscally responsible manner. 

It is my hope that today’s hearing on cost-effective airlift in the 21st Century will 

help us determine the most cost-effective way forward as we ensure the reliability 

and superiority of the United States’ strategic airlift fleet. 

Though the men and women of our strategic airlift fleet rarely receive the attention they deserve, the reality is that our military could not perform the missions 

I just mentioned if it were not for their hard work and dedication. Strategic airlift 

involves the use of cargo aircraft to move personnel, weaponry, and material over 

long distances—often to combat theaters on the other side of the globe. During Operation Desert Storm, U.S. aircraft moved over 500,000 troops and more than 

540,000 tons of cargo. During the current war in Iraq, airlift sorties have made up 

the majority of the nearly 30,000 total sorties flown by U.S. aircraft. 

Strategic airlift enables our military to respond to threats wherever they occur in 

the world real-time. Not only must our fighting men and women be transported to 

the fight; they must be continuously supplied. Airlift makes that happen. Both the 

C–5 and the C–17 have fulfilled airlift duties admirably, and the U.S. owes much 

of its rapid deployment capabilities to these fine machines. 

Over the past 10 years, the United States has reduced its Cold War infrastructure 

and closed two-thirds of its forward bases. Therefore, to maintain the same level of 

global engagement, U.S. forces now must deploy more frequently and over greater 

distances. Since September 11, 2001, the scale and pace of operations has increased 

dramatically. 

There have been several efforts in recent years to quantify our military’s strategic 

airlift requirement. The most recent one—the Mobility Capabilities Study, which 

was commissioned by the Pentagon—was completed in February 2006. It concluded 

that the Nation’s airlift requirement could be met with a fleet of 112 C–5s and 180 

C–17s. 

Our current strategic airlift fleet—including aircraft currently flying and aircraft 

on order—consists of 111 C–5s and 190 C–17s. An update to the Mobility Capabilities Study included in the President’s budget this year confirmed that this mix is 

sufficient to meet our airlift needs. 

At present, there is a big debate regarding the degree to which the aging C–5s 

are replaced by the smaller C–17s. The question is, what is the right mix of C–5s 

and C–17s that will provide the most cost-effective airlift for this country in the 21st 

Century? 

We know that the U.S. needs oversized cargo aircraft to help meet the strategic 

airlift needs that flow from our military commitments around the world in the fist 

half of this century. In fact, for the past several years, during Operations Enduring 

and Iraqi Freedom, the Department of Defense has been forced to lease. AN–124 

aircraft, the world’s largest cargo aircraft, from Russia because C–17s cannot carry 

some of the oversized cargo that needs to be transported to Iraq and Afghanistan, 

and not enough C–5 aircraft have been available. 

Several years ago, Congress and the Bush Administration directed the Air Force 

to fully modernize three C–5s, known as C–5M’s. The C–5M’s would be equipped 

7

with new engines, new hydraulic and communications systems, and 70 other new 

systems, as well as state of the art cockpits. The FY2004 defense authorization bill 

further directed the Air Force not to retire any additional C–5’s until those three 

C–5M’s had been extensively flight tested and evaluated. To date, two C–5B’s and 

one C–5A have been fully modernized and have flown a total of 531 hours. Flight 

testing on the three aircraft is to be completed in 2008 or 2009 and the full evaluation of that flight testing is to be completed by June 2010. 

Lockheed Martin, the prime contractor on the C–5 modernization program, is contractually bound to produce C–5M’s whose mission capable rate meets or exceeds 

75 percent. Lockheed reports that nothing in the flight data to date suggests that 

rate cannot be met or exceeded. 

A remaining question is at what price per aircraft Lockheed can modernize all or 

part of the remaining C–5 fleet of 108 aircraft. The company offered this past summer to modernize the C–5 fleet at a ‘‘flyaway’’ cost of less than $90 million per aircraft whether the Congress and administration modernize half, two-thirds or all of 

the C–5 fleet. If the company can meet that commitment, we would be foolish not 

to modernize all 108 C–5s. 

The Air Force questions whether Lockheed will actually be able to deliver what 

the company has promised. 

Our major goal in today’s hearing is to better ascertain whether Lockheed can be 

contractually bound to produce what they’ve promised—fully modernized, highly-reliable C–5M’s at a price the Pentagon and our Nation can afford to pay. 

Let me finish by commending the leadership of the Armed Services Committee 

and the Seapower Subcommittee, which has jurisdiction over this issue. They have 

shown a commitment over the years to identify the facts on this issue and make 

decisions based on the facts. The defense bill reported out of the Armed Services 

Committee retains the requirement in current law that we flight test three modernized C–5s before making any C–5 retirement decisions. I thank the Members of the 

committee and their staff for their work on this issue. 

I look forward to hearing from each of you. And I look forward to continuing to 

work with our witnesses and with Senator Coburn and my other colleagues on this 

Subcommittee to provide the oversight and give taxpayers the kind of financial management they expect and deserve.

Senator CARPER. With that having been said, I again appreciate 

our witnesses being here and I am going to ask my former colleague as governor, who was also Commander in Chief of the Ohio 

National Guard, to take whatever time he needs for his statement. 

Welcome, Senator Voinovich. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Thank you, Senator. I am pleased to be here 

and appreciate the witnesses being here. 

Quite frankly, I have a very busy schedule and I am anxious to 

hear what you have to say, so I am going to put my opening statement in the record and, Mr. Chairman, let us hear from the witnesses. 

[The prepared statement of Senator Voinovich follows:]??? 

Senator CARPER. Senator Voinovich, thank you. 

Ms. Wright, I understand that you are here to, in part, respond 

to questions that are asked but not to provide testimony, is that 

correct? 

Ms. WRIGHT. That is correct. 

Senator CARPER. Secretary Payton, we are delighted that you are 

here. I am not going to provide your full background. It is available 

for the record, and your full statement will be entered into the 

record. Feel free to proceed. Thank you. 

8

1The prepared statement of Ms. Payton appears in the Appendix on page 49. 

STATEMENT OF SUE C. PAYTON,1 ASSISTANT SECRETARY OF 

THE AIR FORCE FOR ACQUISITION, U.S. AIR FORCE, ACCOMPANIED BY DIANE M. WRIGHT, DEPUTY PROGRAM EXECUTIVE OFFICER FOR AIRCRAFT, AERONAUTICAL SYSTEMS 

CENTER, WRIGHT-PATTERSON AIR FORCE BASE 

Ms. PAYTON. Mr. Chairman, Senator Coburn, distinguished Subcommittee Members, thank you for the opportunity to appear before you today to discuss how we are going to meet the Nation’s 

strategic airlift demands in the most cost effective manner. 

As the Assistant Secretary of the Air Force for Acquisition, I am 

honored to represent the Air Force, along with General Schwartz, 

my customer and Combatant Commander of U.S. Transportation 

Command, on such a vital national defense topic. I am also joined 

by Diane Wright, the Deputy Program Executive Officer at Aeronautical Systems Center who shares the day-to-day responsibility 

in directing our major aircraft acquisition programs. My statement 

will address the acquisition community’s progress in modernizing 

and recapitalizing our strategic airlift. 

Relative to fleet modernization and recapitalization, as the Air 

Force’s acquisition executive, I am responsible for replacing and 

modernizing a large number of aging aircraft in a fiscally constrained environment. I have inherited several programs with cost 

growth challenges because the cost, schedule, and performance 

were established well in advance of when we could reasonably 

project the technical and schedule issues that can drive costs out 

of control. 

It has, therefore, been my objective, informed by several GAO 

findings, to put affordability and cost control back into our weapons 

systems, to include insisting on better planning, better estimating, 

and well-defined, achievable requirements to drive well-written requests for proposals (RFPs), and these RFPs must include maintenance data rights for organic maintenance and life-cycle support; 

open systems architectures to allow rapid, affordable insertion of 

innovation; incentive and award fees that reward contractor results, not just best effort; time certain development that avoids immature technology; funding to realistic, high-confidence, and accurate cost estimates; and open and transparent communication that 

results in fair and open competition. 

In sole source environments, I insist that our program offices understand the cost and pricing data being proposed by prime contractors and comply with the Truth in Negotiations Act, Anti-Deficiency Act, and all Federal Acquisition Regulations to set the highest standards for Air Force procurement integrity to protect the 

taxpayer dollar and to deliver warfighter capability on time and on 

cost. And so today, I would like to briefly address three major aircraft programs that enable our strategic airlift mission, the C–5 

Avionics and Modernization Program, otherwise known as C–5 

AMP, the C–5 Reliability Enhancement and Re-engining Program, 

C–5 RERP, and the C–17 program. 

The C–5 modernization effort is a combination of two programs, 

C–5 AMP and the C–5 RERP. This Avionics Modernization Program provides modernized avionics and allows the aircraft to meet 

9

increasingly stringent communication, navigation system, and air 

traffic management requirements worldwide, thus allowing the C–

5 to fly in many places around the world that would otherwise be 

restricted to us. 

The second program is the Reliability Enhancement and Reengining Program, or RERP, which builds upon the C–5 AMP 

modifications. C–5 RERP replaces the propulsion system and improves the reliability of 70 systems and different components. The 

C–5 RERP will increase the payload capability and transportation 

throughput by increasing the fleet availability or mission capability 

rate from the lower 50s today to at least 76 percent in the future. 

A RERP-ed C–5 will have a 30 percent shorter takeoff, be able to 

climb 58 percent faster, and be cleaner and quieter. These modifications are critical to ensuring our forces can go anywhere, anytime. 

Once a C–5 is both AMP-ed and RERP-ed, the fully modernized 

C–5 will be redesignated the C–5M. I personally know how important this modernization program is because my son-in-law, Captain 

Thomas R. Callan III, flew many missions from Dover Air Force 

Base to Europe, Kuwait, and Iraq as a member of the Third Airlift 

Squadron. I have spent many hours discussing C–5 flight operations with him and his fellow pilots, and I value the contribution 

all of our C–5s make to our national security. The C–5 modernization program will extend the C–5 fleet well into 2040. 

Unfortunately, the C–5 RERP has experienced program cost 

growth, most notably in the upcoming production program currently scheduled to begin in 2008 and conclude in 2021. The Air 

Force is evaluating cost growth to determine affordability and the 

way ahead for this program. C–5 RERP costs have increased due 

to development delays, budget cuts due to Air Force priorities, the 

production cost increases in areas of engines, specialty metals, pylons, and touch labor. The C–5 program office and the Air Force 

Cost Analysis Agency completed an independent cost estimate, several of them, and reconciled them to what we call a service cost position in early September 2007. After further analysis on September 24, 2007, the C–5 RERP Program Director and PEO notified me that the cost of the program has increased more than 50 

percent from the original unit cost report of November 2001. 

As a result, I recommended yesterday to Secretary of the Air 

Force, Secretary Mike Wynne, that we begin the Nunn-McCurdy 

notification and certification process on C–5 RERP. Earlier today, 

Secretary Wynne signed the official documents notifying all parties 

that the C–5 RERP is, in fact, in a Nunn-McCurdy breach. 

Relative to the C–17, we have accepted delivery on 168 C–17s. 

The original program buying of 180 aircraft was extended to 190 

by the fiscal year 2007 bridge supplemental. The supplemental provided 10 additional aircraft which answered two concerns, our 

backup aircraft inventory shortfall and the wartime wear and tear. 

In addition to these additional C–17s, international sales have 

helped the C–17 production line stay intact. However, our Nation 

is rapidly approaching a major C–17 production milestone with 

long-term implications to the mobility enterprise, the decision to 

terminate production. 

10

In conclusion, I would like to thank you very much for the opportunity to be here today and I very much look forward to your questions and comments. 

Senator CARPER. Secretary Payton, thank you very much for 

those comments. 

We have been joined by our Co-Chairman of the Committee, Dr. 

Coburn, and I am going to recognize him at this time for as much 

time as he wishes to consume. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you. I apologize for being late. I want 

to thank each of you for your service and your cooperation as we 

deal with this. 

We are not going to spend too much money, folks. As long as I 

am alive and in the Senate, the waste is going to stop. I find it peculiar that we got to a Nunn-McCurdy breach the day before this 

hearing, strangely peculiar. I think it is highly important that communication be effective and I am disappointed that the Air Force 

doesn’t want to hear and sit and listen to the Lockheed Martin testimony on the other panel. I also am somewhat worried in some of 

the rumors I have picked up, the fact that Lockheed Martin is willing to stand and challenge some of the assumptions that the Air 

Force is making and some of the quiet talk is that it may cost them 

for doing that. There is no place for that. This didn’t come from 

Lockheed Martin, this came from other sources. 

So what I would say is we have a lot of contracting problems in 

this country and we have a lot of efficiency problems and we have 

an airlift need. None of those other problems ought to get in the 

way of us developing and supplying what we need to have adequate 

airlift. 

I also find it strangely peculiar, for the first time since I have 

been in the Senate, that I get notice of an Air Force grant. The first 

time in my history, in 2 years and 9 months, 8 months in the Senate, I finally get a notice of an Air Force grant that is going out. 

It never happened to me before. I can’t understand why that would 

all of the sudden happen right before we are having a hearing. 

I say those things because I honor those people who are committed to our country and I am a straight shooter. If I have something on my mind, I say it. I just said it. I think we have to get 

this problem solved and I am thankful that Lockheed Martin has 

the courage to say, we are challenging some of your assumptions, 

and rightly so. Through conversations we have had, there are a lot 

of questions about the Air Force’s assumptions that I think need 

to be questioned. 

So I look forward to your testimony. Thank you, Secretary, for 

yours, and General, I look forward to yours and Mr. Bolkcom, as 

well as Lockheed Martin’s. My hope is that come the middle of November, we can have a fixed-price contract and we can be on the 

way of not wasting money and not buying a piece of equipment 

that we don’t need when we have a piece of equipment that we 

could fix and supply for us for the next 30 years. 

Senator CARPER. Let me just add one thing in conjunction with 

what Dr. Coburn has said. It was not Lockheed Martin’s idea to be 

here today. We directed them to come, and they are not here with 

11

1The prepared statement of General Schwartz appears in the Appendix on page 58. 

any particular joy, but we are grateful that they have been willing 

to come. 

Dr. Coburn and I are going to be around here for a while, not 

just at this hearing but in this Senate for a while, and this guy is 

a bird dog or watchdog and I like to think I am, too. If we hear 

anything that smacks of retribution to them because they have 

been willing to speak out and to question some of the assumptions, 

I will be very disappointed with that and I hope that nothing like 

that will happen. 

With that having been said, General Schwartz, we welcome you. 

Thank you for your service and for being here today. 

STATEMENT OF GENERAL NORTON A. SCHWARTZ,1 COMMANDER, U.S. TRANSPORTATION COMMAND, U.S. AIR FORCE 

General SCHWARTZ. Mr. Chairman, Senator Coburn, it is my 

privilege to be with you today on behalf of the 150,000-plus men 

and women of our Transportation Command. I thank you for the 

opportunity to appear to discuss strategic airlift, which really is a 

critical capability for our Nation and, of course, our warfighters. 

Whether by air, land, or sea, TRANSCOM provides support to 

the warfighter and the Nation by rapidly delivering combat power 

and sustainment to the Joint Force Commander, redeploying our 

forces home, and providing the utmost care in moving our wounded 

troops to move advanced medical facilities for treatment. We execute this mission through the Air Force’s Air Mobility Command, 

a major focus of today’s hearing, the Navy’s Military Sealift Command, and the Army’s Surface Deployment and Distribution Command, as well as our national and commercial partners. 

As the DOD’s distribution process owner, Transportation Command is also leading a collaborative effort across the defense logistics community to increase the precision, reliability, and efficiency 

of the DOD’s supply chain. By increasing collaboration, adapting 

our business models, and ensuring the appropriate mix of lift assets, we keep our promises to our warfighters and the Nation today 

and tomorrow. Ensuring that the appropriate mix of lift assets is 

available is vitally important given the scope of the demands on 

the airlift fleet around the globe. 

Since the start of 2007, Air Mobility Command has moved over 

940,000 passengers in support of the Global War on Terror, an 

achievement accomplished in collaboration with their commercial 

industry partners as they provide us with cost efficient and effective means of moving our service personnel. This is important, this 

relationship with our commercial industry partners that has allowed our C–17 and C–5 aircraft to airlift almost 118,000 tons of 

vital cargo into the Central Command area of responsibility. 

The delivery of Mine Resistant Ambush Protected vehicles, or 

MRAP vehicles, is a top priority for us and we are currently delivering them almost exclusively by air, with a commitment to fly up 

to 360 MRAPs per month to support theater requirements. Additional MRAPs will likely move by a combination of air and surface 

modes of transportation to satisfy production rates as they evolve. 

12

As of September 25, our total of more than 980 MRAP and MRAPlike vehicles have been delivered to Central Command. 

We also continue to satisfy ongoing force rotations, with up to 

1,000 mobility sorties flown per day. This very high operation 

tempo equates to 350,000 aircraft departures per year, or one about 

every 90 seconds. 

Perhaps the most important of all our missions but the least heralded is the movement of our injured warfighters from the battlefield to world class medical treatment facilities. In 2007, over 7,700 

patients were moved from Central Command, and over 11,000 patients were transported globally. 

Our aging airborne tanker fleet, a key force multiplier, should 

also be mentioned here today. Air Mobility Command tankers delivered over 110 million gallons of fuel to United States and coalition aircraft in support of Operations Enduring Freedom and Operating Iraqi Freedom and has made long-range operations possible 

worldwide. 

As we look to the future, rapid global mobility will continue to 

be a key enabler. TRANSCOM needs out-sized and over-sized lift 

capability provided by the C–17 and the C–5. The C–17 is a highly 

productive platform with high departure reliability and high mission capable rates. In contrast, the C–5 has had the lowest departure reliability and mission capable rates in the Air Mobility Command fleet. Additionally, the C–5 cost per flying hour is the highest 

in the Command. C–5 modernization must deliver the needed reliability, but we remain concerned about rising costs of the modification program. 

In terms of organic capacity, too much aluminum is just as counterproductive as not enough. We should guard against overbuilding 

the organic fleet to the detriment of other strategic necessities, 

such as modernizing the aging tanker fleet or the viability of our 

commercial partners 

Mr. Chairman, my top airlift priority is the recapitalization of 

the aging tanker fleet. The KC–X with multi-point refueling, significant cargo and passenger carrying capability, and appropriate 

defensive systems will be a game changer, a game-changing platform for the future of global mobility. 

And finally, sir, a critical partner in our Nation’s ability to 

project and sustain forces is a viable Civil Reserve Air Fleet. The 

continued success of CRAF relies on the strength of U.S.-flagged 

airlines. Although the U.S. airline industry has recovered from the 

worst of the post-September 11, 2001, challenges, we are beginning 

to look forward to a post-Iraqi Freedom time frame when requirements will begin to subside. Given that eventual reality, we are 

looking at ways to encourage the participation, to continue that 

participation of our CRAF partners and we have proposed and encouraged support for the Assured Business Initiative reflected in 

the current Senate version of the fiscal year 2008 authorization 

bill, and I would be glad to discuss that with you further if you 

would like. 

With regard to the CRAF program, it is essential that action be 

taken to reauthorize the Aviation War Risk Insurance Program, 

which is set to expire in March 2008. The ability of our CRAF partners to fly missions in support of our operations in a combat theVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
13

1The prepared statement of Mr. Bolkcom with an attachment appears in the Appendix on 

page 66. 

ater is completely dependent—completely dependent—upon the replacement insurance coverage that this program provides. 

I am grateful to you, sir, and the Subcommittee for allowing me 

to appear before you today to discuss these and other issues at 

your discretion and I look forward, sir, to your questions. Thank 

you. 

Senator CARPER. General Schwartz, thank you very much. 

Our third witness on this panel is Christopher Bolkcom, who is, 

I believe, the Defense Analyst at the Congressional Research Service and he has been a valuable resource. We appreciate very much 

your responses to our questions and the information you have provided to us from your perspective and you are now recognized. 

Your full testimony will be made a part of the record. You are welcome to outline it, if you wish. 

STATEMENT OF CHRISTOPHER BOLKCOM,1 SPECIALIST IN 

NATIONAL DEFENSE, CONGRESSIONAL RESEARCH SERVICE 

Mr. BOLKCOM. Thank you, Mr. Chairman. Mr. Chairman, distinguished Members, thanks for inviting me to speak with you today 

about cost effective airlift. I will address C–5 modernization and C–

17 procurement and some of the pros and cons of pursuing each 

program. 

The main point I would like to make today is that there are 

strong arguments for both programs and viewing them from an 

either/or perspective appears overly simplistic and unconstructive. 

There are several factors that complicate a comparison of these 

programs and a broader mobility context that should be considered 

to make the most informed decisions. 

I will start by addressing the complications. First, strategic airlift requirements are unclear. DOD’s most recent analysis, the Mobility Capability Study, did not quantify requirements using the 

traditional measurement of million ton miles per day. Instead, the 

MCS found that fielding 290 to 380 strategic airlift aircraft were 

required to meet the national military strategy with acceptable 

risk. The bottom of this range, 290 aircraft, coincided with the Air 

Force’s plans for the C–5 and C–17 at that time. This led some to 

criticize the study as a budget-driven rather than an unbiased look 

at requirements. A number of MCS assumptions are debatable and 

there is little consensus on the optimum number of airlift aircraft 

required. 

Future cost estimates are another murky area. DOD’s airlift 

plans were informed by a March 2000 study conducted by the Institute for Defense Analyses that compared the life-cycle costs of various C–5 and C–17 options. IDA found that fully modernizing the 

C–5 fleet and deferring additional C–17 procurement provided the 

most cost effective airlift capability. Today, however, Air Force 

leaders project that the cost of the C–5’s Reliability Enhancement 

Re-engining Program, or RERP, may increase by approximately 60 

percent over December 2006 estimates. As we have just heard, they 

believe we have breached the Nunn-McCurdy over the original 

baseline estimate. 

14

In contrast, Lockheed Martin expects modest cost growth, growth 

that would fall below Nunn-McCurdy thresholds and would fit 

within long-term Air Force budgets. Resolving the disparity between the cost estimates and understanding how projected cost 

growth would affect IDA’s recommendations appears essential. 

Some have suggested that the Air Force should trade C–5 RERP 

for C–17 procurement, but budget lines to pursue this option don’t 

coincide. C–17 procurement is a fiscal year 2008 issue. C–5 RERP 

funds for fiscal year 2008 are $253 million less than the cost of a 

single C–17. Significant C–5 RERP funds are not projected to be 

available until the end of the future year’s defense plan. Therefore, 

to purchase more C–17s in fiscal year 2008, Congress and DOD 

will either need to find room in the Air Force’s base budget or Congress will need to add funds to fiscal year 2008 Global War on Terrorism funding request, a move that some view as controversial. 

Unique C–5 and C–17 capabilities also complicate decisions on 

whether to support one program or the other. The C–5 is DOD’s 

largest airlifter and by some measures can carry twice as much 

cargo as the C–17. The C–5’s principal shortcoming has been its 

low reliability, which RERP is hoped to rectify. On the other hand, 

the C–17 has the unique ability to carry cargo long distances and 

deliver it directly to austere airfields close to the battle. The C–17 

can perform intra-theater airlift, and due to its smaller size is less 

likely to clog airfields than the C–5. 

The last factor that complicates airlift decisions is the potential 

risk in closing the C–17 production line. The C–17 is currently the 

only strategic airlifter being produced and some are concerned that 

the line will close before C–5 operational testing and evaluation are 

complete. To mitigate risk, DOD could pay a one-time fee to shut 

down the facility in a manner that would help facilitate restart at 

a later date, but some worry that even this strategy doesn’t hedge 

against the risks of losing the C–17’s skilled production force or 

even the Long Beach Plan itself. 

As I mentioned a moment ago, informed decisions on airlift must 

also considered a broader context than just the C–5 and C–17 programs. As General Schwartz mentioned, the Air Force is considering options to recapitalize the KC–135 aerial refueling fleet. Currently, airlift is a secondary mission for the replacement tanker aircraft. Procurement of a larger tanker with more airlift capability 

could increase the airlift provided by the tanker fleet and could potentially reduce the number of C–5s or C–17s required. In contrast, 

procurement of a smaller tanker could potentially have the opposite 

effect. 

Because the C–17 conducts tactical airlift missions, it is also 

linked to the C–130 and its recapitalization. In this role, C–17s deliver more cargo than the C–130, although at a higher cost. C–17s 

make a noteworthy contribution to tactical airlift, but the optimum 

mix of the two aircraft is currently unclear. 

There are other programs that also influence strategic airlift, and 

again, as General Schwartz mentioned, the Civil Reserve Air Fleet, 

which supports DOD during national emergencies when the demand for airlift is highest. Using CRAF is cheaper than using military aircraft and could potentially be expanded. However, the payVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
15

1The charts submitted by Senator Carper appears in the Appendix on page 207. 

load carried by civilian aircraft is limited and loading and unloading takes longer than military aircraft. This is just one example. 

Second, at least two studies have recommended that DOD invest 

more heavily in prepositioned equipment instead of strategic airlift. 

Finally, systems such as fast sealift ships or even airships, blimps 

in the early stages of development could have high potential for 

quickly moving large units to future battlefields. 

Mr. Chairman, this concludes my remarks. Thanks for the opportunity to appear before you. 

Senator CARPER. Mr. Bolkcom, thank you very much for your excellent testimony, for your input today. 

Something that you said—let me just start off with some questions and then turn it over to Dr. Coburn. Something that you said, 

Mr. Bolkcom, reminded me of a conversation I had with General 

Moseley back, I want to say in May, the first half of May, and he 

was good enough to come over to my office and he shared with my 

staff and others who were there—and General McNab may have 

been with him, as well, I am not positive—but General Moseley 

said to us that, sort of outlining what his druthers would be, as to 

what his preference would be, it would be retire the 30 worst-performing C–5As and to use the savings there to acquire 30 additional C–17s. 

And I said to him at the time, I don’t see how that works, and 

you just mentioned the difference in the cost if we do away entirely 

with RERP for a year. I think you suggested it was actually less 

than the cost of buying one C–17. 

Let me just ask Secretary Payton and General Schwartz, how 

can we pay for 30 C–17s by the savings of retiring 30 C–5As? 

Ms. PAYTON. Thank you very much for that question. I will tell 

you as the acquisition executive for the Air Force, we have no requirements for C–17s. There is no money for C–17s. And my acquisition workforce is totally dedicated to the C–5 RERP, getting C–

5 AMPs done and then following up by getting C–5——

Senator CARPER. But if you will answer my question, please. 

How do we pay for buying 30 C–17s by retiring early 30 C–5As? 

Ms. PAYTON. My answer is, you cannot do that. 

Senator CARPER. All right. 

Ms. PAYTON. That is my answer. 

Senator CARPER. That would be mine, as well. 

Let me see if we can put up a couple of charts, please.1 This is 

a comment from General Moseley, I guess it was back in March of 

this year in testimony before the Senate Armed Services Committee. I will just read it out loud because the print is pretty small. 

This is what he said in testimony to the Senate Armed Services 

Committee. ‘‘What we would like to do is to be able to run the Avionics Enhancement Program out on all the remaining C–5s and 

then run the Re-engining Program on the C–5s that have the most 

life.’’

An additional quote, I think this one is from the Secretary of the 

Air Force, and this was also on March 20, 2007. This was also at 

a hearing before the Senate Armed Services Committee. He said, 

in response, I guess, to a question, ‘‘I can tell you, sir, that right 

16

1The chart submitted by Senator Carper appears in the Appendix on page 108. 

now, some worry about the entirety of the C–5 fleet. There are two 

things we should know about this. First is that we don’t, we don’t 

want to line up worst to best, and we think there are 20 to 25 or 

30 of the bad actors that we would like to retire.’’

And in another comment from General Moseley before the House 

Armed Services Committee early this year, I think February 28, he 

said, ‘‘In a perfect world, we would like to be able to manage that 

inventory and divest ourselves of the bad acting tail numbers. 

Some of them are bad actors. They are broke. A lot of the C–5As 

have low flight hours on them because they are broke and you can’t 

fly them. If I could line up the best B models and the best A models 

at the head of the line, a 59 to and 49 and go to the back of the 

line and begin to kill off the bad actors and replace them with 

something new, I would be very happy. That doesn’t mean that we 

can block class or block retire airplanes. It just means let us get 

at the tail numbers that are bad actors.’’

And let me just ask, first of all to Mr. Bolkcom, are you aware 

of any effort to actually say by tail numbers what are the bad actors among the C–5s and the C–5A and the Bs? 

Mr. BOLKCOM. Mr. Chairman, I am aware that on at least two 

occasions in hearings, Members of Congress have specifically asked 

the Air Force for that list of bad actors by tail numbers. I am unaware of whether they have provided that list. I suspect they have 

not, but I wouldn’t say that is authoritative. 

Senator CARPER. All right. General Schwartz. 

General SCHWARTZ. Mr. Chairman, I have not seen such a list as 

the operator of the platforms. 

Senator CARPER. Secretary Payton. 

Ms. PAYTON. Sir, I have not seen such a list. 

Senator CARPER. Well, there may or may not be a list, but I am 

not aware that one exists. But for us to talk about being able to 

line up the bad actors among the C–5As and the Bs, it would be 

interesting to know if there is a list and how that list was developed. 

Let us look at another chart, the next chart, if you will.1 This is 

a chart that deals with proposed production schedules. Someone 

was good enough to give me a laser. It looks like we have three—

what is that one, it says Presidential budget, I guess, in 2003, is 

it 2006, and this is President’s budget in 2008. Let us just focus 

on those. 

It starts in fiscal year 2007 and runs out to fiscal year 2021. The 

President’s budget initially called for starting to modernize, I guess 

beyond the original three, five C–5s in 2007, seven in 2008, 12 in 

2009, and continuing up to fiscal year 2016 when we would do the 

last 12. 

That Presidential budget was amended in 2006 to say in 2007 we 

are going to do one, three, five, seven, nine, and then finish it out 

in fiscal year 2018 with 12. 

And then the President’s budget, the current President’s budget, 

which I presume is the policy that the Air Force is promulgating 

that Lockheed Martin is supposed to respond to in terms of bids, 

but the latest President’s budget calls for, I believe, one modernVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
17

ized aircraft in fiscal year 2008, three, seven, ten, and so forth, up 

to finishing up in fiscal year 2019. 

Is that last one there, the 2008, is that still the Administration’s 

position, and I presume the Air Force’s position? 

Ms. PAYTON. Yes, sir, it is. 

Senator CARPER. All right. When Lockheed Martin or really any 

contractor is asked to bid on a contract to build or rebuild aircraft, 

how do they know in terms of being able to say what the price 

would be if the numbers keep moving around? So one year we say, 

like in the 2003 budget, you are building 12 a year, or they are 

going to be rebuilding 12 a year by 2009 and by 2010, and then 

down here we have them in 2009 and 2010 are doing three and 

nine. 

How does a contractor know how to bid if the numbers keep 

changing? And how can we hold them to the bids? I think if we put 

ourselves in the shoes of the contractor, you would want to know, 

what is the deal? Are there going to be nine aircraft? Is it going 

to be three? Is it going to be 10 or 12? Where is the sweet spot in 

terms of getting the most cost efficiency out of it? How does it 

work? 

Ms. PAYTON. I appreciate the question. I will tell you that when 

I mentioned in my opening testimony we baseline way too early 

both the quantity and the amount of money we need, and I would 

like to follow up by saying that when the C–5 AMP program was 

the leader program, and C–5 RERP is depending on AMP to be finished, and when we have C–5s that take much longer to get AMPed because while we are doing them legacy maintenance issues 

happen, like the landing gear break and things that aren’t at all 

relevant to the scope of AMP happen, that takes longer to get the 

C–5 AMP done, which pushes the whole schedule out. So because 

we suffered slippage in the AMP program, that pushed us to not 

be able to start our production in fiscal year 2007 and that pushed 

it further and further out. 

So you have brought up a very good point, that there are things 

that are sometimes out of the control of even the Air Force. C–5s 

go into maintenance. They can have some catastrophic problems 

happen. Their maintenance flow days can be extended. They can be 

at war and we cannot get them back sometimes to get them on the 

schedule. And that is why variable quantities are very important 

for us, because once we break the schedule that we have committed 

to in a firm fixed price, that is a re-opener and everything can be 

renegotiated in that contract. 

So we are in a time of war. We have very old aircraft. Lots of 

things happen to them. We have noticed the wings, for instance, in 

the C–5 needed to be strengthened in order to be able to have the 

pylons and the engines on them. These were things that we were 

overly optimistic——

Senator CARPER. Excuse me for interrupting, but weren’t the C–

5A wings all restrengthened like 20 years or so ago? 

Ms. PAYTON. These have to be stiffened for the RERPs to be applied to them. As you open up a C–5, you can find cracks in the 

wings and things you never expected to find because they average 

29 years old, but some of the older ones are 35.7 years old. 

18

Senator CARPER. I am going to ask you to just hold on that point, 

if you will. My time is expired and I don’t want to be abusive of 

the rights of my colleague here. Let me just mention in closing on 

this point, Dr. Coburn and to our panel, I think if you look up there 

on the top line at the President’s 2003 budget, what you find in 

2007, 2008, and 2009, initially this Administration wanted to have 

us modernizing, fully modernizing, it looks like by 2009 24 of these 

aircraft——

Ms. PAYTON. Absolutely. 

Senator CARPER [continuing]. And that suggests to me that they 

are anxious to get out of the starting gate and get going. Now with 

the slow ramp-up, I don’t think we are going to get to an optimal 

production rate any time soon. In fact, likely we won’t get there 

until maybe 2011 or 2012 or beyond that, which indicates to me 

that maybe somebody doesn’t want to really do this as much anymore, and I am not suggesting it is the Administration, but that 

is one of the lessons I derive from this chart. I will just say that. 

Dr. Coburn. 

Senator COBURN. Thank you, and thank you for your testimony. 

Let us talk about the breach and the delta on the breach and the 

reasons for the delta. Madam Secretary, I talked to you yesterday. 

You were going to try to find out how much of the delta was based 

on a delayed roll-out of numbers coming from the production decline because the AMP didn’t come up. Can you explain for us the 

breakdown of what is in the delta, the change, the area that is over 

budget? Can you explain, what was it, $5.4 billion? 

Senator CARPER. Four-point-five billion dollars. 

Senator COBURN. Four-point-five billion dollars, and then they 

managed to eliminate through talks with Lockheed Martin $300 

million, and then there is some engine component that has brought 

it even down further. But the question remains how much of that 

has to do with decreased units on a slower take rate and how much 

of that delta is associated with that versus some other difference 

between Lockheed Martin and the Air Force? 

Ms. PAYTON. OK. Relative to the $4.2 million, that equates to basically $30 million per aircraft where we have delta. As we look at 

the pricing and costing data that we have received from Lockheed 

Martin, and some of that data has not been received yet, so we 

need to get more data in from them, but what we can tell at this 

point is that we are about $10 million of that $30 million disconnected because of what we believe the actual price of the engines 

will be when we have to reopen the contract due to the fact that 

we probably will not be able to keep to discrete quantities for the 

next—until 2021, or 2020. 

As you saw, this goes for an extended period of time, and so we 

have an engine in which we believe that by 2013 we will probably 

be one of the few customers for that CF–6 engine, and we believe 

that after looking into some databases relative to what commercial 

companies are paying for those engines right now, that we have at 

least a $2 million per engine—there are four——

Senator COBURN. Did you all speak directly to General Electric? 

Ms. WRIGHT. Yes, sir. 

Senator COBURN. And you got that number from them? 

19

Ms. WRIGHT. We got information from General Electric. The 

Service Cost Team got information from General Electric. As well, 

for the engine portion we subscribe to a commercial database that 

identifies the actual commercial prices for engines over the past 10 

years and makes projections for the future, and by using that, we 

came up with what we believe is a more realistic cost for the engines than what the Lockheed Martin proposal indicated. 

Senator COBURN. Did you all ask GE if you could buy the engines 

as government-furnished equipment? 

Ms. WRIGHT. No, we did not. 

Senator COBURN. So you didn’t even make that comparison before you decided that they are out of whack on the engine costs? 

Ms. WRIGHT. I am sorry, we didn’t make——

Senator COBURN. You did not make the comparison of what the 

government could have bought them directly for versus what is 

coming through the contract to see if you were anywhere close on 

price—Lockheed Martin can buy as well as you can buy, right? 

Ms. WRIGHT. Absolutely. 

Senator COBURN. So if you were to be buying those, it would 

seem to me if you are going to look at what the potential cost increase is going to be, you might inquire of GE as to what if we 

bought them versus it going through a contractor. Was there any 

discussion on that? 

Ms. WRIGHT. As far as I know, we did not ask them specifically 

whether or not we could buy them as GFE. 

Senator COBURN. OK. 

Ms. WRIGHT. The strategy is to have them bought through the 

prime contractor. However, in looking at the commercial database, 

the source that we subscribe to, which talks about the actuals that 

commercial people pay for those engines for the past 10 years, we 

believe that we know what it would cost to——

Senator COBURN. You know better than Lockheed Martin knows 

what it would cost? 

Ms. WRIGHT. We believe that the Lockheed Martin proposal—and 

they have a general procurement agreement now. They did not at 

first, but now they have a general procurement agreement with 

GE. We believe that the prices of those engines are much less than 

we had anticipated and that if we do not stay with the quantities 

per year as they were proposed by Lockheed Martin, which do not 

match the SAR quantities and which we probably cannot commit 

to out in the out years unless we would have some sort of multiyear, that we would have to open that up. 

Senator COBURN. Has the Air Force looked at man hours on both 

de-mate and RERP? Their estimates were that Lockheed Martin 

was extremely low on their estimate and they were higher. 

Ms. WRIGHT. Yes. 

Senator COBURN. Did you look at the man hours on the KC–135 

de-mates and how long it takes to de-mate and reassemble both 

through the contract for the engines and also through the operations at the various places around this country where we do that? 

Did you look at the hours for that? 

Ms. WRIGHT. I do not know whether or not they specifically did. 

With respect to the installation——

Senator COBURN. Well, let me make my point. 

20

1The charts submitted by Senator Carper appears in the Appendix on page 107. 

Ms. WRIGHT. OK. 

Senator COBURN. Why would you not? 

Ms. WRIGHT. They may have. I just don’t know——

Senator COBURN. Well, why would we not know whether we 

have, because if, in fact, you are going to say Lockheed Martin is 

wrong, you ought to be able to say, well, here is the data on a KC–

135 where we have redone all of these older, just as old or older 

airplanes than a C–5. Here is what it has taken. Here is what we 

have discovered. Here is what is done. Why would that not be there 

and say, you are wrong, Lockheed Martin. Here is what it has 

taken on a KC–135 and we have done a hundred and how many 

of them? A hundred and forty-nine. So why would that not be an 

important statistic to have at your hand if you are going to say 

Lockheed Martin is wrong? 

Ms. WRIGHT. On that point, sir, for the installation hours, we use 

the installation hours that were used specifically on this program, 

on the three what they call SDD aircraft, the aircraft that were 

done——

Senator COBURN. Well, I understand where you got the numbers. 

I have been in the meetings on all that. 

Ms. WRIGHT. OK. 

Senator COBURN. I have all that information. When you look at 

production runs like we have on KC–135, you can learn a whole lot 

from them because they have been doing it for a long time with 

multiple different years of aircraft birth, with multiple different 

problems, and you can get a great estimate of what kind of things 

you are going to run into. What I am worried about, I am worried about spending $80 to $95 million to get a C–5A or a modified C versus having nothing. 

That is what I am worried about. 

General Schwartz, you mentioned on the KC–X program that if 

C–5 can’t be solved and the C–17 line is shut down, is it in your 

estimation you will solve your lift problems through a combination 

of tanker lift capability through the new tanker program? 

General SCHWARTZ. No. I think, sir, the KC–X program is an 

augment to the lift equation. It is not a solution set, especially for 

out-sized and over-sized equipment. Remember, the KC–X, both offers are not roll-on, roll-off airplanes. I mean, the bird’s we have 

are designed to do what we need. 

Senator COBURN. You end up with the same problems you do 

with private contracting. 

General SCHWARTZ. Exactly. 

Senator COBURN. OK. Well, I am going to excuse myself for a 

very short moment and I will be back. I apologize. 

I have a Supreme Court Justice waiting on me and it is not nice 

to keep them waiting in case I am ever in front of them. 

Senator CARPER. I am going to ask if we can look at some more 

charts.1 In the Senate, our colleague, Kent Conrad, is famous for 

his charts, Chairman of the Budget Committee. I will never come 

to rival him. He is a great role model when it comes to that. 

This really relates to the question that Senator Coburn was beginning to ask and I want to use this chart as a sort of a starting 

21

off point. In the meetings that we have been fortunate enough to 

have with a number of you and folks that work with you and people from Lockheed Martin, we have learned that this major difference in terms of what Lockheed Martin says they can produce, 

RERP 108 aircraft over time and what the Air Force believes that 

the actual number is more likely to be, a difference of about $4.5 

billion, and $300 million of that has been—you agreed that number 

can come down by $300 million, so we are talking about $4.2 billion. 

The major three areas that we have here are the ones that Senator Coburn has been talking about. The propulsion system, the 

difference is about $1.2 billion. Second, the installation and other 

labor costs, and the difference there is about—I guess you call this 

touch labor—the difference there is about $1.6 billion. And the 

third, you call it other RERP costs, overhead and so forth, which 

I don’t have a complete understanding of. Maybe you can inform 

me a bit on that. But the difference there is about $1.6 billion. 

What I want to do is just to start off and follow up on Dr. Coburn 

with respect to the engines. We actually reached out to the folks 

at GE. We talked with them about their ability to offer engines 

over a long period of time. 

It was interesting, one of the meetings we had just in the last 

week, maybe it was on September 25, with a group of Air Force 

folks led by Major General Gray and there was an open speculation 

on the part of our friends from the Air Force. They were asking, 

or they were speculating, does GE even want this business? Is this 

a line of business, these engines—what are they called, the CF–6 

engines—are they really interested in continuing to produce these 

for the Air Force? Do they have any customers beyond the Air 

Force in the next couple of years? Does GE have a desire to actually use the facility where they are making these CF–6 engines? 

The speculation was that they would rather be using that facility 

to build engines for the Boeing Dreamliner. Those were the kind 

of questions that were raised in our conversation. 

So we turned around and called GE and we said, is it true you 

want to stop producing these engines? Do you have any other customers? As somebody here just suggested, no, they do have other 

customers, not only customers around the world that want to buy 

these engines, but they also are going to be in the business of providing spares for the customers who have already bought them in 

the past. While GE would like to build an engine for the Dreamliner, they have no interest in closing the production facility, I don’t 

know if it is in Cincinnati or wherever they make these engines. 

But they have no interest in closing the manufacture of the CF–

6 engines and beginning to manufacture an engine for the 

Dreamliner. They would like to do both. 

We talked with them about their price and it is proprietary information. They were not able to disclose the price. But it sounds to 

me like GE told us, and maybe they have told Lockheed Martin, 

I am not sure what they told the Air Force, but it sounds to me 

like they are willing to commit to producing engines for a good deal 

less than the Air Force is willing to believe. It is one of those weird 

situations. It is kind of an ironic situation where you may have a 

contractor who is offering to produce an engine for less than you 

22

1The information from GE submitted by Senator Carper appears in the Appendix on page 

115. 

are willing to accept. It is almost like being unwilling to take yes 

for an answer. I hope that is not the case. 

I would just ask unanimous consent to enter into the record the 

response that we received, the written response that we received 

from GE, and since I am the only one here right now, I guess no 

one is going to object.1

Let us just talk a little bit more about this engine. If there is a 

difference, and I think the difference of $1.2 billion comes from a 

difference in assumptions. What we are hearing from the supplier 

and the subcontractor, and it looks like there is a $2 or $3 million 

delta just per engine. If you have a customer who wants to buy 10, 

12, or 20 of these engines and you have a customer that wants to 

buy—what is four times 108, that would be 432, plus 25 spares, 

what would that be, 457? That is a lot of engines. Is it possible that 

given that kind of buy over the next dozen or so years that you 

have a supplier, GE, who finds a way to continue to manufacture 

these engines and have already covered a lot of their fixed costs 

that maybe it makes sense to supply them at the cost that we recorded and the cost that underlies Lockheed Martin’s assumptions? 

Let me just ask anyone on the panel to react to this. 

Mr. BOLKCOM. Sir, if I may, I would like to answer your question 

the way I want to answer rather than the way you asked me, and 

this is what I mean. It is important to get to the difference between 

cost estimates on this, and I take your point, I think it is very important that risk can cut either way. If we are the last buyer, that 

can be leveraged or maybe can be used against us, depending on 

how savvy we are, how we negotiate. 

The point I would like to mention here, since I have the opportunity, is this. If it is a firm fixed-price contract and Lockheed Martin is mistaken and it actually costs them more to buy the engines 

than they think, we don’t care because they have to eat that cost. 

Senator CARPER. They being——

Mr. BOLKCOM. Lockheed Martin, except, as Ms. Payton has 

noted, if there is a variable quantity that breaks the agreement, 

then it is an opener and we could get stuck. 

I think the important thing to understand besides the difference 

in cost estimates is are these future lots options that we can exercise or not, and therefore if we have a choice of exercising them, 

that would tell you that there is little or no risk. If in the out years 

it turns out that it is an opener, we don’t have to exercise that option. 

Senator CARPER. All right. 

Mr. BOLKCOM. So we are not committed. It is not a multi-year 

procurement. That would be a line of inquiry I think would be very 

important to assess the importance of the deltas in these cost estimates. 

Senator CARPER. Thank you. Ms. Payton. 

Ms. PAYTON. Sir, if I might add that I would like to take for the 

record the ability to answer the question about the engines because 

I recall that the PB–2003 that was really to fund the original baseline, those engines, I believe, were $4.1 million. Now that we 

23

know—I can’t mention now what the number is because that is 

competition-sensitive or proprietary, but I know that the number is 

higher than that now and I believe it is higher by a significant 

number, and that would be an example for you to look at the 

growth that has happened just since 2003 as we have now gone 

back and gotten the actual bid in from Lockheed Martin. So I 

would like to take that for the record to give you information about 

how much that engine has already grown just in the last couple of 

years relative to our cost estimating. 

Senator CARPER. Let me just ask as a follow-up, can the difference between Lockheed Martin’s proposal and the Air Force 

baseline budget, could it be addressed through—I don’t know what 

it is called—a variation in quantity within a Lockheed Martin 

fixed-price offer? Ms. Wright. 

Ms. WRIGHT. The request for proposal that we went out for was 

asking for Lots 1, 2, and 3. We did not ask for any firm fixed price, 

or a firm fixed incentive fee contract for past that. We didn’t do 

that because we didn’t know how to structure the quantity profile 

out in those years and we believe that if in Lots 1, 2, and 3, that 

those were close enough in in projections that we could figure out 

from a risk perspective, so that we did not run into risk, what 

would be the pricing for those three lots? 

We did in Lot 3 indicate a variable between five and eight, and 

we asked Lockheed Martin to price that so that we could see what 

the variable would be had we changed or if we do change what annual quantity we buy in that Lot 3. 

What was proposed to us was a full 12-year program, and the 

concern that we have, not just with the GE but also with the Lockheed Martin portion of that, is that we can’t project that we will 

stay with that 12-year annual quantities for those 12 years. In fact, 

it is highly unlikely that we would buy those annual quantities for 

the next 12 years. 

So rather than commit the Air Force future and the future Congresses to those 12 years, we asked——

Senator CARPER. I don’t mean to be rude. I am going to interrupt 

you, though, and please forgive me. 

Ms. WRIGHT. Sure. 

Senator CARPER. But I don’t know that you are answering the 

question that I asked. Let me just try it again and maybe you could 

take another shot at it. 

Ms. WRIGHT. OK. 

Senator CARPER. Would price variation in quantity—would a 

clause eliminate the risk of reopeners and the risk to the government? 

Ms. WRIGHT. A proposal that did not include what they call an 

EPA clause, or an Equitable Pricing Adjustment clause, would do 

that. The Equitable Pricing Adjustment clause says if you change 

anything—it is essentially the fine print in a quote that says, if you 

change any of those quantities out there, we can reopen negotiations and we can change our prices. What we have from Lockheed 

Martin is, in fact, a proposal that includes an EPA clause, which 

means there is risk to the Air Force. 

The cost proposal, the service cost proposal or cost position, has 

got to take into account that risk that we would incur if those 

24

quantities change. So we kind of have to separate the Lockheed 

Martin proposal from the service cost position. The service cost position says what we truly believe the entire program is going to 

cost, not just the Lockheed Martin proposal the way it is stipulated 

with the fine print. 

General SCHWARTZ. Could I just——

Senator CARPER. Before you do, then what I think I hear you 

saying is that if we are smart, we will have one of these price variation and quantity clauses, and if we have one of those, that can 

eliminate the risk to us, to the Air Force and to the taxpayers. 

Ms. WRIGHT. Yes, and that is what we did in Lot 3 was asked 

for variable pricing where they can get the information that we 

need to certify the cost that they are proposing to us. If you do it 

too far out, though, it becomes a very difficult process. 

Senator CARPER. Thank you. Dr. Coburn. 

Senator COBURN. What if Lockheed Martin comes to the table 

and puts in your lap an absolute guaranteed price for this many 

at this rate, another guaranteed price for this many at this rate, 

and another guaranteed price for this many at this rate that gives 

you the flexibility you want and it is a firm fixed price, no variables, no openers, no nothing? What happens then? 

Ms. WRIGHT. No variables, no reopeners, no EPA——

Senator COBURN. Nothing. 

Ms. WRIGHT. Lockheed Martin is at a lot of risk——

Senator COBURN. The price would reflect that risk. 

Ms. WRIGHT. The price would reflect that risk, and the other 

thing that we would make sure that we would need to know is that 

the cost and pricing data is compliant with the Truth-in-Negotiating Act, meaning that we have certified costs and pricing for——

Senator COBURN. So that is the only real requirement, that they 

have every intent to fulfill this contract by being truthful about the 

pricing? 

Ms. WRIGHT. Absolutely. 

Senator COBURN. OK. But if they choose to do that and they 

choose to do that because they see an option for a $10 billion contract and they are willing to take some of the risk to get over the 

years $10 billion worth of business, or some number, maybe it is 

$11 or $12 billion because what they option to you, why shouldn’t 

they be able to do that and why shouldn’t we take all this other 

stuff where there is debate and take it offline and put the responsibility on them if they are willing? They have to answer to their 

shareholders. What is wrong with that proposal? 

Ms. WRIGHT. There is, I guess, nothing wrong with that, but that 

is not what we have. 

Senator COBURN. I know that is not what you have now, and I 

know there is a debate between Lockheed Martin and the Air Force 

about where you come down with the numbers and where they 

have. Just for honesty’s sake, so you will know, I am not loved by 

Lockheed Martin. I go after their earmarks all the time. So that 

need to be said here. I am not defending Lockheed Martin. What 

I want is the best price for airlift that gives us what the Air Force 

wants to get done. So I am not here touting Lockheed Martin or 

trying to beat up the Air Force. 

25

1The chart submitted by Senator Carper appears in the Appendix on page 109. 

I have this really uncomfortable burning in my stomach that 

somewhere there is not the real commitment to get this C–5 modification done, and I can just tell you that from everything I have 

looked at, everybody I have talked to, everything I have read, everything I know about C–17, everything else. I am real worried 

that truth in advertising isn’t with the commitment of the Air 

Force on the C–5, and that is not your area. I know that. Your area 

is to look at the numbers and say if it doesn’t look realistic. 

I think Chairman Carper would like to go to the next panel. I 

want to thank each of you for being here. 

One last point for Mr. Bolkcom. There is no question on a per 

ton, million ton miles per day, if we flew to a large airfield and we 

put C–17s compared to C–5s and they both had the same reliability 

rate, the cost for shipping and the cost for getting goods to the 

same place would be significantly lower with the C–5, or modified 

C–5, is that true? 

Mr. BOLKCOM. I can tell you that there is no doubt that a modified C–5A would move more. I don’t know if it would be less. I 

would have to do the math, to be honest, because——

Senator COBURN. Well, we have done the math. It is about 25 

percent less. 

Mr. BOLKCOM. The only figure I have in my head, sir, is that the 

cost per flying hour of the modernized C–5 is about twice that of 

the C–17. 

Senator COBURN. Yes, but the fuel efficiency is markedly with 

the modified and the load is twice——

Mr. BOLKCOM. Yes, sir. 

Senator COBURN [continuing]. And the load-on and load-off, plus 

the capability of carrying other things. Well, that is not a fact, is 

what you are saying. You can’t tell us that. Would you look at that 

for us——

Mr. BOLKCOM. Sure. Yes. 

Senator COBURN [continuing]. And get back to us to let us know 

that? 

Mr. BOLKCOM. I would be happy to. 

Senator COBURN. I have no other questions. I will hope, General, 

that your staff will stay around and listen to the Lockheed Martin 

testimony. Thank you again. 

Senator CARPER. I am not quite ready for panel two. I want to 

go back to our chart here for a moment and maybe we can—let us 

take a look at the second area of difference, and it is called the installation and labor management costs.1 I guess it is labor and materiel costs, which we called touch labor, and the difference is $1.6 

billion. Do we have another chart that relates to that? 

That is good. Thanks. What we are looking at here is the touch 

labor hours for the C–5 RERP per aircraft, and this is the very first 

aircraft that was RERP-ed and Lockheed Martin tells us they invested about 145,000 man hours in that aircraft. 

This is the second one. They tell us they invested about 124,000 

man hours in that aircraft. 

26

The third C–5—those are both Bs, C–5Bs. This is the third one, 

and in the third aircraft we are told that they spent about 111,000 

man hours working on that aircraft. 

The Lockheed Martin folks tell us, and we are going to be questioning them extensively about how they get down to 95,000 for 

their estimate for the fourth aircraft, but it seems peculiar to me 

that the Air Force’s estimate for the fourth aircraft goes from 

111,000 or 112,000 back up to 116,000. I understand the line has 

been closed down for the modernization at Marietta, Georgia. There 

has been some scattering of the workforce. Not everybody is available. Some folks are going to have to be hired, rehired, brought 

back. New people have to be hired and trained. But it just seems 

strange to me that the number would go up that much for the 

fourth aircraft. 

It also seems strange to me that the number that is estimated 

by Lockheed Martin would be as low as it is for the fourth aircraft. 

Maybe one is right and maybe not. In asking Lockheed Martin, if 

they were on this panel I would just ask them right now, but we 

will ask them later, but one of the things that we have heard from 

Lockheed Martin is the reason why they go down, they are using 

some kind of slope I think they call the learning curve slope, about 

85 percent. 

It took me a while to understand this, but I understand if you 

have 100 aircraft, you have 85 percent slope, the first aircraft 

takes, we will say, 100 hours. The second aircraft would be 85 percent of that, or 85 hours. The third aircraft would be 85 percent 

of that, and so forth. It took me a while to learn that. 

Go ahead and put up the other chart. We asked the folks at 

Lockheed Martin, how do you drop? How do you get it as low as 

95,000? And obviously, if they can move from 145,000 to 124,000 

to 111,000, you might assume, especially if they had the line running again, that this number could be pretty low. Lockheed Martin—maybe not as low as 95,000, but Lockheed Martin comes back 

and they say, well, we have learned some things in the first three 

aircraft that tells us how to work differently with wiring harnesses 

and they feel that is worth about 4,000 man hours on the fourth 

aircraft. 

They indicate that, and I don’t fully understand this, but they indicate that they think they can save several thousand hours with 

respect to pylons and that is something they learned from the first 

three aircraft and it would be an improvement. 

All told, Lockheed Martin says that there is almost 20,000 man 

hours that they are going to be able to improve cost, but I think 

the two biggest ones and the only ones that I know enough about 

to even mention, one is the wiring harnesses and the second is the 

pylon. Together, it is about 7,000 man hours. You knock 7,000 man 

hours off of 111,000, it brings it down to 104,000, and from 104,000 

to 95,000, it is not as great a leap as would otherwise seem to be 

the case. We will ask Lockheed Martin about this. 

Explain for us how given what I think Lockheed Martin has 

learned about using wiring harnesses, what they have learned 

about the pylon installation, why does this number go up on the 

fourth aircraft from 111,000 to 116,000? I can see that it maybe 

27

1The chart submitted by Senator Carper appears in the Appendix on page 112. 

shouldn’t go down to 100,000 and to 95,000, but how does it end 

up going up to 116,000 man hours? Ms. Wright. 

Ms. WRIGHT. Yes. Because the first three dots that you have 

there are for the SDD aircraft and had we——

Senator CARPER. I am sorry? 

Ms. WRIGHT. For the development aircraft. Had we continued the 

production line without a gap, it would have continued to go down. 

That is typical of a production, a learning curve. And then it tapers 

off because——

Senator CARPER. I understand. 

Ms. WRIGHT [continuing]. You leaned out your manufacturing 

and then it goes on. And if you have a production break, which we 

have, we have a production break of 29 months, so a production 

break will make your curve go back up because it is a disruption. 

Your workmen are off doing other things. They are not doing it on 

a day-to-day basis and that is why it pops back up. 

The other thing that is of concern to us from the installation that 

is proposed is that the Lockheed Martin projections are that it will 

continue to go down at a very steep rate. In fact, that 145,000 is 

what they call a T–1. In the production language, that is the first 

aircraft, and you have a fairly steep learning and then you taper 

off. Lockheed Martin’s proposal indicates that not only are they 

going to spend less time making this next aircraft after a 29-month 

production gap, but that they are going to continue—they are going 

to reset the 95,000 as a T–1 and take a steep dive down. 

We believe that is double-counting learning. You have learned, 

and we are encouraged by the fact that they have learned and 

come down, but we think a 15 percent reduction during a production gap is not the right way. It is not typical of what a production 

would be. And in addition, we think if you had added more dots 

on the charts to what they had proposed, that is also too steep because they are projecting that they are going to learn at the same 

rate for an even longer period of time. 

So our rate is not as steep. It is a little flatter, which means that 

more man hours will go into the product, which means more cost 

will go into the product and it will level out. So those are the two 

parts of it. 

Senator CARPER. In our conversations with our friends from the 

Air Force, we have learned that an 85 percent slope is not uncommon for a new aircraft. We have asked for some information. I 

think Dr. Coburn was trying to get some information on aircraft 

modernization, and I don’t know that we have that yet, but we are 

looking forward to seeing when we are modernizing aircraft, if you 

were to do a RERP on another existing aircraft, if the curve is closer to 85 percent or not. 

What we have been able to glean—do we have another chart, as 

well, on the AMP, that actually has the visual demonstration?1 We 

couldn’t find a true apples-to-apples comparison to find out, is it 85 

percent? Is the slope on the learning curve 90 percent or not? But 

we actually have some experience with the aircraft in the first part 

of the modernization that you all have talked about and that is the 

AMP. 

28

I was actually on the line at Dover Air Force Base, I think with 

the very first C–5 that we AMP-ed, and I had a chance to watch 

the folks literally pull out the guts of the cockpit and go to work 

and trying to modernize it. It took a good period of time. In fact, 

the first one took, I think, almost 30,000 man hours. This says up 

to 26, I think we have actually AMP-ed about 30 and they have another six underway today. 

But the slope for the touch labor hours for the C–5 AMP has 

been about, actually, 84 percent, and I don’t know if it is fair to 

say that if they could do 84 percent here, then maybe we could do 

85 percent on the RERP. I am just not smart enough to figure that 

out. But I thought that was interesting. At least on the same aircraft, the first part of the modernization, they not only met 85 percent, but they actually were able to beat it by a little bit, and I 

thought that was worth knowing. 

But the more interesting thing that came out in our conversation—if the number actually does turn out that this 95,000 number 

is wrong and it is something in between 95,000 and 116,000, and 

even if this assumption for a learning curve is 90,000 or closer to 

90,000 than it is to 85,000, there is a way to structure this deal, 

this modernization program with Lockheed Martin so that if there 

is a difference in the number, if the Air Force is closer to right than 

Lockheed Martin, there is a way to structure it so that Lockheed 

Martin eats the difference. 

Is that true? How do we structure the deal so that if they are 

wrong and if it is 90 percent and if it is 116,000, they eat the loss 

and we don’t? 

Ms. WRIGHT. If it is a firm fixed price and it takes them longer 

to do it, then they eat the cost of it. 

Senator CARPER. Why wouldn’t you try to do that? 

Ms. WRIGHT. Well, if it takes them longer to do it, then we get 

less aircraft. I mean, there is a schedule delay there. We get less 

aircraft and our schedule gets pushed out and it gets stretched——

Senator CARPER. But they have a huge incentive——

Senator COBURN. You are already pushing the schedule out. I 

mean, you all have pushed it out by 20 aircraft over the last 3 

years. That is the cost. 

Ms. WRIGHT. I agree. We have had budget cuts and we have 

pulled out the schedule, but part of the reason why we do the service cost position is to try to figure out what is reasonable to believe 

and executable. So we have to budget in there and look at the 

schedule and when we could get this done. So we don’t want to be 

overly conservative in our service cost position. If we go on contract 

for a shorter schedule and they are committed to doing that and 

we make that, then obviously that is great. But for service cost position, we need to be reasonable about what we believe is executable and that is how ours is structured. 

Senator CARPER. Go ahead. 

Senator COBURN. So let us say that Lockheed Martin in the middle of November drops in your lap four options for every one of 

these over a different spend-out and different everything, firm fixed 

price, nothing there. What happens if you say in looking at it, you 

don’t think they can do it? 

29

1The chart submitted by Senator Carper appears in the Appendix on page 113. 

Ms. WRIGHT. If they have the supporting data for cost and pricing——

Senator COBURN. Yes. 

Ms. WRIGHT [continuing]. In compliance with the Truth-in-Negotiating Act, there would be no reason why we would disagree with 

them. Right now, we don’t——

Senator COBURN. So we might eventually get a real commitment 

to get the C–5s modernized and take care of our airlift capability? 

Ms. WRIGHT. Absolutely. That is my goal. 

Senator COBURN. All right. Thank you. 

Senator CARPER. I want to go to our next chart, if we could.1 I 

am running out of charts, so you will be pleased to hear that. 

We talked about the first two of three major areas of disagreement between the Air Force and Lockheed Martin. First, engine 

costs. Second, the assumptions for touch labor costs and the slope 

of the learning curve. I think we want to go to the other RERP 

costs. Do we have anything on that? We may not have a chart on 

that. If we don’t, that is OK. 

I don’t fully understand these other RERP costs, but one thing I think I do understand is that part of the difference of this $1.6 

billion—not all of it, part of it—maybe has to do with assumptions 

on spares or whatever. But I think part of it has to do with this 

question of when we open up an airplane and start RERP-ing it 

and we are changing the engines and changing the hydraulics or 

these other 70 systems, what if we find things that are structurally 

wrong with the aircraft, that there are things that need to be fixed? 

How do we account for those? 

I think what I heard you all saying in your explanation to Dr. 

Coburn and myself and our staff earlier is that the reason, part of 

the reason why there is this difference of 1.6 on this other RERP 

is because it is not that Lockheed Martin would be spending more 

than they agreed to spend or they proposed to spend on putting on 

the engines, changing out the hydraulics, the cockpit and all, it is 

just that other stuff is found that needs to be fixed because of the 

RERP-ing that takes place. 

It doesn’t seem fair to me to charge that against the contractor. 

And one of the things that—I remember in my old squadrons in the 

Navy, every now and then we would send aircraft to depot. I don’t 

know how often these aircraft go to depot, but it would seem to 

make sense to me, and we have 108 of them to work with and a 

fairly slow start-up off the line in 2008 and 2009 and in 2010, it 

would seem smart to me to sequence it so that the aircraft that go 

to Marietta—I don’t know where they do the depot, maybe they do 

it there—but the aircraft that go to be RERP-ed, that they would 

be just coming right out of depot, and if there are problems like 

this, then they would have been addressed. 

I would also say we have had a chance to look at these aircraft 

for a while, and I know that we have had testimony from the Air 

Force leaders that there are a bunch of bad actors, there are 25 or 

30 of them that can be identified by tail number, although we have 

never seen that done, but if we are smart, we put them through 

depot, we fix most of their structural problems, but in the fleet viaVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
30

bility examination of the aircraft, at least in their more cursory 

view, I don’t think they identified major structural problems or corrosion problems. I think they looked at the fuselage and the wings 

and they said there are another 25 or 30, maybe 35 years on the 

fuselage and the wings if the RERP can go forward. 

We had one C–5A, I think, which is literally torn apart. I remember one of our P–3s a couple of years ago was taken by the Chinese. They were forced to land over there and they literally sent 

it back to us in boxes and crates. I think we must have taken a 

C–5 and taken it apart just like that, a C–5A to see what the corrosion looks like, the problems that we could identify, and pretty 

much they said it is not anything you wouldn’t expect to see on an 

aircraft that is 30 or 35 years old. 

Plus we have had a chance to actually RERP three of these aircraft, Bs and an A, and I don’t know that they have sent up big 

warnings. 

So we have had the Fleet Viability Board, we have had the aircraft that was torn apart, we have had three of them modernized, 

and yet we still say that we are going to—punish is probably the 

wrong word—but we are going to punish the contractor if there are 

problems that are uncovered in RERP-ing these other aircraft. 

That doesn’t seem right. Maybe I am misinterpreting it, but let me 

ask you to take a minute or two and straighten me out. 

Ms. WRIGHT. If I might, in that category, it is not just what is 

commonly referred to as over and above cost or legacy repair. That 

also includes——

Senator CARPER. What do you mean by legacy repair costs? 

Ms. WRIGHT. Well, this is the same as it is in the baseline, so 

this is not something different for this cost estimate. It has always 

been in there. We do intend to send them to the depot ahead of 

time, and there is a number of things in the deck, they call it, to 

do, to take care of in what they call PDM. So it will go to the depot 

and it will have the things fixed that need to be fixed, and as they 

go through the depot, if they find things, if they take off the pylon 

and there happens to be a crack and they need to fix it, they will 

fix it there in the depot. 

However, then when it goes to the RERP line to be mod-ed, if 

in the modification of the RERP we find something that was not 

found in the depot, and these should be minor things that come up 

afterwards, that you didn’t know. Maybe they didn’t open up that 

portion of the wing in the depot. These are things that you don’t 

know about. We, in our cost estimates, and have, like I said, in the 

baseline we did it also, we have what they call over and above or 

legacy repair, where you fix it. It is like if you take your car to the 

garage for an oil change and you find out that there is a hole in 

the oil pan. You fix the oil pan. They have to do it there. 

In fact, under the Anti-Deficiency Act, it is required that we do 

it with the money that is associated with the appropriation for the 

mod, so that you can’t spend production money on things that you 

should have been doing in depot. As well, you can’t spend depot 

money on things that you should have been doing—so it is to keep 

from augmenting different appropriations. So by law, we have to 

have funding so that we can take care of those things that are unVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
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covered during the time that we are in the modification, and that 

is where—and that is the portion that you are talking about. 

But the other part that is inside that discrepancy, that disconnect there, are spares——

Senator CARPER. I apologize, but I have to interrupt you. Why 

isn’t that a depot cost instead of a RERP cost? 

Ms. WRIGHT. It is because under the Anti-Deficiency Act, you 

have to use the appropriations that is appropriated for the RERP 

mod, you have to use that if you uncover it during the time that 

it is in mod. So it is to keep you from augmenting appropriations 

with different money. 

Senator CARPER. OK. Let me just make one comment and then 

we will move on. I am not sure how you develop your estimate for 

what these RERP costs are going to be that relate to stuff that has 

to be fixed after you have opened up the aircraft. I would hope that 

those estimates are informed by what we learned by going through 

the first three mod——

Ms. WRIGHT. Absolutely. 

Senator CARPER [continuing]. And I hope they would be informed 

by what we saw when we tore apart the C–5A, and I hope they 

would be informed by what was uncovered when the Fleet Viability 

Board looked at all of the other aircraft. 

Dr. Coburn mentioned earlier, and he thought it was quite a coincidence that we learned of a suggested Nunn-McCurdy breach on 

the eve of our hearing. Maybe it is just a coincidence, maybe not. 

I don’t know. 

But in one of our conversations within the last week with some 

senior folks from your team, again, I think, led by Major General 

Gray, some people from Lockheed Martin were there, as well, we 

discussed the communications between Lockheed Martin and the 

Air Force. Really, we discussed the lack of communications. And 

sometimes we run into problems here in the Senate, as you know, 

because we stop communicating. And I heard from both sides, both 

from Lockheed Martin and from the Air Force, that the communications, particularly this year, haven’t been very good, and as the 

concerns were raised, and I heard this from the Air Force—I had 

acknowledgement from the Air Force that it hasn’t been what they 

should have been and they haven’t been from Lockheed Martin 

what they should have been. 

We get in trouble when we stop talking around here, and I was 

concerned about what I heard. I am not going to ask you to answer 

here, but in our conversation, I think with Secretary Payton, when 

you called and spoke to me yesterday, and I think you spoke to Dr. 

Coburn, as well, one of the things that you cited as an advantage 

of getting into a Nunn-McCurdy breach scenario is that it would 

improve communications, or at least that is what I understood you 

to say. All I can say is we should have been communicating better 

before we got to this point in time, and I am not sure that we were. 

Dr. Coburn. 

Senator COBURN. I just have one other question for Ms. Wright, 

just one. Is any of the RERP cost overhead difference between you 

and Lockheed Martin based on units? 

Ms. WRIGHT. On units? 

Senator COBURN. On buyout rate. 

32

Ms. WRIGHT. It is based on——

Senator COBURN. Let me be very specific with my question. 

Ms. WRIGHT. OK. 

Senator COBURN. Is there any factor of dollars in the propulsion 

system, the installation and other LM costs, or in the other RERP 

costs, is there any factor of that based on roll-out rates in any of 

those numbers to account for a difference between what Lockheed 

Martin might assume and what you are assuming? 

Ms. WRIGHT. Yes, in the sense that, like for the propulsion system, we don’t believe that we will be able to stay with the quantity 

stream that is proposed in the Lockheed Martin, and therefore we 

don’t believe the propulsion costs will stay the same——

Senator COBURN. OK. Was that communicated to Lockheed Martin? 

Ms. WRIGHT. Yes. 

Senator COBURN. When? 

Ms. WRIGHT. It was communicated—actually, they have been 

talking about it since—the team at Wright-Patterson who does 

both the service cost estimate as well as the team that is negotiating, or are part of the negotiating team, has been in near daily 

communications——

Senator COBURN. Since when? 

Ms. WRIGHT [continuing]. With Lockheed Martin. Since May 17. 

Senator COBURN. OK. And you are saying the fact that there is 

going to be a lower roll-out rate by units has been communicated 

to them throughout this? 

Ms. WRIGHT. Yes. 

Senator COBURN. OK. Thank you. 

Senator CARPER. Mr. Bolkcom, did you have anything you wanted to say in response to the last question? 

Mr. BOLKCOM. Yes, sir. 

Senator CARPER. Go ahead, please. 

Mr. BOLKCOM. I have said—I am sorry. I misunderstood your 

question. I didn’t have anything else to add. 

Senator CARPER. OK. Fair enough. One of the things we have 

talked about in, I think, conversations certainly with Secretary 

Payton and General Schwartz and others, too, the question on strategic airlift needs, we need big aircraft and we have the option of 

flying C–5s or we have the option of RERP-ing and modernizing 

the C–5s. We have the option of going out and leasing other aircraft. 

There is an aircraft that is actually bigger than the C–5, maybe 

a couple, but one of them is the AN–124 and it turns out it is a 

Russian aircraft. I was startled to find out that we have wound up 

and paid almost $200 million to the Russians to lease to us the 

AN–124. I am not criticizing that decision, but as a cold war warrior, the idea that we are paying that kind of money to the Russians so that they can let us use their airplanes to provide strategic 

airlift because we don’t have it is a real irony. 

Does the AN–124 carry something that the C–5 can’t? I asked 

my staff to dig out for me, like MRAPs. I said, tell me what it costs 

per MRAP to carry them in an AN–124, a C–17, or a C–5, and they 

came back and they told me—I hope these numbers are correct—

they said, if you are flying a C–17 carrying MRAPs, it is about 

33

$150,000 per vehicle. If you are sending them over in AN–124s, it 

is about $134,000 per vehicle. If we are flying them over in C–5s, 

it is about $125,000 per vehicle. So they can all carry MRAPs, but 

there is a difference in the cost of delivering each vehicle. 

Are there some things that the AN–124 can carry that the C–5 

cannot? Has our reliance on the AN–124, the Russian aircraft, accelerated of late? I know we have been using them for a while. And 

does the Air Force plan to continue to lease the 124s? 

General SCHWARTZ. Sir, let me take that question because I am 

the operator here. The AN–124 is an excellent vehicle carrier. In 

fact, it has somewhat greater capacity than the C–5. The AN–124 

can carry five or six, depending which MRAP category you are 

speaking to, four or five on the C–5, two or three on the C–17. 

Senator CARPER. But in terms of the cost per vehicle, were my 

cost numbers about right? 

General SCHWARTZ. The numbers you have are about right. I 

would say that, frankly, C–5 and AN–124 are about the same, 

$130,000 in round numbers. But the difference is reliability. Mr. 

Chairman, when the AN–124 goes—when it is scheduled, it flies, 

and——

Senator CARPER. Do they have some kind of cost penalties built 

in so that if they don’t, they pay a heavy cost? 

General SCHWARTZ. No, sir. They just operate. They are a very 

reliable outfit. And by the way, we access that capability through 

our CRAF partners, Atlas Air, a U.S. company, Lynden Air, another U.S. company. But the key point here is that they fly, and 

when the expectation is that we will move MRAPs as expeditiously 

as possible because kids are in jeopardy, I am not going to have 

airplanes broke in Europe or somewhere else when I have an alternative which, to date, has not resulted in a late delivery. 

Senator CARPER. OK. 

General SCHWARTZ. Yes, sir. 

Senator CARPER. All right. Mr. Bolkcom, anything else? You 

haven’t had a chance to say as much as some of our other witnesses. Is there anything that you would like to add? 

Mr. BOLKCOM. No, sir. Did you want me to stay for the second 

panel? 

Senator CARPER. Yes, if you would. I would be grateful if our 

other witnesses could stay, as well, and you are welcome to respond 

for the record. We may have some more questions to submit, and 

we just ask that you respond in a timely way. 

Ms. Payton, I am going to ask you just to be brief, but go ahead. 

Ms. PAYTON. Very briefly. I appreciate the question about the 

timing of the Nunn-McCurdy. The very first meeting I attended in 

the Pentagon in my new role in August 2006 was the program 

manager briefing, Secretary Wynne, that we were very concerned 

because we had heard from Lockheed Martin about the cost 

growth. He directed the program office to go gather as much information as possible to do a program office estimate, to put an official RFP to Lockheed Martin so that they could respond in writing 

what the costs really were, and then to bring in an independent 

cost agency of the Air Force to look over everything. 

This has taken some time. It was supposed to have been completed in July. We did finally get everything consolidated on SepVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
34

tember 24. And here is the advantage of knowing you are in a 

Nunn-McCurdy breach, and this is a critical Nunn-McCurdy 

breach. We can take away a lot of numbers up here before we get 

down to the point we are no longer in a Nunn-McCurdy breach. 

The good thing about the timing of this is that we can deliver 

the quarterly SAR to you, the report that says——

Senator CARPER. What is a SAR? Selected Air Reservist? That is 

what I was. 

Ms. PAYTON. Selected Acquisition Report. That indicates to you 

that we are in a Nunn-McCurdy breach, and then the clock starts 

and we believe we can be through the analysis of this with a wellstructured program by the end of January and we can have Lockheed Martin on contract for an excellent C–5 program before their 

bid to us becomes invalid on February 28. 

So we did this in the best interest. Now, Secretary Wynne could 

wait 45 days to tell you of this, but we want to move out, because 

if we don’t do it in September, then we won’t be able to start the 

Nunn-McCurdy process until January, and then we will have lost 

all the good data that Lockheed Martin has provided us. 

I would also like to mention that we have—I will submit for the 

record the 45 different meetings and discussions in person and between our contracting officers that we have had with Lockheed 

Martin trying to get the kind of cost and pricing data that we need 

in order to comply with the law and get the best we can do for our 

tax dollars. 

Senator CARPER. Let me just ask the question, are those meetings that you participate in? 

Ms. PAYTON. No, sir. Here is how I like to manage my acquisition 

workforce. We have a very small number of excellent acquisition 

workforce. People or contracting officers need to be empowered and 

I have been very proud that they do the work and do the proposal 

work at their level. When senior people from Lockheed Martin 

start talking to the Chief and the Secretary and me about details 

like this, we could make a very serious mistake because we are not 

the experts on Truth-in-Negotiations and the Anti-Deficiency Act 

and the Federal Acquisition Regulation. 

So I do not want to marginalize my people. I want my people to 

be empowered to work with the people at Lockheed Martin. I have 

had discussions about this with the senior people at Lockheed Martin, that our people need to negotiate this out and get the data in 

that we need from Lockheed Martin. 

I have talked to Ralph Heath about this. I talked with him this 

week about it. I called him to give him a courtesy notification that 

we were going into a Nunn-McCurdy breach so that he would know 

it before everyone else. And we do meet from time to time. I have 

a CEO roundtable scheduled on October 17 and 18. The CEO won’t 

be there, but Chris Kubasik will be there. We do discuss things at 

the senior levels, but it is very important that we do not 

marginalize our acquisition workforce and that we empower the 

few that we have. 

Senator CARPER. Well, I appreciate your saying that. Having said 

that, I heard from both the Air Force side and the Lockheed Martin 

side, we heard as recently as last week that the communications 

35

hasn’t been what it could have been and should have been. My 

hope is it gets a whole lot better in the weeks that lie ahead. 

I am told by my staff that the Air Force briefed the Senate 

Armed Services Committee staff that the Air Force feared that 

there were cost problems with the RERP back in January and February this year. I will just ask you to answer it on the record and 

the question would be, why is the Air Force leadership only looking 

at it in the August time period? We will come back to you in writing with a question on this and just ask you to respond in writing. 

Ms. PAYTON. Thank you very much. 

Senator CARPER. I am a big movie buff and I especially like Paul 

Newman’s films. Some of you have seen a few of those films. One 

of them was ‘‘Cool Hand Luke.’’ Remember the great line from the 

prison warden in ‘‘Cool Hand Luke’’ where he said, ‘‘What we have 

here is a failure to communicate.’’ I think that may be part of the 

problem. 

I am not sure why there has been a failure to communicate. I 

am not sure if it is—and like in couples, husbands and wives, there 

is usually some blame for both. But in the Senate, we get into trouble when we don’t communicate and I think we have gotten into 

trouble here, at least in part because we are not communicating as 

well as we should. 

We appreciate very much your being here today. Ms. Wright, 

nice to have met you. Thank you for joining us, as well. Secretary 

Payton, General Schwartz, good to see you. And Mr. Bolkcom, 

thank you very much, not just for your presence and testimony 

today but for the input that you and the Congressional Research 

Service have provided to us in the past. Thank you very much. 

With that, I am going to ask our fourth panel to come forward, 

and again, our other witnesses may stay at the table or you may 

just have a seat in the audience if you prefer. You are welcome to 

sit in the audience if you would like. 

Senator McCaskill hoped she would be able to join us but she is 

not going to be able to. She has sent a statement for the record, 

and if there is no objection, then I will ask that her statement be 

included in the record. 

[The prepared statement of Senator McCaskill follows:]??? 

Mr. McQuien, would you take just a moment and tell me—I understand you are a representative from Lockheed Martin—your position, your title is? 

Mr. MCQUIEN. Yes, sir. I am the Vice President for Business 

Ventures for the Lockheed Martin Aeronautics Company, 

headquartered out of Fort Worth, Texas. In that role, I am responsible for all the contracts and estimating and all of the new business transactions the company enters into. 

Senator CARPER. And what is your relationship, if you will, to 

this program? 

Mr. MCQUIEN. Well, last November, at Thanksgiving, I was assigned by our President, Ralph Heath, to be a full-time responsibility for working to transition the C–5 RERP program from development into production, and so that has been my role since 

Thanksgiving. 

Senator CARPER. Are you the senior person at the company? 

36

1The prepared statement of Mr. McQuien appears in the Appendix on page 95. 

Mr. MCQUIEN. I am the senior person for responsibility for 

transitioning to production. In the audience here today, I have 

George Schultz. He is the Senior Program Director for continuing 

the development program and he will have responsibility for actually implementing the production when and if awarded. 

Senator CARPER. Mr. Schultz is welcome to come and take a seat 

at the table. We may or may not call on him, but a lot of times, 

witnesses will have somebody who happens to be in the nitty-gritty 

and I would invite him to join us, if he would like. I don’t know 

that we have a name tag made up for him, but please join us, if 

you would. 

I want to recognize you for a statement. Thank you both for joining us, and to Mr. Bolkcom, thank you for staying at the table. 

Please, Mr. McQuien, your statement. 

STATEMENT OF LARRY J. McQUIEN,1 VICE PRESIDENT OF 

BUSINESS VENTURES, LOCKHEED MARTIN AERONAUTICS 

COMPANY, ACCOMPANIED BY GEORGE SCHULTZ, VICE 

PRESIDENT, LOCKHEED MARTIN AERONAUTICS COMPANY 

Mr. MCQUIEN. Yes, sir. I want to say it is a privilege for me to 

appear before you this afternoon in support of this hearing on ‘‘Cost 

Effective Airlift in the 21st Century.’’

Lockheed Martin is normally shoulder-to-shoulder with our Air 

Force customer, and this is an awkward instance in which I will 

be presenting a different perspective on the cost for performing the 

C–5 Reliability Enhancement and Re-engining Program than the 

Air Force. 

Lockheed Martin is committed to supporting our customers’ decisions on America’s strategic airlift. Modernization of the C–5 Galaxy is a fiscally sound means of addressing U.S. strategic airlift requirements. The acquisition strategy for the C–5 RERP program is 

to improve reliability, maintainability, and availability while reducing total ownership costs. Current developmental testing indicates 

these goals are attainable. Analysis indicates a 30 percent or higher improvement in mission capability. 

The principal driver underlying these improvements is the reliability and maintainability of the new General Electric, GE, CF–

6 ADC–2 propulsion system. This propulsion system has demonstrated outstanding reliability, having accumulated more than 

300 million flight hours in both commercial and military applications, including Air Force One. Modernization will produce about $50 billion in C–5 operation 

and support cost savings through 2040. The Air Force will realize 

$4 in savings for every dollar invested in the program, based on 

our estimate. 

Lockheed Martin is aware that the Air Force and the Nation are 

depending on us to deliver on this program. As stated earlier, the 

2005 Mobility Capability Study and the 2006 Quadrennial Defense 

Review included modernized C–5s as a critical part of the Nation’s 

strategic airlift. We are committed to ensuring the success of this 

program. I am acutely aware the Air Force recapitalization is fisVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00040 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
37

cally constrained and it is imperative that every dollar be spent 

wisely. 

As stated earlier, C–5 modernization is a two-phase program, including the Avionics Modernization Program and the Reliability 

Enhancement and Re-engining Program. Development for the Avionics Modernization Program is complete and the Air Force has declared initial operational capability for the aircraft. We have produced 28 updated aircraft at this point. 

Development of the Reliability Enhancement and Re-engining 

Program is progressing well with the C–5M Super Galaxies, three 

of them, two former C–5Bs and one C–5A, active in developmental 

testing which we plan to complete by August 2008. The three aircraft are meeting performance expectations. 

We have taken what I consider to be exceptional steps to ensure 

the program meets Air Force expectations. We provided the Air 

Force a firm fixed-price commitment for modernization of the remaining 108 aircraft. Lockheed Martin chose to assume this inherent risk of a firm fixed-price proposal based on rigorous objective 

analysis, demonstrated performance, and our best judgment. Our 

proposal balanced the cost risk to the Air Force for the portion of 

the Reliability Enhancement and Re-engining Program to be performed by Lockheed Martin, namely modernization of the aircraft. 

We took this action to demonstrate our confidence in the estimated 

cost for the program and to support Air Force deliberations on the 

right composition of its force structure going forward. 

The proposal was structured as an initial production lot and eleven additional options. Our offer does not require the Air Force to 

commit to modifying all C–5s but gives them a solid price commitment by lot. 

Lockheed Martin’s firm fixed-price offer ensures the Air Force 

that the aircraft could be modernized for an average cost of $83 

million per aircraft. Our offer, however, does not address other 

costs, as has been discussed earlier, to be incurred by the Air 

Force, such as training, spares, support equipment, over and above 

aircraft maintenance, and program management, costs typically associated with ongoing programs. Accounting for these other costs, 

the total average cost for modernization based on our proposal 

would be between $108 million and $118 million per aircraft, assuming that such costs are between $2.7 and $4 billion. 

Our proposal can be executed within the total C–5 Reliability Enhancement and Re-engining Program dollars available in the current future years defense plan, but a rephasing of the funding 

would be necessary. Our full proposal could be executed within the 

current program of record plus additional new appropriations of at 

least $1.4 billion and as much as $3.1 billion in the 2014 to 2020 

time frame, depending on the amount of the Air Force other costs. 

The C–5 air frame has more than half of its structural life remaining, more than 30 years of utility. The Air Force Fleet Viability Board, as discussed, has concluded the C–5A fleet was healthy. 

The Air Force’s internal cost analysis has repeatedly concluded 

that the C–5 modernization not only pays for itself, but generates 

significant savings over the life of the aircraft. It would be fiscally 

prudent to continue modernizing the C–5 to protect the investment 

38

made by the government and the taxpayer and the realize the C–

5’s full potential rather than parking them in the Arizona desert. 

Mr. Chairman, Lockheed Martin understands the challenges 

faced by the Congress and the Air Force. We appreciate having an 

opportunity to participate in open and constructive dialogue concerning the merits of our proposal. The Air Force program of record 

supports C–5 modernization, and Lockheed Martin is committed to 

making it a reality. The C–5, unheralded, flew 25 percent of the 

Operation Iraqi Freedom airlift missions deploying for the war, yet 

delivered 50 percent of the cargo. The C–5M Super Galaxy can continue providing this exceptional capability through 2040. 

I thank you and I look forward to your questions. 

Senator CARPER. Thanks, Mr. McQuien. Let me just start off by 

going over here—you have seen this chart. You have had an opportunity to think about it, probably a lot more than just today. 

Before we start talking about engines, let me just ask you, we 

were talking with the earlier panel about communications. Would 

you be the person who would dialogue with Secretary Payton or 

General Schwartz? Are you that person? 

Mr. MCQUIEN. I am that person. I have dialogued with both at 

one level or another, earlier on with General Schwartz. My primary 

role lately has been dialoguing with Ms. Wright, with General 

Hudson and the program staff that is implementing the C–5 modernization program. 

Senator CARPER. OK. Let us go up here to the propulsion system. 

GE engines, potentially 457 of them. I understand you are constrained by telling us what the cost would be. I understand it is 

proprietary information. But $1.2 billion is a lot of money and the 

last thing we want to do is to go ahead with this project and find 

out that it is going to cost $1.2 billion more than you say it is going 

to cost. What kind of assurance can you give us that is not a correct number and that the number you are citing or quoting, I guess 

which is implicit in the $83 million flyaway cost, how do we know 

that it can be held to? How can we hold your feet to the fire? What 

assurance can you provide for us? 

Mr. MCQUIEN. Well, first, General Electric is a very reputable 

company. Today, I hold a firm commitment from them to produce 

the engines on a prescribed schedule. The schedule that GE has 

provided us will support the PB–08 budget schedule that was discussed earlier. It will support that, although that is not the schedule that I bid. So I have all the confidence in the world——

Senator CARPER. What did you say, although what? 

Mr. MCQUIEN. I did not bid, from Lockheed Martin’s standpoint, 

the same schedule that is currently in the PB–08. We can discuss 

that now or we can discuss that later. I noticed it on one of your 

charts. 

Senator CARPER. OK. Can you put that chart back up? On the 

one hand, we have the President’s 2008 budget and you submitted 

a bid—the $83 million flyaway cost was submitted on a different——

Mr. MCQUIEN. I submitted that on May 17. 

Senator CARPER. Is it the bottom line right here? 

Mr. MCQUIEN. Yes, sir. You were saying Lots 3 and 4. That is 

the 7 and 10. Those are below the President’s budget for 2008. 

39

Then out in fiscal year 2014, well, we are below it again. We then 

make that up in the last lot by putting nine airplanes into that. 

Senator CARPER. Why would you use this kind of ramp-up as opposed to the President’s budget? I presume there is a reason? 

Mr. MCQUIEN. Well, I think given 20/20 hindsight, that is a good 

question. I have been asking myself that. We used this rate—first 

off, we matched the Air Force’s proposal, as discussed. They did 

submit us an RFP for the first—they asked us to bid the first three 

lots at a rate of one, three, and variable quantity five to eight. They 

then asked us to give them a capped cost for producing the remainders of the Bs and two Cs at a TBD build rate. The Air Force did 

not replicate that PB–08 rate at that time. That had given me 

some concern. 

In the fall of 2006, as this was playing out, as was evident that 

the cost of this program was increasing, Lockheed Martin received 

an informal schedule from the Air Force suggesting we ought to 

look at that as a potential new way that would be implementable. 

The idea here undoubtedly, if you look at it, is to make sure we 

can stay within the future years defense plan before we have cost 

growth. We locked onto that informal submission and continued to 

use that rate in this submittal. 

What I am prepared to do is, based on the General Electric proposal or contract with us, purchase order, we are prepared to update our proposal if that would be of value, which would lower our 

cost by another $150 million, that we would bid the actual PB–08 

rate. We haven’t made that up today just because it is another 

number in a large morass of numbers that keep getting exchanged 

between us, but we are prepared to make that one change. 

Senator CARPER. OK. So would that $150 million come off of this 

$1.2 billion? 

Mr. MCQUIEN. No, that would exacerbate that difference to make 

it $1.35 billion. 

Senator CARPER. All right. How can we be assured—how can you 

assure us that you can buy engines from General Electric over the 

next dozen or more years at a price that does not include that $1.2 

or $1.35 billion? What assurance can you provide for us? 

Mr. MCQUIEN. Well, again, Lockheed Martin has stepped forward with a firm fixed-price offer of which we were willing to accept that risk. Again, the question that came up earlier, we are accepting that risk based on the aircraft being procured at the specified rate. That is the same risk that General Electric stepped up 

forward to us when they provided the proposal which we ultimately 

accepted. 

I would say that General Electric pricing hasn’t changed since 

late November 2006, although we just now did get the firm contract signed. It was an 11th hour, just before our last meeting, actually, with the Aeronautical Systems Center. 

Senator CARPER. In your negotiations with the Air Force, have 

you been able to give them assurance that you are not going to 

be—either more material problems with the components that go 

into these engines that would cause GE to step back and say, we 

can’t do it at the price that we thought we could. We need more 

money. And if that happens and you end up having to pay more, 

do you eat the cost? 

40

Mr. MCQUIEN. That wouldn’t be the case. If we were able to complete a proposal that we submitted and negotiated for a firm fixed 

price, if we were incorrect in the commitment with General Electric, that would be on Lockheed Martin. 

Senator CARPER. What if the Congress, or a future Congress, decides not to support the President’s budget, and that rarely happens around here, but what if it did. Is there some kind of protection, I guess, for the contractor? Do you have some kind of variable 

rate or quantity protection that can be built into a contract? 

Mr. MCQUIEN. It could be built into. We stand ready to work 

with the Air Force to make that kind of determination, if that was 

what they would be interested in doing. We did not do that in our 

submittal of the proposal back in May. We just made it against a 

certain specified rate and said that is what we would go forward. 

Our intent in submitting the proposal was to try to provide a confidence in the estimate of the program against or close to the current baseline, demonstrating that a Nunn-McCurdy breach might 

be avoidable. 

Senator CARPER. In our conversations with some of the Air Force 

leadership, some of whom are in the room today, we heard that 

Lockheed Martin had failed to provide a firm contract that didn’t 

have all kinds of loopholes in it, that you actually install these 457 

engines, or 432 plus spares, that whatever you proposed in writing 

had enough loopholes in it that it was not of great value. Let me 

just ask, how do you respond to that? 

Mr. MCQUIEN. Well, I am surprised by the definition of loopholes. I have heard this over the last few weeks characterized as 

contract reopeners. It was discussed earlier that there is an Economic Price Adjustment clause in the contract. This is a standard 

clause found in many contracts that span long periods of time. So 

this is not an unusual clause. We have accepted in our pricing the 

risk—we have proposed to accept the pricing for a certain level of 

escalation. That escalation going forward is based on published indices by authorities in this field. If inflation were to change radically over the next—between now and 2021, then we have asked 

that the clause would self-adjust what is the price of the program. 

That is not unusual. We have found that in a number—that is in 

many contracts. That is in the current F–22 multi-year contract, as 

a matter of fact. So this is not a first time. 

I clearly agree that there is a reopener provision if the build rate 

that we propose and General Electric proposed were to be changed. 

It is not practical at this point in time for me to be able to assume 

you could build 12 in 1 year and one the next year and the price 

wouldn’t change. We are going to work—we have had some discussions at this time with the Aeronautical Systems Center at which 

this has been discussed. We just haven’t—none of us, because of all 

the other priorities, had made this the number one item to try to 

solve at this time, but I believe we are going to. We are going to 

find, if we can find a meaningful variable quantity, we will find another price that we can step up to that gives the customer the kind 

of flexibility they are looking for. 

Now, I will have to say that this is not like an ongoing production line where the Air Force might be buying aircraft while we are 

producing them for someone else. There are only 108 C–5s to be 

41

modernized, so it is going to be—if the quantity variation varies 

widely, if it varies from 4 to 12, well, the price risk is going to get 

shifted significantly to us and we will have to reflect that into a 

contract price. That came up earlier in the discussions, I know, 

with Ms. Wright here. So that is something we will just need to 

work with with the Air Force. Again, we stand ready to do that and 

try to find a reasonable accommodation to meet what the requirements are. 

Senator CARPER. I want to talk a little bit about the second 

major portion of the delta, the installation and other labor charges, 

touch labor stuff that we talked about earlier, the sort of assumptions. 

Can we look at another couple of charts, please. 

I would like to think you could go from 145,000 man hours to 

123,000 to 111,000. I would like to think you could go down to 

95,000 on the fourth aircraft. But if you have had the line shut 

down for 2 years, I presume that the folks who had been working 

on these first three, some will still be around, some will not. You 

must have some assumptions as to who is still there and who is 

not. The folks, in terms of being able to do stuff, the idea of working together as a team, training new people, you have to train new 

supervisors. How do you go realistically from 111,000 after a 2-year 

shutdown to 95,000? 

Mr. MCQUIEN. Well, first, there is a set-back in learning, and so 

as a result of the gap in the production line, although we will be 

able to recall a number of the people that worked on this program, 

there is a setback in learning and we have acknowledged that probably we would start back around the mid-120s, 120,000 hours. 

But we have, though, demonstrated that we changed the scope 

of the work. The work that was done on the first three airplanes 

was custom, I will say sort of by hand—it will all be by hand, but 

they were one-of-a-kind changes. As we move forward, under the 

development program, we have now redesigned the pylon installation that significantly changes the scope of the program. That is 

the 20,000 hours that you mentioned earlier on one of your charts. 

So we have showed a change in the scope of the program that 

we believe will reduce the man hours to produce this aircraft by 

20,000 hours. That would make an immediate——

Senator CARPER. Is this what you are talking about? 

Mr. MCQUIEN. Yes, sir. 

Senator CARPER. And is this 19,000, is that the difference between, say, Aircraft 3 and Aircraft 4? 

Mr. MCQUIEN. No. We made a setback. Loss of learning took us 

back—I’d have to look, I want to say it is about 124,000 hours. Perhaps I have a piece of data here. What we said is the fourth airplane may cost us as much as 124,000 hours if we performed on 

the same type of work we were doing on the first three. However, 

because of the problems encountered on the first three on doing it 

one-of-a-kind, that wasn’t a very effective way to do a production 

program where we would be doing up to 12 a year, so we redesigned that work. In redesigning it, we identified at least 19,600 

hours of improvements. Most of these improvements get implemented once we go under contract. 

42

Senator CARPER. So is what you are saying you have made an 

adjustment and you have assumed that this 111,000, because you 

lost people, retraining, that sort of thing, the 111,000 normally 

would be, what did you say, it would be 124,000? 

Mr. MCQUIEN. A hundred-and-twenty-four, I want to believe is 

the number. 

Senator CARPER. Would you come back to us——

Mr. MCQUIEN. I will come back and update you. 

Senator CARPER. But it must be—this 19,000 or 20,000, if you 

add 20,000 to 95,000, you are up to 115,000. Would that be your 

readjusted——

Mr. MCQUIEN. What we did is we looked carefully at the work 

to try to decide, what is it going to take to do it, and we walked 

down that carefully with the customer to show how we would step 

back the learning, but then we would realize this savings of the 

20,000 hours that would take us down to 104,000 hours. There is 

another 8,000 hours of additional savings we identified that could 

be applied to this program—or would be applied to this program, 

in our estimate. So we walked down that very carefully. 

Senator CARPER. Seven thousand on top of the 19,600? 

Mr. MCQUIEN. In the case of the first three airplanes, they did 

not go to the depot before they were delivered to Lockheed Martin. 

As a result of that, there was a significant amount of over and 

above work at the beginning of the program. 

Senator CARPER. OK. 

Mr. MCQUIEN. So we have assumed that the aircraft in the production program would go to the depot before they come to us and 

that there is probably 10 percent of that first learning set, 10 percent of those hours were attributable, in our judgment, to this over 

and above work that we had to do on these airplanes which we 

won’t experience if the airplanes have gone to the depot ahead of 

time. So that is another, in this case, 11,000 hours almost that 

would have come out, adjusted. There are several adjustments. 

Senator CARPER. Let me follow up while you are on this point. 

Is it realistic or unrealistic to assume that, particularly with a production ramp-up one, three, five, seven, nine aircraft, is it realistic 

to assume that in that kind of schedule you can—the Air Force has 

the flexibility to schedule an aircraft, the first aircraft, or the 

fourth lot, I guess, but the first aircraft in the depot, get it to 

RERP, and the next three through depot into RERP? Is that a realistic assumption? And I would ask the Air Force to answer that one 

on the record, if you would. 

Mr. MCQUIEN. Well, I would have to say that I think this is one 

that General Schwartz might answer as the operator of the aircraft. To me that would be reasonable, but I am not the operator. 

Senator CARPER. We are just asking. I appreciate the fact that 

General Schwartz and Secretary Payton are still here. Let me just 

ask you to answer that one for the record. How realistic is that assumption? If it is not a realistic assumption, then maybe the 11,000 

are illusory. It would seem to me we ought to be smart enough to 

be able to do that with 108 aircraft out there. 

The second half of this part of the delta, part of it is where do 

you start with aircraft No. 4, and the second part is the learning 

curve, the slope of the learning curve, and whether it—do we have 

43

a chart that shows that again? We are just trying to figure out who 

is right. Is it 85 percent, as Lockheed Martin suggests? Is it 90 percent? Is it somewhere in between? We had a chart that we tried 

to do apples and apples and the one example we had was the AMP, 

the AMP process for the first 26 aircraft which showed a learning 

curve of about 84 percent. 

In the middle, we are looking at—is there another chart on this 

particular issue, that maybe compares the 90 percent versus the 85 

percent? 

Where do you come up with this idea of 85 percent? What is the 

basis of it? It is one thing if you are building a new aircraft. Maybe 

when you first built the C–5s, maybe 90 percent was realistic. Is 

it realistic for a modernization process for an old airplane, an older 

airplane? 

Mr. MCQUIEN. In my opinion, it is realistic that we could achieve 

the 85 percent curve. We have looked at that from our manufacturing experts and we believe at Lockheed Martin that you can 

achieve that. In fact, the data that we brought to the table to try 

to demonstrate that is what you have put on the table here that 

says as we perform the AMP contract, we are beating 85 percent. 

In fact, the data that you have is a composite of the Dover line 

and the Travis line. You can see on that chart, you see a spike in 

there on set No. 6. That shows what the setback in learning was 

when you stood up a new production facility on the West Coast at 

Travis when we had been doing all——

Senator CARPER. Those folks out at Travis were bringing us 

down in Dover, weren’t they? 

Mr. MCQUIEN. No. They were working along, but there is always 

that setback. But they achieved an 84 percent across two sides. We 

certainly believe we are going to be able to achieve 85 percent. 

But this doesn’t seem to Lockheed Martin to be unreasonable. 

We are achieving something along 80 percent, or we have been arguing routinely that we should be able to achieve better than 80 

percent on an F–22 in aircraft production. So in our minds, this is 

something that is doable. 

Senator CARPER. OK. Dr. Coburn. 

Senator COBURN. Contracting with the Air Force isn’t new to 

Lockheed Martin, is it? It is not new. 

Mr. MCQUIEN. Oh, no. 

Senator COBURN. You all have lots of contracts with the Air 

Force? 

Mr. MCQUIEN. Absolutely. 

Senator COBURN. In how many other contracts for aircraft or 

similar defense items have you encountered a Nunn-Lugar breach? 

I mean, Nunn-McCurdy breach? 

Mr. MCQUIEN. I personally have not encountered it before, so I 

am not aware of whether or not Lockheed Martin overall has experienced this. 

Senator COBURN. OK. 

Mr. MCQUIEN. Actually, we have experienced it at Aeronautics. 

There was a breach, I believe, on the F–35. 

Senator COBURN. OK. I guess the thing I am having trouble getting around is where I have seen this type of overhaul before, 

which is in Oklahoma City on the KC–135s. We know those hours, 

44

we know those costs, and we have seen tremendous improvement 

from the start of that program, even with variation in aircraft age 

and model and everything else, what we have seen is that. 

How is it that we get to the point that you built the airplane and 

you are the ones that did the mods and now you are bringing forth 

information and the experts are saying you are way off and we 

think we are obligated under law to say you are way off? How is 

it that those assumptions got so far apart? 

Mr. MCQUIEN. I don’t think I could answer that. I would say the 

Air Force has a tremendous amount more data than Lockheed Martin, so they are applying their estimating methodology and coming 

to this conclusion. I am applying mine and coming to this conclusion. 

What we tried to do when we submitted our proposal was to take 

that off the table by submitting a firm fixed-price proposal assuming the risk. If we were wrong, we would assume that risk. As was 

discussed, we have submitted the proposal for Lots 1 through 3 and 

we are in the process of negotiating that and hope to have that 

under contract by the end of February. 

Currently, the Air Force is accepting the fact that we will assume the risk for the difference between that 95,000 hours and 

their assumed 116,000. 

Senator CARPER. Would you say that last sentence again? 

Mr. MCQUIEN. We are currently proceeding to negotiate the contract for Lots 1 through 3, which we have premised our pricing on 

the 95,000 hours. The Air Force is negotiating with us on the basis 

that they will let us assume that risk, even though they disagree, 

they believe that the cost should be higher. If Lockheed Martin is 

willing to accept that risk, they are willing to let us. 

Senator COBURN. So is that something different than what you 

originally bid in terms of your assumption? In other words, we are 

not going to have an opener here for the basis on these hours? Is 

that what you are saying to us? 

Mr. MCQUIEN. Yes. We are not going to have——

Senator COBURN. Given the dispute over the hours, the Air Force 

is willing to negotiate with saying, OK, you take the hours, but if 

you do, then you eat it? 

Mr. MCQUIEN. That is right. 

Senator COBURN. OK. So what about the other areas that are in 

dispute? 

Mr. MCQUIEN. The engine? The engine, we would assume the 

same risk. 

Senator COBURN. Has the Air Force agreed to do that, as well? 

Mr. MCQUIEN. For the first three lots, yes. 

Senator COBURN. Yes, but not forward? 

Mr. MCQUIEN. Not forward on. 

Senator COBURN. OK. 

Mr. MCQUIEN. Now let me say on the Air Force’s behalf, we have 

been discussing this. We projected Lot 4 and on pricing based on 

the first three lots. At this stage of the game, we have not provided 

them the level of data that they have been looking for to enter into 

a contract. However, estimating the cost of the program from a prediction standpoint is different than what data is required to do a 

45

contract. We stand ready to go collect that data and provide it to 

the Air Force if they are willing to receive it. 

Senator COBURN. Well, as Ms. Wright said, if Lockheed Martin 

comes with a firm fixed-price offer with variable build-outs and the 

Air Force gets to pick one, then the Truth-in-Accountability and all 

the other rules that apply to the contracting go out the window because you are assuming risk, right? 

Mr. MCQUIEN. I would agree. Yes. 

Senator COBURN. Yes. What is Lockheed Martin’s position on 

that right now? 

Mr. MCQUIEN. We stand ready, willing, and able to work with 

our customer to define those rates and go out and——

Senator COBURN. Generate that——

Mr. MCQUIEN [continuing]. On a firm fixed——

Senator COBURN. Here is the deal, guys. You can buy 20 over the 

next 3 years and 24 after that and 36 after that and here is the 

price, or you can buy two, two, two, two, two, 20, 20, 20, and here 

is the price, or you can buy 24, 24, 24 with a ramp-up to that and 

here is the price, right? 

Mr. MCQUIEN. We are prepared to deal with whatever the quantities are. 

Senator COBURN. Thank you. 

Senator CARPER. I listened to what Dr. Coburn was asking and 

I listened to your answer. I just want to make sure we have this 

right. Is there some way you can wiggle out of this? 

Mr. MCQUIEN. There is no way that I can get out of this at this 

point. 

Senator CARPER. Let me ask you, did I hear you say that you are 

in a position to say, we believe it is 85 percent slope, this learning 

curve. We believe in 95,000 hours for the aircraft. And if we are 

wrong on Lots 1 through 3, we eat the price? We eat the cost? 

Mr. MCQUIEN. Yes. 

Senator CARPER. But on Lots 4 and beyond, what did you say? 

Mr. MCQUIEN. We were supposed to do the same for Lots 4 and 

beyond, although without the supporting data, the Air Force has 

discounted that proposal and is assuming their projections for Lots 

4 and beyond as opposed to our projections. 

Senator CARPER. Between now and the end of the year, will you 

be working with the Air Force to firm up what you can do on Lots 

4 through, whatever it is, 12? 

Mr. MCQUIEN. I am certainly standing ready to do that. 

Senator CARPER. Well, I would hope you would. OK. 

Mr. McQuien, just stand at ease for a moment if you will and I 

will turn back to Mr. Bolkcom and ask, we have been grilling Mr. 

McQuien here. You have been good enough to stay here. Do you 

have any observations, any thoughts on what you have heard in 

this back and forth? 

Mr. BOLKCOM. I think that there is a lot of devil in the details 

of the actual negotiation. What Mr. McQuien is saying is encouraging, but it really comes down to how that contract is really negotiated on the specifics of the EPA, for instance. I agree from my 

very limited experience that is a standard sort of clause, but depending on how it is written, how restrictive, and the conVerDate 0ct 09 2002 09:58 Jun 13, 2008 Jkt 038845 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 P:\DOCS\38845.TXT SAFFAIRS PsN: PAT
46

sequences, it could be an opener, as they say, or it could not. It 

really depends on the very detailed deliberations. 

I don’t know as I understood Senator Coburn’s questions about 

the variable rates because the way I understand the concerns about 

risk is that if we agree to any rate, and I think we need to agree 

on a rate, that there is not a lot of confidence in that because, of 

course, the Air Force doesn’t have total control over its budget. And 

the concern is if, and pick a lot, the rate deviates from the agreement, that would provide Lockheed Martin a legitimate reason to 

renegotiate and that is when the Air Force and the taxpayer could 

get stuck with the risk of the delta between the——

Senator CARPER. Let me just ask, is it possible if in a year when 

the President’s budget called for nine aircraft being RERP-ed and 

we ended up providing enough money to do six or seven, is there 

a way to lock in ahead of time with Lockheed Martin like a ‘‘what 

if’’ clause? This is, well, what if we only do six or seven, what is 

the price going to be, and to be able to do that with some certainty? 

Mr. BOLKCOM. Certainly, anything can be negotiated. I would 

come back to the point I tried to make earlier, which is this is not 

a multi-year procurement contract, and I think I heard Mr. 

McQuien really emphasize it in his verbal statement. These are options that the government can exercise or pass on. So it seems to 

me, based on that understanding, that there isn’t a lot of risk in 

the worst-case scenario. 

Senator CARPER. All right. I think we are mercifully coming to 

the end. Mr. McQuien, I want to thank you and others that are 

here, Mr. Schultz and others who are here on behalf of Lockheed 

Martin. You have made a number of assertions here today, your 

willingness to commit—commitments to be willing to negotiate in 

order to reduce these deltas and to make assurances and assuming 

costs if things don’t work out as maybe anticipated that are encouraging. 

As far as I know, you are honorable people and I am presuming 

you mean what you say and you are not trying to be deceitful or 

misleading in any way. But in order for us to have some comfort 

that these assurances are real, we need to be able to negotiate it 

out and the Air Force needs to be able to negotiate it out in a way 

that provides them comfort and, frankly coverage for when we 

come back on them for messing up, if there is a problem along the 

way. 

I came here from a markup in another committee, the Commerce 

Committee. Among the bills that we were marking up there was 

a bill on an obscure issue of ballast cleaning. When the ships 

empty out their ballast, something we do a little bit in the Navy, 

ships empty out their ballast and the kind of pollution problems 

that can cause, especially on coastal waters. We had some folks 

who were in favor of the bill that was before us. There was an alterative. 

I am sorry to say the two sides didn’t spend nearly enough time 

working out their differences and we ended up with a blow-up at 

the markup. Instead of being able to report out with unanimity legislation to address an environmental issue that needs to be addressed, we ended up reporting out something and maybe leaving 

some bad feelings, but not that we didn’t do good public policy. We 

47

just didn’t communicate well, and we are going to go to work between now and the time the bill comes to the floor to make sure 

that doesn’t happen again. 

There is a lot riding on this, and it is not just the money that 

is involved, although that is important. We are fighting a couple 

of wars, and as you all know, we have people whose lives are at 

risk over there. We just had in Delaware this past week the mother 

of one of our Iraq victims who took her own life in despair. So the 

victims aren’t entirely those that fall in Iraq or Afghanistan or 

other places around the world. It is their families who take the loss 

in some cases in deeply personal ways. So there is a whole lot here. 

The money that we waste on RERP-ing aircraft is money that we 

could spend buying MRAPs and getting them where they need to 

be. So there is a lot more than just the dollars to help us meet our 

needs around the globe. I am mindful of that and my colleagues are 

certainly mindful of that. 

We need big aircraft and we need them now and we need them 

to be dependable. As much as I like those Russians, I am not sure 

that I want to be depending on them for a long period of time to 

continue to provide these aircraft at anything approaching a reasonable rate. 

I will go back to what I said at the beginning. I came into this 

hearing thinking that if you can modernize C–5s, if you can actually build them at at least a 75 percent mission capable rate, and 

looking back at Secretary Payton’s testimony, she seemed to 

think—and I think we are actually lifting the language from her—

she indicated that there is nothing so far in the first three aircraft 

that have been RERP-ed that would suggest that they can’t be at 

least 75 percent mission capable. But if you can deliver 108 aircraft 

at at least a 75 percent mission capable rate and you can do it with 

an assurance that the price will be along the lines that we talked 

about here, we would be foolish not to do that. 

There are two things we need. We need for you to be able to hit 

the 75 percent or higher mission capable rate, and we need to be 

able to bring them in at the cost that you say that you can and 

to assume risk that you are certain that you are willing to do that 

in ways that provide us comfort and provide the Air Force comfort. 

It is not all on you. It is not all on Lockheed Martin. A good deal 

of it is on the Air Force, as well. 

I would just say to the Air Force, I would say to Lockheed Martin, we are pleased that you have come here today. I know for 

Lockheed Martin this was not something you wanted to do and you 

do so really at some risk. I said to our Air Force folks before, Dr. 

Coburn, as well, if we have any hint of retribution because they 

showed up today and said what they did, there will be hell to pay. 

I just hope that is locker room talk that has nothing, no validity 

to it. 

We need to do this right and we need to get on with it, and I 

hope that whatever we have not been doing well the first part of 

this year, that we have learned from that and we learn maybe from 

some of the exchange that we have had in recent days, including 

today, that will enable us to get our act together and do what we 

need to do, what is in the best interest of our country. 

48

General Schwartz, I saw you had your hand up there and I don’t 

know if you want to give the benediction or not, but——

General SCHWARTZ. Would you allow me—I know it is not the 

norm——

Senator CARPER. Please. I would ask you to be fairly brief, but 

go ahead. 

General SCHWARTZ. Sir, I would only like to make a final comment to put in your and Senator Coburn’s calculus and the others 

here on the Hill, that another piece of comfort is the fundamental 

question about what happens to C–17 production. This is the other 

issue that we didn’t have a chance to address, and all I will say 

is that I am hopeful, as you are, that we get the outcome we all 

desire. That will be good. What do we do with C–17 production, 

and my concern is that bit of insurance might expire if we don’t 

deal with that issue properly. 

Senator CARPER. All right. We chose to focus on the need for big 

aircraft to provide strategic airlift. As I said earlier, I am a big fan 

of the C–17. That is not what this is about. The question is, can 

these folks from Lockheed Martin deliver what they said they will 

deliver, their kind of quality, dependability, and their price that 

they assert that they can. I am not from Missouri, but you guys 

show me. My hope is that you can and that you will have that opportunity. 

That having been said, this hearing is adjourned. Thank you all. 

[Whereupon, at 6:15 p.m., the Subcommittee was adjourned.] 

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Æ


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