United States General Accounting Office

GAO Report to the Secretary of Defense

November 1997 FINANCIAL

MANAGEMENT

DOD’s Liability for

Aircraft Disposal Can

Be Estimated

GAO/AIMD-98-9

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-273004 

November 20, 1997

The Honorable William S. Cohen

The Secretary of Defense

Dear Mr. Secretary:

Recent laws have enhanced the legislative requirements to provide

policymakers and agency program managers with more reliable financial

information to formulate budgets, manage government programs, and

make difficult policy choices.1

 Recognizing the extent of incomplete and

unreliable information on the cost and consequences of government

programs and activities, these laws have made implementation of new

accounting standards and audited financial statements a priority. New

federal accounting standards have been adopted to enhance financial

statements by requiring that government agencies show the financial

results of their entire operations and provide relevant information on

agencies’ true financial status. This report discusses one such requirement

for valuable information related to the disposal costs of federal agencies’

property, plant, and equipment (PP&E). The second in a planned series of

reports on the Department of Defense’s (DOD) implementation of this

requirement, this report focuses on aircraft.2

 The disposal process for

aircraft includes removal from active service, demilitarization, removal

and disposal of hazardous materials, storage, reclamation of parts, and

final disposal/salvage.

Background In October 1990, the Federal Accounting Standards Advisory Board

(FASAB) was established by the Secretary of the Treasury, the Director of

the Office of Management and Budget (OMB), and the Comptroller General

of the United States to consider and recommend accounting standards to

address the financial and budgetary information needs of the Congress,

executives agencies, and other users of federal financial information.

Using a due process and consensus building approach, the nine-member

Board, which has since its formation included a member from DOD,

recommends accounting standards for the federal government. Once FASAB

recommends accounting standards, the Secretary of the Treasury, the

Director of OMB, and the Comptroller General decide whether to adopt the

1

The Chief Financial Officers Act (CFO) of 1990, the Government Management Reform Act (GMRA) of

1994, and the Federal Financial Management Improvement Act of 1996.

2

See our first report, Financial Management: Factors to Consider in Estimating Environmental

Liabilities for Removing Hazardous Materials in Nuclear Submarines and Ships (GAO/AIMD-97-135R,

August 7, 1997).

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recommended standards. If they are adopted, the standards are published

as Statements of Federal Financial Accounting Standards (SFFAS) by OMB

and by GAO. In addition, the Federal Financial Management Improvement

Act of 1996, as well as the Federal Managers’ Financial Integrity Act,

requires federal agencies to implement and maintain financial

management systems that will permit the preparation of financial

statements that substantially comply with applicable federal accounting

standards.

Issued in December 1995 and effective beginning with fiscal year 1997,

SFFAS No. 5, Accounting for Liabilities of the Federal Government, requires

the recognition of a liability for any probable and measurable future

outflow of resources arising from past transactions.3

 The statement

defines probable as that which is likely to occur based on current facts

and circumstances. It also states that a future outflow is measurable if it

can be reasonably estimated. The statement recognizes that this estimate

may not be precise and in such cases, it provides for recording the lowest

estimate and disclosing in the financial statements the full range of

estimated outflows that are likely to occur.

SFFAS No. 6, Accounting for Property, Plant, and Equipment, which is

effective beginning in fiscal year 1998, deals with various accounting

issues pertaining to PP&E. This statement establishes several new

accounting categories of PP&E, collectively called stewardship PP&E. Other

PP&E is referred to as general PP&E. One of the new stewardship

categories—federal mission PP&E—is defined as tangible items owned by a

federal government entity, principally DOD, that have no expected

nongovernmental use, are held for use in the event of emergency, war, or

natural disaster, and have an unpredictable useful life. Federal mission

PP&E, which includes ships, submarines, aircraft, and combat vehicles, is a

major part of DOD’s total PP&E.

SFFAS No. 6 also provides information on how SFFAS No. 5’s standard on

liabilities should be applied to PP&E. Specifically, SFFAS No. 6 discusses how

to recognize the liability for the clean up4

 of hazardous waste in PP&E.

While this statement modifies SFFAS No. 5 with respect to the timing of

3

These requirements generally mirror those of the Statement of Financial Accounting Standard No. 5,

Accounting for Contingencies (FASB No. 5), which was effective prior to the development of SFFAS

No. 5.

4

SFFAS No. 6 defines cleanup as the removal, containment, and/or disposal of (1) hazardous waste

from property or (2) material and/or property that consists of hazardous waste at permanent or

temporary closure or shutdown of associated property, plant, and equipment.

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liability recognition for general PP&E, it has no effect on accounting for

liabilities related to aircraft and other federal mission PP&E.

Results in Brief DOD has not yet implemented the federal accounting standard that requires

recognizing and reporting liabilities such as those associated with aircraft

disposal, nor has it provided guidance to the military services. Aircraft

disposal is an ongoing process and the cost can be reasonably estimated.

Accordingly, these activities meet the criteria for a reportable liability.

Information on the three major disposal processes—demilitarization,

storage and maintenance, and hazardous materials removal and

disposal—is available to develop cost estimates. The Congress has

recognized the importance of accumulating and considering disposal cost

information. In the National Defense Authorization Act for Fiscal Year

1995, the Congress required DOD to develop life-cycle environmental costs,

including demilitarization and disposal costs, for major defense acquisition

programs.

Objectives, Scope,

and Methodology

We undertook this review to assist DOD in its efforts to meet the new

federal accounting standard, SFFAS No. 5, and because of our responsibility

to audit the federal government’s consolidated financial statements

beginning with fiscal year 1997. Our objectives were to determine (1) the

status of DOD’s efforts to implement the new federal accounting standard

for disclosure of liabilities, such as aircraft disposal, and (2) whether an

estimate of the minimum disposal liability for aircraft, including the

removal and disposal of hazardous materials, could be made. The

following was done to accomplish our objectives.

To assess the status of DOD’s efforts to implement SFFAS No. 5, we reviewed

DOD regulations and interviewed officials from the DOD Comptroller’s

office. To gain an understanding of the procedures and the financial and

logistical management information systems that can be used to

accumulate and report on aircraft disposal costs, we (1) examined the

management and financial reporting for these programs used by the

services, (2) reviewed applicable DOD and service instructions and

regulations, and (3) interviewed DOD, Air Force, Army, and Navy officials.

To determine if the liability is reasonably estimable, we identified the

financial and logistical management information systems and reporting

mechanisms in place that contain information about the costs of aircraft

disposal, including demilitarization and hazardous material disposal

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processes. We visited DOD’s designated aircraft storage, reclamation, and

disposal facility at the Aerospace Maintenance and Regeneration Center

(AMARC) where data were readily available for addressing removal and

disposal costs of older, out of service aircraft systems. To determine if the

liability could be estimated for newer aircraft, we selected five aircraft for

review. The five aircraft selected were the Air Force’s F-16 and B-1B, the

Navy’s F-14 and F-18, and the Army’s AH-64 Apache Helicopter. We chose

these five aircraft because they represent the primary fighter or attack and

bomber aircraft for each of the services, have the largest number in their

class, and represent about 17 percent of the services’ combined active and

inactive inventory.

Because environmental costs are more variable and are likely to raise

more complex estimation issues, we performed a more in-depth analysis

of these costs. Using data initially obtained at AMARC, information in the

DOD hazardous material disposal manual, and visits to maintenance depots,

we prepared a list of hazardous materials associated with each of these

aircraft. On a case-by-case basis, we then obtained depot level officials’

concurrence that these items represent the primary hazardous material on

each of these aircraft.

To compute the cost of removing hazardous materials from each aircraft,

we reviewed documents that stated a standard or estimated removal time

for each of the hazardous material items from the depot responsible for

program depot maintenance on the applicable aircraft and AMARC’s hourly

labor rate. We did not independently verify the data obtained from the

inventory and financial systems or the reported removal times.

We interviewed the services’ environmental engineers to determine which

hazardous materials require disposal. To determine the costs of disposing

of these materials, we reviewed disposal and shipping records at AMARC

and the various depots. For those materials that were not scheduled for

disposal, we interviewed various depot personnel to determine their

methods for reusing and recycling them. We also discussed disposal

procedures with various offices of the Defense Reutilization and

Marketing Service.

During our review, we contacted personnel and/or conducted work at

various locations including the Army Aviation and Troop Command

Headquarters, St. Louis, Missouri; Aerospace Maintenance and

Regeneration Center, Davis-Monthan Air Force Base, Arizona; Air

Logistics Centers at Hill Air Force Base, Utah, and Tinker Air Force Base,

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Oklahoma; Office of the Chief of Naval Operations; Naval Aviation Depots

at Jacksonville, Florida and North Island, California; Corpus Christi Army

Depot, Corpus Christi, Texas; offices of the Defense Reutilization and

Marketing Service, Battle Creek, Michigan; and applicable headquarters

offices in the Washington, D.C., area.

We conducted our review from July 1996 through June 1997 in accordance

with generally accepted government auditing standards. We provided a

draft of this report to the Department of Defense for review and comment.

We received oral comments which have been incorporated as appropriate.

DOD Has Not

Implemented SFFAS

No. 5

Although SFFAS No. 5 is effective beginning with fiscal year 1997, as of the

end of the fiscal year on September 30, 1997, DOD had not established a

policy to implement this federal accounting standard. On September 30,

1997, the DOD Comptroller’s office posted revisions to the electronic

version of DOD’s Financial Management Regulation to include SFFAS Nos. 1

through 4, but SFFAS No. 5 was not included. In addition, the DOD

Comptroller, who is responsible for developing and issuing guidance on

accounting standards, and the Under Secretary of Defense (Acquisition

and Technology), who is responsible for the operational activities

associated with aircraft disposal, have not provided implementation

guidance to the services to assist them in estimating the disposal costs for

aircraft. Service officials stated that they are reluctant to estimate a

liability for their aircraft until they receive DOD-wide guidance. Unless

prompt action to implement this standard is taken, it is unlikely that DOD’s

fiscal year 1997 financial statements will include an estimate of aircraft

disposal costs as required.

Aircraft Disposal

Liability Has Been

Incurred

One of the key criteria cited in SFFAS No. 5 for a liability to be reported is

that a future cost is probable—that is, the future outflow of resources is

likely to occur. While the likelihood of a future outflow may be difficult to

determine and an entity may have difficulty deciding whether to record a

liability for certain events, DOD continually disposes of aircraft and has an

amount for disposal costs in its annual budget. Thus, because it is known

at the time of acquisition that costs will be incurred for the disposal of

aircraft, the probability criterion for recording a liability is met. The

Congress has also recognized that disposal costs will be incurred and has

emphasized the importance of accumulating and considering this

information. For example, the National Defense Authorization Act for

Fiscal Year 1995 requires the Secretary of Defense to determine, as early in

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the acquisition process as feasible, the life-cycle costs for major defense

acquisitions, including the materials to be used and methods of disposal.

The life-cycle cost estimates are required before proceeding with the

major acquisition.

Aircraft Disposal Process All aircraft are eventually disposed of using the same basic processes. Any

estimate of the disposal liability must take into account these processes

and use them as the basis for determining costs. The disposal process

starts with the decision to remove an aircraft from service, referred to as

retirement (Army), decommissioning (Air Force), and striking (Navy) of

military aircraft. Aircraft disposal consideration begins when the services

prepare an updated force structure plan. The plan shows the projected

requirements for each type of aircraft and includes new procurement and

various attrition factors including crashes, programmed retirements,

airframe stress tests, parts reclamation needs, and foreign military sales.

Active aircraft not needed to meet the services’ current and forecasted

requirements are sent to AMARC, DOD’s designated storage and disposal

facility for aircraft for temporary or long-term storage and eventual

disposal.

Aircraft arriving at AMARC are either placed in a flyable or temporary hold

status, prepared for foreign military sales, salvaged for parts, or placed

into long-term storage awaiting either eventual disposal or reuse

determination. AMARC officials stated that, in general, planes that undergo

the storage process are not recalled and are ultimately disposed of through

sales or salvage. Once the military services have determined no further

need exists for the aircraft, they are released for disposal. These aircraft

and related parts are subjected to demilitarization processes to prevent

further military use before they are transferred to the Defense

Reutilization and Marketing Service (DRMS) for sale as scrap.5

Demilitarization may take place at the air base, at AMARC, or at the local

DRMS field office. Part of the demilitarization process involves removing all

remaining hazardous materials from the aircraft.

Inventory of Aircraft Aircraft acquired by the services are, in general, considered mission

assets. The Air Force’s Reliability and Maintainability Information System

(REMIS), the Navy’s Aircraft Inventory Reporting System (AIRS), the Army’s

Continuing Balance System-Expanded (CBS-X), and AMARC’s Aircraft Status

5

The way the disposal process works is detailed in our report Federal Property Disposal: Information

on DOD’s Personal Property Disposal Process (GAO/NSIAD-97-155BR, July 8, 1997).

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Directory identify the number of active and inactive aircraft and are used

by the services to keep track of their aircraft inventories. As shown in

table 1, DOD reported about 18,000 active aircraft as of September 30, 1996,

the most recent data available.

Table 1: DOD’s Aircraft Inventory as of

September 30, 1996 Service/aircraft type Active Inactive

Air Force

B-1B Bomber 95 0

B-52 Bomber 94 124

C-130 Transport 682 90

F-4 Fighter 0 903

F-15 Fighter 767 121

F-16 Fighter 1,541 354

F-111 Fighter/Bomber 18 285

KC-135 Tanker 492 67

Other 2,298 1,266

Army

AH-64 Apache Helicopter 727 0

UH-60 Blackhawk Helicopter 1,351 0

UH-1 Huey Helicopter 2,011 211

AH-1 Cobra Helicopter 622 17

Other 2,191 28

Navy

A-4 Fighter/Bomber 0 263

A-7 Attack Bomber 0 234

AV-8 Fighter 195 40

F-14 Fighter 311 90

F-18 Fighter 811 52

P-3 Surveillance 285 136

T-34 Trainer 319 26

CH-46 Helicopter 262 0

Other 2,634 975

Total 17,706 5,282

Source: AMARC, Army (CBS-X), Navy (AIRS), and Air Force (REMIS) data. We did not

independently verify these data. See footnote 6 for information on reliability problems associated

with DOD’s accounting and logistical data.

The aircraft inventory serves as the basis for estimating the disposal

liability although factors such as foreign military sales would have to be

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considered in adjusting the number of aircraft. According to a March 1997

AMARC report, about 4 percent of AMARC’s inventory at any given time is

scheduled for foreign military sales. Aircraft lost during operations,

however, are generally replaced to maintain the inventory at certain levels.

As a result, operational losses may not reduce the total liability for aircraft

disposal.

Aircraft Disposal

Liability Could Be

Estimated

The second key criterion in SFFAS No. 5 for reporting of a liability is that an

amount be reasonably estimable. Information is available to develop cost

estimates for each of the major aircraft disposal processes described in

the previous section—demilitarization, storage maintenance, and

hazardous materials removal and disposal.6

 These processes account for

most of the aircraft disposal costs.

Our review focused on five aircraft (the Air Force’s F-16 and B-1B, the

Navy’s F-14 and F-18, and the Army’s Apache Helicopter). Although data

were available for each of the disposal processes, we performed a more

detailed analysis of the costs associated with the removal and disposal of

hazardous materials because these costs are more variable and likely to

present more complex estimation issues. The information in the following

sections indicates the types and sources of information available for DOD

to develop an aircraft disposal cost estimate. As stated in SFFAS No. 5, this

process may result in a range of potential aggregate costs, the lowest of

which should be recorded unless an amount within the range which is

most likely to occur is estimable.

Estimated Demilitarization

Costs

Demilitarization includes removing weapons and other designated items

from the aircraft and then taking the aircraft off line. Other

demilitarization actions include removing equipment that has, directly or

indirectly, a significant military utility or capacity, such as sensitive radar

equipment. A salvage or residual value for the aircraft was deducted from

the demilitarization costs, since historically the remains of aircraft are sold

as scrap at the time of disposal. As shown in table 2, demilitarization costs

varied considerably for the three aircraft in our review for which this

information was readily available from program offices. Although the B-1B

and the Apache Helicopter are newer aircraft for which demilitarization

6

We, as well as the DOD Inspector General and service auditors, have reported problems with the

reliability of information in DOD’s accounting and logistical systems. While there are limitations in the

data, DOD is working to improve the systems which should over time, increase the accuracy of the

information and improve the disposal liability estimates. See GAO report Defense Financial

Management (GAO/HR-97-3, February 1997).

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plans and costs have not yet been developed, disposal cost estimates could

be based on cost experience for other aircraft with similar missions. AMARC

officials stated that disposal tasks are generally similar among aircraft

although the quantity and complexity of specific items may differ. For new

weapons systems, including aircraft, the disposal costs, including

demilitarization costs, are to be developed as part of the life-cycle costs

required by the National Defense Authorization Act for Fiscal Year 1995.

Table 2: Estimated Demilitarization

Costs

Type of aircraft

Demilitarization

costs per aircraft

Residual

recouped from

sale

Net demilitarization

costs

F-14 $107,819 $3,020 $104,799

F-16 $8,561 $1,693 $6,868

F-18 $20,550 $1,700 $18,850

Source: GAO computation based on AMARC and maintenance depot data.

Jacksonville Naval Depot officials stated that the demilitarization cost for

the F-14 was significantly more than the other two aircraft because of the

complexity of the disposal work effort and the related costs.

Estimated Cost to Maintain

Aircraft in Storage

Aircraft are stored at AMARC’s long-term storage facility. All openings,

cracks, and joints have to be sealed and delicate surfaces protected from

the hot sun, wind, and sand. The preservation process is repeated every 4

to 5 years to ensure that each aircraft is adequately protected. According

to AMARC’s costing system, the maintenance costs of aircraft in long-term

storage are about $400 per aircraft per year. According to an AMARC

official, aircraft, on average, are kept in long-term storage for 20 years.

They also stated that, in general, planes that undergo the storage process

are not recalled and are ultimately disposed of through sales or salvage.

Such storage costs could result in a significant liability. For example, if the

current active inventory of 18,000 aircraft were all maintained in storage

for the average of 20 years and AMARC’s estimated maintenance cost of

$400 per aircraft per year were used, the storage costs would be at least

$140 million.

Removal and Disposal of

Hazardous Materials

All five aircraft types we reviewed contained hazardous materials that

must be removed, and if necessary, disposed of when the aircraft are taken

out of service. Some hazardous materials can be recycled and reused

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multiple times, but the materials may ultimately have to be disposed of

appropriately. For the five aircraft, sufficient information was available in

DOD’s and the services’ financial and management information systems to

estimate a cost for the removal of hazardous materials contained in these

aircraft. Costs associated with disposal of these materials are currently

insignificant, but will need to be considered based on assumptions of final

disposal methods.

There are numerous sources available to DOD for identifying which

materials used in aircraft are considered hazardous and have to be cleaned

up before aircraft disposal. DOD Manual 4160.21-M, known as the Property

Disposal Manual and 40 Code of Federal Regulations (C.F.R.) 261 identify

which materials are considered hazardous. Environmental managers at the

services’ program offices and at the depots responsible for the aircraft, as

well as maintenance personnel, are knowledgeable about the hazardous

materials unique to specific aircraft. In addition, environmental managers

at various Defense Reutilization and Marketing Offices (DRMOs) are

familiar with the hazardous materials on aircraft. The aircraft we reviewed

contain various hazardous materials, as shown in table 3. See appendix I

for definitions of these materials.

Table 3: Hazardous Materials on the

Five Aircraft Aircraft

Hazardous materials F-16 B-1B F-14 F-18 Apache

Fire suppressant √ √ √ √ √

Hydrazine √

Batteries √ √ √ √ √

Petroleum, oil, & lubricants (POL)a √ √ √ √ √

Compositesb √ √ √ √

Magnesium thorium √

Pyrotechnics √ √ √ √ √

Coolants √ √ √ √

Fuel cells √

Tubing removal √

Liquid oxygen √

aPOL products are not hazardous materials under Federal law, but a number of states including

Alaska, California, and Florida, consider POL products hazardous materials.

bWhile the Air Force considers composites, such as carbon fiber wings, to be hazardous

materials, the Navy does not if the material’s structural integrity is not compromised. We included

composites because DRMS, which is responsible for their removal and disposal, considers

composites to be hazardous material.

Source: AMARC and maintenance depot logistical systems.

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Some hazardous materials in aircraft are not shown in the above table. For

example, there are many items on the aircraft, such as cadmium-plated

bolts and other small items, that are too numerous to separately remove

and account for during the disposal process. Because the cadmium plated

items are sold for scrap and the specific items and quantities are not

separately identified, they were not included in the sample aircraft

analysis. However, DOD and the services would have to consider the

significance of such items in the aggregate on a servicewide or DOD-wide

basis.

Information on the removal costs of hazardous materials in older aircraft

is generally available at AMARC and is based on its experience in aircraft

disposal. However, AMARC officials said they did not yet have significant

experience in dismantling and disposing of the five aircraft in our review.

Therefore, the officials suggested that a reasonable estimation approach

would be to use removal times that are reported by the cognizant depots

that perform maintenance on these systems. The removal times for each

hazardous material can then be multiplied by AMARC’s hourly labor rate.

Using this estimation method, table 4 shows the estimated cost of

removing hazardous materials from the five aircraft.

Table 4: Estimated Cost for Removing

Hazardous Material

Aircraft type

Removal cost per

aircraft

F-16 $ 14,788

B-1B $123,084

F-14 $ 14,725

F-18 $ 10,753

Apache Helicopter $ 313

Source: GAO computation based on AMARC hourly labor rate and the maintenance depot’s

removal times.

The wide variance in hazardous material removal costs can be accounted

for by differences in the size and complexity of the five aircraft. For

example, the B-1B weighs about 190,000 pounds compared to the smaller

F-16 which weighs about 18,000 pounds. Moreover, the B-1B has over

1,000 items associated with pyrotechnics that cost an estimated $92,000 to

remove. The cost to remove pyrotechnics from the F-16 is only about

$1,700 per aircraft. Similarly, it takes a significant number of staff hours,

estimated at about $11,000, to remove the fuel from the B-1B tanks and

fuel lines and to take the protective measures for the fuel system. For the

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F-16, the same procedures take just a few hours at an estimated cost of

about $200. The fuel is removed from the aircraft because it can be reused.

The Apache Helicopter hazardous material removal cost estimate is much

less than for the other aircraft because it contains considerably less

hazardous material. For example, it costs an estimated $68 per aircraft to

remove pyrotechnics from the Apache compared to about $1,700 to

remove pyrotechnics from an F-16. The F-16 cost estimate includes

removing one or two ejection seats and canopies and related detonating

cord devices, compared to removing only emergency escape explosive

bolts and related material for the Apache’s crew doors.

For some mission assets, such as nuclear submarines, the actual

hazardous material disposal costs are significant. However, unlike the

removal costs, hazardous material disposal costs for the five aircraft in our

review appear not to be significant because these materials are often

reutilized, recycled, consumed (as is the case for fuel), or sold. Also, DOD

does not track disposal costs by specific aircraft system since hazardous

materials are disposed of in bulk. For example, AMARC transfers its

nonrecyclable fuel to Davis-Monthan Air Force Base, which then disposes

of it along with the base’s waste fuel through its bulk disposal contract.

For the first 6 months of fiscal year 1996, AMARC paid Davis-Monthan less

than $54,000 to dispose of all of its hazardous material. However, although

recycling and reuse accounts for much of the hazardous material disposal

costs, currently the possibility that reuse or recycling needs and capacity

will change in the future must be considered in estimating the ultimate

disposal costs for hazardous materials.

Reporting Total

Disposal Costs by

Future Time Periods

Would Be Useful

DOD officials have pointed out that the total disposal cost estimate for

aircraft will result in a significant liability—much of which would not

require outlays in the current year. Thus, one way to provide a proper

context for this reported liability and make it more meaningful to

decisionmakers would be to, in a footnote to the financial statements,

provide a breakdown of the liability based on the approximate time

periods the aircraft are expected to be taken out of service. Table 5 is a

simplified illustration of how the aircraft disposal liability could be

reported by time period. For the purposes of this illustration, the following

assumptions were used: (1) all aircraft had the same disposal costs,

(2) 50 percent of the aircraft were currently awaiting disposal and the

remaining aircraft were to be disposed of over the next 10 years, and

(3) the total estimated liability was $500.

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Table 5: Example of How the Liability

Could Be Disclosed by Time Period Liability associated with aircraft to be

deactivated in fiscal years

Liability associated

with aircraft

currently awaiting

disposal 1998 1999 2000 2001 2002 Thereafter Total

$250 $25 $25 $25 $25 $25 $125 $500

This information could provide an important context for congressional

and other budget decisionmakers on the total liability by showing the

potential annual impact of the actions that have already occurred or are

expected to occur during various budget periods including those outside

the annually submitted Future Years Defense Program. Further, if the time

periods used to present these data are consistent with budget justification

documents, such as DOD’s Future Years Defense Program, this type of

disclosure would provide a link between budgetary and accounting

information, one of the key objectives of the CFO Act.

Conclusions As of September 30, 1997, DOD had not incorporated SFFAS No. 5 in its

Financial Management Regulation. In addition, the DOD Comptroller and

the Under Secretary of Defense (Acquisition and Technology) had not

issued implementation guidance to the services to assist them in

estimating aircraft disposal costs. Such costs are both probable and

estimable and therefore meet the criteria stated in SFFAS No. 5 for

reportable liabilities. DOD and the military services have information

available to develop cost estimates on each of the major aircraft disposal

processes. Development of the needed policy and implementing guidance

is necessary to help ensure that an estimate of aircraft disposal costs is

recorded in DOD’s fiscal year 1997 financial statements as required.

Moreover, life-cycle cost estimates that include disposal costs will provide

important information to the Congress and other decisionmakers on the

true costs of aircraft as well as other weapon systems.

Recommendations We recommend that you ensure that

• the DOD Comptroller incorporate SFFAS No. 5 in DOD’s Financial

Management Regulation,

• the DOD Comptroller and the Under Secretary of Defense (Acquisition and

Technology) promptly issue joint implementing guidance for the services

on the SFFAS No. 5 requirements for recognition of a liability for aircraft

disposal costs, and

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• the DOD Comptroller include the estimated aircraft disposal liability in

DOD’s fiscal year 1997 financial statements.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, Department of Defense officials

concurred with our recommendations that SFFAS No. 5 be incorporated in

DOD’s Financial Management Regulation and that joint implementing

guidance be issued promptly on the SFFAS No. 5 requirements for

recognition of a liability for aircraft disposal costs. In addition, DOD stated

that current disposal cost estimates can be reasonably determined for

aircraft that have been in the active inventory for some time. However,

DOD stated that it would be necessary to delay the reporting of the aircraft

disposal liability until fiscal year 1998 because the development and

coordination of procedures and reporting guidance would take time to

complete. They also stated that the cleanup cost provisions in SFFAS No. 6

must be considered.

SFFAS No. 5 was issued almost 2 years ago, to allow agencies ample time to

develop implementing policies and procedures prior to its fiscal year 1997

effective date. As stated in the report, information is available on all of the

major aircraft disposal processes to develop a reasonable estimate of

these costs. Such an estimate need not be precise—SFFAS No. 5 permits the

reporting of a range. Also, as noted in this report, the cleanup cost

provisions of SFFAS No. 6 do not affect the reporting of the aircraft disposal

liability. Accordingly, we believe that DOD, with a concentrated effort, can

develop an estimate of aircraft disposal costs for its fiscal year 1997

financial statements.

This report contains recommendations to you. The head of a federal

agency is required by 31 U.S.C. 720 to submit a written statement on

actions taken on these recommendations. You should submit your

statement to the Senate Committee on Governmental Affairs and the

House Committee on Government Reform and Oversight within 60 days of

the date of this report. A written statement also must be sent to the House

and Senate Committees on Appropriations with the agency’s first request

for appropriations made over 60 days after the date of this report.

We are sending copies of this report to the Chairmen and Ranking

Minority Members of the House and Senate Committees on

Appropriations, the House and Senate Committees on the Budget, the

Senate Committee on Armed Services, the House Committee on National

Page 14 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
B-273004 

Security, the Senate Committee on Governmental Affairs, the House

Committee on Government Reform and Oversight and its Subcommittee

on Government Management, Information, and Technology, and the

Director of the Office of Management and Budget. We are also sending

copies to the Acting Under Secretary of Defense (Comptroller), the Air

Force Assistant Secretary for Financial Management and Comptroller, the

Army Assistant Secretary for Financial Management and Comptroller, the

Navy Assistant Secretary for Financial Management and Comptroller, the

Under Secretary of Defense (Acquisition and Technology), the Deputy

Under Secretary of Defense for Environmental Security, and the Acting

Director, Defense Finance and Accounting Service. Copies will be made

available to others upon request.

Please contact me at (202) 512-9095 if you have any questions concerning

this report. Major contributors to this report are listed in appendix II.

Sincerely yours,

Lisa G. Jacobson

Director, Defense Audits

Page 15 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix I 

Hazardous Materials in Aircraft

Hazardous material - Any waste that, because of its quantity, concentration

or toxicity, corrosiveness, mutagenicity or flammability, or physical,

chemical, or infectious characteristics may (1) cause, or significantly

contribute to, an increase in mortality or an increase in serious irreversible

or incapacitating reversible illness or (2) pose a substantial present or

potential hazard to human health or the environment when improperly

treated, stored, transported, disposed of, or otherwise managed. Some of

the hazardous materials contained in the aircraft we reviewed are

discussed below.

Batteries - Batteries consist of the following types: lead-acid, lithium-sulfur

dioxide, magnesium, silver-bearing, mercury, and nickel cadmium. Unless

batteries are to be recycled or reused, they must be turned in as hazardous

material or hazardous waste.

Composites - Carbon composite fiber material made of long carbon fibers

mixed with bonding and hardening agents, such as epoxy resins. The

health hazards associated with composite fibers appear to be similar to the

effects of fiberglass, including inhalation of the fibers, which can cause

bronchial irritation.

Coolant - A fluid that circulates through a machine or over some of its

parts in order to draw off heat. This includes chemical substances used in

aircraft for cooling radar and related equipment. Certain forms of this

material may be harmful if skin contact occurs.

Fire suppressant - Substances used to keep materials on aircraft, such as

fuel, from igniting and burning. Halon, one such suppressant, is an

ozone-depleting substance that is reclaimed or recovered.

Fuel cells - Fuel cells, which hold fuel, are not in themselves considered

hazardous material, but because they are contaminated with fuel they can

become hazardous. Aviation fuel contains benzene and toluene, both

hazardous materials.

Hydrazine - Supplemental liquid propellant, found only on the F-16, used to

power an emergency power unit in the event of main engine failure.

Hydrazine is an extremely dangerous material if inhaled and has to be

specially handled during transfer by teams dressed in protective gear.

Page 16 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix I 

Hazardous Materials in Aircraft

Magnesium Thorium - Alloy of thorium and magnesium used to produce a

strong, lightweight aircraft component. Thorium presents an internal and

external radiation hazard.

Petroleum, oil, and lubricants - Includes jet fuel, hydraulic fluid, antifreeze

products, and other lubricants found on aircraft. In some states, these

products are not considered hazardous.

Pyrotechnics - Explosive devices used to jettison the canopy and activate

the pilot’s ejection seat. On helicopters, these devices are used to shear off

hinge pins on the fuselage doors to enable crew to extricate themselves in

the event of a crash-landing.

Page 17 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
Appendix II 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

William D. Grindstaff, Assistant Director

Jacob W. Sprouse, Jr., Audit Manager

Linda Brigham, Auditor

Francine M. DelVecchio, Communications Analyst

Kansas City Office Dieter M. Kiefer, Assistant Director

Marshall S. Picow, Auditor in Charge

Gary L. Nelson, Auditor

Darryl S. Meador, Evaluator

(918878) Page 18 GAO/AIMD-98-9 DOD’s Liability for Aircraft Disposal
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