United States General Accounting Office

GAO Report to Congressional Committees

March 1996 DEPOT

MAINTENANCE

Opportunities to

Privatize Repair of

Military Engines

G O A

years

1921 - 1996

GAO/NSIAD-96-33

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-262225 

March 5, 1996

Congressional Committees

In recent years, Congress has dealt extensively with issues related to the cost-effectiveness of

the Department of Defense’s (DOD) depot maintenance program, the mix of depot maintenance

workload between the public and private sector, and the potential for privatizing additional

depot maintenance workloads. This report addresses the depot maintenance workload mix for

a key mission essential military commodity—gas turbine engines.

It discusses (1) the rationale supporting the continued need for DOD to maintain the capability to

repair engines at its own maintenance depots, (2) opportunities to privatize additional engine

workloads, and (3) the impact excess capacity within DOD’s depot system has on the

cost-effectiveness of decisions to privatize additional workloads.

As agreed with your staff, we are addressing this report to you because of your Committees’

interest in these issues. We are also sending copies to the Chairmen and Ranking Minority

Members, Senate Committee on Governmental Affairs and House Committee of Government

Reform and Oversight; the Director, Office of Management and Budget; and the Secretaries of

Defense, the Air Force, the Army, and the Navy.

Please contact me at (202) 512-8412 if you have any questions. Major contributors to this report

are listed in appendix III.

David R. Warren

Director, Defense Management Issues
B-262225 

List of Committees

The Honorable Strom Thurmond

Chairman

The Honorable Sam Nunn

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Floyd Spence

Chairman

The Honorable Ronald Dellums

Ranking Minority Member

Committee on National Security

House of Representatives

The Honorable C. W. Bill Young

Chairman

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on National Security

Committee on Appropriations

House of Representatives

Page 2 GAO/NSIAD-96-33 Depot Maintenance
B-262225 

Page 3 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

Purpose In recent years, the Defense authorization and appropriations committees

have had continuing interest in the Department of Defense’s (DOD)

management and operations of its $15 billion depot maintenance program.

One area of particular interest has been the allocation of depot

maintenance workload between the public and private sectors, including

various privatization initiatives. As a part of our continuing work on these

issues, GAO looked at the potential for privatizing depot repair of additional

military engines with commercial counterparts. More specifically, GAO

addressed the following: (1) the rationale supporting the continued need

for DOD to maintain the capability to repair engines at its own depots,

(2) whether there are opportunities to privatize additional engine

workloads, and (3) the impact excess capacity within DOD’s depot system

has on the cost-effectiveness of decisions to privatize additional

workloads.

Background The Fiscal Year 1995 Department of Defense Appropriations Conference

Report 103-747 required DOD to report to the House and Senate

Committees on Appropriations about the potential for expanding

competition for commercial engines as well as other commercial variants

operated by the military. In this report, GAO refers to these engines as

commercial counterparts. The conference report noted that DOD could

realize substantial savings by expanding competition for depot

maintenance of equipment common to the military and industry—more

specifically, commercially developed airline turbine engines. On March 14,

1995, DOD gave the House and Senate Appropriations Committees its

report.1

The report concluded that DOD needs maintenance capability at its own

facilities to manage risk as it relates to major regional conflict readiness

and sustainability requirements. The report also stated that DOD’s approach

for achieving this objective is the operation of a certain level of capability

in military depots—capability that DOD refers to as “core.” The main

premise behind core is that DOD should maintain a controlled source to

meet readiness and sustainability requirements of the weapon systems

that are needed to support Joint Chiefs of Staff contingency scenarios. The

report concluded that the current mix of engine depot maintenance

workload for 17 military engines with commercial counterparts is

consistent with (1) the DOD core concept, (2) sound business practices,

and (3) the title 10 U.S.C. requirement that not more than 40 percent of

1

Maintenance of Military Turbine Engines With Civilian Engine Counterparts.

Page 4 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

depot maintenance work be performed by other than federal government

employees.

Results in Brief The rationale and requirement for maintaining some capability in the

public depot system derive both from statutory requirements and from the

recognition that some public depot capability is needed to mitigate cost

and readiness risks where private sector capabilities are limited or

inadequate. DOD is reevaluating its depot capability requirements with a

view toward privatizing additional depot maintenance workloads.

Private sector capabilities generally make commercial counterpart engines

ideal candidates for privatization. However, DOD has about 45 percent

excess capacity for engine depot maintenance—a very inefficient

condition that increases the cost of all work done by these depots. Thus,

additional privatizations of commercial counterpart engines at a time of

decreasing depot workload—without first decreasing the excess capacity

in DOD’s depots—would increase the per-unit repair cost of work

remaining in DOD’s depot system.

The Base Closure and Realignment Commission recommendation to

realign Kelly Air Force Base and close the San Antonio Air Logistics

Center, including one of the largest DOD engine overhaul depots, offers DOD

the opportunity to reduce excess engine capacity, improve the

cost-effectiveness of remaining public sector engine repair facilities, and

privatize some additional commercial counterpart engine work. However,

the administration’s decision to keep the depot open by privatizing its

workload in place may limit or preclude any reduction in public depot

excess capacity and associated overhead costs.

It is not yet known how DOD plans to implement its privatization initiatives,

including the privatization-in-place of the San Antonio depot, or how it will

address statutory provisions such as the 10 U.S.C. 2469 provision requiring

competitions that include public depots before privatizing depot

maintenance workload valued at $3 million or more.

Page 5 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

Principal Findings

Legal Requirements

Contain Basic Rationale

for Maintaining Public

Depots

Several statutes influence DOD’s allocation of depot maintenance

workloads—including engines—between the public and private sectors.

First, 10 U.S.C. 2464 states that it is essential for DOD to maintain a ready

and controlled source for mission-essential engine maintenance by

establishing depot-level repair capability within its own depot system. DOD

defines almost all of its engine maintenance capability as mission essential

or “core.” However, the Secretary of Defense may convert core engine

workloads to contractor performance under Office of Management and

Budget Circular A-76 procedures, but only in accordance with DOD criteria

for determining that government performance of the work is no longer

required.

Second, 10 U.S.C. 2466 prohibits the military departments from using more

than 40 percent of any fiscal year’s depot-level maintenance funds to

contract workload to the private sector. DOD reports that only about

28 percent of its depot maintenance workload is currently contracted out.

Accordingly, there are opportunities to privatize additional work without

breaching the 60/40 limits. Further, since the commercial counterpart

engine workload currently maintained in public depots represents only

about 2 percent of the overall depot maintenance workload dollars,

additional privatization of this workload would have little impact on the

overall public-private sector mix.

Finally, 10 U.S.C. 2469 provides that DOD may not move depot-level

maintenance workload valued at $3 million or more from a public depot to

a contractor without competing the workload among public and private

entities. It is not yet known whether DOD’s plan to privatize depot

workloads at closing installations will rely on competitive procedures that

include public depots.

Privatization Opportunities

for Military Engines With

Commercial Counterparts

GAO surveyed private sector companies to determine their interest in

repairing military engines with commercial counterparts that are currently

repaired in DOD depots and their capability to do the job. The survey

identified interest in the maintenance workload for all 10 military

commercial counterpart engines that DOD has or is considering developing

depot maintenance capability to support. In most cases, the private

companies stated they had sufficient capacity to absorb the military

Page 6 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

workload in their existing facilities. The existence of multiple private

sources for much of the commercial counterpart engine workload would

mitigate cost and readiness risks of outsourcing.

GAO believes that seven engines—T56, 501K, F108/CFM56, T63, T700, TF39,

and LM2500—are excellent candidates for privatization. To determine the

cost-effectiveness of privatization and comply with the statute regarding

the transfer of depot maintenance workload to the private sector, those

workloads would have to be subjected to a public-private competition.

However, the recent decision to privatize-in-place the San Antonio Air

Logistics Center—a depot where 60 percent of its workload is for engines

and engine components—will greatly impact the cost-effectiveness of

privatizing additional engine workloads.

The TF39 aircraft engine and its ship propulsion version, the LM2500

engine, have high commonality in parts and repair processes. Currently,

two military services operate separate repair facilities for these engines.

This is the only remaining turbine engine that is overhauled in two

different military depots. Further, three private repair activities reported

interest and capability to repair the LM2500. All three are repairing the

LM2500 for commercial industry. Combined, they reported having enough

reserve capacity to perform almost six times the Navy’s projected fiscal

year 1997 workload.

Excess Public Depot

Capacity Affects

Privatization Opportunities

A public sector depot with thousands of employees incurs fixed overhead

costs, including its share of base support costs, in the range of $50 to

$100 million annually. When a military depot has excess capacity, moving

some of its workload into the private sector can substantially increase

each unit’s share of overhead expense at the depot and therefore increase

the unit cost for all work done by that facility. Under these conditions, it is

unlikely that privatizing additional workloads would be

cost-effective—without first addressing DOD’s excess capacity problem.

The Base Closure and Realignment Commission’s recommendation to

close the San Antonio Air Logistics Center, including the depot, gave DOD

an opportunity to improve the cost-effectiveness of its depot activities. By

consolidating military unique engine repair at remaining military depots,

excess capacity could be reduced, decreasing overhead rates and reducing

engine repair costs. Based on data provided by the Air Force, GAO

estimates that consolidating engine workload from the closing engine

depot could reduce the overhead rate for engine workload at the

Page 7 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

remaining Air Force engine depot by as much as $10 per hour. However,

the administration’s privatization-in-place plan will likely limit the cost

savings that could otherwise be achieved.

Matter for

Congressional

Consideration

Congress may wish to require DOD to report its plan for privatizing-in-place

the engine workload at the San Antonio Air Logistics Center. The plan

should include DOD’s strategy for determining the source of repair for

engine workloads currently at the San Antonio Air Logistics Center and a

discussion of the cost-effectiveness of various repair alternatives,

including transferring the workload to other military depots and

privatization-in-place.

Recommendations GAO recommends that the Secretary of Defense:

• Require the Secretary of the Air Force to assess the cost-effectiveness of

various alternatives for allocating engine workload from the San Antonio

Air Logistics Center between the public and private sectors, including

privatization-in-place and transferring work to other military depots.

• Develop a plan for reducing excess engine capacity and improving the

utilization of military depots not identified for closure. This plan should

address how DOD intends to (1) comply with the existing law regarding the

use of competitive procedures that include public and private entities

when changing depot maintenance workloads to the private sector and

(2) reduce excess engine capacity at other DOD engine depots in light of

planned privatization.

• Require the Secretary of the Navy to conduct a public-private competition

for the LM2500 engine workload.

Agency Comments DOD officials reviewed a draft of this report and provided official oral

comments, which have been incorporated as appropriate. DOD generally

concurred with GAO’s identification and analysis of (1) factors influencing

the allocation of depot maintenance engine workload between the public

and private sectors and (2) opportunities for privatizing military engines

with commercial counterparts. DOD generally concurred with GAO’s

recommendations. They noted that DOD is developing a plan to outsource

additional depot maintenance workload, including engines, and that this

plan is expected to be completed in early 1996.

Page 8 GAO/NSIAD-96-33 Depot Maintenance
Executive Summary

In this regard, section 311 of the Department of Defense Authorization Act

for Fiscal Year 1996, Public Law 104-106 (Feb. 10, 1996) requires DOD to

develop and submit to the Senate Committee on Armed Services and the

House National Security Committee by March 31, 1996, a comprehensive

policy on the performance of depot-level maintenance and repair for the

Department. The act provides that this policy should include DOD’s

identification of core depot-level maintenance requirements in accordance

with 10 U.S.C. 2464.

Page 9 GAO/NSIAD-96-33 Depot Maintenance
Contents

Executive Summary 4

Chapter 1 

Introduction

12

Background 12

DOD Engines With Commercial Counterparts 13

Declining Engine Depot Maintenance Requirements 15

Downsizing Engine Repair Depots 15

DOD Report to Congress on Repair of Military Engines With

Commercial Counterparts

18

Objectives, Scope, and Methodology 18

Chapter 2 

Factors Influencing

Allocation of Depot

Maintenance Engine

Workload Between

the Public and Private

Sectors

21

Statutes Influence Source of Repair Decisions 21

Future Use of Public-Private Competitions to Determine Some

Allocation Decisions Is Uncertain

25

Degree of Similarity Influences Source of Repair 27

Excess Capacity Can Influence Source of Repair 28

Conclusions 30

Agency Comments 30

Chapter 3 

Privatization

Opportunities and

Impact of Excess

Capacity

32

Similarity of Commercial Counterpart Engines Make Good

Candidates for Privatization

32

Multiple Private Sources Able to Compete 34

LM2500 Offers a Privatization Opportunity 35

Impact of Privatization-in-Place on Excess Capacity 36

Conclusions 37

Matter for Congressional Consideration 39

Recommendations 39

Agency Comments 39

Appendixes Appendix I: Overview of Engine Depot Maintenance Process 42

Appendix II: Analysis of Military Turbine Engines With

Commercial Counterparts

46

Appendix III: Major Contributors to This Report 53

Tables Table 1.1: Comparable Military and Commercial Engines 14

Table 1.2: Source of Depot Repair for Selected Engines 16

Page 10 GAO/NSIAD-96-33 Depot Maintenance
Contents

Table 2.1: Comparison of Core and Non-Core Workloads by

Engine

23

Table 2.2: Analysis of Engine Excess Capacity at DOD Aviation

Depots

29

Table 3.1: DOD and Commercial Counterpart Engine Inventories 33

Table 3.2: Private Sector Reserve Capacity to Repair Military

Engines

35

Figures Figure I.1: Engine Depot Maintenance Process 42

Figure I.2: Industrial Processes and Equipment Used in the

Depot-Level Repair of Turbine Engines

44

Abbreviations

BRAC Base Closure and Realignment Commission

DOD Department of Defense

GAO General Accounting Office

Page 11 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

With over 54,000 engines to support its 17,400 aircraft, the Department of

Defense (DOD) is the world’s largest owner of aircraft and aircraft engines.

During fiscal years 1992 and 1993, the total cost for maintaining these

engines was about $1.1 billion of the $13 billion depot maintenance

program.1

 Depot repair of engines and engine components requires more

funding than any other commodity that is not an end-item weapon system,

such as an aircraft or ship. Engine overhaul costs represent about

8.5 percent of the total depot maintenance budget.

Military engines are maintained and overhauled in an extensive network of

military service depots, private sector engine manufacturers, and private

sector repair activities, such as airlines and independent repair service

companies. Of the 51 types of military engines used today, 28 are generally

repaired in military depots and 23 almost exclusively by contractors. The

engines maintained by the private sector generally have commercial as

well as military applications. Generally, commercial counterpart engines

repaired by the private sector support fewer aircraft and require less

inventory than engines that are maintained in military depots. In recent

years, private sector firms have sought more of the military engine

workload. At the same time, excess capacity has also been increasing in

military depots, as both numbers of military aircraft and engines as well as

engine overhaul requirements have declined.

As a part of this review, we analyzed DOD’s approach to allocating engine

depot repair between the public and private sectors. Engine maintenance

has been the subject of recent congressional interest. Additionally, engines

are DOD’s largest and most costly commodity group. Further, one category

of engines—those with commercial counterparts—are either identical or

very similar to engines used in the private sector. These characteristics

enhance their potential cost-effectiveness as candidates for privatization.

As a part of our analysis, we reviewed a March 1995 DOD report to

Congress on the maintenance of military turbine engines with civilian

engine counterparts.

Background Depot maintenance involves repairing, overhauling, modifying, and

upgrading defense systems and equipment. Depot maintenance also

1

This includes the cost of material and parts used in the repair process. Material costs for engines

generally constitute a larger share of the total repair costs than the material costs for other

commodities. The $13 billion does not include the labor costs or the parts and materials required to

accomplish major upgrades and modifications. The $2 billion in labor costs associated with these

modifications and upgrades is often considered to be a part of depot maintenance, even though the

funding is covered in DOD procurement accounts rather than operation and maintenance accounts

where most depot maintenance funding is included.

Page 12 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

includes limited manufacture of parts, technical support, modifications,

testing, and reclamation as well as software maintenance. DOD estimates

that its depot repair facilities and equipment are valued at over $50 billion.

Thousands of private sector firms also do depot-level repair. Appendix I

provides a brief overview of the engine depot repair process, using a flow

diagram and pictures.

Depot-level maintenance is the third of the three maintenance levels used

by the military services.2

 Depot maintenance activities have historically

had more extensive technical capability than the lower levels—in terms of

the facilities, equipment, and trained personnel. However, various

programs initiated in recent years by the military have resulted in blending

some maintenance activities among the various levels. For example, the

Air Force implemented a two-level maintenance concept that significantly

reduced the second level of maintenance at the operational unit for some

systems, including engines. Under this concept, faulty engine components

are shipped from the unit to Air Force depots, including the two engine

repair depots. The work done in the two-level shops is considered

depot-level repair and is performed by a combination of military, civilian,

and contractor personnel.

DOD Engines With

Commercial

Counterparts

DOD has depot-level capability to repair 28 different types of large turbine

engines. Most of these engines are used to power DOD’s fleet of fixed- and

rotary-wing aircraft. Three exceptions are the General Electric LM2500

ship engine, the Lycoming AGT1500 M-1 tank engine, and the Allison 501K,

which is used for electrical power generators on ships.3 DOD also

organically repairs many smaller gas turbine engines that provide auxiliary

power to aircraft and ground support equipment. DOD contracts for most of

the repair of 23 other engines, which power such aircraft as the KC-10,

T-38, and C-9.

Most of the 28 engines maintained in DOD’s public depots are

military-unique and not used in the commercial market place.

Military-unique engines include the F100 engine, which powers the F-15

and F-16 aircraft, and the F404 engine, which powers the F/A-18 and

F-117A aircraft. However, 10 of the 28 engines maintained in DOD depots

2

The first is organizational-level maintenance, where members of the operational military unit make

functional checks and adjustments, and faulty parts are serviced or replaced. The second is

intermediate-level maintenance, where military personnel perform more extensive repairs—many of

which require a shop environment.

3

The Lycoming AGT1500 tank engine does not have a commercial counterpart; therefore, we did not

include it in our review.

Page 13 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

are comparable to engines used in the private sector. In addition, the Air

Force is considering developing repair capability for the F117 engine,

which powers the C-17 aircraft and is currently supported by the

manufacturer. It is similar to the commercial engine that powers the

Boeing 757 aircraft.

Table 1.1 shows the 11 military engines with commercial counterparts for

which DOD has or is considering developing depot maintenance capability.

Table 1.1: Comparable Military and

Commercial Engines Military Commercial

Engine Application

Original engine

manufacturer Engine Application

T56 C-130

E-2

P-3

Allison 501D Lockheed

L-100

L-188

Convair

CV-580

501K Shipboard

electrical

power

Allison 501K Industrial

power

supply

T63 H-58 Allison 250 Bell 206

F108/CFM56 KC-135

E-6

CFM

International

CFM56 Boeing

737

TF39 C-5A/B General

Electric

CF6 Boeing

747

T700 H-60

H-64

General

Electric

CT7 Bell 214ST

Saab 340

LM2500 Cruisers

Frigates

Destroyers

General

Electric

LM2500 Industrial

power

supply

TF34 A-10

S-3

General

Electric

CF34 Canadair

601

TF33 KC-135

B52-H, C141

Pratt &

Whitney

JT3D Boeing

707

F117 C-17 Pratt &

Whitney

PW2000 Boeing

757

T53 H-1 Lycoming T-53-13B Bell 205a

In most cases where it repairs a military engine with a commercial

counterpart, DOD owns a significant portion of the engines in existence.

For example, DOD has 25 percent of the F108/CFM56 engines, 54 percent of

the T56, 62 percent of the TF33/JT3D, 78 percent of the TF34/CF34, and

95 percent of the T53.

Page 14 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

Declining Engine

Depot Maintenance

Requirements

DOD depot maintenance workload requirements, including engines, have

decreased from about 202 million direct labor hours in fiscal year 1987 to

about 100 million direct labor hours projected for fiscal year 1996. Since

geopolitical tensions eased in the late 1980s, changes in military strategy,

reductions-in-force structure, and improved engine reliability have all

contributed to decreased demand for engine repair requirements. The

change in war-planning scenarios from a massive, protracted war in

response to a Soviet invasion to shorter duration contingency scenarios

also reduced the anticipated surge requirement for depot maintenance.

Similarly, reductions in aircraft inventory have also reduced maintenance

requirements. Between fiscal years 1985 and 1994, the services reduced

their aircraft inventories from about 24,500 to 17,400. For example, the Air

Force reduced its F-4 aircraft inventory from 1,597 to 61. Depot overhauls

of the J79 engine, which supports the F-4 aircraft, also declined from over

500,000 direct labor hours in fiscal year 1986 to an estimated 0 for fiscal

year 1997. Further reductions in aircraft inventories and associated engine

repair requirements are expected as the services continue to phase out

older weapon systems.

In addition, improvements in technology have increased the reliability of

turbine engines, reduced the number of depot-level overhauls, and

reduced depot-level maintenance requirements. For example, three

different engines have powered the KC-135 tanker aircraft. The first

KC-135s were fitted with the J57 engine, which was later replaced with the

TF33 engine. The Air Force is now replacing most of these engines with

the F108. The F108 engine, with an unscheduled removal rate per 

1,000 flying hours of 0.10, has 91 percent fewer unscheduled engine

removals than the J57, which has an unscheduled engine removal rate of

1.16, and 79 percent fewer than the TF33, which has an unscheduled

removal rate of 0.48.

Similar engine reliability improvements have been achieved through

modifications of other engines. For example, various upgrades over a

20-year period have increased the periods of time between scheduled

overhauls for the F100 from 2 to 8 years.

Downsizing Engine

Repair Depots

In response to declining requirements and criticisms for maintaining

duplicate sources of repair, the military services have decreased the

number of depots with depot engine repair capability. For example, the

number of depots repairing turbine engines decreased from eight to six

Page 15 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

between 1990 and 1994. Additionally, DOD consolidated repair activities for

most engine types at only one depot. As shown in table 1.2, 11 engine types

were maintained at two or more depots in 1990. With only one exception,

DOD now has only one organic depot-level repair site for each military

engine. However, some engines are repaired both by a military depot and

one or more private sector contractors.

Table 1.2: Source of Depot Repair for

Selected Engines Source of depot repair

Engine model Weapon system 1990 1994

T56

501Ka

C-130

E-2

P-3

San Antonio Air

Logistics Center,

Alameda Naval

Aviation Depot, and

Norfolk Naval

Aviation Depot

San Antonio Air

Logistics Center

TF30 F-111

F-14A

Oklahoma City Air

Logistics Center

and Norfolk Naval

Aviation Depot

Oklahoma City Air

Logistics Center

J79 F-4 Cherry Point Naval

Aviation Depot and

Oklahoma City Air

Logistics Center

Cherry Point Naval

Aviation Depot

J52 A-6

A-4

Jacksonville Naval

Aviation Depot and

Alameda Naval

Aviation Depot

Jacksonville Naval

Aviation Depot

J57 B-52G

NC-135A

Oklahoma City Air

Logistics Center

and Norfolk Naval

Aviation Depot

Phased-out

TF41 A-7 Oklahoma City Air

Logistics Center

and Jacksonville

Naval Aviation Depot

Phased-out

T58 H-1

H-3

Cherry Point Naval

Aviation Depot and

North Island Naval

Aviation Depot

Cherry Point Naval

Aviation Depot

T64 H-53 Cherry Point Naval

Aviation Depot and

North Island Naval

Aviation Depot

Cherry Point Naval

Aviation Depot

F404 F-18 Jacksonville Naval

Aviation Depot and

North Island Naval

Aviation Depot

Jacksonville Naval

Aviation Depot

(continued)

Page 16 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

Source of depot repair

Engine model Weapon system 1990 1994

F110 F-15/16

F-14

Oklahoma City Air

Logistics Center and

Norfolk Naval

Aviation Depot

Oklahoma City Air

Logistics Center

TF39

LM2500b

C-5A/B

Cruisers

San Antonio Air

Logistics Center and

North Island Naval

Aviation Depot

San Antonio Air

Logistics Center and

North Island Naval

Aviation Depot

aThe 501K is a shipboard generator version of the T56/501D engine.

bThe LM2500 is a shipboard propulsion version of the TF39/CF6 engine.

These workload consolidations began in 1990 as part of the DOD

management review process and subsequent Base Closure and

Realignment Commission (BRAC) decisions to close aviation depots.

Specifically, Defense Management Report Decision 908 initially called for

$3.9 billion in depot cost reductions over a 5-year period, but the target

savings were later increased to $6.4 billion over a 7-year period. Efforts to

achieve savings included consolidation, interservicing, and competitions

between government depots and the private sector. Some of these efforts

were superseded by the 1993 BRAC decision to close Alameda Naval

Aviation Depot. For example, a single site for handling the T56 engine core

workload was to be decided by a public-public competition between

Alameda Naval Aviation Depot and San Antonio Air Logistics Center.

Following the BRAC decision to close Alameda, the Navy transferred its

T56/501K workload to the San Antonio Air Logistics Center.

Despite these initiatives, DOD’s engine depot repair facilities continue to

have significant excess capacity. During the 1995 BRAC process, DOD’s Joint

Cross Service Group for Depot Maintenance noted that engines were

among the five commodities with the greatest amount of excess capacity.

We found this excess capacity to be about 5 million direct labor

hours—about 45 percent of the total engine capacity.

Page 17 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

DOD Report to

Congress on Repair of

Military Engines With

Commercial

Counterparts

The Fiscal Year 1995 Department of Defense Appropriations Conference

Report 103-747 required DOD to submit a detailed proposal for expanding

competition for depot maintenance of jet engines with civilian

counterparts to the House and Senate Committees on Appropriations. The

report noted that DOD could save a lot by expanding competition for depot

maintenance of equipment common to the military and industry,

specifically, commercially developed aircraft turbine (jet) engines. On

March 14, 1995, DOD provided the House and Senate Committees on

Appropriations with its report.4

In its report, DOD concluded that the principal reason for maintaining

depot maintenance capability is to support the readiness and sustainability

in the Joint Chiefs of Staff major regional conflict scenarios. The report

also stated that DOD’s approach for achieving this objective is to retain a

certain level of capability in military depots—capability that DOD refers to

as “core.” DOD also concluded that once core capabilities5

 are established,

it is essential, from an economic perspective, to use them during

peacetime.

In its engine report, DOD reviewed 17 military engines with commercial

counterparts—10 maintained in the private sector and 7 in military depots.

The report concluded that, for two reasons, no changes in workload

allocation between the public and private sector were warranted. First, the

repair assignments were consistent with DOD’s core requirements and

sound business practices. Second, they supported the title 10 U.S.C.

requirement that not more than 40 percent of depot maintenance work

dollars be performed by other than federal government employees.

Objectives, Scope,

and Methodology

Because of significant congressional interest in privatization of depot

maintenance workloads, and engine workloads in particular, we addressed

the following: (1) the rationale supporting the continued need for DOD to

maintain capability to repair engines at its own depots, (2) whether there

are opportunities to privatize additional engine workloads, and (3) the

impact excess capacity within DOD’s depot system has on the

cost-effectiveness of decisions to privatize additional workloads.

4

Maintenance of Military Turbine Engines With Civilian Engine Counterparts.

5

Core capabilities consist of the minimum facilities, equipment, and skilled personnel necessary to

ensure a high level of technical expertise and combat readiness by maintaining an engine system or

component in a military depot.

Page 18 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

We drew from information gathered as a part of our overall review of DOD’s

depot-level maintenance program, including our commodity study of depot

maintenance aircraft engine workload and capacity. As a part of this

effort, we reviewed (1) historical workload data for each depot that

performs engine overhauls and repairs engine components; (2) the

services’ fiscal year 1997 engine workload projections for each depot in

our study; and (3) capacity, core workload, and workload projections for

fiscal years 1996 through 1999 used by the services to develop

recommendations for the BRAC Commission.

We interviewed officials and examined documents at the Office of the

Secretary of Defense and Army, Air Force, and Navy headquarters,

Washington, D.C.; Naval Aviation Depot Operations Center, Naval Air

Station, Patuxent River, Maryland; Air Force Materiel Command, Dayton,

Ohio; and Joint Depot Maintenance Analysis Group, Gentile Station,

Dayton, Ohio.

We interviewed service officials, examined documents and visited the

facilities at the San Antonio Air Logistics Center, Kelly Air Force Base, and

Corpus Christi Army Depot, Corpus Christi Naval Air Station, Texas;

Oklahoma City Air Logistics Center, Tinker Air Force Base, Oklahoma;

Naval Aviation Depot, Cherry Point, North Carolina; Naval Aviation Depot,

Jacksonville, Florida; and Naval Aviation Depot, North Island, California.

To determine capacity at each depot, we obtained floor plans identifying

work positions for each maintenance shop performing aircraft engine or

engine component work. We visited each of the shops and reviewed the

floor plans with industrial engineers and shop supervisors to validate the

work position counts. Then we determined capacity using the

computation method defined in DOD’s Depot Maintenance Capacity and

Utilization Measurement Handbook (DOD 4151.15-H), which expresses

capacity in direct labor hours. This method calculates a product by

multiplying work position counts by an availability factor (95 percent) and

by annual productive hours (1,615), assuming a 1-shift, 40-hour workweek.

We did not include Naval Aviation Depot, North Island, capacity data in

our analysis because at the time of our visit, the engine repair shops were

being relocated and work position counts could not be accurately

determined.

To determine excess capacity, we compared fiscal year 1997 projected

workload requirements against our capacity calculations. To identify

private sector interest, capability, and capacity to accomplish depot

Page 19 GAO/NSIAD-96-33 Depot Maintenance
Chapter 1 

Introduction

overhaul and repair on military engines with commercial counterparts, we

surveyed 24 private repair activities identified as potential sources of

repair by DOD and original equipment manufacturer officials. These repair

activities included 2 engine manufacturers, 5 airlines, and 17 independent

repair activities.6

The private repair activities reported their reserve capacity to repair

military engines in terms of the number of whole engines they could

overhaul annually. To compare the reserve capacity reported by the

private sector to projected military engine workload, we converted the

number of engines reported by the private sector to direct labor hours

using the depot labor standard or the average number of direct labor hours

used to overhaul each engine at the depot. We used the military services’

workload projection for engine and component repair. While our

methodology has limitations, it provides a rough order of magnitude of the

capacity in the private sector relative to the services’ projected workload

for military engines with commercial counterparts.

We conducted our overall review of DOD’s depot maintenance program,

including our evaluation of the engine repair program, from January 1994

to October 1995 in accordance with generally accepted government

auditing standards.

6

We contacted each of the original manufacturers of military engines with commercial counterparts

regarding their interest in depot overhaul work. One company said it does not do engine repairs,

except to support warranties. It said it designates independent repair activities as authorized

maintenance overhaul centers. As a part of our survey, we contacted major repair centers that are

located in the continental United States.

Page 20 GAO/NSIAD-96-33 Depot Maintenance
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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

According to DOD, decisions to select a public or private activity to perform

depot work must consider readiness and cost risks, as well as statutory

requirements. Statutes require DOD to maintain a minimum level of

capability as well as limit the amount of work that can be contracted out

to the private sector. Public and private depot repair capabilities, capacity,

and competition are key factors that impact readiness and cost, and,

therefore, influence source-of-repair decisions. The amount of similarity

between the military and commercial engines usually influences private

sector capabilities and capacity. The amount of excess capacity in DOD’s

depot system influences cost.

Statutes Influence

Source of Repair

Decisions

Several statutes limit the amount of depot maintenance that can be

contracted out to the private sector. In addition, they also require

competition between the public and private sectors before contracting out

work valued at over $3 million.

Retaining DOD Core Depot

Maintenance Capability

Title 10 U.S.C. 2464 provides that DOD activities should maintain a logistics

capability sufficient to ensure technical competence and resources

necessary for an effective and timely response to a mobilization or other

national defense emergency. It also requires that the Secretary of Defense

identify specific logistics activities necessary to maintain the core

capability described by that provision. However, 10 U.S.C. 2464 also

provides that core logistics activities may be contracted out using the

procedures of Office of Management and Budget Circular A-76 if certain

requirements are met.

For depot maintenance, DOD has defined core as the capability maintained

within organic defense depots to meet readiness and sustainability

requirements of the weapon systems that support the Joint Chiefs of Staff

contingency scenarios. Core exists to minimize operational risks and to

guarantee required readiness for these weapon systems. Core depot

maintenance capabilities will comprise only the minimum facilities,

equipment, and skilled personnel necessary to ensure a ready and

controlled source of required technical competence. Depot maintenance

for the designated weapon systems will be the primary workloads assigned

to DOD depots to support core depot maintenance capabilities.

Under the core concept, military requirements are driven by contingency

scenarios developed by the Joint Chiefs of Staff. The services must identify

what weapon systems and equipment are necessary to meet these

requirements as well as the level of depot maintenance that is required to

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

support these systems. Where the services are certain that they must

maintain control of depot support to minimize risk to combat

commanders, capabilities are established and retained in organic

maintenance depots.

In November 1993, the Deputy Under Secretary of Defense issued a policy

memorandum that directed the services to quantify and report their depot

maintenance core requirements by January 1994. The Secretary provided

the services a methodology to follow in computing their core

requirements. In defining core, DOD policy emphasized that core depot

maintenance capability comprises only the minimum level of capability

needed to support mission-essential weapon systems.

Since core is the capability to support rather than the maintenance of

specific weapon systems, this requirement does not apply to workload for

specific systems. Thus, depot maintenance for some core engines could be

privatized since the capability to repair the engines is similar to the same

capability used to repair other core engines in the public depot.

In addition, the policy memorandum stated that it is not core policy that

all mission-essential hardware be maintained in a DOD depot. Private

industry may maintain mission-essential weapon systems, if a service is

satisfied that reliable sources of repair exist in the private sector to negate

risk to the weapon system. For example, even though the KC-10 aircraft is

a high priority mission-essential system required early in major regional

conflicts, DOD contracted out the maintenance for the life of the aircraft.

The KC-10 has a high degree of similarity with its commercial counterpart,

the DC-10, which DOD believes mitigates the risk of contracting out the

aircraft’s maintenance.

We asked depot officials to specify how much of their workload for

military engines with commercial counterparts they considered to be core.

Their responses, which are presented in table 2.1, indicate that most of the

1997 workload requirements for commercial derivative engines is defined

as core. It is not clear to what extent this core workload should be

conducted in military depots.

Page 22 GAO/NSIAD-96-33 Depot Maintenance
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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

Table 2.1: Comparison of Core and

Non-Core Workloads by Engine (Workload in direct labor hours)

Engine model

Fiscal year

1997 total

workload

Fiscal year

1997 core

workload

Above core

workload

TF39 528,788 444,030 84,758.00

TF33 875,740 875,740 0.00

T700 241,030 241,030 0.00

T63 2,975 2,975 0.00

T56/501K 648,732 432,695 216,037.00

F108/CFM56 101,984 101,984 0.00

LM2500 86,938 83,787 3,151.00

TF34 60,286 8,748 51,538.00

The recently published Report of the Commission on Roles and Missions

of the Armed Forces challenged the validity of the core concept.1

According to the report, the services set core requirements that are

actually greater than they need and this practice artificially supports the

depots’ current capacity. The report recommended a time-phased plan to

privatize essentially all existing depot-level maintenance.

In his August 24, 1995, comments to the Senate Armed Services Committee

regarding the report of the Commission on Roles and Missions, the

Secretary of Defense stated that DOD agrees with the Commission’s

recommendation to outsource a significant portion of DOD’s depot

maintenance work, including outsourcing depot maintenance activities for

new systems. At the same time, he said DOD believes it must retain a

limited organic core depot maintenance capability to meet essential

wartime surge demands, promote competition, and sustain institutional

expertise. The military services are currently reviewing their core

requirements.

Limitation on the Amount

of Depot Maintenance That

Can Be Privatized

As early as 1974, Congress established legislative requirements regarding

the allocation of depot workload between the public and private sectors.

The Defense Appropriations Act of 1974 provided that, of the total amount

of the appropriation made available for the alteration, overhaul, and repair

of naval vessels, not less than $851,672,000 million should be conducted in

naval shipyards and not less than $359,919,000 million in private shipyards.

1

Section 951 et.seq. of the National Defense Authorization Act for Fiscal Year 1994 (P.L. 103-160, 

Nov. 30, 1993) provided for the establishment of the Commission. It was tasked with reviewing the

military services’ current allocations of roles, missions, and functions and making appropriate

recommendations. The Commission’s report, Directions for Defense, was published on May 24, 1995.

Page 23 GAO/NSIAD-96-33 Depot Maintenance
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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

In addition, prior to 1982, DOD Directive 4151.1, “Use of Contractor and DOD

Resources for Maintenance of Materiel,” instructed the services that they

should limit their depots to do a maximum of 70 percent of their

maintenance workload in order to maintain a private sector industrial

base. Revisions to this directive in 1982 continued this requirement. It also

stated that, to the extent possible, a competitive industrial base for depot

maintenance should be established. More specifically, it provided that

contractor support should be considered when it would (1) improve the

industrial base, (2) improve peacetime readiness and combat

sustainability, (3) be cost-effective, or (4) promote contract incentives for

reliability and maintainability. This directive was superseded by a 1992

amendment to 10 U.S.C. 2466 that prohibited the military departments

from contracting out more than 40 percent of their depot-level

maintenance workload funds to the private sector.

In January 1995, DOD reported that about 28 percent of its maintenance

expenditures goes to private contractors and 72 percent goes to in-house

work. However, we reported in 1994 that the private sector’s share is

actually much larger—over half of DOD’s depot maintenance expenditures

go to the private sector when the costs of repair parts or various technical

or repair services the depots purchase from the private sector are

included.2

Although current statutes limit the amount of overall depot workload

dollars that can be used to contract with the private sector, neither the

statute nor DOD regulations specify how the aircraft engine workload

should be allocated. DOD recently reported that it paid about 38 percent, or

$164 million, of the $435 million spent on maintaining commercial

counterpart engines to the private sector. The remaining $271 million

spent on maintaining these engines in the public depots is less than

2 percent of the total depot maintenance budget. Therefore, increasing the

private sector’s share of DOD’s expenditures for repair of this commodity is

not likely to significantly impact the overall limitation on commercial

repair.

Guidance Related to

Moving Depot Workload

Title 10 U.S.C. 2469 provides that depot-level maintenance or repair work

with a value of at least $3 million is not to be changed to performance by a

contractor unless the change is made using competitive procedures among

private and public sector entities. This provision, which focuses on the

2

Depot Maintenance: Issues in Allocating Workload Between the Public and Private Sectors

(GAO/T-NSIAD-94-161, Apr. 12, 1994).

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

transfer of individual units of work, is designed to ensure that workload

transfers are cost-effective.

DOD officials gave differing views regarding the applicability of this statute

to workloads at depots closing from BRAC decisions. Although DOD officials

stated that they hoped Congress would repeal the provision during the

fiscal year 1996 authorization cycle, this did not happen.

Future Use of

Public-Private

Competitions to

Determine Some

Allocation Decisions

Is Uncertain

Public-private competition is one procedure the services have used to

consider the cost-effectiveness of privatizing specific depot maintenance

work. It was first used by the Navy in 1985 for its ship repair program.

After demonstrating that it helped cut costs, the program spread to naval

aviation and then the Army, the Air Force, and the Marine Corps. Although

the competition program is credited with significant savings, private

contractors generally do not believe the program is fair. They cite as

support the fact that Air Force depots won a high percentage of its

competed workloads. Noting the Air Force’s success, private sector

companies—particularly original equipment manufacturers—believed the

Air Force depots were not including all of their costs. Private sector firms

urged DOD to eliminate public-private competition since they believed the

program was inherently unfair.

Nonetheless, the services reported substantial savings from the

competitions as depots were forced to reengineer work processes and

streamline maintenance organizations. Having traditionally focused on

readiness and customer responsiveness, military depots were forced to

focus on cost and competitiveness issues. DOD published a cost

comparability handbook and undertook various initiatives designed to

make the competition program fair. Despite the services’ claimed savings,

we and DOD audit agencies found that DOD could not verify the results

because of weaknesses in its accounting system and internal controls.

The future of competition between public and private entities is

questionable and remains uncertain. In April 1994, a government-industry

task force on depot maintenance recommended to DOD that the

public-private competition program be eliminated.3

 It reported that the

inadequacy of DOD’s financial management systems to accumulate actual

costs for specific workloads in the depots precluded DOD from creating a

level basis for public and private competition. A month later, DOD canceled

3

Report of the Defense Science Board Task Force on Depot Maintenance Management, Office of the

Under Secretary of Defense for Acquisition and Technology, Apr. 1994.

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

the public-private competition program, directing the services to look

primarily to the private sector as a source for major weapon systems

modifications and upgrades.

In its report on the fiscal year 1995 DOD appropriations bill, the conference

committee disagreed with DOD’s announced policy and directed DOD to

reinstate public-private competition. The Fiscal Year 1995 DOD

Appropriations Conference Report 103-747 required that DOD report back

to the committees on this subject by January 15, 1995. In its report to the

House and Senate Appropriations Committees, DOD stated that its financial

systems and databases are not capable of supporting the determination of

actual cost of specific workloads. The DOD report also noted that while the

Department is developing policies, procedures, and automated systems

that will permit actual cost accounting for specific workloads

accomplished in organic depots, substantial changes are required that will

be time-consuming to complete and implement.

In reviewing DOD’s public-private competition program, we found that

many of the criticisms of the program involved internal control

weaknesses that can be addressed at the local level. Some improvements

had already been undertaken when the competition program was

terminated, although the momentum for change was lost when the

competition program was canceled. Further, some recent initiatives have

demonstrated the potential for implementing required improvements.

Recognizing that privatization of depot maintenance workloads only

makes sense when it is cost-effective, and that current law precludes

privatization without a competitive procedure, we have recommended that

the Secretary of Defense (1) reinstitute public-private competition for

depot maintenance workloads as quickly as possible; (2) develop and issue

guidelines regarding the conditions, framework, policies, procedures, and

milestones for reinstituting public-private competition; and (3) require the

Defense Contract Audit Agency to review internal controls and accounting

policies and procedures of DOD depots to ensure they are adequate for

identifying, allocating, and tracking costs of depot maintenance programs

and to ensure proper costs are identified and considered as part of the

bids by DOD depots.4

4

Navy Maintenance: Assessment of the Public-Private Competition Program for Aviation Maintenance

(GAO/NSIAD-96-30, Jan. 22, 1996).

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

Degree of Similarity

Influences Source of

Repair

The more similarity there is between military systems and equipment and

commercially available items, the greater the likelihood that private repair

sources may be cost-effective as depot maintenance sources of repair.

Factors that influence the degree of similarity between engines are the

commonality of engineering designs, interchangeability of parts, and

likeness of repair processes. Similarity affects the availability of spare and

repair parts as well as repair facilities, equipment, and trained personnel.

The degree of similarity between military and commercial engines can

range from 30 percent to 100 percent.

Ten military engines with commercial counterparts are now fully or

predominantly maintained in the private sector because they are very

similar to their commercial counterparts and because depot overhaul and

maintenance in the private sector was determined to be the most

cost-effective option. According to DOD officials, the time to make such

decisions is before the military invests in establishing its own depot

maintenance capability.

Our limited review indicates that organic repair of military-unique engines

is generally more cost-effective than noncompetitive awards to the private

sector. In the cases we reviewed, we found that repair sources for

military-unique engines were limited to one commercial repair

source—the original equipment manufacturer—whereas two or more

private sector repair sources were generally available for commercial

counterpart engines. Competition for a particular product or service

significantly reduces the government’s costs for products or services.

Limited data available regarding contract maintenance costs for

military-unique engines indicate that private sector repair is more costly

than organic repair. For example, both the Air Force and a public

accounting firm recently compared the cost-effectiveness of public versus

private depot maintenance for the F404 engine, which powers the F-117

aircraft, and the F118 engine, which powers the B-2 aircraft. In both cases,

the public depots were found to be a more cost-effective source of repair

than the original engine manufacturers. In the case of the F404, the

analysis resulted in the Defense Depot Maintenance Council transferring

the engine workload to the Navy depot at Jacksonville, Florida, where the

work will be done under an interservice agreement with the Air Force. The

accounting firm’s analysis of the F118 confirmed the Air Force’s original

source selection of the Oklahoma City depot. These examples indicate that

privatization of repair for military-unique engines would likely be more

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

costly than organic repair.5 The key reason is that this workload is

awarded on a sole-source basis to the original equipment manufacturer.

We have found that most of DOD’s contract depot maintenance is awarded

on a noncompetitive basis and that it is difficult to control costs under

these conditions.

Excess Capacity Can

Influence Source of

Repair

The large amount of excess capacity in DOD’s depot maintenance system is

another factor affecting the cost-effectiveness of contracting out

maintenance work. In previous years, war-planning scenarios emphasized

a large-scale, full mobilization, but current scenarios emphasize smaller,

regional conflicts. This change, combined with reductions-in-force

structure, has created significant excess capacity. As a part of DOD’s 1995

base closure and realignment process, the Joint Cross Service Group on

Depot Maintenance analyzed the capacity of 24 facilities to maintain and

repair 16 commodities. It found that DOD’s depots have over 3 million

direct labor hours in excess engine repair capacity. The engine commodity

group was identified as being among the five commodities having the

greatest excess capacity.

Our assessment of engine capacity in military depots identified about

5.1 million direct labor hours—or about 45 percent—excess capacity.

Table 2.2 shows our assessment of excess engine capacity in the DOD depot

system. As indicated, we found the greatest percent of excess engine

capacity at the Corpus Christi Army Depot and Cherry Point Naval

Aviation Depot and the smallest percent at the Jacksonville Naval Aviation

Depot. The excess capacity in the two Air Force engine depots averages

about 42 percent.

5

F404-GE-F1D2 Engine Repair Analysis, Coopers and Lybrand, L.L.P., Nov. 1994. Assessment B-2

Support, Coopers and Lybrand, L.L.P., Nov. 1994.

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Maintenance Engine Workload Between the

Public and Private Sectors

Table 2.2: Analysis of Engine Excess

Capacitya at DOD Aviation Depots (Workload in direct labor hours)

Depot Capacity

Fiscal year

1997

program

workload

Excess

capacity Percent

Navyb

Cherry Point 679,260 253,945 425,315 63

Jacksonville 656,036 447,962 208,074 32

Subtotal 1,335,296 701,907 633,389 47

Air Force

Oklahoma City 4,012,772 2,283,661 1,729,112 43

San Antonio 4,657,251 2,769,594 1,887,657 41

Subtotal 8,670,023 5,053,255 3,616,768 42

Army

Corpus Christi 1,138,644 327,625 811,019 71

Total 11,143,963 6,082,787 5,061,176 45

aAll capacity calculated by us from service data.

bNavy data do not include capacity or workload figures for Navy Aviation Depot North Island,

which was relocating its engine repair shops at the time of our review. DOD BRAC data indicated

the capacity at North Island to be about 131,000 direct labor hours and programmed workload to

be about 87,000 direct labor hours.

Actions that increase excess capacity and decrease the utilization of

existing depots diminish their cost-effectiveness. For example, an organic

depot with several thousand employees may incur fixed overhead costs,

including the depot’s share of base support costs, exceeding $100 million

annually. When a military depot has excess capacity, moving workload out

of this facility and into the private sector will result in increasing the share

of overhead expense that all the remaining workload must

support—increasing the unit cost for all the units produced by that facility.

Thus, moving workload from the military depots to the private sector at a

time when the depot system already has large amounts of excess capacity

only increases the fixed cost that must be recovered by each direct labor

hour of work still done in the public depot.

However, despite the existing excess capacity, consolidating the Air Force

engine workload at one depot would result in a capacity shortfall. For

example, Oklahoma City Air Logistics Center, with a capacity of 4 million

direct labor hours, can absorb all but 1 million direct labor hours of the

engine workload currently repaired in the San Antonio Air Logistics

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

Center. However, the difference could be managed by making better use of

available building space, adding some additional shifts, transferring some

engine workloads to the Jacksonville Naval Aviation Depot, which repairs

engines for the Navy; or, as discussed in chapter 3 of this report,

contracting out additional engine maintenance workload to the private

sector.

Conclusions Based on DOD’s calculations, all commercial counterpart engine workloads

could be privatized without breaching the 60/40 legislative restriction on

contracting out depot maintenance to the private sector. Public-private

competitions would be required before privatizing each engine workload,

since the value of each engine’s workload exceeds the $3 million threshold

provision of 10 U.S.C. 2469. Following this provision should help ensure

that privatization would only be undertaken when it is cost-effective to do

so. A further consideration should also be the overall cost of operating

DOD’s entire depot maintenance system. This is particularly the case in

light of the extensive excess capacity for engine repair and overhaul

currently existing. It is essential that DOD take each of these factors into

consideration to ensure that any privatization initiative meets readiness

and cost-effectiveness goals.

Agency Comments DOD generally concurred with our analysis of factors influencing the

allocation of engine depot maintenance workload between the public and

private sectors. However, in commenting on this, and other recently issued

reports addressing issues related to public-private competition for depot

maintenance work, DOD only partially concurred with our positions

regarding future use of public-private competition. DOD officials stated that

a November 1994 memorandum from the Deputy Under Secretary of

Defense notified depot activities that they can compete for workloads if

certain conditions were met. DOD also stated that it will comply with all

applicable legislation when making source-of-repair decisions—including

the 10 U.S.C. 2469 requirement that prohibits changing workloads valued

at $3 million or more from a public depot without using competitive

procedures that include both public and private entities. However, DOD

also cited its policy that only core workloads should be performed in its

depots and noted that it plans to seek legislative relief from the 10 U.S.C.

2469 requirement.

DOD actions show that in practice it has not reinstituted public-private

competitions. DOD has not conducted a public-private competition since it

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Factors Influencing Allocation of Depot

Maintenance Engine Workload Between the

Public and Private Sectors

terminated the program in 1994 and it has not provided guidance to the

services for reinstituting public-private competitions. Furthermore, we

believe the November 1994 memorandum provided guidance to the

services regarding the conditions under which DOD depots could compete

for complementary workloads of non-DOD agencies, such as the Federal

Aviation Administration’s ground communications equipment.

In these circumstances, we continue to believe that DOD has not effectively

reinstituted the public-private competition program. Our report6

 includes a

recommendation that DOD reinstitute the program and issue guidance

regarding the conditions, framework, policies, and procedures for

restarting public-private competitions, including the requirement to review

the adequacy of the depots to identify and track costs.

6

Navy Maintenance: Assessment of the Public-Private Competition Program for Aviation Maintenance

(GAO/NSIAD-96-30, Jan. 22, 1996).

Page 31 GAO/NSIAD-96-33 Depot Maintenance
Chapter 3 

Privatization Opportunities and Impact of

Excess Capacity

Since the end of the Cold War and the reduction in new procurements,

commercial contractors have aggressively sought more of DOD’s

maintenance work. Traditionally, contractors were not interested in

military maintenance because it was characterized by sporadic

requirements, limited quantities, and other considerations such as

proprietary data and older technologies. But, because procurement

budgets have begun to decline and relatively few new systems are

predicted in the future, the private sector’s interest has begun to increase.

DOD has seven engines with civilian counterparts that are good candidates

for exploring whether to contract out their maintenance and overhaul. The

opportunity appears to be most promising when two factors are present:

(1) the military engine has a high degree of similarity with its civilian

counterpart and (2) multiple repair (both public and private) sources are

able to compete. We did not do a cost analysis to determine whether a

private or public source of repair for commercial counterpart engines

would be more cost-effective. Rather, we studied these engines to

determine if each had the characteristics to make it a good candidate for

public-private competition.

Excess capacity in the public depots may reduce the cost-effectiveness of

privatizing commercial counterpart engine workloads. Prior to the

decision to privatize-in-place the San Antonio Air Logistics Center, the

closure of one of the largest organic engine overhaul facilities would have

allowed DOD to reduce excess capacity, improve the cost-effectiveness of

remaining public sector engine repair facilities, and create opportunities to

privatize repair of some commercial counterpart engines. Because the

planned privatization-in-place will not reduce excess capacity at the

remaining engine repair depots, it may not be cost-effective to contract out

to the private sector additional engine maintenance, except in limited

cases where it would eliminate redundant or duplicate repair capability.

Similarity of

Commercial

Counterpart Engines

Make Good

Candidates for

Privatization

Seven engines—T56, 501K, F108/CFM56, T63, T700, TF39, and

LM2500—appear to be good candidates for evaluating the

cost-effectiveness of privatization by conducting public-private

competitions. These engines are very similar to their civilian counterparts

and multiple contractors expressed an interest in maintaining or

overhauling them. A discussion of each engine is provided in appendix II.

The degree of similarity between military and commercial engines can

range from 30 percent to 100 percent. For example, the interchangeability

Page 32 GAO/NSIAD-96-33 Depot Maintenance
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Privatization Opportunities and Impact of

Excess Capacity

of parts between the TF33 and its commercial counterpart can range from

40 to 70 percent, depending on the model being compared. These engine

types have a high degree of commonality in their engineering design and

require the same repair processes, equipment, and skills to overhaul. For

other engine types—T56, 501K, T63, LM2500, T700, F108/CFM56, and

F117—the military and commercial versions are nearly identical.

According to DOD, there is a logical correlation between the size of the DOD

engine fleet relative to the commercial engine fleet and selection of source

of depot repair. Where commercial carriers have a significantly larger

engine inventory than DOD, there is viable broad-based private sector

support available that mitigates risk and affords the opportunity to reduce

costs. The competitive environment that exists for these engines allows

DOD to benefit from “sharing” fixed-overhead costs with the private sector

customers who have substantially larger numbers of engines being

serviced. Commercial carriers have significantly larger engine inventory

for 5 of the 10 engines—TF39, T63, F108/CFM56, 501K, and F117—than

does DOD, as shown in table 3.1.

Table 3.1: DOD and Commercial

Counterpart Engine Inventories

DOD engine

Commercial

engine Manufacturer

DOD

engine

inventory

Commercial

engine

inventory

TF39 CF6 General Electric 665 4,300

T63 250 Allison 2,400 18,900

F108/CFM56 CFM56 General Electric 1,600 4,000

501K 501K Allison 255 1,378

F117 PW2000 Pratt & Whitney 51 679

TF33 JT3D Pratt & Whitney 3,600 2,200

T56 501D Allison 6,700 a5,800

LM2500 LM2500 General Electric 543 509

T700 CT7 General Electric 5,000 2,100

TF34 CF34 General Electric 2,000 570

aIncludes foreign operators of military configured T56 engines.

Commercial carriers have less than 50 percent of the inventory for three

types of engines—the T56, LM2500, and T700—which still appear to be

good candidates for public-private competition. These engines have

multiple sources of repair in the private sector, and DOD in the past has

contracted with the private sector for repair of some of these engines. For

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Privatization Opportunities and Impact of

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reasons previously mentioned, the TF33 and TF34 engines do not appear

to be good candidates for competition.

Multiple Private

Sources Able to

Compete

To determine if private repair facilities would be interested in and capable

of maintaining and overhauling military engines with commercial

counterparts, we surveyed 24 private companies with turbine engine

repair capability. These companies included 2 engine manufacturers, 

5 airlines, and 17 independent repair activities. Of these 24, 18 were

interested, and 10 of these either were repairing or had repaired the

military engine or its commercial counterpart.

The contractors we surveyed were interested in working on nine

commercial counterpart engines. In most cases, they had sufficient

capacity to absorb the additional work. The survey showed the following:

• Of the 24 repair activities we contacted, 18 were interested in repairing 

1 or more of the 10 military engines with commercial equivalents. The

other six contractors were either not interested in repairing military

engines or did not have the capability to repair whole engines. The

interested companies have repaired or are repairing commercial

counterparts.

• All of the 18 repair activities already repair military engines or their

commercial counterpart for the military services, foreign countries, or

commercial carriers.

• Seven of the 10 military engines have commercial sources of repair. These

are the T56, 501K, LM2500, T63, T700, F117, and CFM56 engines.

• The other three—TF33, TF39, and TF34—have repair sources for their

commercial counterparts—the JT3D, CF6, and CF34 engine.

We compared the capacity reported by the private sector to the services’

projected workload for fiscal year 1997. Table 3.2 provides the results of

our survey. When compared to the services’ projected fiscal year 1997

workload, the contractors had more than enough reserve capacity to

overhaul 6 of the 10 engines.

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Table 3.2: Private Sector Reserve Capacity to Repair Military Engines

Annual reserve capacity reported by private repair activities compared to fiscal year 1997 defense workload

(Workload in direct labor hours)

Military engine

model

Private repair

activities responding

Reserve capacity in

engines

Direct labor hours

per engine

Reserve private

sector capacity

FY 1997 defense

workload

TF39 3 470 7,529 3,538,630 528,758

TF33 3 750 2,376 1,782,000 875,740

T63 8 1,476 334 492,984 2,975

T56 3 485 1,005 487,425 648,773

LM2500 3 131 3,775 494,525 86,938

F108/CFM56 4 660 646 426,360 101,984

T700 3 345 512 176,640 241,030

501K 2 108 690 74,520 20,010

TF34 1 10 631 6,310 60,286

F117a 3 296

aNo depot labor standard or projected workload was available for the F117 engine.

The private repair activities reported sufficient reserve capacity to

accomplish all of the projected depot workloads for six military engines:

TF39, TF33, T63, F108/CFM56, 501K, and LM2500. They reported sufficient

reserve capacity to perform 75 percent of the military’s T56 workload and

73 percent of its T700 engine workload. However, they reported little

interest or available capacity to repair the TF34 engine. Private firms also

reported sufficient capacity to handle the military F117 engine workload.

The C-17 aircraft and its F117 engine are currently under commercial

depot contract until 1997. Because of the absence of interest in the TF34

engine, it does not appear to be a good candidate for privatization.

Additionally, because of declining use in the commercial market as well as

declining repair sources, the TF33 also does not appear to be a good

candidate.

LM2500 Offers a

Privatization

Opportunity

The LM2500, a ship propulsion version of the TF39 engine, is used to

power Navy cruisers, frigates, and destroyers.1

 With the exception of the

TF39 high bypass fan section, the two engines are very similar—with

about 35 percent of the LM2500 parts interchangeable with TF39 parts.

Other parts and components, although not interchangeable, are similar in

design and require the same types of maintenance equipment and artisan

1

The LM2500 engine is used throughout the oil and gas industry to supply mechanical power for

pumps, compressors, and generators.

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Privatization Opportunities and Impact of

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skills to repair. Currently, both engines are repaired in public depots. The

TF39 is repaired by the San Antonio Air Logistics Center, and the LM2500

is repaired by North Island Naval Aviation Depot. In addition, three private

repair activities, including General Electric, reported interest and

capability to repair the LM2500 engine. All three sources are repairing the

LM2500 for commercial industry, and they have a reserve capacity capable

of performing almost six times the projected fiscal year 1997 workload.

As early as 1978, we reported that consolidating the LM2500 with the TF39

workload at the San Antonio Air Logistics Center would result in savings.2

We found that the Navy’s decision to equip the North Island Naval Aviation

Depot to repair the LM2500 reflected the services’ reluctance to share

depot maintenance, even though such actions created duplicate

maintenance capability. Since then, however, North Island has lost all of

its turbine engine workload except the LM2500, and as a result, the repair

costs of the LM2500 have steadily increased from $443,678 in 1990 to

$925,200 in 1995. Naval Sea Systems Command officials believe the costs

have increased because the LM2500 is a relatively small workload and is

the only turbine engine North Island currently repairs.

Impact of

Privatization-in-Place

on Excess Capacity

The 1995 BRAC Commission added the San Antonio Air Logistics Center to

the list of depots to be considered for closure and realignment. The Air

Force initially recommended downsizing all five Air Force depots by

mothballing excess space and did not recommend closing any

maintenance depots. However, the Commission found that the significant

excess capacity and infrastructure in the Air Force depot system required

the closure of the San Antonio center. The Commission’s recommendation

provided that DOD should consolidate the center’s maintenance workloads

at other DOD depots or contract them out to private contractors as

determined by the Defense Depot Maintenance Council. The Commission

estimated savings from the implementation of this recommendation at

$178.5 million annually.

The closure of the San Antonio depot would create the need for

reassigning the source of repair for the T56, 501K, and TF39 commercial

counterpart engines as well as the military-unique F100 engine workloads

maintained at this depot. The closure of the depot, along with the ready

availability of commercial repair sources, would have made the T56, 501K,

and TF39 engines potential candidates for privatization through

public-private competition.

2

Aircraft Depot Maintenance: A Single Manager Is Needed to Stop Waste (LCD-78-406, July 12, 1978).

Page 36 GAO/NSIAD-96-33 Depot Maintenance
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Privatization Opportunities and Impact of

Excess Capacity

However, in approving the BRAC recommendations President Clinton

directed that the workload of the San Antonio Air Logistic Center be

privatized-in-place or in the local community. According to DOD officials,

they are developing plans to privatize workloads—including engines—in

San Antonio, as part of a plan to retain over 16,000 jobs in that city.

Until the administration decided to privatize the workload in San Antonio,

the BRAC’s recommendation to close the San Antonio Air Logistics Center

offered potential opportunities to improve the cost-effectiveness of DOD’s

depot activities by consolidating engine repair at other DOD depots. Based

on data provided by the Air Force, consolidating San Antonio’s engine

workload could have reduced the overhead rate for engine workload at the

remaining depot by as much as $10 per hour. Moreover, the remaining Air

Force repair depot could not absorb all of the San Antonio engine

workload, which would have created opportunities to privatize some

commercial counterpart engine workloads. The Air Force could have also

considered outsourcing commercial counterpart engines at its remaining

engine depot, such as the CFM56 and TF33 engine, to free up capacity to

repair military-unique or more mission-essential engines, such as the F100

or TF39 engines.

Under the administration’s proposed plan to privatize-in-place, the Air

Force may not be able to move any work from San Antonio to other engine

depots or allow private contractors to bid for workloads that they could

have otherwise moved to facilities located outside the San Antonio area.

Consequently, the plan will have little impact on reducing the excess

capacity and improving the cost-effectiveness of remaining depots.

Since the remaining depots will continue to be burdened with excess

capacity, moving additional engine workloads from these facilities to the

private sector would only increase the fixed costs that must be recovered

by each direct labor hour of work still done in the public depot. Therefore,

the potential for cost-effective privatization of additional engine

workloads may be limited to situations where DOD is maintaining

redundant or duplicative depot capabilities for the same or similar engines

with commercial counterparts. Such is the case with the LM2500 engine.

Conclusions Whether or not to maintain DOD facilities for depot maintenance of military

systems and equipment, such as engines, is a policy decision that must be

made by Congress and DOD. The current policy is to maintain core

capabilities in the military depot maintenance system. We agree that there

Page 37 GAO/NSIAD-96-33 Depot Maintenance
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Privatization Opportunities and Impact of

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are valid arguments to support that policy. However, it is not clear how

much core capability is required or to what extent cost-effectiveness

should be a consideration in the decision-making process. Nonetheless, we

believe cost-effectiveness should be a key part of this decision-making

process.

Generally, commercial counterpart engines are excellent candidates for

privatization, particularly those with high degrees of commonality in parts

and repair processes and those where the private sector has a significant

share of the total engine population. The existence of multiple sources of

repair provides increased opportunity for competitive outsourcing of

repair while lessening the operational risk inherent when only a single

private source of repair is available. Our review of DOD’s commercial

counterpart engine repair program supports the potential for privatizing

much of this work.

However, while the potential exists to privatize additional commercial

counterpart engine workloads, it may not be cost-effective to do so

without reducing the large excess capacity and overhead that already

exists in DOD’s engine depot maintenance structure. Privatization of

additional engine work would further exacerbate the severe engine excess

capacity problem and the cost of maintaining engines at the remaining

military depots. Without a reduction in excess capacity, it is not likely that

planned savings from privatization can be achieved.

Prior to the administration’s decision to privatize the workload,

recommended closure of one of the two major Air Force engine depots

offered the potential to improve the efficiency of the remaining engine

depots as well as to evaluate the cost-effectiveness of privatizing

additional commercial counterpart engine workloads through

public-private competitions. If core military-unique workloads from a

closing activity are transferred to another public depot with proven

capability to perform the work, DOD could not only save costs from the

elimination of unneeded infrastructure, but also from the economies

resulting from the consolidation of engine workloads and improved

utilization of remaining engine facilities.

Because the administration plans to privatize-in-place the San Antonio

engine workload, the remaining engine depots will continue to have severe

excess capacity and any additional privatization of their commercial

counterpart work would increase the per-unit cost of remaining engine

work in those depots. Thus, with the exception of the LM2500 engine, we

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Privatization Opportunities and Impact of

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believe it may not be cost-effective to privatize commercial counterpart

engine workloads from other engine depots at this time.

It does not appear to be cost-effective to maintain only one engine line at

the North Island Naval Aviation depot, particularly since another engine in

the same family of engines is maintained at another DOD depot. The

LM2500 workload can probably be performed more cost-effectively by the

private sector or through consolidation with the TF39. A public-private

competition would be a good choice for determining the most

cost-effective source of repair for this engine.

Matter for

Congressional

Consideration

Congress may wish to consider requiring DOD to report its plan for

privatizing-in-place the engine workload at the San Antonio Air Logistics

Center. The plan should include DOD’s strategy for determining the source

of repair for engine workloads currently at the San Antonio Air Logistics

Center and a discussion of the cost-effectiveness of the various repair

alternatives, including transferring the workload to other military depots

and privatization-in-place.

Recommendations We recommend that the Secretary of Defense:

• Require the Secretary of the Air Force to assess the cost-effectiveness of

various alternatives for allocating engine workload from the San Antonio

Air Logistics Center between the public and private sectors, including

privatization-in-place and transferring engine workloads to other military

depots.

• Develop a plan for reducing excess engine capacity and improving the

utilization of military depots not identified for closure. This plan should

address how DOD intends to (1) comply with the existing law regarding the

use of competitive procedures that include public and private entities

when changing depot maintenance workloads to the private sector and

(2) reduce excess engine capacity at other DOD engine depots in light of

planned privatization.

• Require the Secretary of the Navy to conduct a public-private competition

for the LM2500 engine workload.

Agency Comments DOD officials generally concurred with our analysis, conclusions, and

recommendations regarding privatization opportunities for commercial

counterpart engines. Air Force officials said that they plan to assess the

Page 39 GAO/NSIAD-96-33 Depot Maintenance
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Privatization Opportunities and Impact of

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cost-effectiveness of various alternatives for allocating engine workload

from the San Antonio depot among the public and private sector prior to

deciding what engine workloads will be privatized-in-place. The Air Force

plans to compute its core maintenance requirements by January 1996

using a methodology that includes a privatization risk assessment. If

existing commercial capabilities are an acceptable risk, then the core

requirements will be reduced accordingly. However, workloads necessary

to sustain the Air Force’s core logistics engine maintenance capability will

be transferred to the remaining DOD depots.

Air Force officials stated that they believe competitive private sector

sources (potentially including privatization-in-place) will likely provide the

best alternative for cost-effective accomplishment of above-core engine

workloads. We noted that the Air Force explanation did not consider the

impact of a privatization-in-place decision on the cost of other engine

workloads repaired in remaining military depots and did not address the

need to conduct competitive procedures that include remaining public

depots.

DOD concurred with our recommendation to develop a plan for reducing

excess capacity and improving the utilization of military depots not

identified for closure. DOD officials stated that they recognize additional

privatization will aggravate the already serious excess capacity problems

at the remaining engine depots and that there is a need for developing a

plan for dealing with this problem.

DOD officials agreed to reassess the source-of-repair of the LM2500 engine

but did not say they would conduct a public-private competition. These

officials noted that the Navy has already undertaken a study to evaluate

the cost-effectiveness of outsourcing the LM2500 engine versus continuing

to repair the engine at North Island Naval Aviation depot. That study will

consider engine repair costs, repair cycle times, and the potential impact

of the Navy’s emerging regional maintenance concept. While the study’s

approach may provide some useful information to Navy business planners,

it does not replace the need to comply with the requirement to conduct

competitive procedures that include public depots before privatizing the

North Island LM2500 workload.

Page 40 GAO/NSIAD-96-33 Depot Maintenance
Page 41 GAO/NSIAD-96-33 Depot Maintenance
Appendix I 

Overview of Engine Depot Maintenance

Process

Depot engine repair includes repairing whole engines, engine modules,

and engine components. The engine depot-level repair process is outlined

in figure I.1. Engines are disassembled into components and parts and

then are visually inspected. Parts are cleaned and inspected using

nondestructive test techniques that include florescent penetrate, eddy

current, ultrasound, and magnetic particle inspections. Parts are

condemned if they cannot be economically repaired. Repairable parts are

routed to repair shops or held in storage until the engine is reassembled.

Once reassembled, engines are sent to the engine test cell to certify that

they comply with performance standards.

Figure I.1: Engine Depot Maintenance Process

INPUT

DISASSEMBLY VISUALLY

 INSPECT

CLEANING NON-DESTRUCTIVE

INSPECTION 

UNSERVICEABLE REPAIR

PROCESS

SUBASSEMBLY SUPPLY FINAL

ASSEMBLY

ENGINE

 TEST

 FINAL

SUPPLY PREPARATION

CONDEMN CONDEMNATIONS

BAD

SUPPLY

CATEGORIZATION

UNSERVICEABLE

BAD

SERVICEABLE

CONDEMNATIONS

OPERATING 

UNITS

Page 42 GAO/NSIAD-96-33 Depot Maintenance
Appendix I 

Overview of Engine Depot Maintenance

Process

The facilities and equipment required to support the depot-level

maintenance process are extensive and costly. DOD estimates that the five

depots capable of repairing turbine engines have engine repair equipment

and facilities with an estimated replacement value of $1.8 billion. Figure I.2

depicts some of the industrial processes and equipment used in the

depot-level repair of turbine engines.

Page 43 GAO/NSIAD-96-33 Depot Maintenance
Appendix I 

Overview of Engine Depot Maintenance

Process

Figure I.2: Industrial Processes and Equipment Used in the Depot-Level Repair of Turbine Engines

Page 44 GAO/NSIAD-96-33 Depot Maintenance
Appendix I 

Overview of Engine Depot Maintenance

Process

Page 45 GAO/NSIAD-96-33 Depot Maintenance
Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

Our survey of engine manufacturers and private repair contractors

identified seven engines—T56, 501K, F108/CFM56, T63, T700, TF39, and

LM2500—that are good candidates for privatization through a

public-private competition because (1) the military engine has a high

degree of similarity with its civilian counterpart and (2) multiple

contractors expressed an interest in maintaining or overhauling them. For

the same reasons, the Department of Defense (DOD) may choose to rely on

the private sector to maintain the F117 engine. While several contractors

expressed interest in the TF33 engine, it does not appear to be as good a

candidate for privatization because of declining usage of it in the private

sector and declining repair sources.

T56 and 501K Engines The T56 and 501K engines are manufactured by Allison. DOD has 50 percent

of the 14,130 engine population. The T56 engine powers the Air Force

C-130 and Navy P-3 and E-2 aircraft. The Navy also uses a marine

equivalent of the T56, the 501K engine, to generate electrical power for its

destroyer-class ships. Prior to the 1993 Base Realignment and Closure

Commission (BRAC) decision, the Navy repaired its T56 and 501K engines

at the Alameda Naval Aviation Depot. The commercial equivalent of T56 is

the 501D, which powers the Lockheed Electra and Convair 580

commercial aircraft. The 501K is a commercial engine used in several

applications in the oil and gas industry. There is a worldwide network of

commercial support for this engine group. During fiscal years 1993

through 1995, 27 percent of DOD’s T56 and 501K workload was

commercially repaired.

In response to our survey, two private repair activities reported interest in

the 501K and three private repair activities, which are currently repairing

the T56 engine for foreign countries, reported interest in repairing the

T56/501K. However, their current reserve capacity is less than the services’

projected workload for 1997, which would require them to develop more

capacity. However, they believe that adding the capacity would simply

require hiring more personnel since they already have the tools, fixtures,

and equipment to repair the T56 engine. Furthermore, they believe

government could provide its equipment as government-furnished

equipment.

Although our survey included only engine repair firms based in the

continental United States, we noted there are nine Allison authorized T56

repair activities located overseas. According to Air Force Materiel

Command and Allison Aircraft officials, dividing the T56 engine workload

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Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

among multiple repair activities, including those located in the Pacific and

European theaters could reduce pipeline cost and reduce the risks of

losing private repair sources.

TF33 Engine The TF33 is a derivative of the commercial JT3D engine, which powers the

commercial Boeing 707, 720, and DC-8 aircraft. Both engines are

manufactured by Pratt and Whitney, and they have a high degree of similar

parts—between 40 percent and 70 percent, depending on the model or

version of the engine. The TF33 engine powers the C-141 transport, E-3

early warning, C-135 tanker/transport, and B-52H bomber aircraft, and is

repaired by the Oklahoma City Air Logistics Center. DOD has 60 percent of

the 5,800 engine population.

The original manufacturer, Pratt and Whitney, and two independent repair

activities—Aviall and Greenwich Air Services—reported more than double

the reserve capacity needed to handle the total TF33 engine workload.

However, only Greenwich Air Services is currently repairing the JT3D.

Although Pratt and Whitney and Aviall previously repaired the JT3D, they

closed these repair operations because of the declining commercial

market and because the JT3D represents older technology. They did,

however, express interest in the TF33 military workload.

DOD has an inventory of 3,600 TF33 engines—the largest of any military

turbofan engine with a commercial counterpart. The TF33 also has the

largest workload of commercially derived engines in DOD’s depots, with an

expected workload of 0.9 million direct labor hours for fiscal year 1997.

Outsourcing the TF33 workload could free up capacity to absorb the

repair of military-unique engines such as the F100, for which there is not a

competitive repair market. However, if the Air Force privatizes-in-place

the San Antonio engine workload, this would not likely be a valid

observation.

F108/CFM56 Engine DOD considers the F1081

 to be part of a family of engines whose combined

in-house support provides important synergy of expertise, equipment, and

facilities for the DOD core capability. Thus, in the past DOD has concluded

1

The F108 is the Air Force designation for the commercial CFM56 engine.

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Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

that the F108 should be maintained in DOD facilities.2 According to the DOD

report to Congress on commercial counterpart engines, the F108 is most

like a commercial model that does not have a large inventory. However,

according to General Electric engineers, CFM56-2 and CFM56-3 engines

are very similar and the F108 shares the same repair process as some

other engines.

The F108/CFM56 is manufactured by CFM International, a consortium of

General Electric and the French company, Snecma. The F108/CFM56

powers the Air Force KC-135 tanker and Navy E-6 airborne

communications aircraft. This engine is repaired by the Air Force at the

Oklahoma City Air Logistics Center. The CFM56 has three general

configurations: the CFM56-2, CFM56-3, and CFM56-5. The Air Force and

the Navy aircraft use the CFM56-2 configuration, which also powers

re-engined DC-8 aircraft used by the commercial aviation industry. The

CFM56-3 and CFM56-5 configurations power the Boeing 737 and various

models of the European Airbus. DOD has 25 percent of the 6,300 engine

population.

The military is by far the largest user of the CFM56-2 engine configuration.

However, General Electric engineers consider the CFM56-2 and the

CFM56-3 to have 80 percent commonality, excluding the fan module. The

military owns 1,600 CFM56-2 engines, while the private sector has 3,944

CFM56-2 and CFM56-3 engines.

Four private repair activities, including the manufacturer—General

Electric, were interested in repairing the military CFM56 engine, and they

had enough reserve capacity to perform four times the military’s projected

fiscal year 1997 workload.

Further, as the DOD report noted, the F108 is part of a family of engines

that includes military-unique fighter and bomber engines maintained as

DOD’s turbine engine core. Other engines in this family also power the F-14,

F-15, F-16, B-1, and B-2 aircraft. According to General Electric officials,

although some engine parts are not interchangeable within the group of

engines, the repair processes are the same. Thus, the same types of

equipment, such as vertical turret lathes, metal plasma machines, grinders,

as well as the same artisan skills are used to repair all engines within the

group. This commonality also gives the Air Force the flexibility to privatize

2

In 1991, we reported that although the Air Force had decided to use in-house repair for the CFM56

engine, it might be able to reduce engine maintenance cost by using commercial facilities to repair the

F108/CFM56, Commercial Practices: Opportunities Exist to Reduce Aircraft Engine Support Costs

(GAO/NSIAD-91-240, June 28, 1991).

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Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

the F108 workload while maintaining its core capability to repair the other

military engines in the same family—the F110, F101, and F118 engine.

T700 Engine The T700 engine, which powers the H-60 and H-64 helicopters, is

organically repaired by the Army at the Corpus Christi Army Depot. It is

similar to the CT7 commercial engine that powers the Bell 214ST and Saab

340 aircraft used in commercial aviation. Both engines are manufactured

by General Electric. Approximately 70 percent of the T700 workload is

performed in the depot; 30 percent is done on contract.

Three private repair activities, including General Electric, expressed an

interest in the military T700 engine workload. Of the three, however, only

General Electric currently repairs the commercial CT7 engine. The other

two contractors have previously repaired the T700 engine on contract with

the Army. According to one repair activity, General Electric has not yet

certified an independent source of repair for the CT7 commercial engine.

While private repair activities have proven that they are capable of

repairing the T700, they reported less capacity than the Army’s projected

T700 workload requirements for fiscal year 1997. Were DOD to privatize

T700 depot maintenance, given current capacity levels, some portion of

the workload would still have to be done in the public depot. DOD owns

approximately 70 percent, or 5,000 of the 7,100, of the inventory of

T700/CT7 engines in military and commercial markets. Therefore, the

short fall of capacity in the private sector may improve should General

Electric certify independent repair activities to repair the commercial 

CT7 engine.

T63 Engine The T63 is manufactured by Allison and is similar to the commercial 250

Allison engine, which powers several commercial aircraft, including the

Bell 206 and 487 helicopters. DOD has 11 percent of the 21,000 engine

population. The T63 engine powers the H-58 and H-6 helicopters—both of

which are being significantly downsized. The Army does 84 percent of its

T63 depot workload at its Corpus Christi Army Depot, with the remaining

workload contracted out to the private sector. Our survey identified eight

potential sources of repair for this engine—three having previous T63

experience and the remaining having experience with the Allison 250.

More commercial turbine engine helicopters are powered by the Allison

250 engines than any other engine. While the Allison 250 engine has

widespread commercial use, the military’s workload is declining. There

Page 49 GAO/NSIAD-96-33 Depot Maintenance
Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

are about 18,900 Allison 250 engines in the commercial market compared

with only about 2,400 military engines. Projected T63 workload at Corpus

Christi Army Depot is expected to decline from 32,920 direct labor hours

in 1993 to about 3,000 direct labor hours in 1997. Even though Corpus

Christi has extensive excess engine repair capacity and repairing small

quantities of T63 workload recovers some fixed overhead costs,

continuing to maintain the T63 repair line in-house is probably not

cost-effective.

TF39 and LM2500 Engines Although DOD has not identified the TF39 and LM2500 as commercial

engine counterparts, the engine manufacturer and other sources of repair

did. The TF39, which powers the C5A&B cargo aircraft, is closely related

to the CF6 commercial family of engines and the LM2500 engine. All three

are manufactured by General Electric. The LM2500, a ship propulsion

version of the TF39 engine, is used to power Navy cruisers, frigates, and

destroyers.3

LM2500 The LM2500 is actually a marine/industrial version of the military TF39

aircraft engine. With exception of the TF39 high bypass fan section, the

two engines are very similar—with about 35 percent of the LM2500 parts

interchangeable with TF39 parts. Other parts and components, although

not interchangeable, are similar in design and require the same types of

maintenance equipment and artisan skills to repair.

As early as 1978, we reported that consolidating the LM2500 with the TF39

workload at the San Antonio Air Logistics Center would result in savings.4

We found that the Navy’s decision to equip the North Island Naval Aviation

Depot to repair the LM2500 reflected the services’ reluctance to share

depot maintenance, even though such actions created duplicate

maintenance capability. Since then, however, North Island has lost all of

its turbine engine workload except the LM2500, and as a result, the repair

costs have steadily increased from $443,678 in 1990 to $925,200 in 1995.

Naval Sea Systems Command officials believe the costs have increased

because the LM2500 is a relatively small workload and has to carry all

overhead and indirect costs associated with engine repair, which was

previously spread among several engine workloads.

3

The LM2500 engine is used throughout the oil and gas industry to supply mechanical power for

pumps, compressors, and generators.

4

Aircraft Depot Maintenance: A Single Manager Is Needed to Stop Waste (LCD-78-406, July 12, 1978).

Page 50 GAO/NSIAD-96-33 Depot Maintenance
Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

Three private repair activities, including General Electric, reported

interest and capability to repair the LM2500 engine. All three sources are

repairing the LM2500 for commercial industry; they have a reserve

capacity capable of performing almost six times the projected fiscal year

1997 workload.

TF39 Engine The TF39 engine manufacturer, General Electric, and other sources of

repair stated that the CF6 family of engines are derivatives of the military

TF39 engine. The CF6 engine powers the DC-10, Boeing 747, and MD-11

aircraft. According to the General Electric TF39 program manager, there

are approximately 400 CF6-6 engines, 4,000 CF6-50 engines, and 1,000

CF6-80 engines in commercial aviation. He noted that the CF6-6 engine

was the first commercial derivative of the military TF39 engine and is most

like the military engine. There are currently 665 TF39 engines in DOD’s

inventory.

According to General Electric and the Air Force TF39 program manager,

the major difference in the two engines is in their bypass fans. The TF39

engine uses a two-stage bypass fan and the CF6-6 a single-stage fan.

Except for the bypass fans, the other sections of the engine are very

similar. While the compressor/rotor is the only identical section in both

engines, according to the manufacturer, the engines share an overall

30 percent commonality among parts in the compressor, high pressure

turbine, and low pressure turbine sections. Further, the repair processes

and artisan skills necessary to repair the TF39 and CF6 engines are the

same. For example, metal spraying, grinding and vertical turret lay work

are required in the overhaul of both engines.

General Electric, Aviall, and Greenwich Air Services said that little new

equipment would be needed to adapt a commercial CF6 repair line to

repair the TF39 engine. The greatest expense would be for the adapters

and harnesses necessary to run the TF39 engine in a CF6 engine test cell.

Additional tools and fixtures also would be needed for disassembly,

assembly, and balancing different parts of the engine, including the larger

TF39 bypass fan. The current repair facilities estimated it would cost

between $5 million and $7 million to establish a TF39 repair line. However,

they noted that the government could reduce one-time conversion costs by

providing the successful contractor with its tools and fixtures as

government-furnished equipment.

The field of competition may be limited to the original manufacturer and

one independent repair activity. General Electric and two independent

Page 51 GAO/NSIAD-96-33 Depot Maintenance
Appendix II 

Analysis of Military Turbine Engines With

Commercial Counterparts

repair activities, Aviall and Greenwich Air Services, expressed interest in

repairing the TF39 engine. All three companies currently repair CF6

engines for commercial carriers. However, only General Electric and

Greenwich Air Services have CF6 repair facilities located in the

continental United States. Aviall’s CF6 repair facility is located in

Prestwick, Scotland. Previously, TF39 exchangeable component workload

has been restricted to repair facilities within the continental United States

and Canada.

According to the Air Force, AFLCR 66-48 allows the Air Force to exclude

bids from overseas facilities to ensure access to the parts in time of

national emergency.5

 Such a restriction could reduce the number of

potential bidders, and, thereby, lessen the price competition.

F117 Engine According to its report, DOD has not yet decided on the source of repair for

the F117 engine, which powers the C-17 aircraft. The F117 is manufactured

by Pratt and Whitney and is the military counterpart of the PW2000, which

powers the Boeing 757 aircraft.

The Air Force did not project depot workload requirements for the F117

engine for fiscal year 1997 since the engine will be maintained under an

interim contractor support agreement through 1997. In addition to the

engine manufacturer, three airlines currently have repair capability for the

PW2000, which the manufacturer estimates is 90 percent similar to the

F117. The equipment manufacturer and two of the airlines were interested

in future F117 engine overhaul workload.

The approved C-17 program calls for a fleet of 40 aircraft, or 4 engines per

aircraft and 27 spare engines authorized for fleet support, a total of 

187 engines. Private repair activities reported capacity to overhaul 

296 F117 engines annually. The Air Force is seeking congressional

approval for a C-17 fleet of 120 aircraft, with 58 spares.

5

The Air Force denied Aviall the opportunity to bid on the repair of TF39 combustion liners in 1993

because the company planned to repair the liners in Scotland. In addition, a proposal from the Air

Force and the Navy for the T56 engine in 1993 restricted the use of overseas facilities. Israeli Aircraft

Industries protested the restriction, but the protest was never resolved.

Page 52 GAO/NSIAD-96-33 Depot Maintenance
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Julia Denman, Assistant Director

Dallas Office Larry Junek, Evaluator-in-Charge

Cleofas Zapata, Jr., Evaluator

Enemencio Sanchez, Evaluator

John Strong, Evaluator

(709042, 709158) Page 53 GAO/NSIAD-96-33 Depot Maintenance
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