GAO

United States General Accounting Office

Report to the Chairman and the Ranking 

Minority Member, Subcommittee on 

Defense, Committee on Appropriations 

U.S. Senate

July 1999 DEFENSE BUDGET

Observations on the 

Air Force Flying Hour 

Program

GAO/NSIAD-99-165

Page 1 GAO/NSIAD-99-165 Defense Budget

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-282754 Letter

July 8, 1999

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

This report responds to your request that we study the Air Force’s budget 

formulation process for its flying hour program for fiscal years 1997 

through 1999. During fiscal years 1997 and 1998, the Air Force reported 

funding deficits of $171 million and $200 million, respectively, in its flying 

hour program, and it projects a similar deficit for fiscal year 1999. 

Concerned that shortfalls in this program would curtail flying operations 

and in turn pose a serious risk to the readiness of Air Force aviation units, 

the Air Force requested and received additional money for the program in 

each fiscal year. 

The requests for additional funding raised concerns in Congress about the 

validity and accuracy of the Air Force’s budget formulation process for its 

flying hour program. As agreed with your offices, this report (1) identifies 

the extent to which the Air Force has flown the hours requested in its 

budget, (2) describes the process that the Air Force uses to determine 

flying hour requirements, (3) discusses how the requirements and specific 

cost factors are used to develop the budget estimate for the flying hour 

program, and (4) compares program funding and obligations incurred in 

fiscal year 1997 and fiscal year 1998 and provides reasons for the 

differences.

Background The Air Force’s flying hour program comprises the number of hours needed 

to attain and maintain combat readiness and capability for its aircrews, to 

test weapon systems and tactics, and to fulfill collateral requirements such 

as air shows, demonstration rides for VIPs, and ferrying aircraft. The 

number of hours required is determined annually at the major commands 

by operations and training personnel. 

Letr
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Air Force documents show that funding for active Air Force flying hours 

was about $2.8 billion for fiscal year 1998. The funds are part of the 

congressional appropriation for Air Force Operation and Maintenance, 

which totals about $20 billion annually. Air Force headquarters distributes 

the flying hour funds to its eight major commands, which have the 

responsibility of managing the funds. The major commands use the 

operation and maintenance dollars to pay for fuel, maintenance, and spare 

parts in support of flying operations.1

The Air Force flying hour program is not reflected as a separate line item in 

the operation and maintenance appropriation. The budget is organized by 

budget activity groups, activity groups, and sub-activity groups; flying hour 

costs are spread throughout this budget structure by the use of program 

element codes. These program elements are used as the basic building 

blocks for identifying resource requirements in the Air Force’s portion of 

the President’s budget. Costs per flying hour in fiscal year 1998 were 

expensed within 39 program element codes spread throughout 12 

sub-activity groups.

Results in Brief In the last 4 years, the Air Force has requested funding for more flying 

hours than it has been able to fly. From fiscal year 1995 through fiscal year 

1998, the Air Force flew fewer hours than were programmed, ranging from 

a low of about 89 percent of programmed hours in fiscal year 1995 to a high 

of about 94 percent in fiscal year 1996. Programmed hours were not flown 

for a variety of reasons, including deployments, bad weather, and 

maintenance or supply problems. The Air Force did not cite a shortage of 

flying hour funding as a cause for underflying the program. 

In July 1997, the Air Force changed its method for determining its flying 

hour requirements by better linking these hours to missions required for 

maintaining readiness and proficiency. For fighter and bomber aircraft, for 

example, the Air Combat Command has two readiness levels—basic 

mission-capable and combat mission-ready. For each level, the new 

method specifies the number of sorties required, the training events to be 

accomplished, and the hours required for accomplishing them. The Air 

Force Chief of Staff has also emphasized to its major commands the need 

1

The Air Force’s major commands include Air Combat Command, Air Education and Training 

Command, Air Force Academy, Air Forces Europe, Air Mobility Command, Air Force Material 

Command, Pacific Air Forces, and Space Command.

Letr
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to fly all programmed hours in fiscal year 1999. The remainder of this fiscal 

year should serve as a good indication of the Air Force’s general ability to 

fly the hours it says are needed to maintain combat readiness and 

proficiency while maintaining support for contingencies in Europe and 

Southwest Asia.

The methodology used by the Air Force to cost out the flying hour program 

depends heavily on stable prices for its repairable and consumable spare 

parts. Management problems in determining prices for these items have 

led to multiple price changes that have, in turn, led the Air Force to believe 

it would exhaust its flying hour funding before the end of the fiscal year. As 

a result, for the last 2 fiscal years, it requested, and received, additional 

congressional funding for its flying hour program that ultimately proved to 

be in excess of its requirements since it flew fewer hours than 

programmed. In total, Congress provided about $5 million more for the 

flying hour program than the Air Force’s obligations during fiscal year 1997 

and about $357 million more than its obligations in fiscal year 1998. 

Ultimately, these excess funds were used to support unmet needs for 

funding in other operation and maintenance programs, such as real 

property maintenance and base operation support.

The Air Force is currently implementing our prior recommendations aimed 

at improving the financial operations of the Air Force’s supply management 

activity group. Continued progress in implementing these 

recommendations should enable the Air Force to provide the pricing 

stability needed to more accurately assess the adequacy of its flying hour 

funding as the budget year progresses. Therefore, we are not making any 

additional recommendations at this time.

Historically, Air Force 

Flying Hour 

Requirements Have 

Exceeded the Number 

of Hours Units Could 

Fly

During fiscal years 1995 through 1998, the Air Force each year requested 

funding for more flying hours than its flying units were able to execute. 

Annually, the major commands are asked to determine the number of hours 

needed to attain and maintain combat proficient aircrews and to complete 

collateral flying requirements. In making this determination, command 

personnel consider the frequency of flying (number of sorties or hours) and 

specific training events each aircrew must accomplish. The flying 

requirements, expressed in hours, become the basis for the funding 

requested in the President’s budget. From fiscal year 1995 through fiscal 

year 1998, the total Air Force requirement remained fairly constant at about 

1.3 million hours each year.
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In each fiscal year the Air Force flew fewer hours than were programmed. 

This ranged from a low of about 89 percent of the programmed hours in 

fiscal year 1995 to a high of about 94 percent in fiscal year 1996. The hours 

programmed and the percent flown are shown in table 1.

Table 1: Air Force Flying Hours Programmed and Percentage Flown 

(fiscal years 1995–98)

Note: The numbers and percentages shown in table 1 are aggregates; the actual hours and 

percentages flown vary among each flying unit. For example, the aggregate for fiscal year 1998 was 

92.5 percent, but as we reported in Air Force Supply: Management Actions Create Spare Parts 

Shortages and Operational Problems (GAO/NSIAD/AIMD-99-77, April 1999), the B-1B and the F-16 

aircraft in the Air Combat Command flew only 83 percent of their total flying hours during fiscal year 

1998.

Source: Department of the Air Force.

As each unit recognizes that it will be unable to fly its programmed hours, it 

“turns in” the hours to the major command and provides the reason for 

doing so. The reasons for not flying the program varied, but a shortage of 

flying hour funding was not cited as one of them. The reasons that were 

cited by units from the Air Combat Command and Air Mobility Command 

included

• supporting contingencies (such as enforcing the no-fly zone in Iraq),

• evacuation of aircraft due to hurricanes,

• aircraft grounded for safety considerations, and

• higher than normal non-mission-capable rates due to maintenance and 

supply problems.

The flying hour requirement in the budget request does not include flying in 

support of contingency operations such as those in Bosnia and Iraq. 

However, hours flown in support of contingency operations are counted 

against programmed hours already funded in the President’s budget up to 

the number of hours an aircraft would have flown at its home station. For 

additional hours flown, the Air Force receives additional funding from a 

centrally managed Department of Defense (DOD) contingency account. 

Fiscal

year

President’s

budget (hours)

Percent

flown

1995 1,453,501 88.7

1996 1,327,155 93.7

1997 1,285,695 91.7

1998 1,290,256 92.5
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For example, in fiscal year 1998, Air Combat Command units flew about 

79,400 hours in support of contingencies; about 54,500 hours were counted 

against the programmed hours, and funding was received for the remaining 

24,900 hours.

Air Force Has Revised 

Its Requirements 

Determination 

Processes to Better 

Link Flying Hours to 

Mission-Oriented 

Training Programs

In mid-1996, the Air Force Chief of Staff expressed concern that the service 

was not fully executing its flying hour program and emphasized that it is Air 

Force policy to fly the complete program. Accordingly, he tasked the major 

commands with (1) revalidating their flying hour requirements to ensure 

that they were adequate to meet readiness levels and (2) addressing their 

ability to execute these hours. The Acting Secretary of the Air Force 

reported to Congress in March 1998 that these actions had been completed.

In response to these concerns, the major commands revised their 

requirements determinations processes to tie them more closely to 

mission-oriented training programs. The Air Combat Command, for 

example, developed and implemented the Ready Aircrew Program, which 

incorporates a computer model to determine flying hour requirements for 

its fighters and bombers. Air Force officials said that the new system links 

flying hour training with warfighting commanders in chief requirements 

and standardizes the methodology for determining the hours needed to 

ensure combat proficiency. The Air Mobility Command has adopted a 

similar, model-based approach to determining its requirements.2

 

The basis for Air Combat Command’s requirements model is their 

task-based Ready Aircrew Program. The Ready Aircrew Program is the 

continuation-training program designed to focus training on capabilities 

needed to accomplish a unit’s core missions. The program establishes two 

levels of proficiency: basic mission-capable and combat mission-ready. 

Each level is defined by a total number of Ready Aircrew Program sorties, 

broken down into mission types, plus specific weapons qualifications and 

associated events. For example, an experienced F-16 pilot would require 

60 sorties annually to achieve basic mission-capable and 96 sorties to 

achieve combat mission-ready status. The level that individual pilots are 

required to maintain is determined by their position in the unit; for 

example, all line pilots, commanders, and operations officers must 

2

Previously, the commands based requirements largely on training programs that required a specific 

number of sorties or hours per pilot, but did not use models to standardize the calculations by aircraft 

type. 
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maintain combat mission-ready, while staff officers fly at the basic missioncapable level. Guidelines for mission types and weapons qualifications are 

provided in the training manual for each aircraft, but these are 

supplemented by unit-specific requirements issued annually by the major 

command.

These sortie requirements are factors used in the computer model, which 

calculates the total sortie requirements for each flying unit. Other factors 

the model considers are as follows:

• The number of primary aircrews (line pilots). These pilots must 

maintain combat mission-ready status.

• The experience mix of the pilots assigned. An inexperienced pilot 

(generally, a pilot with less than 500 hours logged in the aircraft) 

requires 20 more sorties per year than an experienced pilot.

• The number of attached pilots. Staff officers who are required to 

maintain basic mission-capable status are attached to the unit to satisfy 

flying requirements.

• Special capability sorties. Units may be required to maintain some 

pilots with special capabilities or qualifications that require additional 

sorties.

• Collateral sorties. Each unit must fly some number of sorties not 

directly related to combat employment or training but necessary for 

accomplishment of unit training programs. These include ferry flights, 

deployments, incentive flights, air shows, and so forth.

For budgeting purposes, the flying hour requirements are based on notional 

models of each unit type that assume that each unit will have all its aircraft 

and personnel assigned. Once the model has calculated the unit’s sortie 

requirements, the sorties are converted to flying hours. The conversion is 

made using unit-specific averages of sortie duration. The average sortie 

duration varies among units according to geographic location, proximity to 

training ranges, and the type of aircraft the unit flies. The result of the 

calculation is the units flying hour requirement. The total requirement for 

all units in the command is provided to financial management staff for use 

in developing the budget for flying hours.

The Air Mobility Command also uses models to develop its flying hour 

program. Air Mobility Command has developed airframe-specific models 

that compute flying hour requirements based on the number of aircraft 

commanders, co-pilots, and navigators authorized and the types, number, 

and duration of training events they must complete annually. The models 
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consider two types of training requirements: (1) experiencing 

requirements, which represent the flying training co-pilots must 

accomplish to upgrade to aircraft commander and (2) currency 

requirements, which represent the specific training needed for aircrews to 

develop flying skills. While all flying provides experiencing training, 

currency training can only be obtained through the accomplishment of 

specific training events.

In 1998, the Air Force Audit Agency reviewed Air Mobility Command’s 

flying hour program to determine if managers used effectively structured 

models and accurate data to compute flying hour requirements. The audit 

reported that opportunities existed to improve the model structure and 

inputs. According to the report, Air Mobility Command personnel teamed 

with the auditors to develop an improved, single-model structure for all 

applicable aircraft, and the Command’s personnel validated all the relevant 

factors used in the models.3

 This structure was provided to U.S. Air Force 

headquarters to serve as a basis for developing guidance for all Air Force 

mobility flying hour programs. 

The Air Mobility Command flying hour program differs from Air Combat 

Command’s program in that funding is provided from two sources. 

Traditionally, Air Mobility Command training requirements are Operation 

and Maintenance funded, while missions flown in support of the U. S. 

Transportation Command are funded by the Transportation Working 

Capital Fund. These missions involve movement of passengers and/or 

cargo, and the customer reimburses the working capital fund. The Air 

Mobility Command flying hour models were designed to calculate a 

distribution of flying hours by funding sources based on assumptions about 

the types of missions expected to be flown. Once the hours needed are 

determined, the requirements are provided to financial personnel for use in 

developing the flying hour budget.

3

Airlift and Air Refueling Aircraft Flying Hour Program, Air Force Audit Agency, Audit WS099011, 

December 9, 1998.
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Programmed Hours 

and Cost Factors Are 

Used to Prepare the 

Budget Estimate 

The basis for flying hour funding is the number of programmed hours 

multiplied by the projected cost per flying hour rate. Each major command 

develops a cost per flying hour rate for each of the aircraft types in its 

inventory. The rates comprise three major program expense elements—

depot-level repairable parts, consumable supplies, and aviation fuel. 

Depot-level repairable items are parts that can be repaired at a 

maintenance facility and are used in direct support of aircraft maintenance 

(e.g., aircraft engines). Consumables are generally defined as 

non-repairable supply items used by maintenance personnel in direct 

support of aircraft maintenance. Aviation fuel is the cost of fuel purchased 

to operate aircraft.

Cost per flying hour rates are developed in accordance with guidance from 

the Air Force Cost Analysis Improvement Group (AFCAIG). AFCAIG is a 

General Officer/Senior Executive Service group co-chaired by the Deputy 

Assistant Secretary of the Air Force for Cost and Economics and the 

Deputy Chief of Staff for Installations and Logistics. The group includes 

representatives from budget, logistics, and planning sections. The 

guidance is issued annually by the Comptroller and Air Force Logistics in 

the form of an AFCAIG letter, which begins the AFCAIG process. Under 

this guidance, cost factors are developed by the major commands and 

submitted by mid-November to Air Force headquarters for validation and 

approval. 

The annual AFCAIG process develops costs for the budget 2 years into the 

future; for example, the 1997 cycle, using the most current cost data 

available, developed the cost factors used in the fiscal year 1999 budget. 

The major commands begin the factor development process by calculating 

a baseline cost per hour for each aircraft type. Essentially, this process is 

accomplished by dividing the accumulated obligations for each expense 

element by the number of hours flown. For example, the baseline cost per 

hour for depot-level repairable parts for the F-15E in fiscal year 1997 was 

$2,667—accumulated obligations of about $100 million divided by the 

37,531 hours flown. The baseline cost per flying hour is then adjusted by a 

conversion factor (provided in the guidance from headquarters) to state the 

costs in fiscal year 1998 dollars. For the example cited above, the 1.198 

factor used that year increased the baseline cost to $3,195 per flying hour.

Once the baseline cost per flying hour rates are determined, the major 

commands review them and propose adjustments. An adjustment is an 

increase or decrease due to a forecasted change in policy, procedure, or 
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situation that will affect the cost per flying hour. The major command must 

compile data that is sufficient to allow reviewers within the process to 

understand the command’s requirements. The reasons for adjustments 

include, but are not limited to, the following:

• Warranty expiration—when a system has been covered by a warranty, 

the true sustainment costs have not been captured in the baseline.

• Special program starting—the price paid in the baseline year would no 

longer be needed because the system is transferring to a special 

program, such as Contractor Logistic Support.

• Changes in the level of maintenance—changing from two-level to 

three-level, or vice versa, would affect the depot-level repairable cost 

and the consumable supply cost associated with repair.

The completed baseline and proposed adjustments are submitted to Air 

Force headquarters for validation and approval. The validation is done by 

Air Force logistics and the Air Force Cost Analysis Agency (AFCAA) in 

conjunction with the major command’s Director of Plans. The result is a 

coordinated position and a validated package submitted by mid-December. 

AFCAA provides a copy to the various panels that comprise the AFCAIG in 

preparation for January briefings. In January, the major commands’ 

representatives brief the AFCAIG in regard to the cost drivers of the 

validated factors and the major commands’ total requirement. The 

AFCAIG approves or disapproves the validated submissions.

Each February, AFCAA provides the Air Force Budget office with the 

approved factors for each major command. Budget personnel put the cost 

factors into the Automated Budget Interactive Data Environment System 

(ABIDES) computer database to price the flying hour program, and they 

provide the total dollar amount back to AFCAA. The AFCAIG then briefs 

the Air Force corporate structure, which is the top-level forum for 

considering and deciding Air Force resource allocation issues. If changes 

result from this review, the budget office will adjust the cost factors and 

distribute to the major commands (by May of each year) the adjusted 

AFCAIG cost per flying hour factors along with an explanation for the 

adjustments.

Finally, the cost factors are adjusted to accommodate the annual composite 

price changes forecast by managers of the Air Force Working Capital Fund. 

The fund provides resources for Air Force Material Command’s (AFMC) 

Supply Management Activity Group, which provides supply support to the 

major commands. Each year the managers estimate a rate of increase or 
B-282754

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decrease in prices and submit it to the Under Secretary of Defense for 

approval. Once approved, the composite rate is provided to the Air Force 

budget office. The budget office applies the rate to the approved AFCAIG 

cost factors. These final factors, applied through the ABIDES database, 

become the basis for the cost of flying hours requested in the President’s 

budget.

Price Instability Has 

Led to Obligations 

Exceeding Funds 

Provided for the Fying 

Hour Program

The accuracy of the costs projected by the system described above 

depends heavily on the working capital fund concept that requires 

stabilized prices for repairable parts and consumable supplies. These 

prices are established by AFMC. For the past 2 fiscal years, and 

particularly in fiscal year 1998, AFMC has not provided this stability. 

Instead, financial management and systems problems at AFMC resulted in 

price lists that contained numerous errors. Efforts to correct the errors 

and changes in pricing policies created wide fluctuations of prices paid by 

the major commands. In total, the price lists provided to the commands 

were changed six times during fiscal year 1998. These price changes 

caused a great deal of concern among the commands regarding their ability 

to support the flying hour program and distorted the baseline data used for 

future years’ budgeting. In a June 1998 report, we recommended that 

AFMC develop and implement procedures to stabilize prices. AFMC 

efforts to accomplish this are currently in progress.

Working Capital Fund 

Concept Requires Stabilized 

Prices

The Air Force Working Capital Fund was created in 1996 by the Under 

Secretary of Defense (Comptroller) as a reorganization of the Defense 

Business Operations Fund. The Working Capital Fund is a revolving fund 

established to create a customer-provider relationship between military 

operating units and support organizations (for the purposes of this report, 

the Supply Management Activity Group (SMAG)). SMAG generates 

revenue by selling to Air Force units the items necessary to support troops, 

weapon systems, aircraft, communications systems, and other military 

equipment. SMAG is expected to break even over time by setting its prices 

to recover both the costs of goods and operating costs over the long run. 

Variations in program execution may result in gains or losses for the year, 

but such gains or losses are generally reflected in offsetting adjustments to 

stabilized rates established in subsequent fiscal years. 

DOD Financial Management Regulation 7000.14R requires that the prices, 

once established, be stabilized for the remainder of the fiscal year. This 

stabilized rate policy serves to protect appropriated fund customers from 
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unforeseen cost changes, and thereby enables customers to more 

accurately plan and budget for support requirements. According to the 

regulations, the policy also reduces disruptive fluctuations in the support 

facility’s workload levels and permits more effective use of resources.

For the past 2 years, SMAG has been unable to establish accurate price lists 

for the repairable parts and consumable items it supplies to Air Force flying 

units. In June 1998, we reported that SMAG lacked reliable data on which 

to base its prices and could not ensure that the composite price change 

approved by the Under Secretary of Defense (Comptroller) was 

implemented.4

 The report further stated that on October 1, 1997, the Air 

Force made two major changes in SMAG’s cost allocation procedures, but 

that SMAG lacked reliable sales revenue and operational cost data needed 

to effectively implement the change.

 As a result, the price lists issued by SMAG to its customers contained 

inaccurate pricing and/or prices that fluctuated widely from those 

previously charged. In April 1997, the Air Force determined that SMAG’s 

composite price increase was higher than the one approved for fiscal year 

1997 by the Under Secretary of Defense (Comptroller); consequently, 

prices were reduced by about 18 percent for the remainder of the year. In 

fiscal year 1998, when SMAG attempted to implement a composite rate 

increase of about 19.3 percent, the price list that became effective

October 1 contained so many erroneous prices that SMAG revised it a 

month later and revised it again effective December 1. Despite the DOD 

regulations requiring stabilized prices, SMAG changed the price list a total 

of six times during fiscal year 1998. Table 2 shows how the changes 

affected the prices of specific items.

4

Air Force Supply Management: Analysis of Activity Group’s Financial Reports, Prices, and Cash 

Management (GAO/AIMD/NSIAD-98-118, June 1998).
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Table 2: Examples of Price Changes During Fiscal Year 1998

a

Percentages in parentheses indicate price reductions.

Source: Air Combat Command.

Price Changes Hamper 

Budgeting at Major 

Commands

The lack of accurate and stable prices for depot-level repairable and 

consumable parts caused a great deal of concern among the flying 

commands. According to Air Force officials, the overpricing by SMAG in 

fiscal year 1997 was identified only after budget execution reviews revealed 

that the commands would not have enough money to complete their flying 

hour programs if spending continued at the current rate. Even though 

SMAG reduced its prices in mid-year, the Air Force requested and received 

supplemental funding (about $108 million) to correct the projected 

shortfall. 

Similarly, in deliberations over the fiscal year 1998 budget, the Air Force 

told Congress that the rapid growth in costs for repairable parts and 

consumables required substantial funding in addition to its budget request. 

Congress provided $300 million to offset the perceived shortage. 

Nevertheless, the numerous price changes made it difficult for the 

commands to determine if they had been provided adequate funding to 

complete the flying hour program. Air Combat Command officials 

acknowledged that the changes made it virtually impossible for them to 

determine whether funding was sufficient, but their analysis showed that 

they expected shortages if additional funding was not provided. In late 

fiscal year 1998, $181 million was reprogrammed into the flying hour 

program. 

In addition to creating uncertainty over the adequacy of funding for the 

current year, the pricing and policy changes implemented by SMAG may 

affect budgeting for future years. This is because (1) budgeting is based on 

actual obligations in prior years, (2) SMAG’s new procedures significantly 

Type of part Initial price Second price

Percent of change from

initial to second price Third price

Percent of change from

second to third price

Cell assembly $9,939 $13,152 32.3 $14,503 10.2

Duct assembly 17,544 19,340 10.2 23,516 21.6

Case, turbine 9,235 10,199 10.4 16,795 64.7

#3 bearing 3,981 5,654 42.0 5,106 (9.7)a

Liner 10,893 12,141 11.5 2,700 (77.8)a

Case, gas turbine 1,478 204,413 13730.4 No change No change
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affected the fiscal year 1998 prices charged for individual items, and (3) the 

impact varied significantly from one customer to the next. In our 1998 

report on SMAG, we reported that Air Force budget officials estimated it 

would take at least 1 to 2 years, perhaps more, before the Air Force has 

reliable historical data on the amount of money needed by individual 

customers.

Pricing Problems Continued 

into Fiscal Year 1999 

Although SMAG’s problems with pricing have been known for some time, it 

appears they have continued into this fiscal year. The approved composite 

rate increase for fiscal year 1999 was 0.4 percent. However, both Air 

Combat Command and Air Mobility Command budget personnel told us 

they were experiencing, on the whole, a much greater increase. As a result 

of the commands’ concerns, SMAG once again issued a new price list 

effective January 1, 1999. According to an AFMC official, this change 

reduced prices by about 7 to 7.5 percent across the board. Table 3 provides 

several examples of the magnitude of changes in the exchange price for 

specific repairable parts.

Table 3: Examples of the Magnitude of Fiscal Year 1999 Price Changes 

a

Percentages in parentheses indicate price reductions.

Source: Air Combat Command.

In our June 1998 report, we recommended that AFMC develop and 

implement procedures to ensure that the prices that are established for 

individual inventory items are consistent with the composite prices 

developed and approved by the Under Secretary of Defense (Comptroller) 

during the budget process. In March 1999, the Air Force responded to a 

Repairable part

Price in

Sept. 1998

Price in Oct. 1998

(new fiscal year price)

Percent change from

fiscal year 1998

Price in

Jan. 1999

Percent change

from Sept. 1998

Core module $1,557,348 $1,709,633 10 $1,592,204 2.24

Core module 380,493 671,099 76 625,003 64.26

Fan module 91,731 219,221 139 204,163 122.57

HPT module 87,109 148,031 70 137,863 58.26

Fan drive 58,339 155,164 166 144,507 147.70

Exciter 3,725,818 1,686 (99.95)a 1,433 (99.96)a

Comp rotor 55,694 152,593 173.98 14,660 (73.68)a

Fan rotor 15,096 105,730 600.38 131,726 772.59

Turbine rotor 52,695 96,913 83.91 10,018 (80.99)a
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request for the current implementation status of this recommendation. 

According to that response, the Air Force Director of Supply tasked AFMC 

to assess the current pricing methodology and develop a long-term solution 

that would provide stabilized prices consistent with the President’s budget. 

In turn, AFMC established an Integrated Product Team that is currently 

working on several options. In addition, AFMC requested assistance from 

the Air Force Audit Agency to assess their pricing policies. Both efforts are 

currently in progress.

Comparison of Budgeted 

Costs With Actual 

Obligations 

The flying hour program included in the President’s budget does not 

include the cost of flying in support of contingencies, while the Air Force 

accounting system accumulates the costs of all flying without regard to its 

purpose. Therefore, the most valid and meaningful comparison is between 

the total funding received for flying hours and the total amount obligated 

for that purpose. Through supplemental funding and DOD reprogramming 

actions, the Air Force received more each year for flying hours than was 

obligated. According to Air Force budget officials, the excess in fiscal year 

1997 was about $5 million, but in fiscal year 1998, the excess was about

$357 million. Table 4 shows this comparison.

Table 4: Comparison of Flying Hour Program Funding and Obligations (fiscal

years 1997–98)

Source: Department of the Air Force.

Air Force officials said that the excess flying hour money was used by 

headquarters or the major commands to satisfy unmet funding 

requirements in other operation and maintenance programs. Table 5 shows 

the distribution of the excess fiscal year 1998 flying hour funds. 

Dollars in millions

Funding 1997 1998

President’s budget $2,301.4 $2,717.7

Congressional increase for depot-level repairable parts 246.1

Other (adjustments for force structure changes, etc.) (10.0)

Contingency flying hours (reimbursement from DOD) 81.5 160.9

Supplemental/Omnibus reprogramming 108.4 181.5

Total funding $2,481.3 $3,306.2

Total obligations $2,476.4 $2,949.6

Funding excess $4.9 $356.6
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Table 5: Distribution of Excess Flying Hour Funds to Other Operation and 

Maintenance Accounts—(fiscal year 1998) 

Source: Department of the Air Force.

Conclusions The Air Force continues to request funding for more hours than it has been 

able to fly in the current world environment. A number of factors have 

affected the service’s ability to fly all the programmed hours, but a shortage 

of funding is not one of them. The Air Force has revised its requirements 

determination process, received adequate funding, and provided the major 

commands with top-level command emphasis on flying all the programmed 

hours in fiscal year 1999. The amount of flying hours the Air Force 

completes in the remainder of this fiscal year should serve as a good 

indication of its general ability to fly the hours it says are needed to 

maintain combat readiness and proficiency while maintaining support for 

contingencies in Europe and Southwest Asia.

The methodology used by the Air Force to determine the cost of the flying 

hour program appears sound, but it depends heavily on stable prices for its 

repairable and consumable spare parts. Until the SMAG is able to 

overcome its management problems and provide stable prices to its 

customers, the flying hour program will experience fluctuating costs and 

uncertainty regarding the adequacy of funding.

Dollars in millions

Operation and maintenance account Dollars received

Expenses for training and ranges $69.0

Air operations training, combat communications 61.0

Environmental compliance 36.0

Base operating support 35.0

Undergraduate pilot training 35.0

Expenses for SR-71 retirement 30.0

Real property maintenance 26.5

Depot purchased equipment for maintenance requirements 22.0

Temporary duty, supplies, equipment, contracts 14.0

Battlelabs 13.0

Headquarters and administrative expenses 10.0

Updated flying hour factors 5.0

Total $356.5
B-282754

Page 16 GAO/NSIAD-99-165 Defense Budget

We are not making specific recommendations at this time because the Air 

Force is in the process of correcting the pricing problems identified in our 

previous report on the financial operations of the supply management 

activity group.

Scope and 

Methodology

To identify the extent to which the Air Force has flown the hours requested 

in the President’s budget, we obtained and reviewed major command 

quarterly execution reports from Air Force Headquarters, Directorate of 

Operations and Training, Washington, D.C. These reports compare the 

number of hours programmed in the President’s budget with the number of 

hours executed, by type of aircraft, at each of the eight major commands.

To meet our objective of how the Air Force determines flying hour 

requirements, we reviewed regulations and obtained briefings at Air 

Combat Command, Langley Air Force Base, Virginia, and Air Mobility 

Command, Scott Air Force Base, Illinois. We obtained documents on the 

assumptions and specific requirements used in these models. We selected 

these two commands because they comprise over two-thirds of the flying 

hour program funding. 

To determine how the budget estimate for the flying hour program is 

developed, we reviewed the Air Force’s flying hour process guide and 

interviewed officials from the Air Force Cost Analysis Agency, Crystal City, 

Virginia, and Air Force Logistics Directorate, Washington, D.C. In addition, 

we discussed price changes in the Air Force Working Capital Fund with 

representatives of the Air Force Deputy Assistant Secretary (Budget). 

The financial information used in this report on the actual obligations 

incurred for the flying hour program compared to budget requests in fiscal 

years 1997 and 1998 was produced by financial and accounting records 

from the Secretary of the Air Force Financial Management and Budget 

Office (SAF/FMBO), Washington, D.C. The SAF/FMBO also provided 

documentation that showed the Air Force spent funds initially set aside for 

flying hours for other purposes. We did not independently verify this 

information. 

We conducted our review from August 1998 to May 1999 in accordance 

with generally accepted government auditing standards. 
B-282754

Page 17 GAO/NSIAD-99-165 Defense Budget

Agency Comments A draft of this report was provided to the Air Force for their comments. 

The Air Force stated they are working to improve requirement 

identification and pricing issues identified in the report. The Air Force also 

suggested several technical changes to the draft, which we have 

incorporated where appropriate. Air Force comments are presented in 

appendix I. 

We are sending copies of this report to Representative Jerry Lewis, 

Chairman, and Representative John P. Murtha, Ranking Minority Member, 

House Committee on Appropriations, Subcommittee on Defense; Senator 

James M. Inhofe, Chairman, and Senator Charles S. Robb, Ranking Minority 

Member, Senate Committee on Armed Services, Subcommittee on 

Readiness and Management Support; and Representative Herbert H. 

Bateman, Chairman, and Representative Solomon P. Ortiz, Ranking 

Minority Member, House Committee on Armed Services, Subcommittee on 

Military Readiness. We are also sending copies of this report to the 

Honorable William S. Cohen, Secretary of Defense, and the Honorable F. 

Whitten Peters, Acting Secretary of the Air Force. Copies will also be made 

available to others upon request. 

If you have any questions about this report, please contact me at (202) 

512-5140 or Brenda S. Farrell at (202) 512-3604. Other major contributors 

to this report include Carol R. Schuster, James K. Mahaffey, Robert L. 

Coleman, and Raymond G. Bickert.

Mark E. Gebicke

Director, National Security

Preparedness Issues
Page 18 GAO/NSIAD-99-165 Defense Budget

Appendix I

Comments From the Department of the Air 

Force ApIenxdi

Ap1p1

Note: GAO’s comment 

supplementing those in the 

report text appear at the end 

of this appendix.

See comment 1.
Appendix I

Comments From the Department of the Air 

Force

Page 19 GAO/NSIAD-99-165 Defense Budget

The following is our comment on the Department of the Air Force’s letter 

dated June 16, 1999.

GAO Comments 1. We disagree with the Air Force’s characterization of our report. The 

primary findings in this report are that (1) the Air Force has consistently 

requested funding for more flying hours than it has been able to fly for each 

of the last 4 fiscal years—ranging from 89 to 94 percent of estimated flying 

hours; (2) continuing financial management problems associated with the 

pricing of individual inventory items have contributed to the Air Force’s 

inability to accurately estimate the funding it needs for this program; and 

(3) the eventual surplus funds that Congress originally intended for the 

flying hour program—$5 million in fiscal year 1997 and $357 million in 

fiscal year 1998—have been shifted to other operation and maintenance 

purposes. Moreover, we have not made any new recommendations in this 

report because the Air Force is in the process of implementing our earlier 

recommendations aimed at improving the financial operations of the Air 

Force’s supply management activity group.

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