United States General Accounting Office

GAO Report to the Secretary of Defense

February 1996 NAVY AVIATION

AV-8B Harrier

Remanufacture

Strategy Is Not the

Most Cost-Effective

Option

GAO/NSIAD-96-49

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-270424 

February 27, 1996

The Honorable William J. Perry

The Secretary of Defense

Dear Mr. Secretary:

As part of our work on Navy tactical aviation programs, we reviewed the

Marine Corps $2.2 billion AV-8B Harrier Remanufacture Program (REMAN).

Under the program, 72 of the older AV-8B aircraft with day attack

capabilities will be rebuilt so that they have the night attack and radar

capabilities that the most recently procured AV-8B radar attack aircraft

have.

Our objective was to assess whether rebuilding the day attack aircraft

instead of buying more of the radar attack aircraft is the more

cost-effective option.

Background Introduced in 1993, the AV-8B aircraft with night attack and radar

capabilities enhances pilots’ abilities to locate and destroy targets under

conditions of marginal weather, limited visibility (smoke, dust, or haze),

and darkness. The two previously produced models had significant

limitations. The day attack model, the first version of the aircraft procured

by the U.S. Marines in 1982, has limited capability during the hours of

darkness because the pilots cannot refer to the terrain and horizon to

assist in maneuver, navigation, and attack. The night attack version,

introduced into the fleet in 1989, has increased capabilities over the day

attack version but still has limitations. Its Angle Rate Bombing System,

used by the day and night attack models for weapons aiming and delivery,

is not effective at night or during adverse weather conditions. In addition,

the night attack version’s forward looking infrared system, which assists in

navigation during hours of darkness, is degraded by air moisture.

All the prior upgrades to the AV-8B—from day to night attack models and

then to models with the improved radar configuration—have been made

by producing new models. Aircraft have not been rebuilt or modified. The

Marines plan to deviate from this practice with REMAN.

Under REMAN, the Marines plan to award single-year contracts to

remanufacture 72 of the day attack model aircraft and convert them to

aircraft with night attack and radar capabilities over a 10-year period. The

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day attack aircraft are to be transported to the Naval Aviation Depot

(NADEP) in Cherry Point, North Carolina. There, the aircraft are to be tested

for flight worthiness and then disassembled. About $6 million worth of

parts from each aircraft are to be returned to the supply system and about

$11.3 million of designated components and assemblies from each aircraft

are to be either used in their current condition, refurbished, or modified

for reuse in the REMAN program. The components and assemblies are to be

sent to the contractor, McDonnell Douglas Aerospace Company in St.

Louis, Missouri. The contractor is to integrate these used components and

assemblies, along with a new fuselage, a new engine, and an APG-65 radar

system, to produce the final REMAN aircraft. The first REMAN aircraft is

scheduled for delivery in February 1996.

Results in Brief Our review showed that it would be more cost-effective to procure new

AV-8B radar attack aircraft than to rebuild the day attack aircraft. The

Navy estimates that it will cost between $23 million and $29.5 million to

remanufacture each AV-8B aircraft. The AV-8B program office did not have

a current cost estimate for producing additional radar model aircraft.

Therefore, we used cost data from the radar model aircraft procured in

1991 as our base. We calculated that for about $23.6 million per aircraft,

the Marines could procure new radar model AV-8Bs rather than

remanufactured aircraft made up largely of used and refurbished

components. Because the REMAN program is conducted under an annual

contract, the Navy could revise its procurement strategy and begin

immediate negotiations to buy new radar models rather than continue to

contract annually to remanufacture the aircraft.

The accuracy of the Marine Corps cost estimates and the overall success

of the REMAN program are contingent on the Navy’s ability to provide the

required reusable components to the contractor in a manner that will not

cause production delays and the resulting cost increases. However, it is

questionable whether NADEP in Cherry Point, North Carolina, can meet

production schedules and cost targets. The first aircraft has taken almost

twice as many staff hours to disassemble as planned. Although the depot

expects to reduce the disassembly time as it gains experience with the

process, the required time will still exceed the amount originally planned.

Delays have also resulted from the inability of McDonnell Douglas and

NADEP vendors to provide components in a timely fashion. Also, the

APG-65 radar assets that are to be used in the AV-8B aircraft are not going

to be available as originally planned.

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New Production Is a

More Cost-Effective

Procurement Strategy

Considering the costs associated with inducting an aircraft into the REMAN

program, disassembling, refurbishing, and modifying components and

assemblies; the value of components and assemblies furnished to the

contractor; and economies available through multiyear procurement, our

review indicated that the REMAN program is not the most cost-effective

procurement approach. It would be feasible for the Navy to revise its

acquisition strategy because the contractor’s production line and facilities

are still in place and ready for continued production of radar model AV-8B

aircraft.

During our review, we compared past procurement cost figures (adjusted

for inflation) with current REMAN program cost estimates. We also assessed

the impact of multiyear procurement on new production cost estimates

due to recommendations by the Department of Defense (DOD) Inspector

General and recent congressional interest.

Twenty-one radar aircraft were procured in 1991 at an average unit

flyaway cost of $22.4 million.1

 Six more were procured in 1992 to replace

aircraft lost during Desert Storm at an average unit flyaway cost of

$31.9 million—a 42-percent increase that the program office explained was

due to the small quantity procured. Table 1 shows the procurement history

of the AV-8B program.

Table 1: AV-8B Harrier Procurement Cost History (fiscal years 1982-92)

Day attack aircraft Night attack aircraft Radar aircraft

Millions of dollars

FY82 FY83 FY84 FY85 FY86 FY87a FY88 FY89 FY90 FY91 FY92

Unitsb 12 21 27 32 46 42 24 24 24 21 6

Flyaway cost $544 $536 $507 $499 $696 $625 $388 $468 $422 $471 $192

Unit cost $45.3 $25.5 $18.8 $15.6 $15.1 $14.9 $16.2 $19.5 $17.6 $22.4 $31.9

aFiscal year 1987 includes three night attack aircraft.

bIncludes trainer aircraft.

The AV-8B program office does not have a current cost estimate for

producing additional radar aircraft. Therefore, to facilitate a comparison

of REMAN and probable new production costs, we used the fiscal year 1991

flyaway cost as a baseline because of its more efficient production rate 

(21 aircraft).

1

Cost related to the production of a usable radar model AV-8B.

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Using Navy indexes, we escalated the average unit cost of fiscal year 1991

procurement ($22.4 million) by 7.5 percent ($24.1 million) to account for

inflation.2

 Then, using DOD data on potential savings from a multiyear

procurement strategy for engines,3

 we determined that the cost of new

aircraft would be about $23.6 million per aircraft, without having provided

the contractor the additional $11.3 million worth of reused,

government-furnished components and assemblies. We discussed this

methodology with DOD officials and they did not disagree. According to

program documents, under the REMAN acquisition strategy, the Navy

expects to pay between $23 million and $29.5 million for each aircraft,

exclusive of the value of reused government-furnished equipment.

In June 1994, the DOD Inspector General reported that the Navy could save

over $150 million by pursuing a multiyear procurement strategy for REMAN.

On the basis of that report, the Fiscal Year 1995 Senate Appropriations

Committee Report directed the Navy to address multiyear procurement.

The Navy rejected the multiyear procurement strategy and in a March 1995

letter to the House and Senate Appropriations Committees stated

“The remanufacture program commenced in fiscal year 1994 and has not completed a full

manufacturing cycle. Therefore, process performance is not yet fully validated and

extrapolation of cost savings are estimates based on the prime contractor’s manufacturing

process used in past production of new AV-8B aircraft of the same configuration. While

total quantities appear firm and the requirement remains valid, a more appropriate time to

consider a multi-year procurement acquisition strategy would be after the remanufacturing

costs are substantiated, and we are comfortable that no system degradation has occurred

as a result of remanufacture. We will then be in a position to make a recommendation with

regards to a multiyear procurement plan for fiscal year 1998.”

If the program continues as planned, by 1998, procurement contracts will

have been initiated to remanufacture 50 percent of the 72 aircraft planned

for the REMAN program. Further, our review of the Navy’s procurement

history for this aircraft (see table 1) showed that the contractor has

demonstrated the capability to produce new AV-8B aircraft at a more

efficient rate than the procurement schedule for the REMAN program shown

in table 2.

2

From fiscal year 1991 through fiscal year 1994, the inflation rate was 7.5 percent.

3

The airframe portion of the fiscal year 1991 procurement was a multiyear acquisition and, therefore, it

is not included in our calculation.

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B-270424 

Table 2: AV-8B REMAN Procurement Schedule (fiscal years 1994-2003)

FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Total

Aircraft procurement 4 4 4 12 12 12 12 12 • • 72

Aircraft delivery • • 3 5 4 12 12 12 12 12 72

Accelerated production to the fiscal year 1991 level would be a more

cost-effective approach than the low rate being requested by the Navy, and

would provide the Marine Corps with increased combat capability at a

more efficient production rate. On the other hand, NADEP does not have the

ability to disassemble the aircraft or refurbish and modify components and

assemblies for reuse by the contractor under the REMAN program at the

rate needed to support a production rate comparable to that available

under new production.

Navy’s Role Is Key to

REMAN Success

The NADEP at Cherry Point, North Carolina, has been tasked to disassemble

the day attack aircraft removed from the fleet, ensure that the components

and assemblies to be reused in the process of producing the radar version

are in ready-for-use condition, and deliver these parts to the contractor.

Each of the reused components and assemblies has a defined delivery

schedule, which if not met will delay production at the contractor’s facility

and increase program costs. The Navy’s ability to deliver the components

and assemblies on schedule is questionable.

According to NADEP officials, since the remanufacture program was not

prototyped, the depot is experiencing many unanticipated problems. Each

aircraft has some unique differences that must be resolved in terms of

modification, replacement, or repair before a particular component is sent

to the contractor for integration in the REMAN aircraft. If the depot does not

have a replacement part on hand or the capability to modify or fabricate

particular parts and assemblies, it must contract out for the capability or

purchase the necessary new parts. All of these options would lead to

delays and increased costs.

Disassembly Process Will

Be More Costly Than

Planned

The depot has experience in disassembling the AV-8B aircraft from its Age

Exploration Program, which evaluates the structural integrity of the

aircraft. However, the Age Exploration Program does not require the

detailed level of dismantling that is required for the REMAN program.

Additionally, unlike in the Age Exploration Program, under the REMAN

Page 5 GAO/NSIAD-96-49 Navy Aviation
B-270424 

program the depot is required to make over 30 new modifications to

components that it has no previous experience making.

In planning support to the REMAN program, the depot budgeted 2,879 staff

hours per aircraft for the disassembly functions. However, the process has

taken up to 5,100 staff hours for the first aircraft inducted into the

program, and the next three aircraft are expected to consume about the

same level of effort. Officials at the depot told us that the increase in the

time required for the disassembly process was due to the fact that there

had not been an opportunity to prototype the process, including the

handling of various modifications. This increase in staff hours causes

increases in costs and delays in schedule for the program.

The fiscal year 1994 depot labor rate was $47.05 per hour. With the

increase in required staff hours, the cost per aircraft inducted into the

program will increase by about $104,000. Officials at the depot anticipate

that the other three aircraft inducted into the REMAN program during fiscal

year 1994 will also take about the same level of effort. As the depot

technicians and mechanics gain more experience with the disassembly,

refurbish, and modification operations, they expect the process to level off

at about 4,000 staff hours per aircraft.

Due to an increase in the Defense Business Operating Fund rates, the

depot labor rate for fiscal year 1995 was much higher ($91.59 per hour)

than fiscal year 1994 rates. Officials at the depot are optimistic that the

rate for fiscal year 1996 will drop to about $66 per hour. If the labor rates

drop to $66 per hour and stay constant for the remainder of the REMAN

program and the depot achieves the estimated level of 4,000 staff hours

per aircraft for disassembly, rework, and modification before shipping the

kits to McDonnell Douglas, the results would still be an added cost to the

program of about $74,000 per aircraft.

On-Time Delivery of

Components to Contractor

Is Questionable

To begin the disassembly process, four aircraft were inducted into the

REMAN program between June and November 1994. The disassembled,

modified, and reused-as-is components were scheduled for delivery to the

contractor between July 1995 and May 1996, to meet a production delivery

schedule of February through November 1996. As of August 1995, a

complete set of components for one of the four aircraft inducted in fiscal

year 1994 had been delivered to the contractor. Component sets for the

other three aircraft, while not yet behind in their delivery schedules, were

experiencing delays in their modification and preparation at the depot.

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Depot officials told us that these delays have occurred because of the

inability to obtain parts and materials necessary to modify the day attack

aircraft components in a timely fashion.

Components from each disassembled aircraft are divided into 22 kits.

Several of the components in each kit require some work or modification

to be made ready for use before they are included in the respective kits.

Each of the NADEP maintenance shops responsible for the modification to

these components and assemblies have schedules to maintain, so as not to

cause schedule delays in delivering the kits to the contractor. Delays in the

receipt of materials required to make components ready for use put the

depot at risk for not being able to deliver the components and assemblies

to the contractor on schedule. During our visit to the depot in August 1995,

we were told by various shop foremen that modification schedules were

not being maintained because parts and modification kits they require to

make the necessary modifications were not being delivered to the depot

on schedule.

The lack of parts and materials needed to make the necessary

modifications to upgrade day attack aircraft components to the REMAN

program specifications negatively affects the depot’s ability to deliver the

remanufacture kits to the contractor as scheduled. Some of these delays

result from the contractor and NADEP vendors’ failure to deliver as

scheduled. While we were at the depot in August 1995, we noted a 50-day

delay in the receipt of wing modification kits from McDonnell Douglas.

According to depot officials, to minimize delays in providing the

remanufacture kits to the contractor, arrangements have been made to

borrow components and parts from the Aviation Supply Office in

Philadelphia. Altimeters ordered from the vendor for the first four REMAN

aircraft are a case in point. NADEP and the Aviation Supply Office agreed

that when the parts are received from the vendor, the depot will forward

them to the Aviation Supply Office as replacements for those borrowed.

Costs associated with this innovative depot work-around to avoid

schedule delays are increases charged to the REMAN program as an

over-and-above cost.4

 A new production strategy would mitigate this cost

because the contractor would be furnishing new parts and assemblies as

opposed to reused components from the disassembled day attack models

being furnished by the government.

4

Over-and-above is an allowance used within the REMAN program to allow for corrosion and other

repairs on components that are reused.

Page 7 GAO/NSIAD-96-49 Navy Aviation
B-270424 

Radar Components May

Not Be Available on

Schedule

According to Navy officials, over $130 million will be saved by using

excess APG-65 radar assets from the F-18 aircraft in the AV-8B aircraft. In

a March 11, 1994, Acquisition Decision Memorandum, the Principal Deputy

Under Secretary of Defense for Acquisition and Technology concurred

with the Navy’s approach to accelerate the F-18 radar upgrade from

APG-65 to APG-73 radars in order to provide the resulting excess APG-65

radar assets for the REMAN program. Three of the six basic components

that make up the APG-65 radar system are common to the F-18’s APG-73

radar and will remain in use in the F-18 aircraft. The remaining three

components (the radar receiver/exciter, target data processor, and

computer power supply) will become excess assets available to the REMAN

program.

In a 1995 classified report, we noted that the APG-73 radar had problems

that needed to be resolved before entering the production phase.

Responding to our report, DOD said that a procurement decision would be

made sometime in 1996, after an operational evaluation of the system is

completed. If problems continue and the APG-65 components are not

available to the AV-8B REMAN program as planned, it is possible the

program could be delayed. If the assets are not available at all, the AV-8B

program office would then have to procure all new radar components.

Program officials told us the assets would be provided by the F-18

program as planned either from spares stock or from F-18 fleet assets.

They also mentioned the possibility that an older, less capable version of

the APG-65 radar could be tested and used, if necessary.

According to program officials, the 150-series APG-65 radar is the version

required by the AV-8B aircraft. One of these officials also told us that the

schedule for removal of the 150-series APG-65 radar assets from the F-18

aircraft is not in sync with the requirements of the AV-8B remanufacture

program for radar assets. The AV-8B REMAN program will need radar assets

before their scheduled removal from F-18 aircraft. Not only is the removal

of radar assets from F-18s a schedule risk to the AV-8B program, the

program officials stated that there is also a shortage of 17 sets for the

remanufacture program. To compensate for this shortfall, the Navy is

modifying 17 of the older 140-series APG-65 radar assets to 150-series

configuration to meet REMAN schedule requirements. This work-around is

being funded with monies from the AV-8B remanufacture and other Navy

programs.

In our discussions with contractor personnel about the impact of possible

delays, we were told that if the radar components, which are to be

Page 8 GAO/NSIAD-96-49 Navy Aviation
B-270424 

furnished by the government, are not made available to the contractor on

schedule, the aircraft could be provisionally delivered without radar. If

this is the case, the aircraft would not be mission capable until the radar

sets were made available. Under a new production strategy, the contractor

would be responsible for providing new radar, mitigating this risk.

Recommendation In light of the availability of a more cost-effective strategy to buy new

radar AV-8B aircraft, instead of modifying the day attack AV-8B, we

recommend that you direct the Secretary of the Navy to develop a current

cost estimate for producing new radar model aircraft and (1) revise the

acquisition strategy for acquiring upgraded AV-8B aircraft for the Marine

Corps so that after the existing annual contract expires, the Marine Corps

acquires new radar models rather than remanufactured models and

(2) take advantage of the savings available through multiyear

procurement.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, DOD agreed that a multiyear

procurement strategy is generally preferable and advantageous, but only

partially concurred with our recommendation that the Navy be required to

take advantage of savings available through multiyear procurement. DOD

stated that it is policy to reevaluate program acquisition strategies as

changes in fiscal resources or operational requirements justify. We believe

that since the radar model AV-8B aircraft is a valid and stable Marine

Corps requirement, now is the appropriate time for the Navy to take

advantage of savings that could be realized through multiyear

procurement.

DOD disagreed with our recommendation to require the Secretary of the

Navy to revise the acquisition strategy for acquiring upgraded AV-8B

aircraft so that after the existing annual contract expires, the Marine Corps

acquires new radar model aircraft rather than remanufactured aircraft.

DOD based its disagreement on current fiscal constraints and cost analyses

performed by the Naval Air Systems Command and the Office of the

Secretary of Defense’s Cost Analysis Improvement Group prior to the 1994

Milestone IV Defense Acquisition Board Review. According to DOD, these

analyses, which projected that it would cost $29.7 million per aircraft to

produce a new radar model AV-8B, confirmed that the REMAN program is

the more cost-effective way to upgrade the AV-8B fleet.

Page 9 GAO/NSIAD-96-49 Navy Aviation
B-270424 

The information the Naval Air Systems Command and the Cost Analysis

Improvement Group used in comparing the costs of the REMAN program

with continued or new production is based on out-of-date historical cost

data from the procurement of night attack model AV-8B aircraft that were

last procured in fiscal year 1990. On the basis of those data, which were

the best available at the time the REMAN program was considered,

remanufacture of current assets might have been the best solution to

modernize the AV-8B fleet. However, new data, based on the procurement

of new radar model AV-8Bs, are now available. We used those data to

arrive at our $23.6-million estimate for producing a new radar model

AV-8B. During a meeting with DOD officials to discuss their comments on a

draft of this report, DOD did not disagree with our methodology. Therefore,

in our view, the data we used provides a more accurate cost indicator than

an estimate of the night attack AV-8B aircraft modified for radar because

our data come from actual procurement of radar model AV-8B aircraft.

DOD also stated in its comments that the REMAN program will provide

aircraft with the same operational capabilities that new production

provides. This is an inaccurate characterization of the operational

capabilities that will be provided under the REMAN program. In fact, aircraft

to be produced under the REMAN program will have less operational

capability because they will have less weapon-carrying capacity than the

radar model AV-8B aircraft procured in fiscal year 1991. Specifically,

because the REMAN aircraft will have reused wings from the day attack

model aircraft, these aircraft will have only five external weapon stations,

whereas the new production radar models have seven external stations.

DOD’s comments are presented in their entirety in appendix I.

Scope and

Methodology

We obtained information on the project contract and management of the

AV-8B Harrier Program by reviewing program documentation and

interviewing officials at the following DOD locations:

• U.S. Navy Headquarters, Washington, D.C.;

• U.S. Marine Headquarters, Arlington, Virginia;

• Office of the Chief of Naval Operations, Washington, D.C.;

• AV-8B Program Office, Crystal City, Virginia; and

• Naval Aviation Depot, Cherry Point, North Carolina.

We also visited contractor facilities at McDonnell Douglas Aircraft

Division in St. Louis, Missouri.

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We conducted our review between October 1994 and November 1995 in

accordance with generally accepted government auditing standards.

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

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

actions taken on our recommendations to the Senate Committee on

Government Affairs and the House Committee on Government Reform and

Oversight no later than 60 days after the date of the report and to the

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

request for appropriations made more than 60 days after the date of the

report.

We are sending copies of this report to appropriate congressional

committees; the Secretary of the Navy; the Commandant of the Marine

Corps; and the Director, Office of Management and Budget. We will also

make copies available to others on request.

Please contact me at (202) 512-4841 if you or your staff have any questions

concerning this report. Major contributors to this report were Steven F.

Kuhta, Assistant Director; Samuel N. Cox, Evaluator-in-Charge; and Brian

Mullins, Evaluator.

Sincerely yours,

Louis J. Rodrigues

Director, Defense Acquisition Issues

Page 11 GAO/NSIAD-96-49 Navy Aviation
Appendix I 

Comments From the Department of Defense

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 12 GAO/NSIAD-96-49 Navy Aviation
Appendix I 

Comments From the Department of Defense

Page 13 GAO/NSIAD-96-49 Navy Aviation
Appendix I 

Comments From the Department of Defense

See comment 1.

Page 14 GAO/NSIAD-96-49 Navy Aviation
Appendix I 

Comments From the Department of Defense

The following is GAO’s comment on the Department of Defense’s (DOD)

letter dated December 20, 1995.

GAO Comment 1. According to DOD’s response to a draft of this report, the radar model

aircraft procured in 1991, that we used as our basis for comparing

Remanufacture Program (REMAN) and new production cost, was the last

year of a 3-year multiyear procurement buy. We determined that multiyear

procurement for the 1991 buy was applicable only to the airframe.

Therefore, we recalculated our estimate so as not to apply a multiyear cost

saving factor for the airframe. This recalculation increased our estimate

for new aircraft procurement but did not cause us to change our

conclusions and recommendation in the final report. Our adjusted

estimate is reflected in the body of the report.

(707096) Page 15 GAO/NSIAD-96-49 Navy Aviation
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