GAO

United States General Accounting Office

Report to the Chairman and Ranking 

Minority Member, Subcommittee on 

Readiness and Management Support, 

Committee on Armed Services, 

U.S. Senate

August 2000 DEFENSE 

ACQUISITIONS

Air Force Operating 

and Support Cost 

Reductions Need 

Higher Priority

GAO/NSIAD-00-165

Page 1 GAO/NSIAD-00-165 Defense Acquisitions

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 28

Appendix II: Comments From the Department of Defense 29

Appendix III: GAO Contacts and Acknowledgments 33

Tables Table 1: Comparison of Projected Aircraft Operating and Support

Costs and DOD’s Goals 11

Table 2: Annual Operating and Support Costs of Predecessor

Aircraft Compared With Those Estimated for New Systems 16

Table 3: Comparison of F-15 and Estimated F-22 Operating and

Support Costs 17

Figures Figure 1: Nominal Life-Cycle Cost of Typical 1980 DOD Acquisition 

Program With a 30-Year Service Life 6

Figure 2: Major Components of Air Force Aircraft Operating and

Support Costs (constant year dollars in billions) 8

Figure 3: Air Force Aircraft Operating and Support Costs

(constant year dollars in billions) 10

Figure 4: Aircraft Operating and Support Costs, Out-Year Cost

Trends, and DOD Goals (constant year dollars in billions) 14

Abbreviations

DOD Department of Defense
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-278932 Letr

August 29, 2000

The Honorable James M. Inhofe, Chairman

The Honorable Charles S. Robb, Ranking Minority Member

Subcommittee on Readiness and Management Support

Committee on Armed Services

United States Senate

The increasing cost of operating and supporting weapon systems is a 

growing concern because these escalating costs reduce funds available to 

develop and acquire new weapon systems and modify existing ones. A top 

Defense official has characterized this problem as a potential “death 

spiral.” Operating and support costs include those for fuel, repair parts, 

maintenance, and contract services, as well as the costs of all civilian and 

military personnel associated with a weapon system. History indicates that 

these costs can account for about 70 percent of a system’s total life-cycle 

costs.1

 In 1999, the Air Force spent more than $16 billion2 to operate and 

support its aircraft. To help control operating and support costs, the 

Department of Defense (DOD) has set cost reduction goals for each 

military service, both for fielded weapon systems and for those being 

developed. 

This is the first in a series of reports we plan to issue in response to your 

request that we evaluate DOD’s efforts to reduce operating and support 

costs. For this report, we focused on the Air Force’s aircraft and assessed 

(1) operating and support cost trends, (2) cost reduction initiatives, and 

(3) factors influencing the success of cost reduction efforts.

We reviewed the operating and support costs of fielded aircraft, focusing 

on some of the larger programs, including the B-1B bomber, the C-17 and 

C-5 transports, and the F-16 fighter, which together account for most of the 

Air Force’s operating costs. We also examined new programs under 

development such as the Joint Strike Fighter, the F-22 fighter, the Global 

Hawk unmanned reconnaissance aircraft, and the Joint Primary Aircraft 

1

In addition to operating and support, life-cycle costs include those for development, 

procurement, and disposal.

2

All operating and support costs are presented in constant year 2000 dollars.
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Training System aircraft. Our objectives, scope, and methodology are 

described in appendix I.

Results in Brief Air Force operating and support costs are growing at about 4 percent per 

year, even though the total number of aircraft, the number of hours these 

aircraft are flown, and the number of personnel who fly and maintain them 

have been declining for years. From fiscal year 1997 to fiscal year 1999, 

operating and support costs for aircraft increased from about $15.3 billion 

to $16.6 billion. Higher costs for repair parts were the principal cause of 

these increasing costs, and about 25 fault-prone parts on each system we 

examined were the biggest cost “drivers.” If they continue to grow at recent 

rates, operating and support costs of aircraft will exceed $20 billion by 

fiscal year 2005. To achieve DOD’s cost reduction goals for 2005 that range 

from 7 to 20 percent, the Air Force would have to reduce these costs by 

$2.6 billion to as much as $7 billion.

To help reduce the operating and support costs of fielded systems, the Air 

Force has established several initiatives, including the Reduction in Total 

Ownership Cost program. Under this program, the Air Force developed a 

standardized methodology for assessing operating and support costs, 

identifying likely areas for cost reduction, proposing cost reduction 

projects, and tracking associated savings. Initially applied to several pilot 

programs in 1999, including the F-16 and B-1B, the program is now being 

expanded to other systems, as experience with the pilots increases. 

However, the projected cost reductions from these efforts average only 

about $343 million each year, well short of the $2.6 billion to $7 billion 

needed to achieve DOD’s goals. Also, while the estimated operating and 

support costs of the Joint Primary Aircraft Training System are much lower 

than the aircraft it is to replace, the costs of the F-22 and the Joint Strike 

Fighter could be higher than the aircraft they are expected to replace. Since 

these two developmental aircraft could account for over one-quarter of all 

the Air Force’s future operating and support costs of its aircraft, their 

higher costs could jeopardize attempts to control operating and support 

costs well into the future.

Several factors hinder greater operating and support cost reductions. The 

Air Force does not give operating and support cost management the same 

high priority it assigns to other program concerns such as weapon 

performance during system development or improved combat capability 

after fielding. Instead of establishing an operating and support cost 

requirement and managing to meet it, new programs focus on initiatives to 
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improve reliability, supportability, and maintainability. Although these 

initiatives do help lower operating costs, their impact on a system’s 

operating and support costs is not tracked. Projects that could lower these 

costs in fielded systems cannot compete effectively for funding against 

projects that enhance safety, readiness, or combat capability. Because they 

are not given the same management priority, operating and support costs 

are not emphasized. Poor visibility of operating and support costs has been 

a key factor inhibiting management of operating costs, but the 

establishment of the new Air Force Total Ownership Cost data system 

appears to be overcoming this barrier. Despite program managers’ limited 

authority and low incentives, some programs, such as the B-1B, continue to 

champion cost reduction projects. 

We are recommending that the Air Force establish operating and support 

cost requirements for developmental and fielded aircraft and periodically 

measure their progress toward meeting them. In addition, we have included 

a matter for congressional consideration that would require the Secretary 

of the Air Force to annually report its progress in achieving these 

requirements. While agreeing that significant steps remain to be taken to 

reduce operating and support costs, the Department believes that it is 

premature to establish operating and support requirements for aircraft 

systems. In addition, the Department disagreed with the need to provide 

the Congress with an annual operating and support cost report. As 

discussed in the agency comments section of this report, we believe these 

are essential steps to take to reduce operating and support costs.

Background Operating and support costs reflect the purchases of fuel, lubricants, and 

repair parts and their associated maintenance and contract services, as 

well as modification kit procurement and installation. These costs typically 

account for about 70 percent or more of life-cycle costs, depending on how 

long a system remains in the inventory. Figure 1 depicts the typical 

life-cycle cost distribution of many weapon systems. 
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Figure 1: Nominal Life-Cycle Cost of Typical 1980 DOD Acquisition Program With a 

30-Year Service Life

Source: Defense Systems Management College Acquisition Guide.

For some systems (such as the B-52 bomber and KC-135 refueling aircraft) 

that continue to be used many years beyond their expected service life, 

operating and support costs can amount to a higher percentage of life-cycle 

costs. 

The Under Secretary of Defense for Acquisition, Technology, and Logistics 

has expressed concern that rising operating costs threaten the 

Department’s modernization efforts. In 1998, he observed: 

“Unfortunately, we are trapped in a ‘death spiral.’ The requirement to maintain our aging 

equipment is costing us much more each year: in repair costs, down time, and maintenance 

tempo. But we must keep this equipment in repair to maintain readiness. It drains our 

resources—resources we should be applying to modernization of the traditional systems 

and development and deployment of the new systems. So, we stretch out our replacement 

schedules to ridiculous lengths and reduce the quantities of the new equipment we 

purchase−raising their costs and still further delaying modernization.”

28%

72%

System

Life cycle

Operating and support

Years

Cost
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The Congress also identified a need to reduce operating and support costs. 

Section 816 of the Strom Thurmond National Defense Authorization Act for 

Fiscal Year 1999 directed the Secretary of Defense to designate 10 pilot 

programs to test increased program manager oversight of product support. 

In a February 1999 report, DOD designated the 10 pilot programs to 

experiment with several broad cost management initiatives over the 

coming years. DOD has also set broad goals for each service to lower the 

operating and support costs of its weapon systems. Systems under 

development are expected to have projected life-cycle costs 20 to 

50 percent lower than the actual costs of the systems they are replacing.3

The actual operating and support costs for fielded systems are expected to 

be reduced 20 percent by fiscal year 2005. 

Aircraft Operating and 

Support Costs Are 

Increasing

The Air Force spent more than $16 billion to operate and support its 

aircraft in fiscal year 1999, an increase of $1.3 billion over fiscal year 1997. 

Operating and support costs are growing at about 4 percent per year, even 

though the total number of aircraft, the number of hours these aircraft are 

flown, and the number of personnel who fly and maintain them have been 

declining for years. Higher costs for repair parts are the principal cause of 

these increasing costs, and a small number of parts on each system are the 

biggest cost drivers. If operating and support costs of the Air Force’s 

aircraft continue to grow at recent rates, they could exceed $20 billion by 

fiscal year 2005. 

Operating and Support 

Costs Increased Even as 

Other Measures Declined 

Air Force operating and support costs for 36 aircraft systems increased by 

$1.4 billion from fiscal year 1997 to fiscal year 1999. Most of the increase 

occurred in the major aircraft programs, including the F-15 and the F-16. 

While aircraft operating and support costs are increasing, the total number 

of aircraft, the number of hours these aircraft are flown each year, and the 

number of personnel who operate and maintain them are decreasing. Air 

Force statistics show that the number of operational aircraft has decreased 

steadily, from 9,519 in fiscal year 1986 to 6,228 in fiscal year 1998. During 

this period, the number of hours these aircraft were flown each year also 

decreased by 39 percent. Similarly, the number of Air Force military 

personnel declined from 608,199 in 1986 to 375,512 in 1998—a drop of 

3

Life-cycle costs are the total costs of acquiring and owning a weapon system over its full 

life, including development, procurement, operation, support, and disposal. 
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38 percent.4 More recently, from 1996 to 1998, aircraft, flying hours, and 

personnel decreased 2 to 3 percent. 

Higher Costs for Repair 

Parts

We analyzed aircraft operating and support costs in fiscal years 1997 

through 1999 to identify the principal costs and those most responsible for 

the cost growth. The largest components of aircraft operating and support 

costs are personnel, fuel, repair parts, depot maintenance, contractor 

services, and installation support. The costs of personnel and fuel both 

decreased in fiscal years 1997-99, while the costs of repair parts, associated 

maintenance, contractor services, and installation support increased. 

Figure 2 shows the change in the major components of the operating and 

support costs of Air Force aircraft in fiscal years 1997-99. 

Figure 2: Major Components of Air Force Aircraft Operating and Support Costs 

(constant year dollars in billions)

Source: Our analysis of Air Force data.

4

The percent of reductions in personnel that operate and maintain aircraft may differ from 

total Air Force military personnel reductions. 

1

2

3

4

5

6

Personnel Fuel Repair Parts Depot

Maintenance

Contractor

Services

Installation

Support

Fiscal year 1997

Fiscal year 1998

Fiscal year 1999
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Together, repair parts and depot maintenance costs increased about 

31 percent during the period and were responsible for nearly all the 

increase in aircraft operating and support costs. Most of these costs were 

for replaceable repair parts such as transistors, gaskets, and fluids—and 

those that can be refurbished and reused such as engine subcomponents. 

According to program managers, repair parts are the top candidates for 

cost reductions because new and more reliable parts and processes can be 

designed and manufactured to replace parts that fail often or are difficult to 

obtain. More reliable parts fail less often and require less maintenance. For 

example, replacing the F-16 main aircraft battery with a maintenance-free 

battery is expected to cost $3.4 million fleet wide and save $3.8 million over 

the next 9 years and $6.9 million over the next 25 years.

About 25 parts on each system, especially parts associated with engines 

and electronic subsystems dominate the maintenance and repair costs of 

the aircraft we examined. For example, the F-16 fighter has nearly 

7,000 repairable parts. Of these, the 25 most fault-prone parts cost 

$224 million to repair in fiscal year 1998 and accounted for about 

44 percent of the system’s total repair parts cost. Sixteen of these 25 parts 

were for the aircraft engine, while another 4 were for the radar system. F-16 

personnel told us these parts break often and are expensive to replace. 

Projected Operating and 

Support Cost Growth

If aircraft operating and support costs continue to grow at recent rates, our 

projections indicate they could exceed $20 billion by fiscal year 2005. This 

would be more than $5 billion higher than in fiscal year 1997. To determine 

the impact of continued growth in aircraft operating and support costs, we 

projected recent cost increases for Air Force aircraft from fiscal year 2000 

to 2005. Our projection is shown in figure 3. 
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Figure 3: Air Force Aircraft Operating and Support Costs (constant year dollars in 

billions)

Source: Our analysis of Air Force operating and support cost data.

Our projection of Air Force operating and support costs reflects a recent 

growth rate of over 4 percent per year in fiscal years 1997-99. As figure 

3 shows, if aircraft operating and support costs continue to grow at the 

recent 4-percent rate, they would exceed $20 billion by fiscal year 2005. Our 

projection is based upon the actual costs from fiscal years 1997 through 

1999 for personnel, fuel and lubricants, repair parts, maintenance, 

contractor services, and other support costs associated with Air Force 

aircraft. After converting these costs to base year 2000 dollars, we used a 

cost projection model to project these cost trends through fiscal year 2005. 

0

5

10

15

20

25

1997 1999 2001 2003 2005

Fiscal year

Actual cost

Outyear trend
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More Cost Reductions 

Are Needed to Meet 

DOD’s Goals

Concerned that growing operating and support costs threaten planned 

force modernization, DOD has set cost reduction goals for both fielded and 

new weapon systems. The multibillion dollar cost reductions to aircraft 

operating and support costs needed to meet DOD’s goals, however, are 

unlikely to be achieved in the near term and are uncertain in the long term. 

Although the Air Force has established several programs to reduce 

operating costs, currently projected savings fall far short of DOD’s goals. 

DOD Wants to Reduce 

Operating and Support 

Costs by 7 to 20 Percent

To help control and reduce growing operating and support costs, DOD has 

set goals for each military service to reduce these costs over the next 

5 years. For fielded systems—those already operating by fiscal year 2000—

DOD wants to reduce operating costs by 7 percent compared with fiscal 

year 1997 costs (excluding fuel and personnel costs). The reduction goal 

increases to 10 percent in fiscal year 2001. A ‘stretch’ goal of 20 percent in 

operating and support cost reductions is set for fiscal year 2005. 

We applied DOD’s goals to fielded aircraft and determined that in fiscal 

year 2000, aircraft operating and support costs should not exceed 

$14.7 billion. DOD’s goals, and our projections of aircraft operating and 

support costs for fiscal years 2000-05, are shown in table 1.

Table 1: Comparison of Projected Aircraft Operating and Support Costs and DOD’s 

Goals

Source: Our analysis of Air Force operating and support cost data.

The Air Force needs to reach an operating and support funding level below 

$14 billion in fiscal year 2004 to meet DOD’s cost reduction goal. If these 

costs for aircraft continue to grow at recent rates, however, our projection 

Constant year 2000 dollars in billions

Fiscal year

Projected operating

and support costs DOD goal

Difference between

projection and goal

2000 $17.3 $14.8 $2.6

2001 18.0 14.5 3.5

2002 18.7 14.3 4.4

2003 19.3 14.1 5.2

2004 20.0 13.9 6.1

2005 $20.7 $13.7 $7.0
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shows that in fiscal year 2005 they will exceed $20 billion. Thus, for the Air 

Force to meet the 2005 goal, operating and support costs would need to be 

reduced by about $7 billion. 

DOD has also set a goal to reduce the projected life-cycle costs of new 

systems by 20 to 50 percent below the historical experience of at least half 

its programs. The higher cost reduction goals for new systems recognize 

the higher potential for savings if appropriate decisions are made early in 

the life of a new system. In fact, according to DOD, design decisions with 

the most impact on operating and support costs are usually made soon 

after program initiation. As system designs are finalized during the 

development process, the opportunities to influence operating and support 

costs diminish, and the costs of making design changes increase.

To help lower life-cycle costs, the Air Force has begun implementing both 

the DOD-wide Cost as an Independent Variable initiative and its own 

Reduction in Total Ownership Cost initiative. The first applies mostly to 

developmental systems, the second primarily to fielded systems. Guidance 

for developmental systems stresses that (1) system costs are capped, and 

any additional funding obtained by one system comes at the expense of 

others and (2) trade-offs between cost and performance are required if 

maximum cost effectiveness is to be achieved. These reforms require 

setting realistic and aggressive goals early and periodically measuring 

progress. Once a system is fielded and actual operating and support cost 

data becomes available, the reforms require establishing baselines 

identifying the cost drivers and implementing cost reduction initiatives.

Greater Reductions Are 

Needed to Meet Fielded 

System Goals

Beginning in December 1997, the Air Force established a new initiative, 

Reduction in Total Ownership Cost, to lower operating and support costs. 

Under this initiative, the Air Force developed a standardized methodology 

for assessing operating and support costs, identifying likely areas for cost 

reduction, proposing cost reduction projects, and tracking associated 

costs. This methodology was initially applied to several pilot programs in 

1998, including the F-16 and B-1B. As more experience with the initial 

programs is obtained, it is being expanded to other Air Force programs. 

Among the objectives of the methodology are to have comprehensive, 

consistent business cases; sound, executable action plans; and effective, 

all-inclusive mechanisms for identifying and reporting cost savings 

associated with Reduction in Total Ownership Cost initiatives.
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As of February 2000, the Air Force had approved 43 cost reduction projects 

that use the Reduction in Total Ownership Cost approach and are either 

under way or planned for 8 fielded aircraft over the next several years. 

Between fiscal year 2000 and 2009, the Air Force plans to invest $7.9 billion 

in these projects. Annual average savings over the next 10 years are 

expected to reach $343 million. The Reduction in Total Ownership Cost 

Program Manager told us that savings for many projects are realized slowly 

because, once they are approved and funded, it takes several years to 

design, test, and produce the new part or process and install it in all the 

affected aircraft. Once installed, however, many projects realize savings 

over the aircraft’s remaining useful life, which can be 20 years or more. By 

2009, the Air Force expects savings and avoided costs to exceed 

$3.4 billion.

Our examination of the 43 proposed projects for fielded aircraft shows that 

some of them, particularly those having the largest investments, are 

intended principally to provide readiness and performance improvements. 

Reduced operating and support costs are a secondary benefit. For example, 

the two largest B-1B projects are to replace the bomber’s main computer 

and electronic defensive systems. Together, these two projects account for 

more than $980 million of the $1 billion in planned investment for all B-1B 

projects. These two projects have been justified for years on the basis of 

mission performance shortfalls and needed combat capability 

improvements. While both projects provide significant operating and 

support cost savings, neither has the high near-term return on investment 

required to meet Air Force criteria for approval as a project justified solely 

on the basis of operating and support cost reduction. 

Even if all the proposed initiatives are included, however, the projected 

cost reductions of about $343 million a year, or $3.4 billion over 10 years, 

fall far short of DOD’s goals. In fact, projected savings are not sufficient to 

reverse the current trend of rising operating and support costs. Figure 4 

shows actual aircraft operating and support costs for fiscal years 1997-99, 

our projection of those costs for fiscal years 2000-05, and the level of 

operating and support costs needed to meet DOD’s goals. 
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Figure 4: Aircraft Operating and Support Costs, Out-Year Cost Trends, and DOD 

Goals (constant year dollars in billions)

Source: Our analysis of Air Force operating and support cost data.

We estimate that the Air Force must further reduce its operating and 

support costs by about $2.6 billion to $6.1 billion to reach DOD’s reduction 

goal for fiscal years 2000-04. Operating and support cost reductions of 

more than $7 billion will be needed to meet DOD’s “stretch” goal of a 

20-percent operating cost reduction in fiscal year 2005. 

0

5

10

15

20

25

1997 1999 2001 2003 2005

Fiscal year

Actual cost

Outyear trend

DOD goal
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Greater Reductions Are 

Needed to Meet New 

System Goals 

DOD has set goals to lower life-cycle costs of new aircraft by 20 to 

50 percent below the historical experience of predecessor systems. 

Assuming these new systems are retained for 30 years or more and are 

consistent with past programs, about 72 percent of their life-cycle costs 

would be for operating and support. Therefore, in order to reduce life-cycle 

costs by 20 to 50 percent, operating and support costs would have to be 

reduced by at least an equal percentage. 

We reviewed efforts by new aircraft programs to lower operating and 

support costs, including those of the Air Force variant of the Joint Strike 

Fighter, which is to replace the F-16 and the A-10; the F-22, to replace the 

F-15; and the variant of the Joint Primary Aircraft Training System, to 

replace the T-37B. The F-15, the F-16, the A-10, and the T-37B aircraft 

accounted for 31 percent of all fiscal year 1999 aircraft operating and 

support costs. Were the new replacement systems to meet DOD’s minimum 

operating and support cost reduction goal (20 percent by fiscal year 2005), 

overall operating and support costs for Air Force aircraft would be reduced 

by about 6 percent. This could be sufficient to reverse the recent growth 

trend in operating and support costs. Accordingly, the new aircraft being 

developed could have a powerful effect on the Air Force’s long-term 

operating and support costs. 

In fiscal year 1999, operating and support costs of the four existing aircraft 

to be replaced were $5.1 billion. As shown in table 2, the Joint Primary 

Aircraft Training System and, perhaps, the F-22 are expected to have 

significantly lower operating costs and achieve DOD’s goals.
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Table 2: Annual Operating and Support Costs of Predecessor Aircraft Compared With Those Estimated for New Systems

Source: Our analysis of Air Force operating and support cost data.

The F-22 is already designed and undergoing testing, with a production 

decision planned for fiscal year 2001. However, the F-22 may not achieve 

the substantial cost reductions needed to reach DOD’s goals. In July 1999, 

the systems contractor estimated annual operating and support costs for 

the F-22 fleet to be about $1.5 billion. Because that estimate was 

considerably higher than earlier ones, the F-22 program office and the Air 

Force Cost Analysis Agency reexamined the contractor’s estimate and 

identified several changes that would reduce costs to about $952 million. 

The Air Force plans to continue its analysis of the estimate during the 

summer of 2000 and finalize it in time for the program’s production 

decision. 

Nevertheless, even if the Air Force’s lower estimate for the F-22 is affirmed, 

overall operating and support costs for Air Force aircraft may not be lower. 

Table 3 compares the operating cost of F-15 and F-22 aircraft at the fleet, 

squadron, and individual aircraft level.

Constant year 2000 dollars in millions

Predecessor 

aircraft

Fiscal year 1999

annual operating

and support costs New aircraft

Projected annual

operating and

support costs Annual savings

Annual

savings

(percent)

F-16 and A-10 $3,305 Joint Strike Fighter $4,124 ($819) (25)

F-15 1,503 F-22

Contractor estimate 1,481 22 1

Air Force estimate 952 551 37

T-37B 296 Joint Primary Aircraft 

Training System

82 214 72
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Table 3: Comparison of F-15 and Estimated F-22 Operating and Support Costs

Source: Our analysis of Air Force operating and support cost data.

As table 3 shows, when both aircraft are considered at fleet level, the 

$1.5-billion operating costs of the F-15 are comparable with the high 

estimate of F-22 costs. The F-22’s lower operating cost estimate of 

$952 million per year would represent a 36-percent reduction and would 

meet DOD’s cost reduction goal for new systems. When the operating cost 

per aircraft is considered, however, the cost of the F-22 aircraft is about the 

same or higher than that of the F-15. Moreover, the Air Force does not plan 

to retire the F-15s as F-22s are fielded. According to the Air Force’s Force 

Structure Plan for 2000, 179 F-15s will be retained until at least 2030. These 

F-15s cost about $519 million to operate in 1999. Assuming the operating 

costs of these 179 aircraft remain about the same and are combined with 

the projected F-22 costs, the operating costs of all these aircraft are likely 

to be about as high or higher, not lower, than those of the current F-15 

force. 

The Joint Strike Fighter fleet will likely be the most expensive to operate 

and support on an annual basis than any aircraft currently in development 

or operated by the Air Force. The Joint Strike Fighter is expected to 

replace the existing Air Force fleet of 1,3725

 F-16s and 368 A-10s, which 

together cost $3.3 billion to operate and support in fiscal year 1999. To meet 

DOD’s 20-percent cost reduction goal, the Joint Strike Fighter would need 

to reduce its operating and support costs to about $2.6 billion a year. 

The Joint Strike Fighter program office has not issued an estimate of the 

operation and support costs of the system. At present, the only goal or 

target for the Joint Strike Fighter is the program direction to the 

Constant year 2000 dollars in millions

Operating and support cost

Aircraft

Number of

aircraft Fleet Each aircraft

F-15 522 $1,503 $2.9

F-22 339 Contractor estimate 1,481 4.4

339 Air Force estimate 952 2.8

5

As of January 2000.
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contractors that the aircraft not cost more to operate and support than the 

aircraft it is replacing. Based on our analysis of program office data, the 

cost ceiling provided to the contractors is $4.1 billion per year. This is, 

however, 25 percent higher than the $3.3-billion operating and support cost 

of the F-16 and A-10 aircraft fleets combined in fiscal year 1999. We believe 

that unless significant cost reductions are achieved, the Joint Strike Fighter 

is unlikely to meet DOD’s goals. Moreover, considering that the F-22 and 

the Joint Strike Fighter could account for over 25 percent of the Air Force’s 

future operating and support costs, these costs are likely to be higher, not 

lower, in the future. 

Several Factors Limit 

Air Force Cost 

Reduction Efforts

Our evaluation disclosed several factors that limit greater attention to 

operating and support cost reductions. The Air Force does not give 

operating and support cost management the same high priority it assigns to 

other program issues such as weapon performance during system 

development or improved combat capability after a system is fielded. 

Instead of establishing an operating cost requirement and managing in such 

a way as to meet it, new programs focus on initiatives to improve system 

reliability, supportability, and maintainability. While these initiatives do 

help lower operating costs, their impact on the system’s operating and 

support costs is not tracked. Projects that could lower operating and 

support costs are unable to compete effectively for funding against projects 

that enhance safety or readiness or improve combat capability. 

Poor visibility of operating and support costs has been a key factor 

inhibiting management of operating costs, but the establishment of the new 

Air Force Total Ownership Cost data system appears to be overcoming this 

barrier. Although program managers of pilot programs have been given 

greater responsibility for weapon system support, they told us that limited 

authority and few incentives are major obstacles to managing operating 

costs. The Air Force has decided not to increase program managers’ 

authority over operating and support costs, but it is working to increase 

incentives for major commands to invest in cost reduction initiatives. 

Operating and Support 

Costs Are Not Priorities of 

New Systems and Remain 

Relatively Unconstrained

DOD and Air Force guidance direct program managers to optimize system 

performance and minimize the cost of ownership. Weapon systems in 

development have requirements for acquisition costs, program schedule, 

and system performance, but they have no similar requirement for 

operating and support costs. The system requirements for performance, 

acquisition costs, and schedule are usually clear, well defined, and 
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frequently tracked to actual performance. They are incorporated into key 

program baselines and other management documents. Through these 

documents, the program’s most important characteristics are projected, 

tracked, measured, and reported within the Air Force, to the Office of the 

Secretary of Defense, and to the Congress. In other words, the system 

requirements are an important means of establishing accountability and 

priority. They are key guides for setting design limits, making trade-offs 

among requirements, and formulating investment decisions. 

As DOD recently reported to the Congress, setting performance 

requirements early in an acquisition program without adequate knowledge 

of the total cost can lead to very costly and unstable system designs.6

 Yet 

the new programs we examined do not have comparable operating and 

support cost requirements. Further, they are not required to determine and 

justify the consequences of design decisions that are based on the system’s 

projected operating and support costs. Without such a requirement, there is 

no accountability for minimizing the systems’ operating and support costs. 

Of particular concern to us are the F-22 and the Joint Strike Fighter 

programs, which together are to replace aircraft that accounted for 

33 percent of all the Air Force’s aircraft operating and support costs in 

1999. The F-22 low-rate initial production decision is scheduled for 

December 2000. The aircraft was designed without a specific top-level 

operating and support cost requirement. As its low-rate initial production 

decision approaches, the program office, the principal contractor, and the 

Air Force Cost Analysis Agency are trying to determine how much more or 

less the F-22 will cost to operate and support than the F-15 it will replace. 

Because the F-22 design is mature, there are now few opportunities to 

significantly reduce its operating and support costs, yet these costs will 

continue for at least the next 30 years.

Like the F-22, the Joint Strike Fighter does not have a system-level 

operating and support cost requirement. Its managers are also pursuing 

several efforts to improve its supportability, reliability, and maintainability. 

This system, however, is in the early design stage. Without an operating and 

support requirement to guide design decisions that are now being made, 

there is no assurance that the fighter will cost 20 percent less to operate 

and support than the F-16 and A-10 aircraft that it will replace. Cost data 

6

Section 912c Report: Requirements and Acquisition (June 1999).
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provided by the program office and our analysis indicate that the fighter 

may cost more, perhaps considerably more, to operate.

Supportability, Reliability, 

and Maintainability 

Initiatives Have Unknown 

Effects on Operating and 

Support Costs 

The developmental programs we examined do not have operating and 

support cost requirements for the total system, but they generally have 

efforts underway to improve supportability, reliability, and maintainability. 

Improving these characteristics can lower operating and support costs. For 

example, development of a system that can diagnose and predict engine 

problems in the Joint Strike Fighter before they develop is expected to 

reduce significantly, engine maintenance and downtime. In essence, a 

system component that is easier to access, remove, and replace costs less 

to maintain. Similarly, a more reliable component requires less 

maintenance and repair. Improvements to all of these characteristics 

increase system readiness and can lower operating and support costs.

However, an Air Force acquisition reform official told us that focusing on 

reliability-related characteristics historically has not been sufficient to 

control future operating and support costs. Accordingly, we asked program 

officials about the effects of their reliability improvement efforts on the 

total system’s operating and support costs. The program offices generally 

did not know what these effects would be. For example, the Joint Strike 

Fighter program has evaluated numerous methods to improve the aircraft’s 

reliability, but program officials could not tell us what effects these changes 

would have on total operating and support costs. While these efforts are 

expected to result in weapons that cost less to operate and support than 

they would otherwise, the missing linkage between improvement efforts 

and their effect on overall operating and support costs limits the ability of 

programs to predict and manage these costs. 

Cost Reduction Initiatives 

for Fielded Systems 

Compete Poorly Against 

Other Priorities

Projects that could reduce operating and support costs of fielded systems 

have a lower priority and are generally less able to compete for investment 

funds than those offering improved safety, readiness, or combat capability. 

This happens primarily for two reasons. First, most cost reduction 

initiatives require up-front investments of procurement funds that take 

many years to pay back the initial investments. This slow pay-back, and the 

many uncertainties that accompany improvement projects, make it difficult 

for the initiatives to compete against investments that provide near-term 

improvements in safety, availability, or combat capability. In fact, the 

largest of the 43 cost reduction initiatives approved by the Air Force are not 
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specifically aimed at operating and support cost reduction but at improving 

readiness and combat capability. 

Second, the Air Force sees improved combat capability as the most 

important priority. Decisionmakers we spoke with, whether in program 

offices, major commands, product centers, or air bases, told us that their 

principal focus is to improve combat capability. They work continuously to 

enhance system safety, increase readiness, and improve performance. 

While they acknowledge the importance of managing operating and 

support costs and recognize that growth of these costs may threaten the Air 

Force’s ability to modernize, they also told us that near-term combat 

capability is their top priority. 

Two Air Force surveys conducted in 1999 showed that very few projects 

aimed specifically at reducing operating and support costs through 

improvements to fielded aircraft were carried out in 1997 and 1998. Both 

program managers and major command leaders told us the reason for this 

was that limited funds available were invested in improvements in combat 

capability and that there is a general reluctance to forego improved combat 

capability in the near term for uncertain savings in the longer term.

We visited the Air Combat Command and the Air Mobility Command and 

found that both have a comprehensive and detailed process for proposing, 

reviewing, and approving procurement funds for aircraft improvements, 

but this process strongly favors projects that enhance combat capability. 

They told us that their primary mission is to prepare for combat and ensure 

those pilots and support crews have the best equipment and support 

possible. But, they acknowledged that controlling operating and support 

costs is becoming increasingly important. Leaders at both commands told 

us that they were reassessing the process used to evaluate aircraft 

improvement projects so that those providing operating and support cost 

reductions will compete better in the future.

Limited Cost Visibility and 

Lack of Reporting 

Requirements Hinder Cost 

Management

Accurate and complete operating and support cost data and estimates are 

important for cost management because they often serve as the basis for 

establishing cost requirements that guide design choices and other tradeoffs during development. Similarly, reliable cost data is necessary for 

managers of fielded aircraft to guide investment and system management 

decisions. Until very recently, however, tracking aircraft operating and 

support costs was difficult because the cost data was either unavailable in 

a usable format or of poor quality. The Air Force’s Total Ownership Cost 
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system is making operating and support cost data more available and 

usable and may, with time, enable improved management.

In 1998, the Air Force began to set up a Total Ownership Cost database, 

which is expected to make it easier not only to track costs of fielded 

systems over the long term, but also help establish clear cost goals for 

systems in development. Accurate and reliable operating and support costs 

are a fundamental starting point for setting cost goals, gauging overall 

progress, identifying shortfalls, and making informed decisions on 

improvements to fielded aircraft. In the past, accurate, complete, and 

comparable operating and support cost data was not readily available. 

Program managers and cost analysts told us that past operating and 

support cost estimates were weakened by poor cost data.

According to its program manager, the new database is fully functional and 

is being steadily improved. Cost data, however, will have to be accumulated 

for several more years before the full benefits of the system are realized. 

Limited Authority and Few 

Incentives Limit Program 

Managers

In 1999, the Air Force established 10 pilot programs in which program 

managers were given more responsibility for and oversight of weapon 

system support. Program managers, however, have limited authority and 

opportunity to control or influence the operation and support costs of 

fielded aircraft. Similarly, they do not control, influence, or have incentives 

to encourage investments in cost reduction initiatives. 

Air Force program managers have limited visibility over a system’s 

operating and support costs. Control over the essential resources and 

processes that determine how these functions are managed, however, 

remain largely with the major commands and headquarters organizations. 

Operating and support costs for a system are largely determined when an 

aircraft is designed. Once a system is fielded, however, a program manager 

of a system such as the F-16, for example, can directly influence no more 

than about 14-17 percent of the system’s operating and support costs. 

Program managers can influence the cost of maintenance by acquiring a 

more reliable part or revising a maintenance procedure, but they cannot 

control when or how often a system is used. They cannot decide the 

number of pilots or support personnel that are needed, the number of 

hours a system is to be used, or major maintenance schedules. Thus, 

significant personnel, base operations, maintenance, and overhead costs 

are outside their control or influence. 
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Similarly, program managers do not manage or control the funds used to 

pay for operations and support functions and activities or the investment 

funds used to make cost reduction improvements. Authority for managing 

operating and support funds, as well as aircraft improvement funds, again 

rests with the major commands and Air Force headquarters. Program 

office personnel told us that there are few incentives for promoting 

investments in cost reduction initiatives because the Air Force’s top 

priority is to improve readiness and combat performance. Also, the major 

commands or Air Force headquarters routinely deduct the estimated 

savings from programs’ future budgets before the savings are actually 

realized. If a cost reduction initiative does not go as planned or does not 

achieve the estimated savings, the program must make up for the 

insufficient investment or unrealized savings. As a result, and in spite of the 

widespread belief that there are many available opportunities to reduce 

operating and support costs, many worthy projects or ideas go unfunded. 

The Air Force considered giving program managers more control over 

operating and support as well as investment funds, but it rejected this idea 

because it believes fund management must be accomplished above the 

individual program level to ensure optimum use of limited funds. To 

encourage greater investment in cost reduction initiatives, the Air Force is 

considering allowing the major commands to retain savings obtained from 

cost reduction projects to use as investment funds for future projects. 

Conclusions Operating and support costs of Air Force aircraft have grown over the last 

3 years, and if this growth continues at the same rate, the service could face 

difficult choices over whether to cut research and development funds, 

procurement funds, or readiness levels in the years ahead. We project that 

operating and support costs for aircraft could exceed $20 billion by fiscal 

year 2005, about $7 billion higher than DOD’s goal. With planned budgets of 

$13 billion for research and development and $11 billion for aircraft 

procurement in fiscal year 2005, the projected $7-billion growth in 

operating and support costs poses a serious problem. The Air Force’s 

operating and support cost reduction initiatives for fielded systems are 

projected to save only a relatively small amount. Further, the projected 

operating and support costs for new aircraft may be more, instead of less, 

than those of currently fielded aircraft.

The absence of clear, well understood, and frequently reported operating 

and support cost requirements for new systems undermines effective cost 

management during the critical design phase, when most future operating 
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and support costs are determined. Similarly, the absence of an operating 

and support cost requirement for fielded systems precludes management 

attention and inhibits investments in cost reduction projects needed to 

meet DOD’s goals. Accordingly, it is unclear what maximum acceptable 

operating and support costs the Air Force is willing to pay during a system’s 

life; therefore, there is no way of knowing whether incurred or projected 

costs are reasonable. Ultimately, because there is no accountability for 

operating and support costs of aircraft programs, oversight and 

management remain difficult.

To establish accountability for reaching DOD’s goals of significant 

operating and support cost reductions, the Air Force needs to establish 

operating and support cost requirements for aircraft it is developing and for 

those that are already in service.

Recommendations We recommend that the Secretary of Defense direct the Secretary of the Air 

Force to

• establish an operating and support cost requirement for developmental 

and fielded weapon systems to ensure full consideration of these costs 

among other program priorities and 

• measure and periodically assess progress toward meeting individual 

program operating cost requirements.

Matter for 

Congressional 

Consideration

The Congress may also wish to require the Secretary of Defense to direct 

the Secretary of the Air Force to submit an annual report summarizing each 

program’s operating cost requirement, its actual costs, and the actions 

planned to achieve the requirement. 

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, DOD agreed that significant 

steps remain to be taken to reduce operating and support costs. The 

Department also stated that it shares some of our concerns about the pace, 

risk, and costs associated with reducing operating costs and acknowledged 

the difficulty of devising a strategy that allows meaningful cost reductions 

while focusing on its highest priorities−improving safety, readiness, and 

combat capability. DOD noted that pilot programs are investigating various 

cost reduction approaches, but that it was too soon to determine which 

approaches would yield the best results. DOD also stated that our 
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calculations of potential operating and support costs and needed 

reductions were unclear. We modified our report to clarify these 

calculations. 

DOD partially agreed with our recommendation to establish an operating 

and support cost requirement for both developmental and fielded systems 

and to periodically assess progress in meeting those requirements. As for 

fielded systems, DOD stated that it is premature to establish such a 

requirement because the ability to track total operating and support costs 

is still evolving. While we agree that the Air Force’s ability to identify and 

track operating and support costs is still evolving, we believe 

improvements to the Air Force Total Ownership Cost system have 

progressed to the point that the system can be used effectively to track 

operating and support costs. This system, for example, is being used to 

track the operating costs of Air Force pilot programs, including the F-16 

and B-1B, two of its largest and most costly. As DOD noted in its comments, 

the Air Force and other military services are already reporting operating 

and support costs of pilot programs and their progress toward meeting 

DOD’s cost reduction goals. Accordingly, we believe DOD can implement 

our recommendation for the other fielded systems as well. 

For developmental systems, DOD only noted that the operational 

requirements documents, selected acquisition reports, and pilot program 

baselines establish cost goals or report costs that, in some cases, may 

include total ownership costs. None of these documents, however, 

establishes a specific operating and support cost requirement that would 

ensure full consideration of these costs along with other program priorities 

or demand trade-offs between these requirements. We believe such tradeoffs are essential to lowering the Department’s operating and support 

costs. We also believe such requirements should be consistently 

established and periodically assessed for all major developmental 

programs.

DOD did not agree with our matter for congressional consideration and 

noted that the Department already addresses life-cycle costs, which are 

similar to total ownership costs, in a variety of documents and does not 

wish to have a separate reporting system imposed on it. As noted in our 

report, we do not believe the Department currently provides sufficient 

emphasis on operating and support costs. In addition, existing requirement 

documents cited by the Department do not include a requirement for 

operating and support costs, nor do these documents report on these costs 

in the same way. We believe an annual reporting requirement would 
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provide a stronger emphasis on operating and support costs and a more 

consistent reporting mechanism. 

We have provided additional clarifications in our report to address other 

technical comments included in DOD’s letter. Appendix II contains the full 

text of DOD’s comments.

We are sending copies of this report to the Honorable William S. Cohen, 

Secretary of Defense; the Honorable F. Whitten Peters, Secretary of the Air 

Force; the Honorable Jacob J. Lew, Director, Office of Management and 

Budget; and other interested congressional committees. We will also make 

copies available to others upon request.

If you or your staff have any questions concerning this report, please call 

me on (202) 512-4841. Key contributors to this report are listed in 

appendix III. 

James Wiggins

Associate Director

Defense Acquisitions Issues
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Appendix I

Scope and Methodology ApApenednxidexiIs

We reviewed the Air Force’s Total Ownership Cost assessment 

methodology and discussed its use with aircraft program office officials. 

We also assembled and analyzed data on fielded weapon systems from the 

Air Force’s Total Ownership Cost information system. In addition, we 

discussed operating and support cost data with the programs reviewed in 

this report.

To determine how the Air Force identifies and resolves operating and 

support cost issues for fielded aircraft, we visited and obtained information 

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

Mobility Command, Scott Air Force Base, Illinois. We obtained specific 

information from the B-1B, C-17, F-16, and F-117A program offices at 

Wright-Patterson Air Force Base, Ohio. We discussed F-117A support at the 

49th Fighter Wing, Holloman Air Force Base, New Mexico, and B-1B 

support at the Oklahoma City Air Logistics Center, Oklahoma City, 

Oklahoma, and the Warner Robins Air Logistics Center, Warner Robins, 

Georgia. We obtained and analyzed information on the Air Force Reduction 

of Total Ownership Cost program from Air Force Headquarters, 

Washington, D.C.

To determine how the Air Force is minimizing operating and support costs 

during the design and development phase of new aircraft, we obtained and 

analyzed information from the Joint Strike Fighter program office at 

Crystal City, Virginia. We also obtained information from the F-22 System 

Program Office, the Joint Primary Aircraft Trainer System Program Office, 

the Global Hawk Program Office, and the C-5 Development Office at 

Wright-Patterson Air Force Base, Ohio. We reviewed Department of 

Defense and Air Force acquisition guidance and discussed the guidance, 

including cost as an independent variable acquisition reform effort, with 

officials from the Office of the Secretary of Defense, Program Analysis and 

Evaluation; the Defense Systems Management College; and the Air Force 

acquisition reform office.

We conducted our review from February 1999 through June 2000 in 

accordance with generally accepted government auditing standards
Page 29 GAO/NSIAD-00-165 Defense Acquisitions

Appendix II

Comments From the Department of Defense ApendxiI
Appendix II

Comments From the Department of Defense

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Appendix II

Comments From the Department of Defense

Page 31 GAO/NSIAD-00-165 Defense Acquisitions
Appendix II

Comments From the Department of Defense

Page 32 GAO/NSIAD-00-165 Defense Acquisitions
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Appendix III

GAO Contacts and Acknowledgments ApendxiI

GAO Contacts James F. Wiggins (202) 512-4343

William Graveline (256) 650-1414

Acknowledgments In addition to those named above, Dave Best, Matt Mongin, and Jerry Wood 

made key contributions to this report.

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