United States General Accounting Office

GAO Testimony

Before the Subcommittees on Military Research and

Development and Military Procurement, Committee on

National Security, House of Representatives

For Release on Delivery

Expected at

2:00 p.m., EDT

Wednesday,

March 5, 1997

DEFENSE AIRCRAFT

INVESTMENTS

Major Program

Commitments Based on

Optimistic Budget

Projections

Statement of Louis Rodrigues, Director, Defense

Acquisitions, National Security and International Affairs

Division

GAO/T-NSIAD-97-103

Mr. Chairmen and Members of the Subcommittees:

I am pleased to be here today to discuss the Department of Defense’s

(DOD) aircraft modernization plans. Our review of 15 aircraft programs

revealed that DOD plans to buy or significantly modify at least 8,315 aircraft

at a total procurement cost of $343 billion (fiscal year 1997 dollars)

through their planned completions in fiscal year 2030.1

 Appendix I lists the

15 aircraft programs and their estimated procurement costs.

I would like to start with a short overview of the current situation and then

provide more detail about (1) how much DOD has historically spent on

aircraft purchases, (2) the availability of funding for aircraft purchases,

and (3) how funding instabilities have led to schedule stretchouts and

billions in increased costs. I will also discuss some of our recent reports

where we question the need and timing of some aircraft programs.

Overview Last year, we testified before your Subcommittees that DOD’s planned

investments in aircraft were not achievable within likely future budgets

and appear to be inconsistent with the current security environment. DOD,

however, maintained that its aircraft investment strategy was realistic.

We have continued to evaluate DOD’s aircraft procurement programs and

remain concerned that DOD cannot achieve its plans within likely future

budgets. Our recently completed and ongoing evaluations, and those by

the Congressional Budget Office (CBO), continue to raise questions about

DOD’s ability to execute its planned aircraft investment strategy. For

example, in all but 2 years between fiscal year 2000 and 2015, the total

funding required for the 15 programs we evaluated exceeds the funding

historically spent on aircraft purchases, as a percentage of DOD’s overall

budget. For several of those years, the funding required to achieve DOD’s

planned aircraft acquisitions approaches the percentage of the budget

reached during the peak Cold War spending years of the early to

mid-1980s.

In addition, we doubt DOD’s ability to execute its aircraft investment plans

because (1) overall defense funding is not expected to increase, (2) the

amount of savings from infrastructure reductions and acquisition reforms

is uncertain, and (3) inflation indexes used to develop aircraft budget

estimates are understated.

1

This statement discusses procurement costs, in constant 1997 dollars. It does not include research

and development or operation and maintenance costs.

Page 1 GAO/T-NSIAD-97-103
DOD continues to (1) generate and support acquisitions of new weapon

systems that will not satisfy the most critical requirements at minimal cost

and (2) plan on the availability of more procurement funds than can

reasonably be expected to be available in future defense budgets. In a

recent review of weapon system production rates, we found DOD’s

optimistic acquisition strategies are rarely achieved because of DOD’s

decisions to fund new programs in low-rate initial production and to

reduce funding for programs in full-rate production. Consequently,

weapon systems are produced at less than planned rates, causing

schedules to be stretched out and increasing costs by billions of dollars.

The absence of stability in the execution of DOD’s acquisition plans must be

addressed. In fact, last week, the Under Secretary of Defense (Acquisition

and Technology) testified that the problem of instability in defense

acquisition programs and the attendant cost growth and schedule slips

caused by the instability are the most important issues that need to be

addressed in reforming DOD’s acquisition process.

We agree that bringing stability and realism to DOD’s acquisition plans is

important and will not be easy. It will require fundamental changes to a

deeply entrenched acquisition culture. Difficult decisions will need to be

made about restructuring and terminating some aircraft or other weapon

programs.

In previous reports, we questioned the need for and timing of a number of

DOD’s aircraft acquisitions.2 For example, we recently issued reports on the

major issues related to U.S. combat air power, the Navy’s F/A-18E/F strike

fighter, and the Air Force’s F-22 air superiority fighter. In the latter two

reports, we recommended that DOD consider options that would

potentially reduce or postpone the costs of planned aircraft acquisitions.

These options would free significant procurement funds.

Let me provide some details on DOD’s aircraft investment strategy.

Funding Needed for

Aircraft Programs

Exceeds Historical

Norms

DOD spending for aircraft purchases reached its highest point, both in

terms of dollars and as a percentage of overall defense spending, during

the early to mid-1980s—the peak Cold War spending era. Using those peak

years, DOD maintains that its aircraft acquisition plans are within historical

norms.

2

A list of GAO reports dealing with DOD aircraft programs is contained in appendix II.

Page 2 GAO/T-NSIAD-97-103
However, in light of the current budget environment, we believe it is not

realistic to use the peak years as the norm. Figure 1 shows, as a

percentage of the budget, a longer history for DOD aircraft spending. It also

shows DOD’s plans to increase future aircraft acquisition

funding—sometimes approaching Cold War-era spending levels.

Figure 1: Projected Funding for DOD’s Aircraft Purchases Approaches Cold War Levels (as a percentage of DOD’s budget)

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

0

2

4

6

8

10

Fiscal Year

Percent

1980's Cold War buildup

Source: GAO analysis of DOD and CBO data.

Since 1973, funding for DOD’s aircraft acquisitions has fluctuated

substantially. From fiscal year 1982 to 1986, DOD spent from 6.1 to

7.8 percent of its budget on aircraft purchases. In contrast, DOD devoted

$6.2 billion, or 2.4 percent of its fiscal year 1996 budget to buy aircraft. On

Page 3 GAO/T-NSIAD-97-103
average, however, DOD has spent about 4.8 percent of its budget since 1973

buying aircraft.

To execute its aircraft investment strategy, DOD needs to significantly

increase spending on aircraft and sustain the increase for several years.

Figure 2 shows future spending plans for aircraft acquisitions. For 14 of

the next 20 years, DOD plans to spend more than $12 billion3

 annually on

aircraft. For 4 years during this period, aircraft spending will exceed

$15 billion, and for 2 of those years it will exceed $17 billion.

Figure 2: DOD’s Projected Funding

Requirements for Aircraft Purchases

fiscal year 1997 dollars

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

0

5

10

15

20

Fiscal Year

$ billions

Source: GAO analysis of DOD and CBO data.

Historically, acquisition programs almost always cost more than originally

projected. Figure 2 is a conservative projection of DOD’s aircraft funding

requirements because no cost growth beyond current estimates is

considered. Research has shown that unanticipated cost growth has

averaged at least 20 percent over the life of weapon programs.

3

Applying the historical average spending level for aircraft—4.8 percent—to DOD’s current overall

budget of $253 billion equates to about $12 billion.

Page 4 GAO/T-NSIAD-97-103
In addition, the projected funding requirements in figure 2 may be

understated because they do not include any projected funding for other

aircraft programs that DOD has yet to approve for procurement. For

example, tentative plans exist to replace the KC-135, C-5A, F-15E, F-117,

EA-6B, S-3B, and other aircraft. Adding any of these potential programs to

DOD’s aircraft investment strategy would further complicate the funding

problems.

Funding for Increased

Procurement Is

Uncertain

DOD expects to increase procurement spending to a level of approximately

$60 billion per year while keeping overall defense spending at current

levels, at least through fiscal year 2002. Aircraft acquisitions are expected

to be a prime beneficiary of the procurement increases. Of the $40 billion

cumulative increase through fiscal year 2002, about $24 billion will be used

for DOD’s aircraft investment strategy.

To achieve the increased procurement spending, DOD expects substantial

savings to be generated from infrastructure reductions and acquisition

reforms. Our work, however, indicates that the extent to which such

savings will be available to fund the increase is unclear.

In 1996, we reported that DOD would accrue no significant net

infrastructure savings between fiscal year 1996 and 2001 because the

proportion of infrastructure costs in DOD budgets remain relatively

constant.4

 In addition, our ongoing evaluation of acquisition reform

savings on major weapon systems suggests that the amount of such

savings that will be available to increase procurement spending is

uncertain. While DOD has estimated as much as $29 billion (then year

dollars) in acquisition reform savings, our work shows that, for various

reasons, the costs of some of the programs claiming the savings have

increased, more than offsetting any acquisition reform savings. Without

the savings expected from infrastructure reductions and acquisition

reform, DOD will face difficult choices in funding its modernization plans.

We recently raised an issue on the Air Force’s F-22 air superiority fighter

that further complicates the situation.5

 That issue deals with the inflation

indexes that DOD is using to estimate program costs. In estimating the cost

to produce the F-22, for example, the Air Force used an inflation rate of

2.2 percent per year for all years after 1996. However, in agreeing to

4

Defense Infrastructure: Budget Estimates for 1996-2001 Offer Little Savings for Modernization

(GAO/NSIAD-96-131, Apr. 4, 1996).

5

F-22 Restructuring (GAO/NSIAD-97-100R, Feb. 28, 1997).

Page 5 GAO/T-NSIAD-97-103
restructure the F-22 program to address the recently acknowledged

$15-billion increase (then year dollars), the Air Force and its contractors

used an inflation rate of 3.2 percent per year. Increasing the inflation rate

by 1 percent added billions of dollars to the F-22 program’s estimated cost.

We are concerned that the higher inflation rates could have a significant

budgetary impact for other DOD acquisition programs. Similar increases on

other major weapon programs would add billions of dollars to the

amounts we have been discussing today and further jeopardize DOD’s

ability to fund its modernization plans.

Program Instabilities

Cause Schedule

Stretchouts and

Higher Costs

We recently reported that better use of limited DOD acquisition funding

could reduce costs.6

 We found that DOD has inappropriately placed a high

priority on buying large numbers of untested weapons during low-rate

initial production to ensure commitment to new programs and thus has

had to cut by more than half its planned full-rate production for many

weapons that have already been tested. This wasteful practice adds

unnecessary costs. For example, the costs for 17 of 22 full-rate production

systems we reviewed increased by $10 billion beyond original estimates

due to stretching out the completion of the weapons’ production. Actual

production rates were, on average, less than half of the originally planned

rates and systems were taking an average of 8 years longer to complete

than originally planned. For example, if the Army continues to buy the

Blackhawk helicopter at the current rate, full-rate production will take

almost 54 years to complete, about 43 years longer than originally planned.

Such stretchouts in production are costly. For example, rather than

producing 48 T-45 aircraft annually at a unit cost of $8.7 million, the Navy

is producing an average of 12 T-45s annually at a unit cost of $18.2 million.

If DOD bought untested weapons at minimum rates during low-rate initial

production, more funds would be available to buy proven weapons in

full-rate production at more efficient rates and at lower costs.

6

Weapons Acquisition: Better Use of Limited DOD Acquisition Funding Would Reduce Costs

(GAO/NSIAD-97-23, Feb. 13, 1997).

Page 6 GAO/T-NSIAD-97-103
Need and Timing of

Some Aircraft

Programs Should Be

Reassessed

Our previous reports have questioned the need for and timing of some

aircraft procurements. For example, we recently issued reports on U.S.

combat air power,7

 the Navy’s F/A-18E/F strike fighter,8 and the Air

Force’s F-22 air superiority fighter.9

 In the latter two reports, we

recommended that DOD consider options that would potentially reduce or

postpone the cost of planned aircraft acquisitions.

In the combat air power report, we point out that the United States has

significantly improved its combat air power capabilities in recent years

while reducing its total combat aircraft in the active inventory by about

28 percent since the end of the Persian Gulf War. It also points out that

other air power assets, such as long-range cruise missiles, unmanned

aerial vehicles, and theater air defense forces, are increasingly

supplementing aircraft and that today’s combat aircraft have more

capabilities for (1) multimission roles, (2) autonomous navigation,

(3) night operations, (4) target acquisition, (5) self-protection, and (6) the

use of advanced munitions. These capabilities are giving combatant

commanders greater flexibility in employing aviation assets and are

potentially reducing the required number of manned aircraft. Moreover,

although potential adversaries possess capabilities that threaten U.S. air

power missions, DOD considers the severity of these threats to be limited.

Our work showed that some aircraft modernization programs would only

marginally improve existing capabilities at a very high cost. Other

programs may no longer be needed in view of the changed security

environment. And for some programs, less costly alternatives could be

pursued to meet identified needs.

The F-22 program has a high degree of risk because the Air Force plans to

procure a significant number of aircraft before completing initial

operational testing and evaluation. Because neither the threat nor the need

to replace the current front-line air superiority fighter, the F-15, was

urgent, we recommended that the Air Force not rush into high-production

rates for the F-22 prior to completing operational testing.

In the case of the F/A-18E/F, we concluded that the Navy’s plans to buy

1,000 aircraft were overstated and the eventual annual production rate of

7

Combat Air Power: Joint Mission Assessments Needed Before Making Program and Budget Decisions

(GAO/NSIAD-96-177, Sept. 20, 1996).

8

Navy Aviation: F/A-18E/F Will Provide Marginal Operational Improvement at High Cost

(GAO/NSIAD-96-98, June 18, 1996).

9

Tactical Aircraft: Concurrency in Development and Production of F-22 Aircraft Should Be Reduced

(GAO/NSIAD-95-59, Apr. 19, 1995).

Page 7 GAO/T-NSIAD-97-103
72 aircraft was overly optimistic. As a result, the F/A-18E/F would be more

expensive than the Navy reported. We also determined that the E/F model

did not provide significant performance advantages over the less

expensive C/D model of the aircraft. We estimated the Navy could save

about $17 billion by continuing to buy C/D models in lieu of E/F models.

We understand that the milestone decision on F/A-18E/F low-rate initial

production is scheduled for March 28, 1997. We believe that DOD should

postpone the decision until it completes and fully considers two very

significant, congressionally mandated analyses. First, as a result of our

prior F/A-18E/F report, the National Defense Authorization Act for Fiscal

Year 1997 (P.L. 104-201) directed the Secretary of Defense to conduct a

comparison of the cost and benefits of the F/A-18E/F and the F/A-18C/D

aircraft, taking into account the operational combat effectiveness of each

aircraft. That report is due to the Congress by March 30, 1997. The

conference report supporting the fiscal year 1997 defense appropriations

directed an identical study and report by April 15, 1997. Second, the

Quadrennial Defense Review is evaluating the gamut of defense missions,

forces, and programs. Because of the potential for widespread and

significant impact, we believe that DOD should defer all but the most urgent

procurement decisions until the review’s conclusions and

recommendations are examined. This would be consistent with the

National Military Strategy, which cautions against making major new

investments unless there is a substantial payoff.

Weapon System

Acquisition Problems

Persist

As you know, in 1990, we began a special effort to review and report on

the federal program areas our work identified as high risk because of

vulnerabilities to waste, fraud, abuse, and mismanagement. This effort has

brought a much needed focus on problems that were costing the

government billions of dollars. As we recently reported in our high-risk

report on defense weapon systems acquisition, DOD has produced many of

the world’s most capable weapon systems, but its weapon system

acquisition processes have often proved costly and inefficient, if not

wasteful.10 Despite DOD’s past and current efforts to reform the acquisition

system, wasteful practices still add billions of dollars to defense

acquisition costs. Pervasive problems persist regarding (1) questionable

requirements and solutions that are not the most cost-effective available;

(2) unrealistic cost, schedule, and performance estimates; (3) questionable

program affordability; and (4) the use of high-risk acquisition strategies.

10Defense Weapon Systems Acquisition (GAO/HR-97-6, Feb. 1997).

Page 8 GAO/T-NSIAD-97-103
Conclusion As the nation proceeds into the 21st century with the prospect of a flat

budget, we believe that action needs to be taken to address DOD’s

problematic aircraft investment strategy. Action needs to be taken now

because, if major commitments are made to procure the planned aircraft

programs—such as the F/A-18E/F, F-22, Joint Strike Fighter, and

V-22—over the next several years, a significant imbalance is likely to result

between program funding requirements and available funding. Such

imbalances have historically led to program stretchouts, higher unit costs,

and delayed deliveries to operational units. Also, this imbalance may be

long term in nature, restricting DOD’s ability to respond to other funding

requirements.

DOD must reorient its aircraft investment strategy to recognize the reality

of the current security and budget environment. Accordingly, instead of

continuing to start aircraft procurement programs that are based on

optimistic assumptions about available funds, DOD—in consultation with

the Congress—should determine how much procurement funding will

realistically be available and structure its investment strategy within those

levels. DOD must also provide more concrete and lasting assurance that its

procurement programs are militarily justified in the current security

environment and clearly affordable through their planned periods of

procurement. The key to ensuring the efficient production of systems is

program stability. Understated cost estimates and overly optimistic

funding assumptions result in too many programs chasing too few dollars.

We believe that bringing realism to DOD’s acquisition plans will require very

difficult decisions because programs will have to be terminated. While all

of us may agree that there are too many programs chasing too few dollars,

and could probably agree that we need to bring stability and executability

to those programs that are pursued, it will be much more difficult to agree

on which programs to cut.

Nevertheless, the likelihood of continuing fiscal constraints and reduced

national security threats should provide additional incentives for real

progress in changing the structure and dominant culture of DOD’s system

acquisition processes. We hope that today’s hearing may provide a

stimulus for progress toward the goal we all share—efficient and effective

processes for identifying, developing, and procuring needed defense

weapon systems.

Page 9 GAO/T-NSIAD-97-103
Mr. Chairmen, this concludes my prepared statement. I would be happy to

address any questions you or other members of the Subcommittees may

have.

Page 10 GAO/T-NSIAD-97-103
Page 11 GAO/T-NSIAD-97-103
Appendix I 

DOD’s Fiscal Year 1997 Aircraft

Procurement Plans (as of December 31,

1995)

Dollars in billions (fiscal year 1997)

Aircraft Mission/procurement type Quantity

Estimated

procurement

funding

1. Joint Strike Fighter Strike fighter/new 2,978 $144.8

2. F/A-18E/F Multimission tactical/ upgrade 1,000 61.7

3. F-22 Air superiority fighter/new 438 40.9

4. V-22 Vertical assault/new 523 29.9

5. Comanche Reconnaissance & attack helicopter/new 1,292 24.5

6. C-17 Airlift and cargo/new 80 18.8

7. Longbow Apache Attack helicopter/ modification 734 5.7

8. SH-60R Antisubmarine and antisurface warfare

helicopter/upgrade

188 4.0

9. Joint Surveillance Target Attack Radar

System

Surveillance and targeting/ new 11 3.1

10. Joint Primary Aircraft Training System Primary trainer/new 705 2.6

11. E-2C Hawkeye Combat information/new 29 2.2

12. T-45 Training System Strike pilot trainer/new 78 1.9

13. AV-8B Light attack/remanufacture 56 1.7

14. UH-60L Black Hawk Air assault/cavalry/medical evacuation

helicopter/ modification

172 1.5

15. E-3 AWACS Airborne warning and control/ modification 31 0.4

Total 8,315 $343.7

Source: DOD’s December 31, 1995, Selected Acquisition Reports, except the Joint Strike Fighter

data is based on CBO estimates, and Comanche data is from the Comanche program office.

Page 12 GAO/T-NSIAD-97-103
Appendix II 

Related GAO Products

Combat Air Power: Joint Assessment of Air Superiority Can Be Improved

(GAO/NSIAD-97-77, Feb. 26, 1997).

B-2 Bomber: Status of Efforts to Acquire 21 Operational Aircraft

(GAO/NSIAD-97-11, Oct. 22, 1996).

Air Force Bombers: Options to Retire or Restructure the Force Would

Reduce Planned Spending (GAO/NSIAD-96-192, Sept. 30, 1996).

U.S. Combat Air Power: Aging Refueling Aircraft Are Costly to Maintain

and Operate (GAO/NSIAD-96-160, Aug. 8, 1996).

Combat Air Power: Assessment of Joint Close Support Requirements and

Capabilities Is Needed (GAO/NSIAD-96-45, June 28, 1996).

U.S. Combat Air Power: Reassessing Plans to Modernize Interdiction

Capabilities Could Save Billions (GAO/NSIAD-96-72, May 13, 1996).

Combat Air Power: Funding Priority for Suppression of Enemy Air

Defenses May Be Too Low (GAO/NSIAD-96-128, Apr. 10, 1996).

Navy Aviation: AV-8B Harrier Remanufacture Strategy Is Not the Most

Cost-Effective Option (GAO/NSIAD-96-49, Feb. 27, 1996).

Future Years Defense Program: 1996 Program Is Considerably Different

From the 1995 Program (GAO/NSIAD-95-213, Sept. 15, 1995).

Aircraft Requirements: Air Force and Navy Need to Establish Realistic

Criteria for Backup Aircraft (GAO/NSIAD-95-180, Sept. 29, 1995).

Longbow Apache Helicopter: System Procurement Issues Need to Be

Resolved (GAO/NSIAD-95-159, Aug. 24, 1995).

Comanche Helicopter: Testing Needs to Be Completed Prior to Production

Decisions (GAO/NSIAD-95-112, May 18, 1995).

Cruise Missiles: Proven Capability Should Affect Aircraft and Force

Structure Requirements (GAO/NSIAD-95-116, Apr. 20, 1995).

Army Aviation: Modernization Strategy Needs to Be Reassessed

(GAO/NSIAD-95-9, Nov. 21, 1994).

Page 13 GAO/T-NSIAD-97-103
Appendix II 

Related GAO Products

Future Years Defense Program: Optimistic Estimates Lead to Billions in

Overprogramming (GAO/NSIAD-94-210, July 29, 1994).

Continental Air Defense: A Dedicated Force Is No Longer Needed

(GAO/NSIAD-94-76, May 3, 1994).

Tactical Aircraft: F-15 Replacement Is Premature as Currently Planned

(GAO/NSIAD-94-118, Apr. 25, 1994).

(707134) Page 14 GAO/T-NSIAD-97-103
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