United States General Accounting Office

GAO Report to Congressional Requesters

September 1997 AIRCRAFT

ACQUISITION

Affordability of DOD’s

Investment Strategy

GAO/NSIAD-97-88

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272636 

September 8, 1997

The Honorable Duncan Hunter

Chairman, Subcommittee on Military Procurement

Committee on National Security

House of Representatives

The Honorable Curt Weldon

Chairman, Subcommittee on Military Research and Development

Committee on National Security

House of Representatives

The affordability of the Department of Defense’s (DOD) aircraft

modernization programs has been the subject of much recent debate and

was the primary subject of hearings held by your Committee in June 1996

and March 1997. At those hearings, we testified that DOD’s planned

investments in aircraft were not achievable within likely future budgets

and appeared to be inconsistent with the existing security environment.1

The Congressional Budget Office (CBO) expressed similar concerns.

However, DOD continues to believe that its aircraft investment strategy will

be affordable. Since the March 1997 hearing, we have updated our analysis

of DOD’s aircraft investment strategy to reflect the December 1996 Selected

Acquisition Reports. As you subsequently requested, we are issuing this

report to assist you in your work on the fiscal year 1998 defense

authorization bill and continuing review of the Quadrennial Defense

Review.

The Congress will be faced with a number of critical decisions on DOD’s

aircraft investment strategy as the Nation proceeds in an environment of

constrained budgets for the foreseeable future. The purpose of this report

is to inform the Congress about the long-term implications and

affordability of DOD’s aircraft strategy. To gain a broad understanding of

the affordability of DOD’s aircraft investment strategy, we evaluated

(1) DOD’s and CBO’s estimates of the annual funding needed for aircraft

programs, as a percentage of the overall DOD budget, and compared that

percentage to a long-term historical average percentage of the defense

budget; (2) the potential long-term availability of funding for DOD’s planned

aircraft procurements; and (3) DOD’s traditional approach to resolving

funding shortfalls.

1

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

(GAO/T-NSIAD-96-196, June 27, 1996) and Defense Aircraft Investments: Major Program Commitments

Based on Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997).

Page 1 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

The National Defense Authorization Act for Fiscal Year 1997 required DOD

to conduct a Quadrennial Defense Review. As part of the review, DOD

assessed a wide range of issues, including the defense strategy of the

United States and the force structure required. As a result, DOD may reduce

the quantities procured of some weapons programs. The details of how

DOD plans to implement the recommendations of the Quadrennial Defense

Review will not be available until the fiscal year 1999 budget is submitted

to the Congress. Our analysis, therefore, does not take into account the

potential effect of implementing the recommendations of the Quadrennial

Defense Review.

Results in Brief To meet its future aircraft inventory and modernization needs, DOD’s

current aircraft investment strategy involves the purchase or significant

modification of at least 8,499 aircraft in 17 aircraft programs at a total

procurement2

 cost of $334.8 billion (fiscal year 1997 dollars) through their

planned completions. DOD has maintained that its investment plans for

aircraft modernization are affordable within expected future defense

budgets. DOD had stated earlier that sufficient funds would be available for

its aircraft programs based on its assumptions that (1) overall defense

funding would begin to increase in real terms after fiscal year 2002 and

(2) large savings would be generated from initiatives to downsize defense

infrastructure and reform the acquisition process.

DOD’s aircraft investment strategy may be unrealistic in view of current and

projected budget constraints. Recent statements by DOD officials, as well

as congressional projections, suggest that overall defense funding will be

stable, at best, for the foreseeable future. The long-term impact of this

change on DOD’s aircraft program is not yet clear. Moreover, DOD’s planned

funding for the 17 aircraft programs in all but 1 year, between fiscal year

2000 and 2015, exceeds the long-term historical average percentage of the

budget devoted to aircraft purchases and, for several of those years,

approaches the percentages of the defense budget reached during the

peak Cold War spending era of the early to mid-1980s. Compounding these

funding difficulties is the fact that these projections are very conservative.

They do not allow for real program cost growth, which historically has

averaged at least 20 percent, nor do they allow for the procurement of

additional systems, although DOD is considering replacing KC-135, C-5A,

F-15E, F-117, EA-6B, and S-3B aircraft.

2

This report focuses on the procurement costs, in constant fiscal year 1997 dollars, that are involved in

the purchase of new or significantly modified aircraft. It does not address development or operation

and maintenance costs or the procurement costs of other aircraft modifications or spare parts.

Page 2 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Further, the amount and availability of savings from infrastructure

reductions and acquisition reform—two main claimed sources for

increasing procurement funding—are not clearly evident today. Our recent

reviews3

 of these initiatives indicate there are unlikely to be sufficient

savings available to offset projected procurement increases. If the

additional funding and the projected savings do not materialize as planned,

DOD will face a significant imbalance between the aircraft programs’

procurement funding requirements and the resources available for those

purposes. To deal with such an imbalance, DOD may need to (1) reduce

planned aircraft funding and procurement rates; (2) reduce funding for

other procurement programs; (3) implement changes in force structure,

operations, or other areas; or (4) increase total defense funding.

DOD’s aircraft investment strategy is a “business-as-usual”

approach—adding billions of dollars to defense acquisition costs and

delaying delivery of weapon systems to the operational forces. DOD has

historically made long-term commitments to acquire weapon systems

based on optimistic procurement profiles and then significantly altered

those profiles because of insufficient funding. Our recent report4

 on

weapon system production rates showed that DOD’s weapon system

acquisition strategies were often optimistic and rarely achieved. As a

result, a significant number of weapon systems were not procured at

planned rates, leading to schedule stretchouts and billions of dollars of

increased program costs. In other words, DOD often buys less than

expected at a much higher cost than expected.

To avoid or minimize affordability problems, DOD needs to bring its aircraft

investment strategy into line with more realistic, long-term projections of

overall defense funding, as well as the amount of procurement funding

expected to be available for aircraft purchases. Rather than continue its

practice of starting aircraft procurement programs that cannot be

executed as planned because of funding limitations, DOD needs to

realistically project the long-term availability of procurement funding and

then establish and adhere to an aircraft investment strategy that is

militarily justified and can be executed within that amount. Bringing

stability and realism to DOD’s acquisition plans is crucial but will not be

easy. It will require fundamental changes to a deeply entrenched

3

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

(GAO/NSIAD-96-131, Apr. 4, 1996) and Defense Aircraft Investments: Major Program Commitments

Based on Optimistic Budget Projections (GAO/T-NSIAD-97-103, Mar. 5, 1997).

4

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

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

Page 3 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

acquisition culture. Difficult decisions will need to be made about

restructuring and/or terminating some programs.

Background Most of the funding in DOD’s fiscal year 1997 aircraft investment strategy is

for the procurement of new aircraft such as the F/A-18E/F, F-22, and Joint

Strike Fighter (JSF), while some is for the retrofit or remanufacture of

existing aircraft, such as the AV-8B and the Longbow Apache. Table 1

describes the 17 aircraft programs and their estimated procurement

funding requirements and appendix I provides details on these programs.5

5

Funding estimates are the total procurement funding required for the programs from fiscal year 1997

through production completion. The estimates do not include any development or operation and

maintenance costs.

Page 4 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Table 1: DOD’s Aircraft Procurement

Plans (1997 and beyond) Billions of fiscal year 1997 dollars

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/new 1,000 56.4

3. F-22 Air superiority fighter/new 438 37.7

4. V-22 Vertical assault/new 523 28.4

5. Comanche Reconnaissance and

attack helicopter/new 1,292 25.2

6. C-17 Airlift and cargo/new 80 17.6

7. Longbow Apache Attack helicopter/

modification 734 5.6

8. SH-60R Antisubmarine and

antisurface warfare

helicopter/upgrade 184 3.8

9. Joint Surveillance

Target Attack Radar

System

Surveillance and

targeting/new

11 3.1

10. Joint Primary Aircraft

Training System

Primary trainer/new

702 2.5

11. H-1 Attack and utility

helicopter/upgrade 280 2.3

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

13. T-45 Training System Strike pilot trainer/new 91 2.1

14. AV-8B Light attack/remanufacture 56 1.6

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

evacuation helicopter/

modification 64 0.7

16. C-130J Airlift and cargo/new 6 0.4

17. E-3 AWACS a Airborne warning and

control/modification 31 0.4

Total 8,499 $334.8

aAirborne Warning and Control System.

Source: Our analysis of (1) DOD’s program cost estimates, except the JSF program and

(2) CBO’s JSF cost estimates based on DOD’s unit cost goals and unadjusted for cost growth.

DOD is pursuing these aircraft programs at a time when the federal

government is likely to be faced with significant budgetary pressure for

the foreseeable future. This pressure comes from efforts to balance the

budget, coupled with funding demands for such programs as Social

Security, Medicare, and Medicaid. Consequently, there is likely to be

Page 5 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

limitations on all discretionary spending, including defense spending, for

the long term.

This report addresses the availability of funding to support DOD’s aircraft

investment strategy as planned prior to the Quadrennial Defense Review,

but does not address specific aircraft requirements. Our previous reports

have questioned the need for and timing of a number of DOD’s aircraft

procurements. (A listing of prior reports is provided at the end of this

report.)

Funding Needed for

Aircraft Procurement

Programs Will Exceed

Historical Norms

DOD asserts that its aircraft modernization programs are affordable as

planned. On June 27, 1996, DOD officials testified before House

Subcommittees6

 that its overall aircraft investment plans were within

historical norms and affordable within other service priorities. The

officials further explained that the historical norms referred to were based

on the aircraft funding experience of the early 1980s.

Our review indicated that using the early to mid-1980s, the peak Cold War

defense spending years, as a historical norm for future aircraft

investments is not realistic in today’s budgetary and force structure

environment. As shown in figure 1, DOD’s overall appropriations, expressed

in fiscal year 1997 dollars, have decreased significantly from their high

point in fiscal year 1985, and the amounts appropriated in recent years are

at, or near, the lowest point over the past 24 years.

6

Joint Statement of the Under Secretary of Defense for Acquisition and Technology and the Vice

Chairman of the Joint Chiefs of Staff before the Subcommittee on Military Research and Development

and the Subcommittee on Procurement of the House Committee on National Security—June 27, 1996.

Page 6 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Figure 1: Overall DOD Budget and Funding for Aircraft Purchases (as a percentage of the overall DOD budget)

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

0

100

200

300

400

0

2

4

6

8

10

12

14

Fiscal year

In billions of dollars In percent

Total DOD

budget

Percent of

total

Actual Projected

Source: Our analysis of DOD and CBO data.

As shown in figure 1, our review of aircraft procurement funding data from

fiscal years 1973 through 1996, showed that funding for DOD’s aircraft

purchases as a percentage of DOD’s overall budget fluctuated in relation to

the changes in DOD’s overall budget. Funding for aircraft purchases

increased significantly as DOD’s overall funding increased in the early 1980s

and decreased sharply as the defense budget decreased in the late 1980s

and early 1990s. In contrast, DOD’s planned aircraft investment strategy

does not follow this pattern and calls for significantly increased funding

for aircraft purchases during a period when DOD’s overall funding is

expected to remain stable in real terms.

Page 7 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Figure 2: Funding History for DOD’s Aircraft Purchases as a Percentage of DOD’s Overall Budget

73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96

0

2

4

6

8

Fiscal year

In percent 1980s Cold War buildup

4.8% Historical average

Source: Our analysis of DOD data.

Funding for DOD’s aircraft purchases was at its highest point, both in dollar

terms and as a percentage of the overall DOD budget, during the early to

mid-1980s. Figure 2 shows the 24-year funding history for DOD’s aircraft

purchases from fiscal years 1973 through 1996. During that period, DOD

spending on aircraft purchases fluctuated somewhat but averaged about

4.8 percent of the overall DOD budget. From fiscal years 1982 through 1986,

DOD used from 6.0 percent to 7.7 percent of its overall annual funding on

aircraft purchases. In contrast, since fiscal year 1973, the next highest level

of annual aircraft funding was 5.5 percent in fiscal year 1989 and, in 12

Page 8 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

other years, the funding was less than 4.5 percent of the overall DOD

funding. Therefore, a long-term average would be more appropriate than

early 1980’s historical norms as a benchmark for an analysis of funding

patterns, and its use would even out the high aircraft procurement funding

of the early 1980s and the lower funding of the post-Vietnam and post-Cold

War eras. However, such a benchmark should not be used as a threshold

for spending on aircraft purchases because it may not reflect the changed

nature of the defense requirements and U.S. strategy that occurred with

the end of the Cold War.

If DOD’s aircraft investment strategy is implemented as planned and the

defense budget stabilizes at DOD’s currently projected fiscal year 2003 level

(about $247 billion in constant fiscal year 1997 dollars), DOD’s projected

funding for aircraft purchases will exceed the historical average

percentage of the defense budget for aircraft purchases in all but 1 year

between fiscal year 2000 and 2015. For several years, it will approach the

highest historical percentages of the defense budget for aircraft purchases.

Those high percentages were attained during the peak Cold War spending

of the early to mid-1980s.

Page 9 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Figure 3: Historical Funding and Projected Funding Requirements for Aircraft Purchases as a Percentage of DOD’s Overall

Budget

73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19

0

2

4

6

8

Fiscal year

In percent

Actual Projected

Source: Our analysis of DOD and CBO data.

In fiscal year 1996, DOD spent $6.8 billion, or 2.6 percent of its overall

budget, on aircraft purchases. To implement its aircraft investment

strategy, DOD expects to increase its annual spending on aircraft purchases

significantly from current levels and to sustain those higher levels for the

indefinite future. For example, as shown in figure 4, DOD’s annual spending

on aircraft purchases is projected to increase about 94 percent from the

fiscal year 1996 level to $13.2 billion by fiscal year 2002. Also, for 15 of the

next 20 fiscal years beginning in fiscal year 1997, DOD’s projected spending

for aircraft purchases is expected to equal or exceed $11.9 billion

Page 10 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

annually.7 For 3 years during this period, DOD’s projected annual spending

on aircraft purchases will exceed $16 billion (6.5 percent of the budget)

and for 1 of those years, it will exceed $18 billion (7.3 percent of the

budget).

Figure 4: Projected Funding Requirements for DOD’s 17 Aircraft Programs (fiscal year 1997 dollars)

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

0

5

10

15

20

7.3 6.9

9.8

11.8

12.6

13.2

12.4

11

12 12.4

13.7

15

16.6

18.2

16.4

13.8 13.5 13 12.6 12.1

9.6 9.4

8.1 8

Fiscal year

In billions of dollars

Note: Funding for aircraft purchases seems to drop off after fiscal year 2010 because DOD has

not yet approved additional programs for procurement. Several aircraft requirements are under

consideration but have not yet been approved for procurement.

Source:Our analysis of (1) DOD’s program cost estimates, except the JSF program and (2) CBO’s

JSF cost estimates based on DOD’s unit cost goals and unadjusted for cost growth.

7

Applying the historical average spending level for aircraft—4.8 percent—to DOD’s fiscal year 2003

overall budget of $247 billion equates to about $11.9 billion.

Page 11 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

In the current security and force structure environment, the need for that

level of additional funding has not been made clear by DOD. Furthermore,

other than stating that overall procurement funding in general will be

increased, DOD has not identified specific reductions elsewhere within the

procurement account or within the other major accounts to offset the

significant proposed increases in aircraft procurement funding. Because

the overall level of defense funding is expected to be stable, at best, any

proposed increase in spending for a particular account or for a project will

have to be offset elsewhere within the budget.

Historically, acquisition programs almost always cost more than originally

projected. Figure 4 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 aircraft programs. For at least

one current program, it appears the historical patterns will be repeated. In

January 1997, DOD reported that the procurement cost of the F-22 was

expected to increase by over 20 percent and devised significant initiatives

to offset that growth. We reported about this potential cost growth in

June 1997 and concluded that the initiatives to offset the cost growth were

optimistic.8

In addition, the projected funding requirements shown in figures 3 and 4

may be understated because they do not include any projected funding for

other aircraft programs that have not been approved for procurement. For

example, potential requirements exist to replace the KC-135, C-5A, F-15E,

F-117, EA-6B, S-3B, and other aircraft. Adding any of these requirements to

DOD’s aircraft investment strategy would further complicate the funding

problems.

Funding for Increased

Procurement Is

Uncertain

The amount of funding likely to be available for national defense9 in the

near term has been projected by both the President and the Congress.

Both have essentially agreed that the total national defense budget will not

increase measurably in real terms through fiscal year 2002.

While the Congress has not expressed its sentiments regarding the defense

budget beyond fiscal year 2002, last year DOD’s long-term planning for its

8

Tactical Aircraft: Restructuring of the Air Force F-22 Fighter Program (GAO/NSIAD-97-156, June 4,

1997).

9

The national defense budget includes the military activities of DOD, the atomic energy defense

activities of the Department of Energy, and the defense-related activities of other agencies.

Page 12 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

aircraft investment strategy assumed a real annual growth factor of

1 percent. Accordingly, procurement funding to accomplish the aircraft

modernization programs was partially dependent on some level of real

growth in the defense budget. However, because of commitments to

balance the federal budget by both the President and the Congress, it

appears likely that the defense budget will stabilize at current levels or

decrease further, rather than increase as DOD’s aircraft investment plans

have assumed. According to DOD officials, the long-term planning now

assumes no real growth in the defense budget. The impact of this change

on DOD’s aircraft programs is not yet clear.

Uncertain Savings

Available for Additional

Procurement

DOD plans to increase overall funding for procurement programs over the

next few years, and the aircraft programs are expected to be a prime

beneficiary of that increased funding. DOD expects to increase

procurement spending to a level of approximately $61.2 billion per year,

from the current level of about $44.3 billion per year, while keeping overall

defense spending at current levels, at least through fiscal year 2002. Of the

$39.0 billion cumulative increase in procurement spending that is expected

through fiscal year 2002, about $17.7 billion is projected to be used for

DOD’s aircraft investment strategy.

To increase procurement funding while keeping overall defense spending

at current levels, DOD anticipates major savings will be generated from

infrastructure reductions and acquisition reform initiatives, as well as

increased purchasing power through significantly lower inflation

projections. We found, however, that there are unlikely to be sufficient

savings available to offset DOD’s projected procurement increases.

DOD’s planned procurement funding increase was partially predicated on

base closure savings of $17.8 billion (then-year dollars) through fiscal 

year 2001, a component of infrastructure, and shifting this money to pay

for additional procurement. In 1996, however, we found no significant net

infrastructure savings between fiscal year 1996 and 2001 because the

proportion of infrastructure in the DOD budgets was projected to remain

relatively constant through fiscal year 2001. Therefore, through fiscal 

year 2001, DOD will have less funds available than expected for

procurement from its infrastructure reform initiatives.

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. Our work shows

Page 13 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

that the savings from acquisition reform have been used by the very

programs generating the savings to fund other needs. This raises concern

as to whether the latest acquisition reform initiatives will provide savings

to realize modernization objectives for other weapons systems within the

time frames envisioned. Without the level of savings expected from

infrastructure reductions and acquisition reform, DOD will face difficult

choices in funding its modernization plans.

Finally, based on changes in future inflation factors, DOD calculated in its

1997 future years defense plan (FYDP) that its purchases of goods and

services from fiscal years 1997 through 2002 would cost about $34.7 billion

(then-year dollars) less than it had planned in its 1996 FYDP.

10 The “inflation

dividend” allowed DOD to include about $19.5 billion in additional

programs in fiscal years 1997-2001 and permitted the executive branch to

reduce DOD’s projected funding by $15.2 billion over the same time period.

However, using different inflation estimates, CBO calculated the cost

reduction at only $10.3 billion, or $24.4 billion less than DOD’s estimate.

Because DOD’s projected funding was reduced by $15.2 billion, CBO’s

estimate indicates that DOD’s real purchasing power, rather than

increasing, may be reduced by about $5 billion. If true, then DOD may have

to make adjustments in its programs.

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

that further complicates the situation.11 In estimating the cost to produce

the F-22, the Air Force used an inflation rate of about 2.2 percent per year

for all years after 1996. However, in agreeing to restructure the F-22

program to address the recently acknowledged $15 billion (then-year

dollars) program cost increase, 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 needed and further jeopardize DOD’s ability to fund its

modernization plans.

10Future Years Defense Program: Lower Inflation Outlook Was Most Significant Change From 1996 to

1997 Program (GAO/NSIAD-97-36, Dec. 12, 1996).

11F-22 Restructuring (GAO/NSIAD-97-100R, Feb. 28, 1997).

Page 14 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Program Instability

Causes Schedule

Stretchouts and

Higher Unit Costs

The basis for DOD’s projections of total annual procurement funding is the

cumulative annual funding needs of multiple weapons programs, each of

which has typically been based on optimistic assumptions about

procurement quantities and rates. Accordingly, DOD’s projections of total

annual procurement funding have been consistently optimistic. DOD’s

traditional approach to managing affordability problems is to reduce

procurement quantities and extend production schedules without

eliminating programs. Such actions normally result in significantly

increased system procurement costs and delayed deliveries to operational

units.

We recently reported that the costs for 17 of 22 full-rate production

systems we reviewed increased by $10 billion (fiscal year 1996 dollars)

beyond original estimates through fiscal year 1996 due to stretching out

the completion of the weapons’ production.12 We found that DOD had

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

production for many weapons that had already been tested. We also found

that actual production rates were, on average, less than half of originally

planned rates. Primarily because of funding limitations, DOD has reduced

the annual full-rate production for 17 of the 22 proven weapons reviewed,

stretching out the completion of the weapons’ production an average of 

8 years (or 170 percent) longer than planned. Our work showed that DOD

develops weapon system acquisition strategies that are based on

optimistic projections of funding that are rarely achieved. As a result, a

significant number of DOD’s weapon systems are not being procured at

planned production rates, leading to program stretchouts and billions of

dollars of increased costs. If DOD bought 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.

If DOD’s assumptions regarding future spending for its aircraft programs do

not materialize, DOD may need to (1) reduce funding for some or all of the

aircraft programs; (2) reduce funding for other procurement programs;

(3) implement changes in infrastructure, operations, or other areas; or

(4) increase overall defense funding. In other words, the likelihood of

program stretchouts and significantly increased costs is very real.

12Weapons Acquisition: Better Use of Limited DOD Acquisition Funding Would Reduce Costs

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

Page 15 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Conclusions and

Recommendations

As the Nation proceeds into the 21st century faced with the prospect of a

constrained budget, we believe DOD needs to take action now to address

looming affordability problems with its aircraft investment strategy.

Action needs to be taken now because, if major commitments are made to

the initial procurement of all the planned aircraft programs (such as the

F/A-18E/F, F-22, JSF, and the V-22) over the next several years, a significant

imbalance is likely to result between funding requirements and available

funding. Such imbalances have historically led to program stretchouts,

higher unit costs, and delayed deliveries to operational units. Further, this

imbalance may be long-term in nature, restricting DOD’s ability to respond

to other funding requirements.

DOD needs to reorient its aircraft investment strategy to recognize the

reality of a constrained overall defense budget for the foreseeable future.

Accordingly, instead of continuing to start aircraft procurement programs

that are based on optimistic assumptions about available funds, DOD

should determine how much procurement funding can realistically be

expected and structure its aircraft investment strategy within those levels.

DOD also needs to provide more concrete and lasting assurance that its

aircraft procurement programs are not only militarily justified in the

current security environment but clearly affordable as planned throughout

their entire 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

involved may agree that there are too many programs chasing too few

dollars, and could probably agree on the 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 weapon system acquisition process.

Therefore, we recommend that the Secretary of Defense, in close

consultation with the defense and budget committees of the Congress,

define realistic, long-term projections of overall defense funding and,

within those amounts, the portion of the annual procurement funding that

can be expected to be made available to purchase new or significantly

improved aircraft. In developing the projections, the Secretary should

Page 16 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

consider whether the historical average percentage of the total budget for

aircraft purchases is appropriate in today’s security and budgetary

environment.

We also recommend that the Secretary reassess and report to the

Congress on the overall affordability of DOD’s aircraft investment strategy

in light of the funding that is expected to be available. The Secretary

should clearly identify the amount of funding required by source, including

(1) any projected savings from infrastructure and acquisition reform

initiatives and (2) any reductions elsewhere within the procurement

account or within the other major accounts.

We further recommend that the Secretary fully consider the availability of

long-term funding for any aircraft program before approving the

procurement planned for that system.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, DOD partially concurred with our

recommendations and stated that it is fully aware of the investment

challenge highlighted in this report. DOD stated that its recent Quadrennial

Defense Review addressed the affordability of the modernization

programs that it believes are needed to meet the requirements of the

defense strategy. The Quadrennial Defense Review recommended

reductions in aircraft procurement plans. However, even to modernize the

slightly smaller force that will result from the Quadrennial Defense

Review, DOD believes that procurement funding must also rise to about

$60 billion annually by fiscal year 2001, from about $44 billion in fiscal

year 1997. Recognizing that overall defense budgets are not likely to

increase substantially for the foreseeable future, DOD indicated that the

additional procurement funds would be created by continuing efforts to

reduce the costs of defense infrastructure and to fundamentally reengineer

its business practices.

Our recent reviews of DOD’s previous initiatives to reduce the costs of

defense infrastructure and reengineer business practices indicate that the

amount and availability of savings from such initiatives may be

substantially less than DOD has estimated. If the projected savings do not

materialize as planned, or if estimates of the procurement costs of weapon

systems prove to be too optimistic, DOD will need to rebalance the

procurement plans to match the available resources. This action would

likely result in further program adjustments and extensions.

Page 17 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

Concerning aircraft procurement projections, we continue to believe that

a clearer understanding of DOD’s long-term budgetary

assumptions—including specific, realistic projections of funding

availability and planned aircraft procurement spending—is necessary to

determine the overall affordability of DOD’s aircraft investment strategy.

Without this information, neither DOD nor the Congress will have

reasonable assurances that the long-term affordability of near-term

procurement decisions has been adequately considered.

Scope and

Methodology

We gathered, assembled, and analyzed historical data on the overall

defense budget, the services’ budget shares, the procurement budgets, and

the aircraft procurement budgets. Much of this data was derived from

DOD’s historical FYDP databases. We did not establish the reliability of this

data because the FYDP is the most comprehensive and continuous source

of current and historical defense resource data. The FYDP is used

extensively for analytical purposes and for making programming and

budgeting decisions at all DOD management levels. In addition, we

reviewed historical information and studies—ours, CBO, and others—on

program financing and affordability. We also gathered, assembled, and

analyzed DOD-generated data on its aircraft programs and supplemented

that, where necessary, with data from CBO. We reviewed DOD’s detailed

positions on the affordability of its aircraft modernization programs, as

presented to the Congress in a June 1996 hearing. We followed up with

DOD and service officials on key aspects of that position.

Our analysis included tactical aircraft, bombers, transports, helicopters,

other aircraft purchases and major aircraft modification programs. This

approach removes any cyclical effects on the investment in aircraft by

allowing us to view the overall amount invested, as well as the major

subcomponents of that investment. We focused on procurement figures

and excluded research and development costs because we could not

forecast what development programs DOD will undertake over the course

of the next 20 to 30 years. We used DOD’s projections for the costs of these

aircraft programs (except for the JSF costs, which are CBO projections

based on DOD unit cost goals) and did not project cost increases, even

though cost increases have occurred in almost all previous aircraft

procurement programs. All dollar figures are in constant 1997 dollars,

unless otherwise noted.

The National Defense Authorization Act for Fiscal Year 1997 required DOD

to conduct a Quadrennial Defense Review. As part of the review, DOD

Page 18 GAO/NSIAD-97-88 Defense Aircraft Investments
B-272636 

assessed a wide range of issues, including the defense strategy of the

United States and the force structure required. As a result, DOD may reduce

the quantities procured of some weapons programs. The details of how

DOD plans to implement the recommendations of the Quadrennial Defense

Review will not be available until the fiscal year 1999 budget is submitted

to the Congress. Our analysis, therefore, does not take into account the

potential effect of implementing the recommendations of the Quadrennial

Defense Review.

We performed our work from March 1996 to July 1997 in accordance with

generally accepted government auditing standards.

As agreed with your offices, we plan no further distribution of this report

until 30 days from its issue date unless you publicly announce its contents

earlier. At that time, we will send copies to other congressional

committees; the Secretaries of Defense, the Army, the Navy, and the Air

Force; the Commandant of the Marine Corps; the Director, Office of

Management and Budget; and other interested parties. We will also make

copies available to others upon request.

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

concerning this report. Major contributors to this report are listed in

appendix III.

Louis J. Rodrigues

Director, Defense Acquisitions Issues

Page 19 GAO/NSIAD-97-88 Defense Aircraft Investments
Contents

Letter 1

Appendix I 

Descriptions of

Planned Aircraft

Acquisitions

22

Appendix II 

Comments From the

Department of

Defense

24

Appendix III 

Major Contributors to

This Report

31

Related GAO Products 35

Table Table 1: DOD’s Aircraft Procurement Plans 5

Figures Figure 1: Overall DOD Budget and Funding for Aircraft Purchases 7

Figure 2: Funding History for DOD’s Aircraft Purchases as a

Percentage of DOD’s Overall Budget

8

Figure 3: Historical Funding and Projected Funding

Requirements for Aircraft Purchases as a Percentage of DOD’s

Overall Budget

10

Figure 4: Projected Funding Requirements for DOD’s 17 Aircraft

Programs 

11

Abbreviations

CBO Congressional Budget Office

DOD Department of Defense

FYDP future years defense plan

JSF Joint Strike Fighter

Page 20 GAO/NSIAD-97-88 Defense Aircraft Investments
Page 21 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix I 

Descriptions of Planned Aircraft

Acquisitions

Aircraft Description

AV-8B Marine Corps aircraft. A single-piloted, light-attack, vertical/short take-off and landing

aircraft used primarily for responsive close air support. This is a remanufacture program

that converts older versions to the most recent production version and provides night

fighting capability.

C-17 Air Force aircraft. A new production aircraft that modernizes the airlift fleet. It will

augment the C-5, C-141, and C-130 aircraft; carry outsize cargo into austere airfields;

and introduce a direct deployment capability.

Comanche Army helicopter. A new production, 24-hour, all-weather, survivable aerial

reconnaissance helicopter to replace the AH-1, OH-6, and OH-58A/C helicopters and

complement the AH-64 Apache. A little more than one-third of the total production

aircraft will be equipped with Longbow capability.

C-130J Air Force aircraft. A new production, medium-range, tactical airlift aircraft designed

primarily for transport of cargo and personnel within a theater of operations. This model

uses latest technology to reduce life-cycle costs and has more modern displays, digital

avionics, computerized aircraft functions, fewer crew members, and improved cargo

handling and delivery systems.

E-2C Hawkeye Navy aircraft. A new production, all-weather, carrier-based airborne Combat Information

Center providing tactical early warning, surveillance, intercept, search and rescue,

communications relay, and strike and air traffic control.

E-3 AWACS Radar System Improvement

Program

Air Force aircraft. A major modification to provide the Air Combat Command with new

and improved capabilities for the AWACS radar. It involves both hardware and software

changes to the AWACS.

F-22 Air Force aircraft. A new production, next-generation stealthy air superiority fighter with

first-look, first-kill capability against multiple targets. It will replace the F-15C aircraft in

the air superiority role.

F/A-18E/F Navy aircraft. A new-production, major model upgrade to the F/A-18C/D multimission

tactical aircraft for Navy fighter escort, interdiction, fleet air defense, and close-air

support mission requirements. Planned enhancements over the F/A-18C/D include

increased range, improved survivability, and improved carrier suitability. It will replace

F/A-18C/D models, A-6, and F-14 aircraft.

H-1 Marine Corps helicopter. An upgrade to the Marine Corps AH-1W attack and UH-1N

utility versions of this helicopter to convert both versions from 2-bladed to 4-bladed rotor

systems and provide the attack version with fully integrated cockpits. The attack version

provides close air support, anti-armor, armed escort, armed/visual reconnaissance and

fire support coordination under day/night and adverse weather conditions. The utility

version provides day/night and adverse weather command and control, combat assault

support, and aeromedical evacuation.

Joint STARS Air Force and Army aircraft. (Joint Surveillance Target Attack Radar System) A new

production joint surveillance, battle management and targeting radar system on a

modified E-8 aircraft that performs real time detection and tracking of enemy ground

targets.

Joint Strike Fighter Air Force and Navy aircraft. A new production, next-generation, multimission strike

fighter. It will replace the Air Force’s F-16 and A-10, the Marine Corps’ AV-8B and

F-18A/C/Ds, and be a “first-day survivable complement” to the Navy’s F-18 C/D and E/F

aircraft.

(continued)

Page 22 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix I 

Descriptions of Planned Aircraft

Acquisitions

Aircraft Description

JPATS Air Force and Navy aircraft. (Joint Primary Aircraft Training System) A new production

joint training aircraft and ground based training system, including simulators, that

replaces the Air Force T-37B trainer aircraft, Navy T-34C trainer aircraft, and their

associated ground systems.

Longbow Apache Army helicopter. A modification program to develop and provide weapons

enhancements to the AH-64 Apache attack helicopter. The Longbow program will

provide a fire-and-forget Hellfire missile capability to the AH-64 Apache helicopter that

can operate in night, all-weather, and countermeasures environments.

SH-60R Navy helicopter. A Block II weapon systems upgrade of the Navy version of the Army

Black Hawk to enhance mission areas performance. It is a twin-engine medium lift, utility

or assault helicopter performing anti-submarine warfare, search and rescue, anti-ship

warfare, cargo lift, and special operations.

T-45 Training System Navy aircraft. A strike pilot training system to replace the T-2C and TA-4J for strike and

E2 and C2 pilots. It includes the T-45A aircraft, simulators, and training equipment and

materials.

UH-60L Black Hawk Army helicopter. A new production, twin-engine air assault, air cavalry, and

aeromedical evacuation helicopter that transports up to 14 troops and equipment into

battle. It continues to replace the UH-1H Iroquois helicopter.

V-22 Navy, Marine Corps, and Air Force aircraft. A new production, tilt-rotor, vertical

take-off, and landing aircraft designed to provide amphibious and vertical assault

capability to the Marine Corps and replace or supplement troop carrier and cargo

helicopters in the Marines, the Air Force, and the Navy.

Source: DOD Selected Acquisition Reports.

Page 23 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

Page 24 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

See comment 2.

See comment 3.

See comment 4.

Page 25 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

Page 26 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

Now on p. 16.

See comment 2.

Now on p. 17.

See comment 2.

Page 27 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

Now on p. 17.

See comment 5.

Page 28 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

GAO Comments The following are our comments on the Department of Defense’s (DOD)

letter dated June 8, 1997.

1. Although the Quadrennial Defense Review report recommended that

adjustments be made to the number of aircraft to be procured and the

rates at which they are to be procured, the report projected that additional

procurement funding would be made available through base closures and

other initiatives to reduce defense infrastructure and reengineer business

practices. The details of these initiatives are not expected to be available

until the fiscal year 1999 budget is submitted to the Congress. At this time,

the availability of savings from planned initiatives is not clearly evident.

2. The Quadrennial Defense Review does not provide sufficiently detailed

projections to judge the affordability of DOD’s new aircraft procurement

plans by comparing the long-term funding expected to be available with

the funding needed to fully implement those plans. We continue to believe

that this type of long-term projection is needed by both DOD and the

Congress to ensure that DOD’s aircraft procurement programs are clearly

affordable as planned through the span of procurement.

3. We continue to believe that the $17 billion increased cost of procuring

F/18-E/F aircraft compared to F/A-18C/Ds is not warranted by the limited

increases in performance that would be obtained. We recognize that, while

the F/A-18E/F will provide some improvements over the F/A-18C/D, most

notably in range, the F/A-18C/D’s current capabilities are adequate to

accomplish its assigned missions. Our rebuttals to DOD’s specific comment

are contained in our report, Naval Aviation: F/A-18E/F Will Provide

Marginal Operational Improvement at High Cost (GAO/NSIAD-96-98, June 18,

1996).

4. Although procurement rates for F-22s during the planned low-rate initial

production period were to be lowered in accordance with the Quadrennial

Defense Review report, we continue to believe that the degree of overlap

between development and production of the F-22 is high and that

procurement of F-22s should be minimized until the aircraft demonstrates

that it can successfully meet the established performance requirements

during operational testing and evaluation. There has also been

congressional concern about the cost and progress of the F-22 program.

The Senate has initiated legislation to require us to review the F-22

development program annually.

Page 29 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix II 

Comments From the Department of Defense

5. We clarified the language in the report to more explicitly recommend

that long-term projections of the availability of funds should be used as a

guide to assess the likely availability of funds to carry out a program at the

time of the procurement approval decision. The Quadrennial Defense

Review recognized that more procurement dollars were being planned to

be spent than were likely to be available over the long term. Our intent in

making this recommendation is to recognize the difficulty DOD and the

Congress face and to suggest some solid analysis that would aid in

evaluating the long-term commitments that are inherent in nearer term

decisions to procure weapon systems. A better understanding of the

long-term budgetary assumptions underlying near-term decisions would

clearly aid both DOD and the Congress in ensuring that needed weapon

systems are affordable in both the near and long term.

Page 30 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

David E. Cooper, Associate Director

Robert D. Murphy, Assistant Director

William R. Graveline, Evaluator-in-Charge

David B. Best, Senior Evaluator

Charles R. Climpson, Senior Evaluator

Page 31 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix III 

Major Contributors to This Report

Page 32 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix III 

Major Contributors to This Report

Page 33 GAO/NSIAD-97-88 Defense Aircraft Investments
Appendix III 

Major Contributors to This Report

Page 34 GAO/NSIAD-97-88 Defense Aircraft Investments
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 35 GAO/NSIAD-97-88 Defense Aircraft Investments
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).

(707240) Page 36 GAO/NSIAD-97-88 Defense Aircraft Investments
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100