United States General Accounting Office

GAO Report to the Honorable

Elizabeth Furse, House of

Representatives

February 1997 MILITARY AIRLIFT

Options Exist for

Meeting Requirements

While Acquiring Fewer

C-17s

GAO/NSIAD-97-38

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272608 

February 19, 1997

The Honorable Elizabeth Furse

House of Representatives

Dear Mrs. Furse:

This report responds to your request that we review the basis for the November 1995

recommendation by the Defense Acquisition Board that a fleet of 120 C-17s be acquired to meet

airlift needs. Specifically, the report addresses the basis for the November recommendation,

explores whether less costly options exist to meet airlift needs, and identifies an issue

concerning the use of the C-17 to support a strategic brigade airdrop.

As you requested, we plan no further distribution of this report until 5 days after its issue date.

At that time, we will send copies to the Chairmen and Ranking Minority Members, Senate

Committee on Armed Services; House Committee on National Security; Senate Subcommittee

on Defense, Committee on Appropriations; and House Subcommittee on National Security,

Committee on Appropriations. We will also send copies to the Secretaries of Defense and the

Air Force; the Director, Office of Management and Budget; and other appropriate parties. We

will make copies available to others on request.

Please call me at (202) 512-4841 if you or your staff have any questions about this report. Major

contributors to this report are listed in appendix III.

Sincerely yours,

Louis J. Rodrigues

Director, Defense Acquisitions Issues
Executive Summary

Purpose The Congress had expressed concern about whether the C-17 was the

most cost-effective airlifter for the Air Force to procure, given the

aircraft’s history of cost, schedule, and performance problems. The

Congress had required the Department of Defense (DOD) to establish a

Non-Developmental Airlift Aircraft program to acquire a commercially

available transport aircraft as a substitute for or complement to a fleet of

C-17s. As a result of a November 1995 decision by the Defense Acquisition

Board, DOD plans to buy 120 C-17s and no commercially available transport

aircraft. DOD concluded that the advantages of buying the C-17 outweighed

any potential cost savings from acquiring a mixed fleet. Given the

$43 billion price for the C-17 program, Congresswoman Elizabeth Furse

asked GAO to explore whether less costly alternatives to procuring 120

aircraft exist while still satisfying the nation’s airlift requirements. This

report responds to that request.

Background The C-17 aircraft, an air refuelable, four-engine jet transport, is being

manufactured by the McDonnell Douglas Corporation. The C-17 is to

replace the C-141 transport in the current fleet and complement the larger

but less maneuverable C-5 aircraft. When the program began in 1982, the

Air Force planned to acquire 210 C-17s to augment its strategic airlift fleet.

In 1990, as part of DOD’s Major Aircraft Review, the Secretary of Defense

reduced the program to 120 aircraft. In December 1993, due to ongoing

concerns with the C-17’s growing cost and continuing technical problems,

the Secretary of Defense announced that the program would be stopped at

40 aircraft unless McDonnell Douglas could demonstrate that program

cost, schedule, and performance improvements warranted completing the

120-aircraft program. Moreover, in March 1994, at congressional direction,

DOD initiated a program to acquire a transport aircraft using commercial

practices as a possible alternative or supplement to the C-17.

The Under Secretary of Defense for Acquisition and Technology convened

a Defense Acquisition Board in October/November 1995 to determine

(1) whether the C-17 aircraft program should continue past 40 aircraft and

(2) how many additional C-17s and commercial transport aircraft should

be procured. The Board decided to procure 120 C-17s and no commercial

transports. The decision was based on several studies and analyses,

including the results of the Joint Chiefs of Staff’s 1995 Mobility

Requirements Study Bottom-Up Review Update (MRS BURU), the Air

Mobility Command’s Strategic Airlift Force Mix Analysis, DOD’s Tactical

Utility Analysis, and C-17 cost and performance information presented by

the Air Force.

Page 2 GAO/NSIAD-97-38 Military Airlift
Executive Summary

Results in Brief An option not considered by the Defense Acquisition Board, which may

satisfy strategic airlift requirements, would be to acquire 100 C-17s and no

commercial transport aircraft. This option would save the government

over $7 billion in life-cycle costs (fiscal year 1996 dollars). The savings

would consist of over $4 billion in acquisition costs and over $3 billion in

operating and support costs. Airlift needs could be met with this reduced

number of C-17s if DOD implemented other individual measures, such as

increasing prepositioning of Army combat support and combat service

support materiel that would otherwise be delivered by air, using training

aircraft (assumed to be unavailable in the MRS BURU to support major

regional contingencies, increasing the use of Civil Reserve Air Fleet

aircraft, increasing slightly the time frame for delivery, or by adopting

some combination of these measures. Costs for implementing the

measures would not be significant compared with the potential savings

and have been accommodated in our estimate of the potential savings. A

fleet with 100 C-17s would also be sufficient to support missions that

require the unique military capabilities of the C-17, such as landing on a

short runway.

The only mission that would require more than 100 C-17s in conjunction

with the current fleet is an extended range brigade airdrop mission to a

small, austere airfield directly from the continental United States. Until

fiscal year 2004, when at least 114 C-17s will be available, the Air Force

will not be able to support an extended range brigade airdrop to a small,

austere airfield as called for in the Army’s concept of operations. In the

interim, the Air Force and the Army are considering other alternatives to

perform the extended range brigade airdrop mission now required in DOD’s

Defense Planning Guidance. GAO believes alternatives could be used, with

a fleet with 100 C-17s and modified C-5s, to support an extended range

airdrop to either a small, austere or larger airfield either indefinitely or

until the Air Force begins replacing the C-5—currently planned to begin in

2007. If DOD and the Congress determine that an extended range brigade

airdrop, to a small, austere airfield is a valid need, this need could be

considered in choosing a replacement airlifter for the C-5.

Further, for safety reasons, the Army has imposed a restriction on

paratroopers jumping from C-17s in close airdrop formations due to

turbulence created by the C-17. Until this safety concern is resolved, the

C-17 cannot be used to support the brigade airdrop mission.

Although the Congress has approved and DOD has awarded a multiyear

contract with an accelerated production schedule for the final 80 C-17s,

Page 3 GAO/NSIAD-97-38 Military Airlift
Executive Summary

that contract contains a clause that would permit the government, if full

funding for a production lot under the multiyear contract were not

available, to revert to single-year options without paying cancellation

costs. While there would be an increase in program discontinuation costs

to close out the contract at 100 rather than at 120, those additional costs

have been accounted for in our estimate of the potential savings.

Finally, DOD and McDonnell Douglas have implemented initiatives to

reduce the total program cost of the 120 C-17 program. However, the

current estimated cost of $43 billion is about the same as that estimated in

1994. Although production costs have decreased, costs for planned

modifications and retrofit, further testing, and contractor support of

fielded aircraft have increased. In addition, the contract prices for the last

50 aircraft could increase by about $1 billion if ceiling prices on those

contracts are reached.

Principal Findings

Strategic Airlift

Requirements Can Be Met

With 100 C-17s

The MRS BURU recommended that, to meet strategic mobility requirements

for a scenario involving two nearly simultaneous major regional

contingencies, an airlift fleet with 120 to 140 C-17s, or their equivalents, be

used and that afloat prepositioning be increased. The Strategic Airlift

Force Mix Analysis showed that an acceptable option to meet strategic

requirements was to acquire 100 C-17s and 18 commercial transport

aircraft, which would save $300 million compared with a fleet with 120

C-17s.

On the basis of GAO’s analysis, a fleet with 100 C-17s and no commercial

transport aircraft may also be a viable alternative that could save the

government over $7 billion in life-cycle costs as shown in table 1.

Table 1: Potential Life-Cycle Cost Savings From Acquiring 100 Instead of 120 C-17s

In millions of fiscal year 1996 constant dollars

Number of aircraft beyond 40

Acquisition

costs

Military

construction

costs

Operating and

support costs

Discontinuation

costs Total costs

80 $16,881.7 $ 162.0 $19,604.0 $ 118.0 $36,765.0

60 12,840.1 137.0 15,820.0 360.0 29,157.1

Difference $4,041.6 $25.0 $3,784.0 $(242.0) $7,608.6

Page 4 GAO/NSIAD-97-38 Military Airlift
Executive Summary

This smaller fleet would provide sufficient outsize cargo carrying

capability and could adequately deal with potential constraints such as

reduced airfield availability and ramp space. A fleet with 100 C-17s would

be sufficient if DOD implemented one or a combination of the following

alternative measures:

• Increase the amount of Army combat support and combat service support

materiel planned for prepositioning. For example, DOD could slightly

increase the amount of prepositioned materiel planned for afloat

prepositioned ships beyond that recommended in the MRS BURU.

1

• Use airlift assets not considered available in the study, such as C-17 and

C-5 training aircraft and increased numbers of Civil Reserve Air Fleet

aircraft.

• Extend by a day or two the time frame in which a small amount of Army

combat support and combat service support materiel would be delivered

during the initial phase of the Mobility Requirements Study’s major

regional contingencies.

Increased costs attributable to these measures would be minor when

compared with the potential savings. Increased prepositioning aboard

ships results in only minor cost increases since sufficient space will be

available on the ships to accommodate tonnage not delivered by a fleet,

including 100 C-17s. Since trainer aircraft will be part of the inventory and

in use, increased costs from their use would only be the additional flying

hours in direct support of the major regional contingency. The Civil

Reserve Air Fleet has historically been recognized as a low cost airlift

option.

Although GAO cannot estimate these costs exactly, it has accommodated

them, to the extent it could identify them, in the estimate of potential

savings. DOD would have to determine the effect of a delay of 1 or 2 days in

delivery of a small amount of combat support and combat service support

materiel to the second major regional contingency.

1

“Afloat prepositioning” is the use of ships loaded with combat equipment and support items located

near potential trouble spots. This enables the ships to respond more quickly than if they were deployed

from the United States. The MRS BURU recommended regenerating (reloading) these ships after their

cargo has been used in an initial major regional contingency.

Page 5 GAO/NSIAD-97-38 Military Airlift
Executive Summary

100 C-17s Would Suffice

for Lesser Regional

Contingencies and

Strategic Brigade Airdrop

The purpose of DOD’s Tactical Utility Analysis was to quantify the C-17’s

benefits in responding to lesser regional contingencies such as

humanitarian relief, peacekeeping, and peace enforcement missions;

providing intratheater airlift and direct delivery to small, austere airfields;

and performing a strategic brigade airdrop. The analysis found that, with

the exception of an extended range brigade airdrop, 100 C-17s or fewer

would be sufficient. The Tactical Utility Analysis had found that about 120

C-17s would be needed to conduct this mission directly from the

continental United States to a small, austere airfield, as desired by the

Army.

Alternatives Can Be Used

to Meet Strategic Brigade

Airdrop Requirements With

100 C-17s

The Air Force does not currently have the capability to support an

extended range brigade airdrop mission as envisioned by the Army within

the desired time frame. This capability will not exist until fiscal year 2004,

when at least 114 C-17s are available and 50 C-5s have been modified for

airdrop. The Air Force is currently considering alternatives for performing

this mission. Options include moving some equipment and supplies to a

base or bases closer to the targeted destination as an initial step in the

airdrop mission or conducting the mission to a larger airfield accessible to

the C-5. GAO believes such options would allow a fleet with 100 C-17s and

50 modified C-5s to perform the extended range brigade airdrop mission.

As of July 1996, there were 74 C-5As in the airlift fleet. The Air Force’s

long-range airlift modernization plan calls for replacing the C-5As

beginning in 2007. The Air Force plans to begin replacing C-5As just 

3 years after enough C-17s are scheduled to enter the inventory to support

the Army’s concept for an extended range brigade airdrop. An option that

could result in saving billions would be to extend the alternative methods

for accomplishing the extended range brigade airdrop—using only 100

C-17s—until C-5A replacement has begun and, if the Army’s concept of

operations for the extended range brigade airdrop is considered a valid

requirement, consider making some of the replacements capable of

airdropping equipment to replace C-17s in the equipment airdrop role. This

would reduce the number of C-17s needed for airdropping equipment and

make them available for the follow-on role of bringing equipment and

troops into the captured small, austere airfield. The Air Force would then

be able to support an extended range brigade airdrop with only 100 C-17s.

C-17 Airdrop Capability

Not Proven

The C-17 has not yet demonstrated the capability to safely perform a mass

airdrop of personnel while flying in close formation. Due to the dangers

Page 6 GAO/NSIAD-97-38 Military Airlift
Executive Summary

posed to paratroopers during their descent by the C-17’s wake turbulence,

the Army has not approved the use of the C-17 for this mission. Until this

problem is resolved, the C-17 cannot be used to support the brigade

airdrop mission. Further, the C-17 does not meet paratroop exit rate

requirements when airdropping personnel along with equipment bundles,

which could extend the time required for all paratroopers to get on the

ground and increase their separation. Increased separation would further

delay organizing troops on the ground making it more difficult to execute

the mission.

Estimated Program Costs

Remain at $43 Billion and

Could Increase

DOD and McDonnell Douglas have taken the following actions to reduce

prices for the last 88 aircraft of a 120 aircraft program: (1) imposed

competitive pressure on McDonnell Douglas through the

Non-Developmental Airlift Aircraft program, (2) performed a should cost

analysis to serve as a basis for negotiating lower prices for the last 88

aircraft, (3) implemented cost-reduction initiatives, (4) accelerated the

procurement rate, and (5) obtained congressional approval for a multiyear

procurement of the last 80 aircraft.

GAO found that these actions held total program costs for 120 C-17s to

about the $43 billion amount estimated by the Air Force in January 1994.

Although production costs have decreased, costs for planned

modifications and retrofit, further testing, and contractor support of

fielded aircraft have increased. Also, the contract prices for the last 50

aircraft could increase. The production lots for the last 50 aircraft are

covered by not-to-exceed ceiling prices, which exceed the negotiated

target prices by about $1 billion. Further, the contract provides for

adjustments in the prices for the last 72 aircraft to account for changes in

costs that could not be accurately foreseen at the time the multiyear

contract was negotiated.

Matters for

Congressional

Consideration

Because of the potential savings of over $7 billion and the relative

contribution of the final 20 C-17s, the Congress may wish to consider

funding only 100 C-17s and requiring DOD to reexamine the decision to

acquire 120 C-17s. DOD can meet mission requirements by employing

various low-cost options and by extending the use of alternatives for

accomplishing the extended range brigade airdrop. Further, before

approving the acquisition of the final 20 C-17s primarily to support the

brigade airdrop mission, the Congress should require that DOD certify that

the aircraft’s wake turbulence problems have been solved.

Page 7 GAO/NSIAD-97-38 Military Airlift
Executive Summary

Agency Comments

and GAO’s Evaluation

In commenting on a draft of this report, DOD maintained that a fleet

providing the capability of 120 C-17 equivalents is the minimum fleet

required based on the MRS BURU and that all of the alternatives suggested

by GAO were operationally unacceptable. DOD agreed that the C-17 has a

wake vortex problem and has not yet demonstrated the capability to safely

perform a mass airdrop of personnel while flying in close formation.

While the MRS BURU recommended that a fleet with the capacity of 120

C-17s be acquired, the basis for that recommendation included a set of

assumptions concerning the expected level of prepositioning and the

timing of the scenarios. GAO is suggesting that there are measures that DOD

could implement that would change those assumptions. That is,

alternatives that could be used either separately or in combination to

offset the need for the additional 20 C-17s. For example, increased use of

Civil Reserve Air Fleet aircraft and KC-10s and the employment of C-17

and C-5 trainers all have been used as short-term solutions to meet airlift

needs in the past. DOD’s assertion that GAO’s suggested alternatives

increase risk to an unacceptable level is not based on analysis. While DOD’s

analyses offer increased flexibility as a rationale for acquiring 120 C-17s,

they do not preclude the alternatives GAO has proposed.

DOD also recommended that GAO withdraw its suggestion that the Congress

require DOD to certify that the aircraft’s wake turbulence problems have

been solved prior to approving acquisition of the final 20 C-17s. Since DOD

agrees that there is a wake turbulence problem and that the aircraft has

not demonstrated the ability to safely support a mass formation airdrop,

GAO believes that the reasons for requiring such certification remain valid.

Page 8 GAO/NSIAD-97-38 Military Airlift
Page 9 GAO/NSIAD-97-38 Military Airlift
Contents

Executive Summary 2

Chapter 1 

Introduction

12

C-17 Expected to Modernize Airlift Fleet 12

Specifics of DOD Contract With McDonnell Douglas 13

Objective, Scope, and Methodology 15

Chapter 2 

C-17 Defense

Acquisition Board

Decision

17

C-17 Program Showed Needed Improvement 17

Results of the DAB 18

Chapter 3 

Less Expensive

Options for Meeting

Requirements Could

Save Billions

23

100 C-17s Can Meet Strategic Mobility Requirements 24

Tactical Utility Analysis Indicates That 100 C-17s Are Sufficient 30

Multiyear Contract Cancellation Provisions 36

Conclusion 36

Matters for Congressional Consideration 37

Agency Comments and Our Evaluation 37

Chapter 4 

C-17 Program Cost

Could Exceed $43

Billion Despite

Savings

40

Government and McDonnell Douglas Cost-Reduction Initiatives 40

C-17 Program Costs Remain at $43 Billion 46

Agency Comments and Our Evaluation 47

Appendixes Appendix I: DOD-Approved C-17 Program Cost and Schedule

Aircraft Performance Criteria for Continuing the Program

Beyond 40 Aircraft

50

Appendix II: Comments From the Department of Defense 51

Appendix III: Major Contributors to This Report 62

Tables Table 1: Potential Life-Cycle Cost Savings From Acquiring 100

Instead of 120 C-17s

4

Table 1.1: Minimum and Maximum Production Schedules

Included in the Lot VIII and Beyond Contract

14

Page 10 GAO/NSIAD-97-38 Military Airlift
Contents

Table 1.2: Accelerated C-17 Production Schedule Included in the

Multiyear Contract

15

Table 2.1: Force Mix Options Considered in the SAFMA 20

Table 3.1: Potential Life-Cycle Cost Savings From Acquiring 60

Instead of 80 C-17s

29

Table 4.1: McDonnell Douglas C-17 Production Price for Last 88

Aircraft

41

Table 4.2: Impact of Cost-Reduction Initiatives on C-17

Production Prices for the Remaining 88 Aircraft

43

Table 4.3: Comparison of Contract Procurement Baseline Profile

With Accelerated Procurement Profile for Last 88 Aircraft

45

Table 4.4: Total C-17 Program Costs for 120 Aircraft 46

Abbreviations

AMC Air Mobility Command

CRAF Civil Reserve Air Fleet

DAB Defense Acquisition Board

DOD Department of Defense

LMSR Large Medium-Speed Roll On Roll Off

MRS BURU Mobility Requirements Study Bottom-Up Review Update

NDAA Non-Developmental Airlift Aircraft

PE/PI Producibility Enhancement/Performance Improvement

SAFMA Strategic Airlift Force Mix Analysis

Page 11 GAO/NSIAD-97-38 Military Airlift
Chapter 1 

Introduction

In the post-Cold War period, the Department of Defense (DOD) must be

able to provide troops, equipment, and supplies throughout the world in

response to conflicts or crises affecting U.S. interests. DOD relies on sealift,

prepositioned assets, and airlift to accomplish this mission. DOD plans to

use airlift to rapidly transport troops and supplies to link up with

prepositioned equipment, thus speeding the deployment of heavier units

early in a conflict.

Airlift is classified as either intertheater (from one theater of operation to

another) or intratheater (operations within a theater). Strategic

intertheater airlift services are provided by the Air Force’s Air Mobility

Command (AMC), which has a fleet of C-5, C-141, KC-10, KC-135, and C-17

aircraft to carry out that mission. AMC also uses the Civil Reserve Air Fleet

(CRAF) to augment its military airlift capacity during contingencies. The Air

Combat Command is responsible for operating C-130 aircraft, which

provide intratheater airlift.

C-17 Expected to

Modernize Airlift

Fleet

To meet a need for additional long-range airlift, the Air Force contracted

with McDonnell Douglas Corporation in July 1982 to develop and produce

the C-17. The C-17 is an air refuelable, four-engine jet transport designed

to operate in both the intertheater and intratheater roles. It is to replace

the C-141 in the current air fleet and complement the larger but less

maneuverable C-5. The C-17 is currently contracted to carry a payload of

119,125 pounds 3,200 nautical miles unrefueled and perform the full range

of airlift missions, including landing on small, austere airfields; airlifting

outsize cargo, such as tanks; and airdropping troops and equipment.

When the program began in 1982, the Air Force planned to acquire 210

C-17 aircraft. However, in April 1990, the Secretary of Defense, citing the

post-Cold War environment and fiscal constraints, reduced the program to

120 aircraft. During development and initial production, the C-17 program

experienced ongoing cost growth and technical problems and the

contractor fell behind schedule in delivering the production aircraft. In

December 1993, because of concerns with the C-17’s growing cost and

continuing technical problems, the Secretary of Defense announced that

the program would be stopped at 40 aircraft unless McDonnell Douglas

could demonstrate that program cost, schedule, and performance

improvements warranted completing the 120 aircraft program. The

contractor was given a 2-year probationary period to improve its

performance.

Page 12 GAO/NSIAD-97-38 Military Airlift
Chapter 1 

Introduction

In March 1994, DOD (at congressional direction) established a

Non-Developmental Airlift Aircraft (NDAA) program to procure a transport

aircraft using commercial practices as a possible alternative or

supplement to the C-17. Although eight companies or teams expressed

interest in providing a commercial NDAA, only one, the Boeing Company,

responded to a request for proposal. Boeing proposed two variations of its

747-400F—one that included an enlarged door and a strengthened floor

and an unmodified version. The Air Force named the aircraft proposed by

Boeing the C-33. DOD also obtained information from the Lockheed Martin

Corporation on costs for an upgraded version of the C-5, a C-5D model

with improved avionics and significantly improved reliability and

maintainability.

In October 1995, DOD convened a Defense Acquisition Board (DAB) to

determine whether the C-17 program should be continued beyond 40

aircraft, and if so, what mix of additional C-17s and NDAA should be

procured.1

 In November 1995, the Under Secretary of Defense for

Acquisition and Technology announced that as a result of the DAB review,

DOD planned to procure 80 more C-17s for a total of 120 and not to

purchase any NDAA aircraft. In a separate action, in February 1996, the

Under Secretary of Defense approved an Air Force plan for a multiyear

procurement for the last 80 of the 120 C-17 buy at a maximum affordable

production rate of up to 15 aircraft a year during fiscal years 1997 through

2003. The Congress approved this 7-year plan in April 1996.

In January 1994, the C-17 Program Director estimated that total program

costs for 120 C-17s would be about $43 billion in then year dollars. As of

November 1996, McDonnell Douglas had delivered 29 C-17 aircraft for

operational use.

Specifics of DOD

Contract With

McDonnell Douglas

Prior to the C-17 full-rate production decision in November 1995, the Air

Force had contracted with McDonnell Douglas, under seven different

production lots, for the production of 32 of the 120 C-17s that it plans to

buy. As part of the program restructuring that occurred during the

probationary period, the Air Force negotiated four separate sole-source

contracts with McDonnell Douglas that covered aircraft production,

program and product improvements, and support. Previously, the Air

1

In January 1995, we reported that because of changes in the C-17’s intended role, less than anticipated

performance, and continued program cost growth, the Congress should not support the C-17 program

beyond the minimum number needed to fulfill unique military requirements. (See C-17 Aircraft: Cost

and Performance Issues (GAO/NSIAD-95-26, Jan. 26, 1995.))

Page 13 GAO/NSIAD-97-38 Military Airlift
Chapter 1 

Introduction

Force had included improvements and support tasks in the development

contract or the individual contracts for the first seven production lots.

The four contracts were (1) a producibility enhancement/performance

improvement (PE/PI) contract for funding projects aimed at reducing

production costs and for funding C-17 performance and capability

improvements; (2) a field support contract to provide for depot repair

management and sustaining support to maintain fielded aircraft in

operational condition (including retrofitting aircraft, repairing parts, and

procuring support equipment and spare parts); (3) a single-year contract

for production lot VIII, increasing the number of C-17s under contract

from 32 to 40; and (4) a multiyear contract for the next 80 aircraft that

increased the number of C-17s under contract from 40 to 120.

In July 1995, the Air Force awarded a cost-plus-award-fee PE/PI contract to

McDonnell Douglas to fund cost-reduction initiatives that include both

improvements to the aircraft such as an improved engine enclosure that

costs less to build and install and improvements to the manufacturing

process, which would reduce the cost to assemble the aircraft. This

contract has a maximum value of $1.1 billion. As of July 1996, the Air

Force had provided the contractor about $385 million for various PE/PI

tasks under this contract. In February 1996, the Air Force awarded

McDonnell Douglas the field support contract. The value of this contract

as of August 1996 is $121.6 million for the period January through

December 1996.

Also, in February 1996, the Air Force and McDonnell Douglas agreed to a

$1.9 billion firm fixed-price contract for production of eight aircraft under

production lot VIII, increasing the number of C-17s to be produced from 32

to 40. This contract, referred to as the lot VIII and beyond contract, also

contained separate firm fixed-priced options for the next three production

lots (lots IX through XI), and separate options, with not-to-exceed ceiling

prices, for the remaining production lots through 120 aircraft. The contract

contained a variation in quantity clause allowing for an extensive range of

production schedules. The minimum and maximum production schedules

allowed by this clause are shown in table 1.1.

Table 1.1: Minimum and Maximum Production Schedules Included in the Lot VIII and Beyond Contract

Fiscal year profile 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Minimum 8 8 8 8 8 8 8 8 8 8 8

Maximum 8 9 9 13 15 15 15 4

Page 14 GAO/NSIAD-97-38 Military Airlift
Chapter 1 

Introduction

However, as a result of the Congress approving DOD’s C-17 multiyear

procurement plan, the Air Force changed its C-17 procurement plan for

the last 80 aircraft from the single-year contract options, included in the

lot VIII and beyond contract, to a multiyear contract. The total value of the

multiyear contract, dated June 1996, is $14.2 billion and is based on an

accelerated production schedule as shown in the table 1.2.

Table 1.2: Accelerated C-17 Production

Schedule Included in the Multiyear

Contract

Fiscal year 1997 1998 1999 2000 2001 2002 2003

Number 8 9 13 15 15 15 5

Objective, Scope, and

Methodology

We undertook this review, at the request of Congresswoman Elizabeth

Furse, to determine whether less costly alternatives exist to procuring 120

C-17 aircraft while still satisfying airlift requirements.

To determine whether less costly alternatives existed, we reviewed three

different analyses that provided the basis for determining the number of

additional C-17s to acquire beyond the 40-aircraft program. These were the

Joint Chiefs of Staff’s 1995 Mobility Requirements Study Bottom-Up

Review (MRS BURU); the Strategic Airlift Force Mix Analysis (SAFMA),

completed by AMC; and the Tactical Utility Analysis undertaken by DOD’s

Director, Program Analysis and Evaluation. We met with representatives

of the Joint Chiefs of Staff Logistics Directorate, AMC, and DOD to discuss

the results of the studies and obtain the underlying support, assumptions,

and methodologies used in performing each of these analyses. We were

also briefed by representatives from Boeing and Lockheed Martin on their

NDAA aircraft proposals.

To assess the Air Force’s and McDonnell Douglas’s efforts to reduce C-17

costs, we analyzed the Air Force’s 1994 C-17 should cost review and the

Air Force and McDonnell Douglas’s cost-reduction initiatives for the

production lot VIII contract and multiyear contract for the last 80 C-17

aircraft. In performing this work and analyzing the technical performance

of the C-17, we interviewed officials from the C-17 program office; the

NDAA program office; McDonnell Douglas; the Air Force Operational Test

and Evaluation Center; and DOD’s Office of the Director, Operational Test

and Evaluation.

We also met with representatives from the Army’s Director of

Requirements, Office of the Deputy Chief of Staff for Plans and

Operations; AMC; and the Air Force’s Deputy Chief of Staff for Plans and

Page 15 GAO/NSIAD-97-38 Military Airlift
Chapter 1 

Introduction

Operations, Mobility Forces Division to discuss the strategic brigade

airdrop concept of operations.

We performed our audit between February 1995 and October 1996 in

accordance with generally accepted government auditing standards.

Page 16 GAO/NSIAD-97-38 Military Airlift
Chapter 2 

C-17 Defense Acquisition Board Decision

The decision to purchase more than 40 C-17s was based on reports

showing first, that the aircraft and McDonnell Douglas had met the cost,

schedule, and aircraft performance criteria required to continue

production beyond 40 aircraft and second, that C-17 operational testing

rated the aircraft operationally effective and suitable. The decision to

acquire 120 C-17s and no NDAA was based on the DAB’s conclusion that 120

C-17s would provide a greater degree of flexibility at an increased cost of

only $300 million over the mixed fleet option the DAB considered

acceptable—100 C-17s and 18 C-33s (modified Boeing 747-400Fs).1

Specifically, the DAB found that the 120 C-17 option would (1) provide a

hedge against the potential reductions in the amount of cargo delivered

due to such things as reduced airfield availability, ramp space, and

services and (2) maximize the benefits provided by the military

capabilities of the C-17, which are not possessed by the C-33 (a

commercial air transport).

C-17 Program Showed

Needed Improvement

In November 1994, DOD established evaluation criteria for the C-17 full-rate

production decision by the DAB. These included (1) acceptable dates for

completing development and operational testing and establishing initial

C-17 operational capability, (2) the level of acceptable cost performance

for the approved 40-aircraft program, and (3) the key aircraft performance

indicators that would need to be met. These criteria generally included an

objective criterion (a goal that DOD would like to have seen achieved) and

a threshold criterion (a minimal performance expectation below which the

program would be in danger of being canceled). For example, an objective

was established to declare initial operational capability by January 1995; a

threshold of July 1995 was established for this event. DOD met the

objective, declaring initial operational capability in January 1995.

The C-17 Program Manager reported to the DAB that the C-17 program had

successfully met the criteria for cost, schedule, and contractor and aircraft

performance that DOD had established in order for the program to proceed

beyond 40 aircraft. (See app. I for a complete listing of the criteria.) He

also reported that the Air Force and McDonnell Douglas had negotiated

significantly lower prices for production lot VIII and the remaining

production lot options to complete the 120-aircraft program.

Results of C-17 Operational

Testing

As a result of a multiservice initial operational test and evaluation, the Air

Force Test Director reported that the C-17 was operationally effective and

1

Life-cycle costs stated in fiscal year 1996 dollars.

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suitable and met or exceeded all the key aircraft performance parameters

established for the DAB.

Although the Test Director informed the DAB that the C-17 was

operationally effective and suitable, he also identified areas needing

improvement. These included (1) overcoming Army safety concerns that

preclude paratroopers from jumping from C-17s flying in close formation

and meeting established performance criteria for paratroop and equipment

bundles exiting the aircraft during personnel airdrops;2

 (2) redesigning the

litter capacity and fixing various oxygen equipment problems needed in

order to perform the aeromedical evacuation mission; (3) correcting

inadequacies with the aircraft’s mission computer and associated

operating manuals, which caused the mission computer to fail repeatedly,

thereby increasing pilot workload; and (4) fixing inadequacies with the

aircraft’s integrated diagnostics causing high rates of false failure

indications or failures that could not be duplicated.

Results of the DAB Determining the appropriate C-17/NDAA mix was a primary goal of the DAB.

That determination was based on the following analyses:

• The Joint Chiefs of Staff’s MRS BURU which established a strategic airlift

requirement for supporting two nearly simultaneous major regional

contingencies.

• The SAFMA, an AMC study of possible airlift force mix options that could

meet the strategic airlift capability recommendations of the MRS BURU.

• The DOD Tactical Utility Analysis designed to quantify the benefits of using

(1) C-17 capabilities such as landing on austere airfields and airdropping

cargo and troops and (2) the C-17s strategic airlift capabilities in support

of lesser regional contingencies not modeled in the MRS BURU.

The Strategic Airlift

Requirement

The MRS BURU study made recommendations regarding strategic mobility

requirements, including airlift. The study’s objectives were to determine

the capability of the fiscal year 2001 programmed strategic mobility forces

to deploy and sustain combat and support forces, identify shortfalls in that

capability, and recommend solutions to eliminate identified shortfalls.

Employing a baseline airlift fleet projected for the year 2001 that included

C-17s, C-141s, C-5A/Bs, KC-10s, KC-135s, and CRAF, the MRS BURU

estimated the mobility requirements for the initial halting phase of four

2

The Army imposed this restriction because the air turbulence created in the wakes of C-17s flying in

close airdrop formation poses risks to paratroopers jumping from following aircraft.

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different scenarios involving either a single major regional contingency or

two nearly simultaneous major regional contingencies.3

The most demanding MRS BURU scenario, for which additional airlift

capacity was recommended, was one involving two nearly simultaneous

major regional contingencies. To meet the strategic mobility requirements

for this scenario, the MRS BURU recommended additional afloat

prepositioning and, after the retirement of C-141s, an airlift fleet with the

capacity of between 120 and 140 C-17s. This fleet would provide a delivery

capability between 49.4 and 51.8 million ton-miles per day.4

 The MRS BURU

did not recommend a particular type of aircraft to meet its recommended

airlift capability. The DAB would later make this decision based on the

results of the SAFMA.

SAFMA The SAFMA compared the relative performance of mixed fleets with C-17s

and NDAA against fleets with 120 C-17s and 140 C-17s to determine which

mixed fleets could meet the airlift performance capability of a fleet with

120 or 140 C-17s during the MRS BURU’s most demanding scenario. This

analysis also evaluated the cost-effectiveness of each of the fleet

alternatives.

DOD developed a detailed listing of equipment, munitions, and supplies that

would be airlifted using the MRS BURU recommended airlift requirements.

It then modeled the operations of the strategic airlift fleet during the initial

phases of the two major regional contingencies scenario. Air refueling and

delivery to locations other than main operating bases were not considered

in the SAFMA.

AMC used an airlift fleet with 120 C-17s as its primary performance criteria

in the SAFMA. To be acceptable, mixed fleets of C-17s and C-33s had to

deliver as much or more outsize, oversize, and bulk cargo as an airlift fleet

with 120 C-17s.5

 The force mix evaluations began with 40 C-17s and

progressed in squadron size intervals up to 140 C-17s. The Lockheed C-5D

3

The halting phase is the initial phase of a major regional contingency during which the advance of an

enemy force is halted and the loss of territory and critical facilities is minimized.

4

Million ton-miles per day is an aggregate, unconstrained measure of airlift capacity. It is based on

aircraft utilization rate, average ground speed, average payload weight, and a standard productivity

measure. This measure does not take into account the type of the payload, airfield limitations such as

runway and parking ramp size, and aircraft ground servicing time.

5

Outsize cargo, such as Apache helicopters and M1 Abrams tanks, can be carried only by the C-17 and

C-5. Oversize cargo exceeds the dimensions of a 463L pallet but is smaller than outsize. Examples

include 2-1/2 ton trucks and Bradley Fighting Vehicles. Bulk cargo, such as ammunition and food, will

fit on a 463L pallet.

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was evaluated only at the 40 C-17 quantity breakpoint (40 C-17s and 50

C-5Ds). The final SAFMA combinations of C-17s and C-33s are shown in

table 2.1.

Table 2.1: Force Mix Options

Considered in the SAFMA

C-17 40 58 72 86 100 120 132 140

C-33 56 42 30 30 18 0 18 0

The SAFMA study found that within the scope of fleet mixes being actively

considered (up to 120 C-17s) only two of the mixed fleet alternatives, one

with 86 C-17s and 30 C-33s and another with 100 C-17s and 18 C-33s,

performed as well or better than a fleet with 120 C-17s. These mixed fleets

delivered as much outsize cargo but more oversize and bulk cargo than a

fleet with 120 C-17s. For example, a fleet with 100 C-17s and 18 C-33s

delivered 5,000 more tons of oversize cargo and about 2,000 more tons of

bulk cargo in the required time frame. A fleet with 40 C-17s and additional

C-5Ds would not deliver as much outsize cargo as an airlift fleet with 120

C-17s.

The AMC cost analysis showed the potential savings from the acceptable

mixed fleet options ranged from $300 million in fiscal year 1996 dollars for

a mixed fleet of 100 C-17s and 18 C-33s to $1.85 billion for a fleet of 86

C-17s and 30 C-33s.

Airfield Constraints Favor

C-17s

The SAFMA also addressed the impact of airfield constraints due to reduced

airfield availability, ramp space, and services; and other limitations on the

number of aircraft that can be accommodated and serviced on the ground

at one time. The term maximum on ground refers to the maximum number

of aircraft on the ground that can be parked, unloaded, and serviced in a

given time period. In this regard, the MRS BURU and SAFMA studies assumed

a moderate maximum on ground, a reduced level of capability based on

the experience of Desert Shield/Desert Storm, AMC operation plans, and

maximum on ground assumptions used in a C-17/NDAA cost and

operational effectiveness analysis completed by the Institute for Defense

Analyses in December 1993. Constrained maximum on ground conditions

favored the more maneuverable C-17 over the larger C-33 aircraft.

Maximum on ground constraints and uncertainties were an important

consideration in the DAB’s decision to procure 120 C-17s. As part of the

force mix analysis, AMC examined the impact of reducing maximum on

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ground below the levels assumed in the MRS BURU. AMC found that force

mixes with more than 100 C-17s offered a better hedge against

uncertainties about airfield availability, congestion, and ground support.

For example, when maximum on ground values were reduced by

15 percent in Northeast Asia during the halting phase, all fleet options

delivered less outsize cargo than the MRS BURU-established requirement,

but an airlift fleet with 120 C-17s delivered more of the outsize cargo than

the mixed fleets.

Tactical Utility Analysis In preparation for the November 1995 C-17 DAB, DOD also wanted to ensure

that the planned analysis for the DAB recognized the potential benefits of

the military capabilities of the C-17 that could not be provided by a NDAA.

In December 1994, the Under Secretary of Defense for Acquisition and

Technology directed DOD’s Director, Program Analysis and Evaluation, in

concert with the Army and the Air Force, to complete a Tactical Utility

Analysis. This analysis was to quantify the C-17’s benefits in responding to

lesser regional contingencies such as humanitarian relief, peacekeeping,

and peace enforcement missions; providing for intratheater delivery and

direct delivery to austere airfields; and performing a strategic brigade

airdrop. These capabilities were not addressed in the work done in the

SAFMA.

The Tactical Utility Analysis found that the most demanding of the lesser

regional contingencies was the peace enforcement mission. This mission,

as modeled in the study, could be accomplished with varying numbers of

C-17s. The analysis showed that as more C-17s were provided less total

time was required to deliver troops and equipment. According to the study

leader, in the peace enforcement scenario, there were no time

requirements and the delivery time saved was not critical to completing

the mission. Also, the analysis showed that the time saved between the 86

and 120 C-17 fleet levels was only a few days.

The Tactical Utility Analysis also evaluated the use of the C-17 in an

intratheater airlift role. It indicated that a squadron of aircraft dedicated

specifically to this role might be beneficial. However, study analysts

acknowledged that these aircraft would be in addition to the 120 C-17

equivalents the MRS BURU found were required for strategic airlift. There is

no requirement for using C-17s in an intratheater role in DOD’s fiscal years

1998 to 2003 Defense Planning Guidance. The Joint Chiefs of Staff

completed a study of intratheater airlift needs and concluded that one

squadron of C-17s dedicated to the intratheater mission would be useful.

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However, that study recommended further analysis of the issue. The Air

Force is currently conducting additional intratheater airlift analyses. That

analysis is planned to be completed in late spring 1997.

Lastly, the Tactical Utility Analysis evaluated the need for C-17s to

accomplish a strategic brigade airdrop. On the basis of the then existing

Defense Planning Guidance, which called for a limited strategic range

capability, an airlift fleet with 100 C-17s, along with modified C-5s, would

be sufficient to accomplish this mission. The Tactical Utility Analysis,

however, also analyzed the number of C-17s that would be used to conduct

an extended range brigade airdrop. It found that acquiring 120 C-17s would

allow the Air Force to support a strategic brigade airdrop directly from the

continental United States to a small, austere airfield located beyond the

range required by the Joint Chiefs of Staff at the time of the C-17 DAB.

DAB Determination The DAB determined that the C-17 program and McDonnell Douglas’s

performance had improved sufficiently to warrant continued production

of the C-17. From the options considered, the DAB found two acceptable

options that would provide sufficient strategic airlift capability and a

minimum of 100 C-17s to perform the strategic brigade airdrop mission

analyzed in the Tactical Utility Analysis. These were 120 C-17s and no NDAA

and 100 C-17s and 18 NDAA. The DAB chose the 120 C-17 option because of

the relatively small savings from acquiring a mixed fleet—$300 million in

life-cycle costs—and the advantages in increased flexibility from acquiring

20 additional C-17s.

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Our analysis of the strategic airlift requirement defined in the MRS BURU

and the information developed in the SAFMA and the Tactical Utility

Analysis indicate that DOD could save over $7 billion (fiscal year 1996

dollars), by acquiring and operating an airlift fleet with 100 C-17s and no

NDAA. With 100 C-17s and the remaining airlift fleet of C-5s, KC-10s,

KC-135s, and CRAF, lower cost options exist to meet strategic airlift

requirements. These include small increases in the amount of materiel

prepositioned afloat, the use of airlift aircraft assumed not to be available

in the MRS BURU, or the use of a slightly longer delivery time frame on

some combat support and combat service support materiel. Increased

costs attributable to these lower cost options and to discontinuing the

program at 100 rather than 120 C-17s have been accommodated in our

estimate of savings.

Further, although DOD revised its Defense Planning Guidance in April 1996

to require an extended range strategic brigade airdrop, options also exist

to meet this requirement, although not necessarily as identified in the

Army’s concept of operations. The Army’s concept of operations envisions

accomplishing the extended range brigade airdrop from the continental

United States directly to a small, austere airfield.1

 However, an extended

range brigade airdrop to a small, austere airfield is not specifically

required by the current Defense Planning Guidance and cannot be

supported with the Air Force’s current airlift fleet.

According to the Tactical Utility Analysis, performing the extended range

airdrop mission as envisioned by the Army will require at least 114 C-17s.

The Air Force is currently exploring alternatives to meet the requirement

until 114 C-17s can be fielded in 2004.

Although the Congress has approved and DOD has awarded a multiyear

contract with an accelerated production schedule for the final 80 C-17s,

that contract contains a clause that would permit the government to revert

to a contract with single-year options, allowing for variations in quantity, if

a production lot under the multiyear contract is not fully funded. While

there is an increase in program discontinuation costs to close out the

program at 100 rather 120 aircraft, those additional costs have been

accounted for in our savings estimate.

1

The Air Force defines a “small, austere airfield” as one with limited taxiway, ramp space, and services.

Runways, paved or semi-prepared, are occasionally longer than 5,000 feet, but are usually less than

4,000 feet and normally 60 to 110 feet wide.

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100 C-17s Can Meet

Strategic Mobility

Requirements

In the MRS BURU, the Joint Staff identified a small, potential airlift shortfall

in the capability of mobility forces to deliver the total tonnage of unit

equipment scheduled for delivery early in the halting phases of two nearly

simultaneous major regional contingencies. The shortfall was about

4 percent of the unit equipment tonnage delivered. According to the

Army’s Office of the Assistant Deputy Chief of Staff for Operations and

Plans, this shortfall is marginal. It occurred in only one of the two major

regional contingencies and consisted of prepositionable combat support

and combat service support materiel. To deliver the entire shortfall by air

would have required more than 140 C-17 equivalents. The study, however,

recommended that a portion of the shortfall be prepositioned afloat and

that the remainder be airlifted into the theater. The solution recommended

in the MRS BURU required at least 120 C-17s, or the equivalent capacity

provided by a mix of C-17s and NDAA.

With some additional measures, an airlift fleet with 100 C-17s could

provide sufficient airlift capability, including the delivery of outsize cargo,

to meet the MRS BURU mobility requirements. These include (1) slightly

increasing prepositioning, for example, by placing the shortfall not

delivered by 100 C-17s on prepositioned ships when regenerating these

ships between the two major regional contingencies; (2) using airlift assets

that were assumed not to be available in the MRS BURU; (3) increasing

slightly the time frame in which the MRS BURU shortfall would be

delivered; or (4) adopting a combination of these measures.

Further, an airlift fleet with only 100 C-17s also provides a hedge against a

more constrained airfield environment than that modeled in the

MRS BURU. A sensitivity analysis done as part of the force mix analysis

showed that under a more constrained airfield environment, an airlift fleet

with 100 C-17s delivered only 3 percent, about 500 tons, less outsize cargo

than a fleet with 120 C-17s.

Additional Afloat

Prepositioning Would

Reduce the Airlift

Requirement

Prepositioning heavy combat equipment and supplies, both ashore and

afloat, can greatly reduce both the time required to deploy forces to

distant regions and the number of airlift sorties devoted to moving such

supplies. Afloat prepositioning is a flexible means of transporting materiel

to where it is needed in a contingency. Ships loaded with combat

equipment and support items are located near potential trouble spots,

enabling them to respond more quickly than if they were deployed from

the United States. As a result of the Bottom-Up Review in October 1993,

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DOD expanded the amount of planned prepositioning needed for two nearly

simultaneous major regional contingencies.

According to DOD, the MRS BURU reconfirmed the validity of the

Bottom-Up Review and the programs under way to meet those

requirements. Besides verifying that expanded prepositioning of heavy

Army equipment in the Persian Gulf and Korea was warranted, the

MRS BURU recommended the addition of 15,000 tons of afloat

prepositioning and other prepositioning measures to support the Army’s

afloat prepositioning program.

Although the MRS BURU recommended airlifting a portion of the 4-percent

materiel shortfall, it found that the entire shortfall could be delivered to

the theater on afloat prepositioning ships. Our review indicates that the

additional prepositioning needed, in conjunction with an airlift fleet with

only 100 C-17s, would add only about a half percent to the 4-percent

materiel shortfall identified and the increased afloat prepositioning

already assumed to be necessary in the MRS BURU. Sufficient space will be

available on the Army’s prepositioned ships to accommodate tonnage not

delivered by an airlift fleet with 100 C-17s.

The 1992 Mobility Requirement Study recommended the addition of 19

Large Medium-Speed Roll On Roll Off (LMSR) ships to accommodate the

requirement for increased lift capability needed to support a two major

regional contingency scenario. Five of the ships are to be refurbished, and

14 are to be newly acquired. The MRS BURU recommended that several of

the new ships be used to support afloat prepositioning of Army materiel

for use in the major regional contingencies and that others be used to

provide a surge sealift capability. The MRS BURU recommended

prepositioning ships would have about 3.5 million square feet of cargo

space. According to planning factors used by the Army, these ships can be

loaded to 80 percent of capacity. As a result, there will be about 2.8 million

square feet of space available for prepositioned materiel.

Current planning calls for the use of about 2 million square feet for a

brigade set of equipment and additional combat support and combat

service support materiel. There will also be space needed for some other

planned prepositioned materiel besides the amount we are recommending.

While the exact numbers are classified, the additional materiel and our

recommended additional prepositioned materiel can be accommodated in

the 800,000 square feet of available space on the LMSRs recommended by

the MRS BURU for afloat prepositioning.

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The MRS BURU’s general officer steering committee rejected an option to

preposition the entire 4-percent shortfall. In its opinion, this alternative

would limit a theater commander’s flexibility to adjust the planned flow of

equipment and materiel into the theater. However, there is only about

2 percent of the planned force affected by the proposed increased

prepositioning. Therefore, the 120 C-17 equivalents solution would

increase a theater commander’s flexibility to change the structure of the

force by only about 2 percent over what it would be if the entire shortfall

was prepositioned. This limited increase in flexibility would come at a

significant increase in cost.

Additional Airlift Aircraft

Are Available

Another option to alleviate the small shortfall in combat support and

combat service support materiel would be to use aircraft that were

assumed not available in the MRS BURU. These include training aircraft

(C-5s and C-17s), additional KC-10s, and increased CRAF assets.

In the MRS BURU, eight C-17s and six C-5s set aside for training purposes

were not used for strategic airlift. A DOD official told us that, for planning

purposes, training aircraft are assumed not to be available to support

contingencies. However, U.S. Transportation Command officials stated

that, in a two nearly simultaneous major regional contingency scenario

such as that envisioned in the MRS BURU, it is likely that these aircraft

would be used. Training aircraft, for example, were used in Operation

Desert Shield/Desert Storm to enhance strategic airlift capability.

The 59 KC-10s in AMC’s airlift fleet are dual-role aircraft, performing both

cargo-carrying and aerial refueling missions. Only 37 of the 59 KC-10s in

the Air Force inventory are dedicated to strategic airlift. In a two-major

regional contingency scenario, however, DOD would have the option of

using some of the remaining KC-10s to supplement the airlift flow. U.S.

Transportation Command officials told us that, in such a contingency, they

would consider using more KC-10s to provide strategic airlift. However,

these officials also pointed out that these aircraft would be available only

if they were not needed for aerial refueling.

The CRAF program is more robust than assumed in the MRS BURU, and

additional CRAF aircraft would be available to deliver cargo during a two

major regional contingency scenario. The CRAF capacity under contract for

1996 is 19.50 million ton miles per day, which is about 1 million ton miles

per day greater than projected in the MRS BURU. The Secretary of the Air

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Force has reported that, although future years’ commitments are not

certain, the calendar year 1996 level is sustainable.

In addition to these aircraft, a number of military airlifters are held in

reserve during contingencies for other priorities as determined by the

Joint Chiefs of Staff. In the MRS BURU and SAFMA studies, operational C-5s

and C-17s were withheld to carry out other airlift missions (such as

providing presidential support). If needed, the Joint Chiefs would have the

option of using CRAF aircraft or KC-10s and KC-135s to fulfill some of these

missions, thus freeing the more effective military airlifters to meet

contingency requirements.

Extend MRS BURU Time

Frame Slightly

Another alternative that could reduce the need for C-17s would be to

slightly extend the time frame required in the MRS BURU to deliver the

small remaining shortfall in Army materiel. The Joint Staff considered an

option to increase the warning time between the start of deployment and

the onset of hostilities as a way to eliminate the shortfall. They rejected

this option, however, because of the reduced flexibility it would provide to

respond if the assumption was not valid.

The Joint Staff did not consider extending the time frame to deliver the

Army equipment once hostilities commenced. The Joint Staff did not

model an alternative with 100 C-17s and therefore did not provide a

specific number of days by which this materiel would be delayed in

arriving in the theater of operations. On the basis of our analysis of data

from the SAFMA, we estimate that the delay would be 1 to 2 days. Further,

since the Army characterized the shortfall as marginal, a slightly increased

delivery time might not significantly affect war-fighting capability.

However, this determination would have to be made by DOD based on its

war-fighting models.

100 C-17s Provides

Sufficient Outsize Cargo

Capability

An airlift fleet with 100 C-17s would provide sufficient outsize capacity to

meet the MRS BURU requirements. The delivery of outsize cargo is

important because a large part of most combat units’ fighting power

consists of outsize cargo. Only the C-17 and the C-5 are designed to carry

outsize loads. AMC, on the basis of a sensitivity analysis done in

conjunction with the SAFMA, found for example, that in a projected Korean

scenario, an airlift fleet with 120 C-17s, while delivering around 4,400 tons

in total cargo, only delivered about 250 more tons of outsize cargo during

the halting phase than a fleet with 100 C-17s.

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The relatively small difference in outsize cargo delivered is due to the

outsize cargo capacity of the C-5s. With only 100 C-17s available, C-5s were

able to compensate for the loss of 20 C-17s and carry the vast majority of

the outsize tonnage delivered by a fleet with 120 C-17s in an equivalent

time frame.

Dealing With Maximum on

Ground Constraints

Major factors in the DAB’s decision to procure 120 C-17s were maximum on

ground constraints and uncertainties. The Air Force showed the DAB that,

compared with mixed fleets of C-17s and NDAA, an airlift fleet with 120

C-17s could deliver more cargo within the required time frame when

maximum on ground was constrained below the already reduced levels

assumed in the MRS BURU. However, in Korea, the more maximum on

ground constrained theater, an airlift fleet with 100 C-17s delivered only

3 percent less outsize cargo and 2 percent less oversize and bulk cargo

than 120 C-17s under the more constrained maximum on ground

reductions.

In a sensitivity analysis accompanying the SAFMA, AMC compared the ability

of various airlift fleet alternatives to meet the required delivery timeline

when maximum on ground was reduced by 15 percent in one theater. The

analysis showed that a fleet with 120 C-17s performed slightly better in

delivering outsize cargo during the halting phase of a Korean contingency

than did the mixed fleet alternatives. Under these same maximum on

ground constraints, an airlift fleet with 100 C-17s carried only about

3 percent less outsize cargo (500 tons) and 2 percent less oversize and

bulk cargo (1,700 tons) than a fleet with 120 C-17s. Delaying this amount of

outsize cargo would add about one day to the scenario’s cargo delivery

timeline.

Options for Meeting

Strategic Airlift

Requirement Will Increase

Some Costs

The SAFMA, conducted by AMC, developed life-cycle cost comparisons for

each of the force mixes to be considered by the DAB. Based on those cost

comparisons, acquiring and operating 60 rather than 80 C-17s beyond the

40 that were already committed to prior to the DAB decision would save

about $7.6 billion as shown in table 3.1.

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Table 3.1: Potential Life-Cycle Cost Savings From Acquiring 60 Instead of 80 C-17s

In millions of fiscal year 1996 constant dollars

Number of aircraft

Acquisition

costs

Military

construction

costs

Operating and

support costs

Discontinuation

costs Total costs

80 $16,881.7 $ 162.0 $19,604.0 $ 118.0 $36,765.0

60 12,840.1 137.0 15,820.0 360.0 29,157.1

Difference $4,041.6 $25.0 $3,784.0 $(242.0) $7,608.6

In addition to potential discontinuation costs (costs of terminating the

program), implementing several of the individual measures that would be

needed to meet the MRS BURU requirement, along with an airlift fleet

having 100 C-17s, would require some additional expenditures. The

additional costs that would result from increased prepositioning would

vary depending on the prepositioning method chosen. In our example, the

increased prepositioning would be part of the planned afloat

prepositioning regeneration recommended by the MRS BURU. Since space

is available on the planned LMSR ships, the costs would only be those

needed to maintain the materiel during the period it is prepositioned.

On the basis of planning factors used by DOD to estimate the average cost

of maintaining prepositioned materiel afloat, we estimate this cost to be

less than $1 million. If DOD chose to preposition the materiel on land, these

costs would be greater because materiel would have to be procured for

prepositioning and maintained for its estimated useful life. We estimate

that acquiring the needed materiel would cost about $43.3 million (on the

basis of our extrapolation of Army estimates of acquiring the types of

materiel that make up the MRS BURU shortfall) and maintaining the

materiel for its useful life would be about $166.4 million (based on Army

planning factors for the maintenance of prepositioned materiel) for a total

of $209.7 million. We estimate, therefore, that the potential life-cycle cost

savings from acquiring 100 rather than 120 C-17s would range from 

$7.6 billion ($7,608.6 million less the cost of increased afloat

prepositioning) to $7.4 billion ($7,608.3 million less the estimated cost of

prepositioning on land).

There are also some increased costs associated with the use of trainer

aircraft or the increased use of CRAF. These costs, however, should not be

significant since trainer aircraft are already allotted a certain level of flying

hours. The cost increase would only be the additional flying hours needed

to support a surge rate for the scenario. The increased CRAF costs would

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depend on the extent of additional use and the agreed-on contract prices

in effect at the time of the contingency. Since we cannot estimate how

many additional flying hours or additional CRAF flights would be needed or

the trade-off in costs between these options and the prepositioning

options, we are assuming that the increased use of trainers and of CRAF

would be offset by decreases in the additional prepositioning costs we

estimated.

Tactical Utility

Analysis Indicates

That 100 C-17s Are

Sufficient

The Tactical Utility Analysis, which quantified the benefits of the military

capabilities of the C-17, considered the use of the C-17 in responding to

lesser regional contingencies ranging from humanitarian relief to peace

enforcement missions, providing intratheater airlift and direct delivery

capability, and performing the strategic brigade airdrop mission required

at the time of the DAB. While the Tactical Utility Analysis identified the

number of C-17s that could be used in a variety of scenarios with the

commensurate benefits, it found that the most demanding mission it

evaluated in terms of the number of C-17s required was the strategic

brigade airdrop. The analysis reported that about 100 C-17s along with

modified C-5s would be required to perform the then defined limited range

strategic brigade airdrop.

The Tactical Utility Analysis also determined that acquiring a fleet of 120

C-17s, along with modifying C-5s, would provide the capability to conduct

an extended range brigade airdrop directly from the continental United

States to a small, austere airfield. The extended range brigade airdrop was

subsequently (April 1996) included as a requirement in the Defense

Planning Guidance for fiscal years 1998 to 2003. However, the requirement

does not specify that the airdrop will be to a small, austere airfield. The Air

Force will not have the airlift capability to carry out this mission to a

small, austere airfield, as envisioned by the Army, until fiscal year 2004

when at least 114 C-17s will have been delivered.

Air Force and Army officials are currently evaluating alternatives to

perform this mission with fewer numbers of C-17s. Options, including

staging from forward operating bases and using C-5-capable airfields for

airland missions, would allow the Air Force to conduct an extended range

brigade airdrop with 100 C-17s. Further, the C-17’s ability to perform a

strategic brigade airdrop has not yet been demonstrated under

operationally realistic conditions.

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100 C-17s Sufficient for

Lesser Regional

Contingencies

While deterring and defeating major regional aggression is the most

demanding scenario identified in the United States’ post-Cold War defense

strategy, U.S. forces may be involved in operations short of declared or

intense war. These lesser regional contingencies include peace

enforcement, peacekeeping, humanitarian assistance, and noncombatant

evacuation operations. Sufficient airlift is needed to transport and

resupply combat forces involved in such missions.

The Tactical Utility Analysis evaluated the ability of mixed airlift fleets of

C-17s and NDAA to support lesser regional contingency operations. The

study found that airlift fleets with between 40 and 100 C-17s would be

sufficient to support the scenarios identified in the fiscal years 1996-2001

Defense Planning Guidance.

The most demanding lesser regional contingency missions for airlift are

peace enforcement missions. DOD officials told us that an airlift fleet with

100 C-17s and no NDAA would be within the range of acceptable mixes to

meet airlift requirements for these missions.

Intratheater and Direct

Delivery Airlift Needs Can

Be Met With 100 C-17s

The Tactical Utility Analysis analyzed opportunities for using the C-17 to

provide intratheater lift to complement the C-130 fleet during a major

regional contingency. The study director told us that an airlift fleet with

100 C-17s could complement the C-130 fleet in providing intratheater lift,

on an ad hoc basis, without significantly impacting the strategic airlift

flow, particularly after the halting phase. The use of the C-17 to perform

strategic airlift combined with intratheater shuttle missions is consistent

with the aircraft’s concept of operations, which envisions the C-17

performing intratheater shuttle missions as a leg of a return flight before

returning to the strategic airlift flow. A recent RAND study also showed

that combining strategic airlift missions with intratheater shuttle missions

is an alternative to dedicating C-17 aircraft solely to intratheater lift.

Direct delivery to other than main operating bases was not used in the

MRS BURU and SAFMA. On the basis of the Tactical Utility Analysis, 100

C-17s would be more than would likely be required for directly delivering

equipment and supplies from onload points to airfields closer to their final

destinations in the MRS BURU scenarios.

Strategic Brigade Airdrop

Requirement

At the time of the November 1995 C-17 DAB, DOD’s Defense Planning

Guidance required the Air Force to have the airlift capability to support a

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limited range strategic brigade airdrop. The Tactical Utility Analysis

showed that an airlift fleet with 100 C-17s, along with modified C-5s, could

meet this requirement. In April 1996, however, DOD incorporated an

extended range strategic brigade airdrop requirement in its Defense

Planning Guidance for fiscal years 1998 to 2003.

The Army’s concept of operations for an extended range brigade airdrop

envisions accomplishing the mission from the continental United States

directly to a small, austere airfield. The Tactical Utility Analysis found that

acquiring 120 C-17s would provide sufficient capability to accomplish the

extended range brigade airdrop. However, because the Air Force will not

have a sufficient number of C-17s available to perform both airdrop and

airland missions until 2004, the Air Force is exploring alternatives that will

enable it to support this mission in the interim.

Alternatives for supporting the extended range brigade airdrop with less

than 120 C-17s include (1) staging a portion of the brigade at locations

closer to the final destination and (2) using C-5s and C-17s to perform the

airland portion (bringing in follow-on troops and equipment) of the

mission into larger airfields.

Army’s Extended Range

Brigade Airdrop Concept of

Operation

Prior to the Tactical Utility Analysis, the Army had not clearly defined the

strategic brigade airdrop’s required personnel, equipment, and supplies,

nor had AMC determined the airlift capability needed to deliver that force.

In support of the analysis, the Army reported that it would use a

medium-sized airborne brigade as the baseline force for planning this

mission. The Army’s concept of operations envisions the deployment of an

airborne brigade in two phases. First, the Army would airdrop 2,552

paratroopers, 116 wheeled vehicles, 10 Sheridan tanks, 18 105mm

howitzers, and 54 equipment bundles. Second, within 24 hours, additional

aircraft would land at the captured airfield to deliver the balance of the

brigade, about 690 more troopers, and 224 wheeled vehicles, 28

helicopters, along with 33 equipment and supply pallets. According to AMC,

43 C-17 missions would be needed to deliver the airland follow-on force

into a small, austere airfield.

The Army foresees using the strategic brigade airdrop capability, mainly in

third world areas, to capture a small, austere airfield. The Army would

prefer to conduct both the airdrop and airland portions of the mission

directly from the continental United States, without staging at locations

near the final destination. Army officials believe that they would be better

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able to maintain an element of surprise by staging an airborne assault

directly from the United States.

The decision to define the mission as capturing a small, austere airfield

limits the follow-on deliveries to C-17s from strategic distances, or C-130s

and C-17s if staging is used. However, the current Defense Planning

Guidance does not require a small, austere airfield capability for the

extended range airdrop mission.

AMC, in support of the Tactical Utility Analysis, used the Army’s concept of

operations to determine the number of C-17s and other aircraft needed for

an extended range strategic brigade airdrop. According to AMC’s analysis,

delivering the medium-sized brigade directly from the continental United

States to an airfield beyond Central America or the Caribbean requires 114

C-17s plus 50 modified C-5s. The C-5’s role would be limited to airdropping

equipment. Since the Army’s concept of operations envisions the capture

of a small, austere airfield, C-5s are assumed not to be suitable for the

airland mission.

Options to Meet Army Brigade

Airdrop Requirement With 100

C-17s

The Air Force does not currently have the capability to airdrop the

medium-sized brigade, defined above, over an extended distance to an

austere airfield within the Army’s specified time requirement. The Air

Force will not possess such a capability until fiscal year 2004, when at

least 114 C-17s will be available and 50 C-5s have been modified for

airdrop.2

 The Air Force is currently devising other methods to meet the

Army’s requirement.

Options to enable the Air Force to support an extended range brigade

airdrop with 100 C-17s include (1) moving a portion of the brigade’s

equipment and supplies to bases closer to their final mission destination as

an initial step in the mission and (2) using C-5s to conduct some of the

airland missions to a larger C-5-capable airfield.

From forward bases, the Air Force could recycle some of the C-17s

participating in the initial airdrop to do follow-on airland missions.

According to AMC analysis, about 15 of the 43 C-17 airland missions would

have to be conducted from closer bases with a fleet of 100 C-17s.

Alternatively, C-5s could be used to carry out some of the airland missions.

C-5s are operationally restricted in wartime to landing on runways

measuring at least 5,000 feet long by 90 feet wide.

2

Of the 114 C-17s, 10 are spares to replace nonmission capable aircraft, 7 are needed to ensure an

80-percent probability of mission success, and 10 are assumed to be undergoing maintenance.

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We discussed the potential use of forward bases with both the Army and

the Air Force. The Army’s representatives said that the Army had not yet

evaluated the use of forward bases in support of an extended range

brigade airdrop. AMC analysts did not evaluate the use of forward bases in

the modeling it did in support of the Tactical Utility Analysis, but they plan

to explore the concept as a way to meet the strategic brigade airdrop

requirement before fiscal year 2004.

The Air Force does not plan to use the 74 C-5As to support the strategic

brigade airdrop mission because they are not considered sufficiently

reliable. As of July 1996, 16 of the 74 C-5As in the airlift fleet were

undergoing depot maintenance or used for training purposes. The Air

Force’s long-range airlift modernization plan calls for replacing the C-5As

beginning in 2007. Making at least some of the C-5A replacements capable

of airdropping equipment to replace some C-17s in the airdrop role would

provide the Air Force the capability to conduct an extended range

strategic brigade airdrop with an airlift fleet having only 100 C-17s. On the

basis of AMC’s analysis, assuming an airlift fleet with 100 C-17s, using

airdrop capable C-5A replacements in place of 16 C-17s to airdrop heavy

equipment would eliminate the need to recycle C-17 aircraft from the

airdrop to the airland role. This would allow the Air Force to conduct an

extended range airdrop directly from the continental United States to a

small, austere airfield within the specified time frame.

C-17’s Ability to Perform

Strategic Brigade Airdrop

Not Proven

The ability to safely perform a mass personnel airdrop while flying in close

formation is a key Air Force capability needed to conduct a strategic

brigade airdrop. However, operational testers found that C-17 aircraft

wake air turbulence poses a danger to paratroopers jumping from aircraft

flying in close formation. As a result, the Army has not yet approved mass

airdrops of personnel from C-17s flying in close formation. Also, flight

parameters, imposed to reduce the risk of paratrooper entanglements,

increased pilot workload for conducting personnel airdrops and are not

conducive to flying large numbers of aircraft in formation. In addition, the

C-17 does not meet paratrooper exit rate requirements when airdropping

personnel along with equipment bundles.

During operational testing, the Air Force found that the air turbulence

created in the wake of C-17s, flying in close formation, can cause

parachutes dropping from following aircraft to oscillate, partially deflate,

or collapse. These conditions could result in serious injury or death to

paratroopers if they occurred at altitudes too low to allow time for

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recovery. Until this problem is resolved, the Army has not approved

operational mass personnel airdrops from C-17s flying in close formation.

Current Army safety restrictions require the Air Force to maintain a

5.5-minute or greater separation time between aircraft to avoid possible

injury to paratroopers.

The current 5.5-minute aircraft separation restriction essentially prohibits

formation flying, as it would take over 2.5 hours to conduct a strategic

brigade airdrop. Army officials told us that they were in the process of

formulating a time requirement of about 30 minutes for completing a

strategic brigade airdrop. This is longer than it takes using the C-141,

which was the standard initially desired by the Army. The C-141 can

complete a strategic brigade airdrop in approximately 11 to 22 minutes,

depending on visual conditions and formation spacing.

The Air Force, in June 1996, began a combination of follow-on

development and operational testing to better understand the impact of

C-17 wake turbulence on paratroopers and to identify operationally

acceptable aircraft formations that would mitigate the wake turbulence

problem. The follow-on C-17 testing includes conducting personnel

formation airdrop tests during daylight hours using visual flight rules. Air

Force officials estimate that this testing will be completed by

February 1997. However, these officials told us that formation personnel

airdrop testing under night or limited visibility conditions using instrument

flight rules will not be conducted until late 1997. While there is no hard

and fast rule, the Army generally tries to conduct airborne assaults under

the cover of darkness or limited visibility to protect its forces and surprise

the enemy.

Also, operational testing found that, because of turbulent airflows around

the C-17, paratroopers jumping from both sides of the aircraft, tend to

cross over behind the aircraft. This crossover increases the risk of

paratroopers colliding and becoming entangled in their parachutes and

could lead to serious or fatal injury if paratroopers are unable to quickly

free themselves. To prevent this crossover problem, C-17 pilots are

required to maintain strict flight parameters during personnel airdrop.

These parameters include a high-deck angle (the nose of the aircraft is

elevated 6 to 7 degrees as opposed to a normal elevation of 3 degrees or

less) and precise airspeed. Operational testers found that maintaining

these parameters created a high workload for C-17 pilots, who had

difficulty maintaining the desired combination of these flight parameters

at a constant altitude across the drop zone. DOD’s C-17 Operational Test

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and Evaluation Report (November 1995) indicated that these conditions

are not ideal when flying large numbers of aircraft in formation.

In addition, operational testing revealed that the C-17 does not meet the

Air Force and the Army requirement to airdrop equipment bundles and 102

paratroopers in a single pass over an average size drop zone. If this

requirement cannot be met, the Army would have to either increase the

length of the drop zone, require the aircraft to make a second pass over

the drop zone, or reduce the number of paratroopers dropped on a single

pass. None of these alternatives would be desirable to the Army because

they would delay landing troops in the drop zone and require additional

time to consolidate and reorganize troops once on the ground.

Multiyear Contract

Cancellation

Provisions

Although the Congress has approved and DOD has awarded a multiyear

contract with an accelerated production schedule for the final 80 C-17s,

that contract contains a clause that would permit the government, if full

funding for a production lot under the multiyear contract were not

available, to revert to single-year options without paying cancellation

costs. While there would be an increase in program discontinuation costs

to close out the contract at 100 rather than a 120, those additional costs

have already been accounted for in our estimate of the potential savings.

This clause was included at the direction of the Congress and would allow

DOD to continue acquiring C-17s under the conditions negotiated prior to

signing the multiyear contract.

Conclusion An airlift fleet with 120 C-17s would cost over $7 billion more in

acquisition and operating and support costs than a fleet with 100 C-17s,

while, in our opinion, providing only a marginal increase in strategic airlift

capability and tactical utility. There are alternatives for delivering the

small amount of strategic cargo not delivered by an airlift fleet with 100

C-17s in the MRS BURU. Employing one or a combination of these relatively

low-cost alternatives could result in saving over $7 billion in life-cycle

costs for the additional 20 C-17s. These alternatives include a minor

amount of prepositioning beyond the amount currently planned, using

other airlift aircraft not considered available in the MRS BURU, extending

the delivery time frame slightly, or adopting a combination of these

alternatives.

DOD officials have expressed concern that additional prepositioning

reduces the flexibility of the field commander to determine the force mix

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that a major regional contingency will require. However, the additional

reduction in flexibility would be about 2 percent if the entire shortage

were prepositioned and less than 2 percent to the extent that training or

set-aside aircraft were also used.

The 100 C-17s would also provide sufficient military capabilities to fulfill

the missions modeled in the Tactical Utility Analysis with the exception of

an extended range strategic brigade airdrop directly from the continental

United States to a small, austere airfield. This capability, as set out in the

Army’s concept of operations, does not currently exist and until about

fiscal year 2004 would have to be accomplished through the use of

alternatives. Since this mission can be accomplished by moving some

portion of the planned follow-on equipment to bases closer to the planned

target or by making the C-5A replacement airdrop capable, we question

the cost-effectiveness of spending billions for additional C-17s.

Matters for

Congressional

Consideration

Because of the potential savings of over $7 billion and the relative

contribution of the final 20 C-17s, the Congress may wish to consider

funding only 100 C-17s and requiring DOD to reexamine the decision to

acquire 120 C-17s. DOD can meet mission requirements by employing

various relatively low-cost options and by extending the use of alternatives

for accomplishing the longer range brigade airdrop. Further, before

approving the acquisition of the final 20 C-17s primarily to support the

brigade airdrop mission, the Congress should require that DOD certify that

the aircraft’s wake turbulence problems have been solved.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, DOD stated that the alternatives we

suggested were operationally unacceptable. More specifically, DOD

indicated that (1) CRAF aircraft cannot carry outsized or oversized

equipment, (2) KC-10s may be needed for refueling, (3) training aircraft are

needed to ensure a continuous pipeline of trained crews, (4) additional

prepositioning would reduce flexibility, and (5) extension of the delivery

time by 1 or 2 days would create unacceptable risks. (See app. II for DOD’s

complete comments.) However, careful review of DOD’s comments

indicates that its blanket rejection of any combination of these alternatives

fails to recognize the following:

• Not all of the cargo to be delivered is outsized or oversized and additional

contributions of CRAF aircraft could free up C-5s and C-17s for the outsize

and oversize loads.

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• Although the primary role of KC-10s is as refuelers, they could still make a

contribution even if not dedicated to the airlift role, as they have in the

past.

• The eight C-17s and six C-5s set aside for training could be used on a

short-term basis in two nearly simultaneous major regional contingencies,

just as training aircraft were used during Desert Storm.

• The reduction in flexibility from additional prepositioning is 2 percent or

less of the planned force.

• While asserting increased risk, DOD has not rerun its war-fighting model

with a delay of 1 or 2 days in the delivery time to determine whether there

is, in fact, a significant increase in risk. Further, DOD has assumed that risk

will increase without allowing for any compensating effects through the

use of the alternatives we have suggested.

DOD agreed that 100 C-17s would be adequate to meet lesser regional

contingency requirements. However, DOD indicated that an extended range

brigade airdrop could not be accomplished with a fleet that included only

100 C-17s. DOD stated that prepositioning airdrop forces is not a realistic

option because of time constraints, the need to obtain agreement from

other nations for use of their territory, and the loss of the element of

surprise.

We are not suggesting that prepositioning, that is permanent storage of

equipment at forward bases, be used to support the brigade airdrop. We

are suggesting that 15 or fewer loads of follow-on equipment could be

moved to an appropriate base during the early part of the operation, close

enough to the desired target to allow C-17s used in the initial airdrop to

pick up that equipment and deliver it during the airland phase of the

mission. We agree that use of third party bases would require obtaining

permission for their use but believe that much of the groundwork for this

type of agreement can be handled prior to the time when the bases would

actually be needed. As regards to the element of surprise, we question

whether the number of aircraft involved in an operation of this nature

could be launched without attracting media attention during a crisis.

DOD recognized the existence of a C-17 wake vortex problem but

recommended that we withdraw our suggestion that the Congress require

certification that the problem has been solved before authorizing the final

20 aircraft. DOD maintained that the problem is not unique to the C-17 and a

reporting requirement would be an inappropriate exaggeration of the

issue. In our opinion, the ability of the aircraft to accomplish a key mission

specifically called for in the justification for acquiring 120 C-17s (not just

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100) is critical and, therefore, certification that the wake vortex problem

has been resolved is a reasonable requirement.

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Despite Savings

The Air Force needs to achieve significant cost reductions to contain total

program costs for the 120 C-17 program at the $43 billion amount

estimated by the Air Force in January 1994. Even after the reductions in

production prices for the last 88 aircraft that the Air Force negotiated with

McDonnell Douglas, total program costs decreased by only about

$174 million from the $43 billion January 1994 Air Force estimate. Also,

negotiated ceiling prices for aircraft in production lots XII through XV

potentially could increase C-17 program costs by more than $1 billion if

individual production lots were to increase to their ceiling prices. Further,

the contract provides for adjusting the prices for the last 72 aircraft to

account for changes in costs that could not be accurately foreseen at the

time the multiyear contract was negotiated.

Government and

McDonnell Douglas

Cost-Reduction

Initiatives

Initiatives undertaken by both the government and McDonnell Douglas

have significantly reduced prices for future C-17 aircraft. First, the

Congress created a competitive environment for the C-17 contractor by

directing DOD to establish the NDAA program to explore the use of

nondevelopment aircraft as an alternative or supplement to the C-17.

Second, several Air Force initiatives contributed to lower C-17 production

prices. The Air Force (1) performed a should cost analysis to serve as a

basis for negotiating lower prices for the last 88 aircraft,1

 (2) provided the

contractor an additional $372 million to fund cost-reduction initiatives,

(3) accelerated the production schedule, (4) negotiated fixed-price

contracts with McDonnell Douglas for the next four production lots

(VIII-XI) and not-to-exceed ceiling options for the balance of the

120-aircraft buy, and (5) obtained congressional approval to purchase the

last 80 aircraft using multiyear procurement.

Also, as a result of the 1994 settlement,2

 McDonnell Douglas undertook its

own analysis to identify ways of reducing C-17 production prices and, as

1

The should cost analysis was designed to promote improvements in the contractor’s operations by

challenging such things as existing workforce, methods, materiels, and facilities and quantifying their

impact on price estimates.

2

In January 1994, DOD and McDonnell Douglas agreed to settle outstanding business and management

issues concerning the C-17. Under the settlement, the contractor agreed to a number of management

changes and improvements to ensure completion of the 120-aircraft program and reductions in the

aircraft’s cost. The government increased funding to cover additional testing and some management

improvements and to settle all outstanding claims both filed and not filed as of January 6, 1994. The

government also agreed to extend delivery schedules and revise various C-17 specifications. (See

Military Airlift: The C-17 Program Update and Proposed Settlement (GAO/T-NSIAD-94-166, Apr. 19,

1994.))

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required by the settlement, will expend $100 million of its own funds for

additional projects to reduce C-17 production costs.

In the fall of 1994, as a part of their price reduction efforts, the C-17

program office and McDonnell Douglas jointly developed a computer

model for estimating and reaching agreement on production costs for the

last 88 aircraft, starting with production lot VIII. As part of this effort, in

January 1995, the C-17 program office and McDonnell Douglas agreed to a

production price baseline of $24.2 billion ($275 million average unit price)

to use in the model. The contractor used the model to determine the

impact that its cost-reduction initiatives would have on C-17 production

labor hours, costs, and prices.

Table 4.1 summarizes the Air Force and contractor initiatives, which

together reduced production prices for the last 88 aircraft by $7.3 billion

(from $24.2 billion to $16.9 billion). The $16.9 billion ($192 million average

unit price) is the negotiated contract price for the annual production buys

included in the lot VIII and beyond contract assuming an accelerated

production schedule. The $16.9 billion price excludes the cost of engines

and other equipment furnished to McDonnell Douglas by the government.

The multiyear contract, starting with production lot IX, reduced this price

by another $827 million to $16.1 billion ($183 million average unit price).

Table 4.1: McDonnell Douglas C-17

Production Price for Last 88 Aircraft

Price for last 88 aircraft

Then-year dollars in millions

Description Reduction Total

Unit

(average)

January 1995 baseline $24,196 $275

Cost-reduction initiatives $5,100

Accelerated delivery 1,356

Transferred to other contracts 827

Total $7,283 $(7,283) $(83)

Lot VIII contracta $16,913 $192

Multiyear reduction (827) (9)

Lot VIII with multiyear $16,086 $183

Note: This is the production contract cost for McDonnell Douglas. It does not include costs for

government-furnished equipment such as engines.

aThe lot VIII contract value assumes an accelerated production schedule.

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The Air Force performed the should cost analysis to identify the most

probable production price for the remaining 88 aircraft. This analysis

evaluated ongoing as well as new cost-reduction ideas for McDonnell

Douglas and its suppliers. Following the should cost study, McDonnell

Douglas undertook its own detailed analysis and identified other initiatives

for reducing C-17 production costs. Program and contractor officials told

us that McDonnell Douglas reached agreement with the Air Force on many

of these initiatives and incorporated them into the joint C-17 production

cost model. These initiatives lowered the negotiated target price for the

remaining 88 aircraft by more than $5.1 billion from the January 1995

production price baseline.

Many of these initiatives, however, required additional funding by both

McDonnell Douglas and the Air Force. These additional costs are not

reflected in the lot VIII and beyond contract prices. For example,

McDonnell Douglas, as required by the 1994 settlement agreement, is

spending $100 million of its own funds to fund 40 of these cost-reduction

initiatives. The Air Force also provided McDonnell Douglas $372 million

for additional cost-reduction projects. Included in this amount are

(1) $112 million in incentive payments for cost-reduction projects affecting

production lots VIII and beyond that had been authorized by the initial

development and production contract and implemented by the contractor

prior to production lot VIII3

 and (2) $260 million, under the PE/PI contract

to fund 37 new projects.

Table 4.2 summarizes by major cost categories how the cost-reduction

initiatives reduced the production prices for the remaining 88 aircraft.

3

Normally these incentive payments would have been paid to the contractor at the time each

production lot under contract was awarded. However, the C-17 program office wanted to close out the

initial C-17 development and production contract that authorized these projects and chose to buy out

these payments rather than carrying the liability forward.

Page 42 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

Table 4.2: Impact of Cost-Reduction

Initiatives on C-17 Production Prices

for the Remaining 88 Aircraft Decrease

Then-year dollars in millions

Cost category Amount Percenta

Intercomponent work orders $1,805 35

Outside suppliers 976 19

Overhead 968 19

Direct labor 878 17

Other 473 9

Total $5,100 100

aPercentages do not add due to rounding.

Reduction in

Intercomponent Work

Order Costs

The largest reduction (about 35 percent) comes from reducing the cost of

intercomponent work orders. These work orders are for C-17

manufacturing done at other McDonnell Douglas divisions away from the

main assembly facilities in Long Beach, California. At these other

divisions, McDonnell Douglas is taking steps to reduce both direct and

indirect costs by improving the manufacturing processes and efficiency at

these facilities. It is also transferring work to either lower cost company

facilities or to outside suppliers that can do it more efficiently.

For example, McDonnell Douglas plans to achieve more than $1 billion in

C-17 production costs reductions at its St. Louis, Missouri, facility by

implementing a combination of cost-reduction initiatives to improve

efficiency and by transferring a portion of the work done in St. Louis to the

contractor’s Macon, Georgia, facility.4

 The Macon facility has lower labor

costs and higher productivity and efficiency rates than other company

facilities.

Reductions in Supplier

Costs

McDonnell Douglas also plans to achieve significant reductions in the

prices charged by its suppliers. The prime contractor is (1) working with

its suppliers to improve their manufacturing processes and/or redesigning

components provided by these suppliers, (2) transferring work to more

efficient suppliers, and (3) eliminating middleman costs by directly

procuring major parts and components from source suppliers. For

example, McDonnell Douglas plans to achieve over $687 million in cost

4

In C-17 Aircraft: Cost of Spare Parts Higher than Justified (GAO/NSIAD-96-48, Apr. 17, 1996), we

reported that the Air Force paid significantly higher prices for spare parts manufactured at the

McDonnell Douglas St. Louis Division.

Page 43 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

reductions at its largest supplier, Vought Aircraft Division of Northrop

Grumman Corporation. This amount includes an estimated $300 million

savings by improving the design and manufacturing of the C-17 engine

enclosure.

Reductions in Overhead

Costs

McDonnell Douglas plans to decrease its overhead expenses by more than

$900 million. The contractor, for example, has initiated projects to reduce

the cost of indirect staffing supporting the C-17 program by $443 million

and to reduce the cost of group health insurance and workman’s

compensation by $266 million.

Specifically, the contractor plans to reduce the level of indirect staffing by

577 positions from 2,250 at the beginning of 1995 to 1,673 in 2001. For the

entire corporation, McDonnell Douglas revised its employees’ group health

insurance program to incorporate a new point-of-service primary care

program and to require supplemental premium contributions from

employees whose working spouses elect not to accept their own

employers’ health insurance program as primary coverage. The contractor

also projects significantly reduced costs due to a reduction in the State of

California workman’s compensation rates and improvements in the

contractor’s industrial accident safety record.

Direct Labor and Other

Cost Reductions

McDonnell Douglas expects to reduce its C-17 program direct labor costs

by $878 million through the implementation of several labor saving

projects. For the most part, these projects are being implemented at the

assembly facility in Long Beach to improve assembly labor and reduce idle

time and the time required for rework and repair.

Other reductions to the production price include decreases related to

profit/fee, warranty, facilities cost of money, and other nonlabor costs. For

example, the estimated profit for the last 88 aircraft decreased by over

$275 million.

Accelerating Procurement

Schedule Will Save Over a

Billion Dollars

The Air Force and McDonnell Douglas reduced the contract price by

$1.4 billion by accelerating the baseline procurement schedule. Both the

lot VIII and beyond and multiyear contracts contained an accelerated

procurement schedule approved by the Under Secretary of Defense for

Acquisition and Technology for use in planning and budgeting for C-17

production at the maximum affordable rate. The baseline procurement

Page 44 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

profile used in the joint cost model provided for nine production 

lots (VIII-XVI) with a maximum procurement rate of 12 per year. The

accelerated procurement profile provides for eight lots with a maximum

procurement rate of 15 per year. A comparison of the two procurement

schedules with their respective prices is shown in table 4.3. According to

the contractor’s proposal, the accelerated procurement rate buildup and

higher quantities allowed the company to offer the reduced price.

Table 4.3: Comparison of Contract Procurement Baseline Profile With Accelerated Procurement Profile for Last 88 Aircraft

Then-year dollars in millions

Fiscal year 1996 1997 1998 1999 2000 2001 2002 2003 2004 Total price

Baseline number 8 8 8 8 10 12 12 12 10 $18,269

Accelerated number 8 8 9 13 15 15 15 5 0 16,913

Reduction $1,356

Transfer of Development

and Support Costs

Contracts for C-17 development and prior production lots contained

provisions for improving the aircraft and for field support. The Air Force

and the contractor estimated the cost of this work in the January 1995

production price baseline to be about $827 million. Starting with the

production lot VIII and beyond contract, the Air Force transferred this

work to the PE/PI and field support contracts. This was done to have the

production contract reflect only the cost of producing the aircraft and to

increase management’s visibility and control over production costs.

Multiyear Procurement

Will Reduce Contract Price

On the basis of a January 1996 proposal submitted by McDonnell Douglas,

the Air Force sought and obtained congressional approval for multiyear

procurement authority to purchase the last 80 C-17 aircraft over a 7-year

period. In June 1996, the Air Force awarded McDonnell Douglas a

$14.2 billion 7-year multiyear contract for the last 80 C-17 aircraft starting

with production lot IX in fiscal year 1997 and ending with production 

lot XV in fiscal year 2003.

The multiyear contract reduced McDonnell Douglas’s target prices for the

last 80 aircraft by $827 million. On the basis of an accelerated procurement

profile, the contract provides for a 5.5-percent discount from the

negotiated prices in the annual lot VIII and beyond contract for production

lots IX through XV. McDonnell Douglas’s original proposal offered a

5-percent discount, but the contractor increased it to 5.5 percent due to a

congressional desire for a larger discount. McDonnell Douglas did not

Page 45 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

identify how it would achieve this additional reduction, and characterized

it as a management challenge.

The multiyear contract also allows the Air Force to revert to the lot VIII

annual buy contract options without renegotiating prices, if any year’s buy

under the multiyear contract is not fully funded. The lot VIII contract’s

variation in quantity clause allows the Air Force to choose either a

baseline or an accelerated procurement schedule.

C-17 Program Costs

Remain at $43 Billion

In April 1994, we testified that the $43 billion total program cost estimate

to acquire 120 C-17s exceeded the last DOD estimate to acquire 210 aircraft.5

A 1996 Air Force estimate of total program costs for a 120 C-17s has

decreased by only $174 million since that time. Although both the 1994 and

the 1996 estimates include multiyear procurement, the 1994 estimate is

based on a maximum procurement rate of 12 aircraft per year while the

procurement rate in the 1996 estimate is 15 aircraft per year.

Table 4.4 compares the 1994 and the 1996 estimates of total program costs.

It shows that the Air Force reduced its budget estimate for C-17

production costs for the 120-aircraft program by over $3 billion. This

represents about a 10-percent decrease in production costs, or an average

reduction of $26.5 million per aircraft. For the most part, this decrease is a

result of the Air Force negotiating lower prices with McDonnell Douglas

for the remaining 88 aircraft.

Table 4.4: Total C-17 Program Costs

for 120 Aircraft Then-year dollars in millions

Description 1996 1994 Change

Research and development $6,701.1 $5,709.9 $991.2

Production 29,234.8 32,414.8 (3,180.0)

Support 3,147.0 2,103.4 1,043.6

Modifications 1,278.7 0 1,278.7

Spares 2,197.2 2,523.3 (326.1)

Military construction 346.0 327.4 18.6

Total $42,904.8 $43,078.8 $(174.0)

The $3.2-billion decrease in production costs was offset by increased

estimates for research and development, aircraft modifications, and field

support. According to program officials, the $991-million increase in

research and development funds is mainly for additional follow-on

5

Military Airlift: C-17 Proposed Settlement and Program Update (GAO/T-NSIAD-94-172, Apr. 28, 1994).

Page 46 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

development and operational testing, and the $1.3-billion increase in

modification funds is for the development and incorporation of

modifications to the aircraft. Examples of planned funding for

modification improvements include: $247 million to improve the C-17

cargo compartment system, $205 million to upgrade the aircraft’s avionics,

and $150 million to enhance utilization of the cockpit.

According to the C-17 program office, the $1-billion increase in support

costs is due to (1) the extension from fiscal year 2001 to 2005 of

McDonnell Douglas interim contractor support for fielded C-17 aircraft

and (2) plans to fund many sustainment tasks under the weapon system

procurement account that were previously funded under the operation and

maintenance account.

Multiyear Contract Allows

for Program Cost Growth

The contract prices for the last 50 aircraft could increase about $1 billion

because of ceiling prices contained in the multiyear production contract.

On the basis of our analysis, the ceiling prices for contract options,

starting with lot XII, exceed the negotiated target prices by about

$1 billion.

Further, the multiyear contract contains contract clauses that allocate the

risk of unforseen events between the government and the contractor.

These clauses allow for increases or decreases in the price (for production

lots X and XI) and the target cost and ceiling price for production lots XII

through XV. For example, increases or decreases to materiel costs due to

changes in inflation or currency exchange rates would result in

adjustments to the price, target cost, target price, and ceiling price for a

lot. These contract amounts could also be adjusted for cost increases or

decreases to the prime contractor for changes in labor and overhead rates,

loss of suppliers, new government compliance requirements, and

extraordinary events such as earthquakes or fire if the net effect of these

changes (upward or downward) is 2 percent or greater of the applicable

fixed price or target cost amounts stated in the contract.

Agency Comments

and Our Evaluation

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

program cost remains at $43 billion, but pointed out that the costs for

additional research and development, testing, and modifications were not

included in the earlier estimates because the items being covered by these

costs were not known at that time. The need for the modifications was

identified during testing. We agree that these costs were not reflected in

Page 47 GAO/NSIAD-97-38 Military Airlift
Chapter 4 

C-17 Program Cost Could Exceed $43 Billion

Despite Savings

the earlier estimates. However, major weapon systems generally require

modifications as a result of testing. Not including any potential costs of

these modifications ignores prior experience and understates potential

costs.

Page 48 GAO/NSIAD-97-38 Military Airlift
Page 49 GAO/NSIAD-97-38 Military Airlift
Appendix I 

DOD-Approved C-17 Program Cost and

Schedule Aircraft Performance Criteria for

Continuing the Program Beyond 40 Aircraft

DOD-established criteria Objective Threshold Compliance

C-17 program milestone Date

Complete development testing Dec. 94 June 95 Dec. 94

Start operational testing Dec. 94 June 95 Dec. 94

Complete operational testing June 95 Dec. 95 June 95

Initial operational capability (12 aircraft) Jan. 95 July 95 Jan. 95

Reliability, maintability, and availability evaluation July 95 Jan. 96 Aug. 95

Full-rate production decision milestone IIIB Nov. 95 May 96 Nov. 95

Program costs for first 40 aircraft Estimate (fiscal year 1981 base-year millions)

Research and development $4,089.1 $4,702.5 $4,070.1

Procurement 8,769.3 9,207.8 8,462.8

Military construction 138.0 158.7 133.0

Average unit procurement 219.233 252.118 211.6

Program aircraft performance Performance parameter

Payload at 3,200 nautical miles 130,000 lbs 110,000 lbs 131,000 lbs

Maximum payload landing field length 3,000 ft @ 160,000 lbs 3,000 ft @ 140,000 lbs 2,900 ft @ 160,000 lbs

Backup capability 2% grade 1.5% grade 3+% grade

Turning capability (feet for 180-degree turn) 96 ft unpaved 90 ft paved 80 ft paved/

96 ft unpaved

Rolling stock/outsize cargo 15 vehicles 15 vehicles 15 vehicles

Airdrop 102 personnel

110,000 lbs 

40 CDS bundles

102 personnel

60,000 lbs

30 CDS bundles

102 personnel

110,000 lbs

30 CDS bundles

Aircraft reliability and maintability (Projected range)

Mean time between maintenance, corrective

(mean flight hours)

0.78 0.75 0.88 to 1.37

Mean time between removal

(mean flight hours)

2.8 2.5 4.23 to 6.11

Mean man hours to repair 7.35 7.35 3.7 to 4.45

Page 50 GAO/NSIAD-97-38 Military Airlift
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.

See comment 2.

Page 51 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

Page 52 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See comment 1.

See comment 3.

Page 53 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See comment 2.

See comment 4.

See pp. 37-38.

Page 54 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See p. 38.

See comment 5.

See comment 6.

Page 55 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See comment 7.

See comment 8.

See comment 9.

Page 56 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See pp. 47-48.

See comment 10.

Page 57 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

See comment 1.

See comment 9.

Page 58 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

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

letter dated January 2, 1997.

GAO Comments 1. Although the Mobility Requirements Study Bottom-Up Review Update

(MRS BURU) recommended that a fleet with the capacity of 120 C-17s be

acquired, the basis for that recommendation was a set of assumptions

concerning the (1) war fight, (2) expected levels of prepositioning, and

(3) timing of the scenarios. Our review indicated that there are individual

measures that DOD should implement to change the basis for those

assumptions. DOD asserted that less than 120 C-17 equivalents would

increase risk to an unacceptable level, without considering the MRS BURU

scenario in terms of any of our suggested measures to offset a reduction in

airlift. DOD’s assertion that there would be an increase in risk beyond the

moderate range is not established by evidence or analysis.

2. To ensure that no misunderstanding occurs, we have modified the

report to identify the portion of the $7 billion expected savings that would

come from reductions in acquisition and the portion that would be

foregone operating costs over the life of the aircraft.

3. We agree that replacing 234 C-141s with 100 or 120 C-17s will result in

fewer aircraft in the fleet. However, DOD decided in April 1990 that a

significant reduction in the number of aircraft was acceptable when it

reduced the planned C-17 buy from 210 to 120. The reduction was based

on the increased capability of the C-17 and the change in the threat. The

Defense Acquisition Board’s decision was based on the findings of the

MRS BURU, the Strategic Airlift Force Mix Analysis, and the Tactical Utility

Analysis, which considered wartime requirements, not the Air Mobility

Command’s peacetime operating tempo.

4. DOD claims that additional prepositioning in support of two major

regional contingencies is unacceptable because it would reduce flexibility.

However, the MRS BURU found that the materiel shortfall could be

delivered to the theater on prepositioning ships. The decision on how

much to preposition afloat was based on the decision that the airlift fleet

would include 120 C-17 equivalents. More prepositioning would diminish

by 2 percent the theater commanders’s flexibility to alter the airlift flow.

However, the Joint Staff could not provide any analysis to support why a

2 percent or less decrease would be unacceptable. Further, our analysis

has accounted for the costs involved in prepositioning either on land or on

ships. Also, the increased risk is, in our opinion, minimal. The equipment is

Page 59 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

a very small portion of the amount of equipment involved in any

contingency operation, it would be located in areas that are the most likely

sites of potential trouble, and it would not be substantially further from

potential use sites than if it were retained in the United States.

5. DOD states that the use of staging bases during a brigade airdrop is not a

realistic option because of the time involved. However, we are not

suggesting that troops or equipment be prepositioned at an overseas base

for a potential strategic brigade airdrop. We are suggesting that some of

the equipment delivered as part of the airland follow-on phase of the

brigade airdrop—less than 15 C-17 loads—be moved first to staging bases

as part of the initial deployment so that it can be picked up by C-17s used

in the initial airdrop. This would eliminate the time needed by these C-17s

to return to the United States to pick up this equipment.

6. Although DOD considers this a realistic objective, DOD cannot currently

accomplish this directly from the United States to a small, austere airfield

as desired by the Army. Our point is not that this capability never be

acquired but that a delay in acquiring it will result in significant savings.

7. We have modified the report to reflect that there are 74 C-5As in the

airlift fleet of which 16 are undergoing depot maintenance or used for

training purposes.

8. The costs DOD refers to will occur as a result of replacing the C-5A

whether or not any other actions are taken.

9. DOD’s response states that the strategic brigade airdrop operational

capability release is targeted for February 1997, using 20-foot static lines

and 40,000 foot spacing between 3-ship C-17 elements. However, DOD’s

response fails to address two important points. First, the Army does not

have an operational 20-foot static line. It needs to be developed, tested,

and certified. Second, standard spacing for formation personnel airdrop

using C-141s is 6,000 to 12,000 feet between elements. The larger

separation of the C-17, in addition to the formation being wider than with

other aircraft, would result in a longer time to complete the airdrop, and a

greater dispersion of troops over a larger drop zone. This would delay

getting troops on the ground and require additional time to consolidate

and reorganize those troops into an effective fighting force, thereby

increasing the risk to the operation.

Page 60 GAO/NSIAD-97-38 Military Airlift
Appendix II 

Comments From the Department of Defense

10. We agree that it is in the contractor’s interest to maximize profit.

However, clauses included in the multiyear contract allocate risk between

the government and the contractor that arises from events over which they

may have little or no control. If these events occur, then the cost of the

contract to the government can increase.

Page 61 GAO/NSIAD-97-38 Military Airlift
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Thomas J. Denomme

Penny D. Stephenson

Michele Mackin

Los Angeles Field

Office

Noel J. Lance

Carlos M. Garcia

Dorian R. Dunbar

Larry J. Bridges

(707109) Page 62 GAO/NSIAD-97-38 Military Airlift
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