Military Airlift: DOD Should Take Steps to Strengthen Management of the Civil Reserve Air Fleet Program
Published: 2009-09-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To move passengers and cargo, the Department of Defense (DOD) must supplement its military aircraft with cargo and passenger aircraft from commercial carriers participating in the Civil Reserve Air Fleet (CRAF) program. Carriers participating in CRAF commit their aircraft to DOD to support a range of military operations. In the Fiscal Year 2008 National Defense Authorization Act, Congress required DOD to sponsor an assessment of CRAF and required GAO to review that assessment. GAO briefed congressional staff on its observations. As discussed with the staff, GAO further analyzed some of the issues identified in its review. This report assesses (1) the extent to which DOD has assessed potential risks to the CRAF program, and (2) the extent to which DOD's management of CRAF supports program objectives. For this engagement, GAO reviewed DOD-sponsored CRAF study reports and interviewed study leadership. GAO also interviewed over 20 of 35 CRAF participating carriers that responded to a request for a meeting, DOD officials, and industry officials.
section_title: What GAO Found
paragraphs: DOD needs to establish the level of risk associated with declining charter passenger capabilities and DOD's increased need to move very large cargo. Although DOD depends on CRAF charter passenger aircraft to move more than 90 percent of its peacetime needs, there has been nearly a 55 percent decline in this CRAF capacity since 2003. In addition, since 2003, DOD's large cargo movement needs have increased with the acquisition of over 15,000 Mine Resistant Ambush Protected vehicles. Since there are no U.S. commercial cargo aircraft capable of moving cargo this size into Iraq and Afghanistan, DOD is using foreign-owned carriers to assist its military aircraft in such movements. However, there are scenarios where foreign-owned carriers may be unwilling or not allowed to fly. As a result, the lack of a commercial U.S. outsized cargo capability might restrict DOD's ability to meet its large cargo airlift needs in a timely manner. DOD has not quantified the risks these challenges pose to the CRAF program's ability to meet DOD's future transportation requirements because DOD has not completed risk assessments as described in the 2008 National Defense Strategy. Until risk assessments are conducted, DOD will not be sufficiently informed about potential risks in the CRAF charter passenger segment and in very large cargo airlift capability that could prevent DOD from managing its future airlift needs and the CRAF program effectively. DOD's management of CRAF has not provided CRAF participants with a clear understanding, which could strengthen the program's ability to support its objectives, in some critical areas of the program. Although internal controls such as policies can help meet program objectives, CRAF business partners do not have a clear understanding of DOD's expectations concerning four CRAF objectives--an enhanced mobilization base, modernization, increased air carrier participation, and communication--because DOD has not developed policies in these four areas. First, DOD has not developed policies regarding the enforcement of its business rules, such as the 60/40 rule that states that participants should fly only 40 percent of their total business for DOD. DOD does not consistently enforce this rule and this may decrease the mobilization base since it is difficult for carriers to size their fleets to meet DOD demands. Second, DOD has not developed policies or economic incentives that promote CRAF modernization and this may hinder CRAF carriers from modernizing their aircraft. Third, DOD has not developed policies regarding oversight of the distribution of its peacetime airlift business, the primary incentive to carriers for participating in CRAF. DOD has no involvement in this distribution, and the perceptions of some carriers that this process is unfair could ultimately reduce carrier participation in CRAF. Fourth, DOD has not developed policy concerning communication with the carriers on CRAF studies or proposed changes to the CRAF program. DOD has not always communicated with carriers prior to implementing changes or completing studies. Until DOD develops policies that provide carriers with a clear understanding of CRAF, DOD cannot provide reasonable assurance that CRAF will meet its primary objective of providing critical airlift.

section_title: Letter
paragraphs: Since September 11, 2001, the U.S. Transportation Command’s Air Mobility  Command (AMC) has successfully transported more than 6.8 million  passengers and nearly 3 million tons of cargo by air. To move these  passengers and cargo, the Department of Defense (DOD) must supplement  its military aircraft with aircraft from commercial carriers participating in  the Civil Reserve Air Fleet (CRAF) program. Commercial air carriers  participating in CRAF contractually commit their aircraft to DOD to be  called upon, or activated, for use to support a range of military operations.  At the most demanding end of this range, DOD plans for CRAF to move  more than 90 percent of its passengers and almost 40 percent of its cargo  requirements. As an incentive to encourage participation in CRAF, DOD  contracts exclusively with CRAF participants to fly its daily peacetime  passenger and cargo airlift business. Currently, this daily peacetime  business includes airlift for operations in Iraq and Afghanistan, which is  being handled without an activation of CRAF. CRAF has been activated  twice—once during Operation Desert Shield/Storm and at the beginning of  Operation Iraqi Freedom. The Office of the Under Secretary of Defense for  Acquisition, Technology and Logistics (Transportation Policy) is  responsible for establishing policies for the CRAF program. The U.S.  Transportation Command is responsible for the daily management of the  program and for making recommendations concerning the capability,  capacity and other requirements for mobility assets needed to execute its  mission.
The National Airlift Policy confirms the importance and the necessity of  CRAF by establishing that national objectives cannot be met without using  commercial air carriers. DOD has little capability to meet its passenger  airlift requirements in its military fleet; therefore, DOD relies almost  entirely on CRAF commercial carriers to fulfill its requirements. Charter  passenger carriers, operating on the customers’ schedules, provide nearly  90 percent of all daily, peacetime passenger airlift for DOD, while the  scheduled carriers, operating on set routes and timetables, provide the  remainder. In contrast, DOD’s military fleet has the capability to carry  bulk, outsized, and oversized cargo; however, DOD relies on commercial  cargo carriers to move bulk cargo in both peacetime and times of crisis or  war. Although CRAF cargo carriers can fly oversized cargo when needed,  they do not have the capability to move outsized cargo. CRAF carriers are  not capable of loading or moving strategic outsized equipment, such as  Mine Resistant Ambush Protected (MRAP) vehicles, tanks, and  helicopters.
Multiple DOD-sponsored studies have identified risks to the CRAF  program, with some risks due to a changing business environment and  challenges within the management of the CRAF program. For example, as  required by the Fiscal Year 2008 National Defense Authorization Act, DOD  sponsored an independent assessment of the viability of the CRAF  program. DOD submitted this assessment to Congress in October 2008,  and as required by that act, we subsequently conducted a review of that  assessment and briefed congressional staff on our observations about the  assessment and some issues we identified about the CRAF program in  general. As discussed with congressional staff, we further analyzed some  of the issues identified in that review. This report assesses (1) the extent  to which DOD has assessed potential risks to the CRAF program and (2)  the extent to which DOD’s management of CRAF supports program  objectives.
To assess the extent to which DOD has assessed potential risks to the  CRAF program and the extent to which DOD’s management of CRAF  supports program objectives, we reviewed several DOD-sponsored CRAF  reports. We interviewed study leadership from the DOD-sponsored studies  to obtain their perspectives and identify relevant issues relating to the  CRAF program from their respective studies. We also conducted  structured interviews with over 20 CRAF air carriers of the 35  participating in the program as of October 2008 that responded to our  request for a meeting and interviewed airline industry officials and DOD  officials at the Office of Secretary of Defense, U.S. Transportation  Command, and Air Force Air Mobility Command to discuss the CRAF  program. We analyzed this information in the context of DOD’s National  Airlift Policy, 2008 National Defense Strategy, and airlift requirements to  determine how issues we identified might affect the CRAF program. We  discussed the management of the CRAF program with officials at the  Office of Secretary of Defense, U.S. Transportation Command, and Air  Mobility Command. We also reviewed the 2008 National Defense Strategy,  GAO’s Standards for Internal Control in Federal Government, DOD’s  Manager’s Internal Controls, and U.S. Transportation Command’s  Manager’s Internal Controls (guidance to implement DOD’s internal  controls program) to determine how programs should be managed to  minimize the risk of program failure and to identify elements of effectively  managed programs to determine if these elements are part of the CRAF  program.
We conducted this performance audit from January 2009 to July 2009 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: Background
paragraphs: The CRAF program was created in 1951 and its importance was reaffirmed  by the National Airlift Policy in 1987. The National Airlift Policy states that  the military will rely on the commercial air carrier industry to provide the  airlift capability required beyond that available in the military airlift fleet.  Additionally, the policy includes nine guidelines to meet airlift  requirements in peacetime and wartime. These guidelines direct that  policies be designed to  increase participation in CRAF;  enhance the mobilization base of the U.S. commercial air carrier  industry;    provide a framework for dialogue and cooperation with commercial    promote the development of technologically advanced transport  aircraft and related equipment. According to DOD officials, these  guidelines serve as the objectives of the CRAF program.
CRAF commitments are divided into three levels or stages—Stages I, II,  and III—depending on the size of the operations or contingency in which  DOD is involved. As defined in the CRAF contract between DOD and its  commercial partners, Stage I activation supports expanded operations  beyond DOD’s routine daily operations and provides the equivalent of 30  passenger and 30 cargo aircraft; Stage II activation is used in the event of a  major regional contingency and supporting mobilization and provides the  equivalent of 87 passenger aircraft and 75 cargo aircraft; and Stage III  activation supports two major regional contingencies and provides the  equivalent of 136 passenger aircraft and 120 cargo aircraft. When CRAF is  activated, carriers have a specified time frame in which to provide aircraft,  with pilots and crews, to DOD. Once activated, air carriers continue to  operate and maintain the aircraft with their resources; however, AMC  controls the aircraft missions.
The majority of DOD passenger flights require carrier flexibility, as many  DOD missions are not routine in their locations or timing. Charter  passenger carriers fly the majority of DOD peacetime, contingency, and  Stage I business because charter passenger carriers’ businesses are  designed with the flexibility to provide airlift based on the customer’s  (DOD’s) schedule. Scheduled passenger carriers operate commercial  flights on regular routes and can ill afford unplanned disruptions to their  airline networks. However, because of their large fleet sizes, the scheduled  carriers are a critical component of the CRAF fleet.
As an incentive to encourage participation in CRAF, DOD contracts  exclusively with CRAF participants to fly its daily, peacetime passenger  and cargo airlift business and any surge for contingencies. As articulated  in an August 2008 DOD-sponsored CRAF study, carriers earn the  entitlement to DOD’s peacetime business through points awarded based  on their aircraft commitments to each CRAF stage. According to the  study, the greater the commitment by the carrier, the greater the amount  of peacetime business to which a CRAF participant is entitled. These  points become the basis of a carrier’s entitlement to compete for the  procurement of peacetime passenger and cargo airlift business.
To maximize the value of these entitlements, CRAF participants have  formed into three teaming arrangements, which are created and managed  by the participants themselves. These teams comprise of a mix of  passenger and cargo carriers that join together to pool their entitlements  to DOD business; that is, the entitlement directly associated with a  carrier’s individual commitment is combined with the entitlements earned  by other carriers on their team. DOD assigns peacetime business to the  team based on the team’s total entitlement and availability, not to the  individual carrier. Once that business is assigned to the team, the team  leader, or administrator, is responsible for accepting and distributing the  business to the carriers at their discretion.
DOD’s 2008 National Defense Strategy requires the military to assess,  mitigate, and respond to risk that could potentially damage national  security. Identifying and managing risk is also an important goal of all  successful internal control programs. Internal controls include the  organization, policies, and procedures used by agencies to reasonably  ensure that, among other things, critical programs like CRAF achieve their  intended results effectively and efficiently. Internal control standards  require that management should provide for an assessment of the risks the  agency faces from both external and internal sources. These standards  also require that there be control activities—that is, the policies,  procedures, techniques, and mechanisms that enforce management’s  directives—in place to help insure that actions are taken to address risk.
section_title: DOD Has Not Assessed the Risks That Changes in Charter Passenger Capabilities and DOD’s Outsized Cargo Needs Might Have on the CRAF Program
subsections: section_title: Charter Passenger Capability Has Declined
paragraphs: Although DOD depends heavily on CRAF charter passenger capability, this  capability has declined substantially over the past 5 years and DOD has  not established the risk that this decline may have for the CRAF program.  DOD depends on the charter passenger industry to move more than 90  percent of its peacetime requirements, as well as all contingency surges.  While the charter passenger capability has, historically, satisfied DOD’s  requirements, there has been a 60 percent decline in this capability since  2003 due mainly to a declining demand for charter airlines in the  commercial sector. Figure I shows this decline in CRAF participants’  charter passenger aircraft from a high of 66 aircraft in 2004 to 29 in 2008.  Additionally, the figure shows that, even as commercial passenger carriers’  revenues from DOD peacetime business increased to historic levels after  2001, and the amount of business available to charter passenger carriers  was higher than it had ever been, the charter aircraft capacity continued to  decline.
This decline in charter passenger capability led to a finding in the August  2008 DOD-sponsored CRAF viability study that this capability may become  marginal for unexpected peacetime and contingency requirements.  However, the study did not reflect that, in April 2008, CRAF’s largest  charter passenger carrier ceased operations due to bankruptcy. The  sudden loss of 16 charter passenger airplanes from the CRAF program left  DOD with only 3 charter passenger carriers and 19 total charter passenger  aircraft until May 2008, when another passenger carrier dropped its  scheduled services and committed 20 charter aircraft to CRAF. However,  according to industry officials and confirmed by DOD, the sudden  reduction in charter aircraft after the April 2008 bankruptcy led to a  situation in which the return home of some redeploying Maine National  Guard troops in Iraq was delayed by about a week. Because of a limited  charter aircraft capability, the Commander, U.S. Transportation  Command, personally called CRAF scheduled carriers and asked them to  free up aircraft to transport these troops back to the United States. The  bankruptcy of DOD’s largest charter passenger carrier without notice  demonstrates the volatility of the charter passenger industry and raises  questions about the industry’s ability to continue to meet DOD  requirements without a CRAF activation involving the larger, scheduled  carriers to satisfy the requirements the charter passenger industry was  filling.
There is little or no excess capacity among scheduled carriers. The five  scheduled passenger carriers we spoke with told us that, due to market  conditions and shrinking fleets that have been tailored to meet their  commercial demands more efficiently, scheduled carriers are reluctant to  commit aircraft to peacetime operations, contingencies, and CRAF Stage I  beyond a small, required contribution. According to airline and industry  officials, pulling a single aircraft out of a scheduled passenger carrier’s  daily planned service can cause major disruptions to its routes; therefore,  to support any stage of CRAF activation, scheduled air carriers depend on  a decrease in their commercial demands, similar to the reductions seen  after September 11, 2001, that would make aircraft available. If the charter  passenger industry business continues to decline, DOD will likely be  forced to turn to scheduled air carriers to fulfill daily and Stage I  requirements currently met by the charter carriers. However, given the  scheduled carriers’ smaller fleets, DOD has not quantified the number of  charter passenger aircraft it may need on a daily basis and in  contingencies and Stage I, or the risk of having a smaller charter passenger  capability to handle these requirements. DOD officials have told us that  they have no concerns that sufficient CRAF participants will respond to a  call for airlift, whether during peacetime or in an activation.
section_title: DOD’s Need to Move Outsized Cargo Has Increased
paragraphs: Since 2005, DOD’s need to move outsized cargo to support peacetime and  contingency operations has increased with the acquisition of more than  15,000 MRAP vehicles. Because there are no U.S. commercial cargo  aircraft capable of moving outsized cargo such as MRAP vehicles into Iraq  and Afghanistan, DOD is using foreign-owned carriers to support such  movements to supplement its military airlift capability. As of April 2009,  DOD had moved a total of 3,890 MRAPs by air, of which almost 80 percent  were moved using foreign-owned carriers flying large Antonov-124  aircraft. We found and DOD confirmed that in the 2005 Mobility  Capabilities Study, DOD planned for U.S. commercial cargo carriers  participating in the CRAF program to move only bulk cargo, and did not  identify a need for these carriers to move outsized cargo; however,  without some supplemental capability—such as the use of foreign-owned  carriers—the need for DOD to move outsized cargo into areas of crisis,  and have that cargo arrive in a timely manner, could limit DOD’s ability to  meet future airlift requirements. According to DOD analysts involved in  the ongoing Mobility Capabilities and Requirements Study—2016, DOD  will again plan for CRAF cargo participants to carry only bulk cargo.
As DOD moves additional troops and equipment into land-locked  Afghanistan and in similar scenarios in the future, the need to airlift  MRAPs and other large equipment, like helicopters, may continue to need  the use of commercial carriers to assist military airlift. However, it is not  clear whether foreign-owned carriers would be able or willing to fly in  certain scenarios. For example, DOD officials acknowledged that foreign- owned carriers, for security reasons, would not likely be used during a  CRAF activation. Moreover, we believe the use of foreign-owned  companies in support of U.S. military operations could be problematic if  or when foreign-owned carriers find supporting a U.S. contingency to be  inconsistent with their national interests. For example, in 2008, when the  U.S. Transportation Command was using Russian-based carriers to fly  outsized cargo to Iraq, Afghanistan, and other locations, U.S. military  aircraft ferried Georgian troops from Iraq back to Georgia in anticipation  of a potential confrontation with Russian troops. We believe that risk may  be increased in such scenarios in the future. Without further analysis of  DOD’s options for meeting its outsized cargo needs, including the potential  role of commercial carriers, the inability of DOD to meet its needs to move  outsized cargo into areas of crisis and have that cargo arrive in a timely  manner could increase risk for DOD operations. However, DOD officials  told us that DOD is using the foreign-owned aircraft only to ease the high  stress on military aircraft and because such use is less expensive than  military aircraft, not because there is an insufficient number of military  aircraft available to fly this outsized cargo.
section_title: DOD Is Not Fully Aware of How Changes in Its Charter Passenger Airlift Capabilities and DOD’s Outsized Cargo Needs Affected CRAF Because It Has Not Conducted Risk Assessments
paragraphs: DOD is not fully aware of the extent to which these changes may have  affected the CRAF program’s ability to meet DOD’s future transportation  requirements because DOD has not conducted risk assessments as  described in the 2008 National Defense Strategy. In this strategy, DOD  defines risk to the national defense in terms of the potential for damage to  national security combined with the probability of occurrence and a  measurement of the consequences should the underlying risk remain  unaddressed. This strategy also states that DOD must account for future  challenges and their associated risks to meet the objective of winning our  nation’s wars and describes the need to assess, mitigate, and respond to  risk in the execution of defense programs critical to national security. In  the case of the CRAF program, risk assessments can be used to determine  if there are any gaps, shortfalls, or redundancies in the charter passenger  or outsized cargo segments that could prevent DOD from meeting future  airlift requirements.
The most recent DOD sponsored CRAF study, issued in August 2008,  predicted that passenger charter capability may become marginal, but the  capabilities reviewed in the study did not include the further declines in  this capability that occurred in 2008. The study also did not quantify the  risk associated with the passenger charter capability decline that has  already occurred. In accordance with both GAO and DOD management  internal controls, a risk assessment could inform program managers by  establishing the maximum and minimum acceptable risk for the CRAF  program. For example, it could identify the numbers of charter passenger  aircraft necessary to meet DOD requirements. Without a risk assessment,  DOD will continue to be uncertain what the levels of required CRAF  charter participation is necessary to fulfill requirements, and DOD and  industry decisions makers will not be able to begin to take steps to  address the risks.
Furthermore, according to DOD officials, DOD has not conducted a risk  assessment that examines outsized cargo movement, including the use of  commercial air carriers to supplement its military fleet, and identifies any  consequences of relying on foreign owned carriers to meet peacetime and  contingency needs. As previously stated, DOD is using foreign-owned  carriers to move MRAPs and other outsized equipment to Afghanistan and  Iraq. However, the 2005 Mobility Capabilities Study predates the  acquisition of more than 15,000 outsized MRAPs. Additionally, the August  2008 CRAF study did not assess any CRAF outsized cargo movement. A  risk assessment could determine whether a gap, shortfall, or redundancy  exists in relation to the U.S. commercial and military outsized cargo  capability. In addition, a risk assessment could provide information to  decision makers regarding the possibility of potential damage to national  security from the reliance on foreign-owned carriers and the probability of  such damage in future contingencies. Without such a risk assessment,  DOD may not know the most effective method for transporting outsized  cargo, and if any methods present potential risk to national security.
section_title: DOD Has Not Issued Policies That Would Strengthen Management of the CRAF Program
paragraphs: DOD’s management of the CRAF program has not provided CRAF air  carrier participants with a clear understanding of some critical areas of the  program, which could strengthen the program’s effectiveness and the  ability to support its objectives. Although management internal controls  such as clearly articulated policies can help meet program objectives,  DOD has not developed policies related to four of the CRAF program  objectives as outlined in the National Airlift Policy. These four objectives  include: enhancing the mobilization base, promoting aircraft  modernization, increasing air carrier participation, and providing a  framework for dialogue and cooperation with commercial air carriers. As  outlined by both GAO and DOD, management internal controls help  provide reasonable assurance that, through effective management,  programs can achieve their objectives. According to these management  internal controls, one way to help assure that a program’s objectives are  met is to establish clearly articulated policies. Policies, a form of  management control, are, according to U.S. Transportation Command,  intended to provide guidance and procedures to carry out operations or  achieve objectives. However, we found that CRAF business partners do  not have a clear understanding of important aspects of the CRAF program  because DOD lacks policies in critical areas of the CRAF program that  could help DOD meet its program’s objectives. U.S. Transportation  Command officials have stated that the CRAF contract with the carriers  serves as policy. However, the contract does not contain some elemental  items of policy including objectives, goals, and measures of effectiveness  as outlined in GAO and DOD management internal controls.
subsections: section_title: DOD Has Not Developed Policies Related to Four CRAF Program Objectives
subsections: section_title: DOD Has Not Developed Policy Concerning 60/40 Rule Enforcement
paragraphs: DOD has not developed policy regarding the enforcement of its business  rules, such as the 60/40 rule, that would help strengthen the CRAF  mobilization base. More than 40 years ago, DOD established measures to  ensure that CRAF air carriers had both commercial and DOD revenue  streams. These measures evolved into what is now known as the 60/40  rule, a rule defined in the CRAF solicitation allowing that no CRAF carrier  should collect more than 40 percent of its revenues from DOD business.  Carriers that earn more than 40 percent of their revenue from DOD may be  penalized by reductions in their entitlement to DOD business. The original  goals of the rule were to ensure that CRAF carriers maintained a strong  business base, efficient operations, and modern fleets, all of which would  prevent carriers from going out of business when DOD demands were low.  The rule would also provide DOD with a surge capability to draw on if  demand grew suddenly. Although DOD created the 60/40 rule with these  intended goals, several CRAF carriers told us that they are unaware of the  intent of the rule today because they are not sure if they have to follow the  rule, or if it is even being enforced.
Some CRAF carriers have broken the 60/40 rule by depending in large part  on DOD for their revenue. However, because there is no written DOD  policy describing the rule and its enforcement, no carrier could tell us  when, or under what conditions, the rule is actually enforced. According  to airline officials, this lack of guidance affects carriers’ business plans  because they are not sure whether to account for 60/40 rule compliance  when determining the size their fleets. Unclear enforcement parameters  also make it difficult to plan lease or purchase of planes or how many to  acquire. Three DOD-sponsored CRAF studies completed in the last 3 years  have all given differing recommendations regarding the 60/40 rule, adding  to the ambiguity as to whether or not the rule is or will be in effect.  Additionally, it is unclear whether or not CRAF objectives of participation  and meeting DOD surge demands are being met. Without policy that  clearly states the guidelines and objectives of the 60/40 rule, CRAF carriers  may not be able to properly size their fleets to meet DOD demands, and  have the capacity for DOD to draw on to meet demands, which may  decrease the mobilization base of the CRAF program.
section_title: DOD Has Not Developed Policy Concerning CRAF Fleet Modernization
paragraphs: DOD has not developed policies that promote CRAF fleet modernization,  although DOD officials have recognized the need for a more modern CRAF  fleet. The National Airlift Policy directs that policies be created to promote  the development of technologically advanced transport aircraft in order to  ensure a commercial airlift capability. In addition, a December 2007 DOD- sponsored CRAF study acknowledged the importance of modernization  and recommended that DOD develop policies to encourage CRAF carriers  to modernize their existing fleets. Moreover, DOD officials have  recognized the necessity of a modernized commercial air fleet by  repeatedly testifying before Congress about its importance for the  continued viability of the program.
However, DOD has not provided CRAF participants with policies that  include guidelines, objectives, or economic incentives that would  encourage modernization. Because the charter passenger industry plays  such a large role in moving DOD passengers, we believe it is in DOD’s  interest to ensure the commercial airlines have guidelines and incentives,  such as a rate structure that would pay more for carriers to fly newer  airplanes, to assist in modernizing their fleets. Two of DOD’s largest  remaining charter passenger carriers are flying large numbers of aircraft  listed on the Federal Aviation Administration’s Aging Aircraft List. As the  December 2007 DOD-sponsored CRAF study warned, these planes will  soon be retired as the costs of inspections, maintenance, and life- extension work becomes prohibitive. Since these aircraft are being used to  fly DOD business almost exclusively, charter passenger carriers told us  that they look to DOD to provide guidance and incentives to modernize.  DOD officials told us that they cannot influence modernization or force  the carriers to modernize. However, without DOD policy that provides  specific modernization guidelines, CRAF carriers may not see a reason or  have a business case to take steps needed to modernize their aircraft.
section_title: DOD Has Not Developed Policy Concerning Oversight of Distribution of Peacetime Business
paragraphs: DOD has not developed policies regarding the oversight of distribution of  its peacetime airlift business, which may negatively affect CRAF air carrier  participation and may affect DOD’s ability to manage the CRAF program  effectively. DOD’s incentive system of contracting with CRAF participants  to fly its daily peacetime business is intended to meet the program  objective of increasing air carrier participation in CRAF by providing each  CRAF participant with a reasonable share of peacetime business. DOD  policy that includes guidance, instructions, regulations, procedures, or  rules that clarify the CRAF incentive system and some oversight of the  distribution of peacetime business would give CRAF carriers a clearer  understanding of this important process.
According to DOD officials, the process and procedures for distributing  DOD’s peacetime airlift business have not been described in policy and are  not overseen by DOD. As discussed earlier, DOD awards individual  carriers points based on the number and type of aircraft they commit to  CRAF. These points become the basis of a carrier’s entitlement to compete  for the procurement of peacetime passenger and cargo airlift business. To  maximize these points, the carriers have formed themselves into three  teams that have their own agreements on how the business will be  distributed among the team members. U.S. Transportation Command  officials confirmed that they distribute peacetime business to the teams  and have no further involvement in how the teams distribute peacetime  business among the members. The officials also said that they consider the  existing system to be adequate in meeting program objectives. In the  absence of DOD oversight and control, some of the CRAF carriers have  expressed concerns that peacetime business distribution is not  transparent and can be inequitable. Some CRAF participants have told us  that teams distribute DOD peacetime contracts disproportionate to an  individual air carrier’s CRAF commitment. These carriers also told us that  the result is that some CRAF participants receive less DOD business than  their entitlement reflects. Some CRAF carriers told us that the execution  of the incentive system discourages participation and, in some instances,  could cause carriers to go out of business. We understand that U.S.  Transportation Command and Air Mobility Command have no involvement  with the formation of the teams or the agreements teams have reached  with their members. However, without DOD policies and oversight over  the final distribution of the peacetime business that flows from the  incentive system established by DOD, DOD cannot be sure that this system  is accomplishing its goal of enhancing carrier participation in CRAF.
section_title: DOD Has Not Developed Policy Concerning DOD and CRAF Carrier Communication
paragraphs: DOD has not developed policy that establishes a framework for dialogue  and cooperation with commercial air carriers that would invite CRAF  participants to comment on pending program decisions and facilitate  sharing information with them. Although facilitating an effective  partnership between DOD and commercial carriers is a stated objective of  the CRAF program, airline officials stated that DOD has not involved  CRAF participants in some important program decisions that have had  significant impact on the participants’ business plans. For example, DOD  announced a policy change that decreased the amount of money carriers  were reimbursed for fuel, which is allowed under the CRAF contract.  Carriers told us that they factor in fuel reimbursements in their yearly  business plans, and are not prepared to adjust to a significant pricing  change during the middle of a year, especially when they had no  knowledge of the change ahead of its implementation and thus could not  plan in advance for the effects. In addition, until recently, DOD had not  shared information from DOD-sponsored studies on the CRAF program  with CRAF carriers. For example, of the four DOD-sponsored CRAF  studies completed in the past 6 years, most carriers we talked to told us  they had neither seen nor heard of the studies until late 2008. Of the CRAF  carriers we interviewed, only one carrier reported receiving a copy of any  DOD-sponsored CRAF study.
DOD officials have said that mechanisms are in place for effective CRAF  communication between DOD and CRAF carriers, such as using trade  associations to perform what DOD officials describe as an “industrial  reality check” and holding industry days and conferences. However,  according to some carriers, communication through trade associations is  not sufficient because some carriers are not allowed a voice in meetings,  and some carriers are not members of the associations at all. Several  carriers stated that DOD has little communication with them beyond using  trade associations and annual meetings. With a clearly described policy  that establishes a framework for an effective partnership fostering  communication, DOD could strengthen its management of the CRAF  program and enhance its relationship with the carriers, thus ensuring  continued participation in CRAF.
section_title: Conclusions
paragraphs: Given the importance of CRAF in moving passengers and cargo for DOD to  support peacetime and contingency operations and major operations  requiring CRAF activation, it is critical for the CRAF program to be able to  meet DOD’s future needs. By policy, statute, and contract, DOD depends  on CRAF business partners that increasingly find themselves in a  challenging business environment. If the charter passenger industry  continues to decline, DOD could increasingly turn to scheduled air carriers  to fulfill the daily and Stage I requirements that are currently being met by  the charter carriers; however, the scheduled carriers may not be willing or  able to fly these missions and meet DOD’s airlift needs. Additionally, the  potential absence of sufficient outsized cargo capability could potentially  jeopardize national security by preventing DOD from accomplishing its  missions due to an inability to move outsized cargo into areas of crisis  within the time frames the commanders need it to arrive. Until risk  assessments are conducted and actions are taken to mitigate any risks that  are identified, DOD and industry decision makers will not be fully  informed about risks in the CRAF charter passenger segment and in  outsized cargo capability that could prevent CRAF from meeting DOD’s  airlift requirements. Moreover, the lack of appropriate policies that  address critical areas of the CRAF program hinders DOD’s ability to meet  the objectives of the program. Until DOD develops policies that provide  commercial air carriers with a clear understanding of critical aspects of  the CRAF program, such as enforcement of business rules (such as the  60/40 rule), specific modernization guidelines, distribution of peacetime  business, and a framework for communication, thus strengthening its  management of the program, DOD cannot provide reasonable assurance  that the CRAF program will meet its primary objective of providing critical  airlift to support DOD operations.
section_title: Recommendations for Executive Action
paragraphs: To assist DOD with management of the CRAF program, we are making the  following two recommendations for executive action.
First, to help DOD identify and analyze risks associated with achieving  program objectives, we recommend that the Secretary of Defense direct  the Commander, U.S. Transportation Command to    Conduct risk assessments as outlined in DOD’s National Defense  evaluate the declining U.S. charter passenger capability by  establishing the maximum and minimum acceptable risk  for the CRAF program expressed in terms of numbers of  charter passenger aircraft necessary to meet DOD  requirements; and  evaluate the lack of an outsized cargo capability to  supplement military capability and the extent to which the  reliance on foreign owned carriers is appropriate;    Develop appropriate policies and procedures for mitigating any  identified risks.
Second, to strengthen the effectiveness of the critical partnership between  DOD and the U.S. commercial air carrier industry and the management of  the CRAF program to achieve its objectives, we recommend that the  Secretary of Defense direct the Under Secretary of Defense for  Acquisition, Technology and Logistics (Transportation Policy) to develop  policy that  establishes enforcement guidelines for the basic CRAF business rules,  to include intent, objectives, and measures of effectiveness  mechanisms;  establishes incentives, objectives and measures of effectiveness  required to ensure modernization of the CRAF fleets;  establishes and describes oversight mechanisms by which DOD will  monitor how peacetime airlift business is distributed to ensure that its  CRAF incentive program is working as intended; and  establishes and describes the mechanisms by which DOD includes  CRAF participants to provide comments on pending program decisions  and in information sharing, and that includes objectives and measures  of effectiveness of these activities.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD did not agree with our  first recommendation to conduct risk assessments regarding the declining  charter passenger capability and the lack of an outsized cargo capability as  part of the Civil Reserve Air Fleet, but partially agreed with that part of the  recommendation to develop policies and procedures to mitigate any  identified risks. DOD agreed with our second recommendation to develop  policy for aspects of the CRAF program. DOD’s comments are reprinted in  appendix II.
While DOD disagreed with our recommendation to conduct risk  assessments, DOD agreed with the value of conducting a risk assessment  on the declining U.S. charter passenger charter capability, stating that this  has already been evaluated by the CRAF viability study conducted by IDA  DOD also stated that, based on the recommendations of the IDA study,  DOD is already examining the declining passenger charter fleet and  potential mitigation strategies. However, as we stated in our report, IDA’s  report included data that stopped at 2007 and did not include data  regarding the 2008 business termination of a carrier that provided nearly  50 percent of the charter passenger capability available to DOD. Also,  while the IDA report stated that the charter passenger industry may  become marginal, data analysis that supported this statement did not  establish the maximum and minimum acceptable risk for the CRAF  program. Therefore, we continue to believe that our recommendation to  establish acceptable risk levels is still viable and important.
DOD also disagreed with the second part of our recommendation  concerning the need to conduct a risk assessment on the lack of a CRAF  outsized cargo capability, stating that the CRAF program is not intended to  provide outsized cargo capability. In their comments, DOD stated that its  use of foreign carriers to transport outsized cargo is a strategy to reduce  costs, save military flying hours and flight crews for higher priority  missions, reduce military footprint, or provide flexible contract  length/timing. DOD also stated that it is not an indication of a shortfall in  the DOD outsize cargo capability or the CRAF program. However, as we  reported, DOD used foreign-owned carriers flying AN-124 aircraft to move  high priority outsized cargo (MRAPs) into Iraq instead of the organic fleet  of C-5s and C-17s. We did not state that there was a shortfall in either the  CRAF program or DOD outsized capability. Rather, we point out that, if  DOD is to know whether there is a shortfall, gap, or redundancy in that  capability, particularly given the addition of over 15,000 MRAPs, they  would need to do a risk assessment. We continue to believe that a risk  assessment of this issue would give DOD specific information that would  help it shape future strategic transportation requirements.
DOD partially agreed with the third part of our recommendation  pertaining to the need to develop appropriate policies and procedures for  mitigating any identified risks regarding the decline of charter passenger  capability and lack of outsized cargo capability. DOD stated that U.S.  Transportation Command is examining potential mitigation strategies for  the declining U.S. passenger charter segment. However, during our review,  we found no evidence that U.S. Transportation Command was developing  policies and procedures to mitigate any risks associated with declining  charter passenger capability and outsized cargo capability. DOD disagreed  with the need to develop any mitigation strategies for an outsized cargo  capability since CRAF is not intended to carry outsized cargo. As stated  above, DOD’s use of foreign-owned carriers to move outsized MRAPs  would lead us to believe that there might be a future need for policies and  procedures to mitigate any shortfall or gap.
DOD agreed that there is a need for comprehensive policy governing all of  the CRAF program elements identified in our draft report. However, DOD  did not identify what, if any, specific actions it would take in response to  our recommendation. We encourage DOD to establish enforcement  guidelines for CRAF business rules; objectives and measures of  effectiveness for modernization; oversight mechanisms describing how  peacetime business should be distributed; and mechanisms for  information sharing.
We are sending copies of this report to interested congressional  committees; the Secretary of Defense; and the Under Secretary of Defense  (Acquisition, Technology and Logistics). In addition, this report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8365 or solisw@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors to this report are listed in appendix III.
section_title: Appendix I: Recent Department of Defense Studies
paragraphs: Sustaining the Civil Reserve Air Fleet (CRAF) Program, Institute for  Defense Analyses, May 1, 2003.
Economic Review of the Civil Reserve Air Fleet (CRAF) Program,  Institute for Defense Analyses, December 15, 2007.
Civil Reserve Air Fleet (CRAF) Study Report, Council for Logistics  Research, July 13, 2008.
Civil Reserve Air Fleet: Economics and Strategy, Institute for Defense  Analyses, August 22, 2008.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Ann Borseth, Assistant Director;  Renee Brown; Jeremy Hawk; Jeffrey R. Hubbard, analyst-in-charge; Mae  Jones; Karen Thornton; and Steve Woods made key contributions to this  report.
section_title: Related GAO Products
paragraphs: MRAP Rapid Acquisition: Rapid Acquisition of Mine Resistant Ambush  Protected Vehicles. GAO-08-884R. Washington, D.C.: July 15, 2008.
Airline Deregulation: Reregulating the Airline Industry Would Likely  Reverse Consumer Benefits and Not Save Airline Pension. GAO-06-630.  Washington, D.C.: June 9, 2006.
Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms  of Underlying Structural Issues. GAO-05-945. Washington, D.C.:  September 30, 2005.
Commercial Aviation: Legacy Airlines Must Further Reduce Costs to  Restore Profitability. GAO-04-836. Washington, D.C.: August 11, 2004.
Foreign Investment in U.S. Airlines:  Issues Relating to Foreign  Investment and Control of U.S. Airlines. GAO-04-34R. Washington, D.C.:  October 30, 2003.
Military Readiness: Civil Reserve Air Fleet Can Respond as Planned, but  Incentives May Need Revamping. GAO-03-278. Washington, D.C.:  December 30, 2002.