Coast Guard Aircraft: Transfer of Fixed-Wing C-27J Aircraft Is Complex and Further Fleet Purchases Should Coincide with Study Results
Released: 2015-04-27T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Air Force is transferring 14 C-27J aircraft to the Coast Guard. Once modified into surveillance aircraft, the C-27Js will be a part of the Coast Guard's fixed-wing aircraft fleet. In 2007, the Coast Guard established a baseline of aircraft quantities and costs known as the program of record. This baseline established the cost and quantity of aircraft necessary to achieve its goal of 52,400 flight hours per year. The Coast Guard's aircraft, including the HC-144 and HC-130J/H, are integral to its missions, such as counterdrug and search and rescue.

GAO was asked to review the transfer of the C-27J to the Coast Guard. This report assesses (1) the status of the transfer and risks the Coast Guard faces in fielding the transferred aircraft; and (2) the extent to which acquiring the C-27J affects the overall cost and performance of the Coast Guard's fixed-wing aviation fleet.

GAO analyzed program documents and maintenance records for the C-27J. GAO interviewed Coast Guard and Air Force officials and private contractors. GAO also analyzed the Coast Guard's C-27J business case.

section_title: What GAO Found
paragraphs: As of January 2015, the Coast Guard had transferred 2 of the 14 C-27J aircraft it is receiving from the Air Force to its aircraft maintenance facility, with plans to field 14 fully operational C-27Js by 2022. According to initial Coast Guard estimates, while the aircraft come at no cost, the Coast Guard needs about $600 million to fully operationalize them. This process is complex and significant work and risk remain. For example, the Coast Guard must establish its needs and purchase a set of spare parts for each aircraft, but faces hurdles due to potential pricing issues and delivery delays from the manufacturer. Also, the Coast Guard does not have access to the manufacturer's technical data that are required for modifications to the aircraft's structure to, for example, incorporate radar. These and other risks may inhibit the Coast Guard's ability to operate the aircraft as planned. However, the Coast Guard is working to mitigate these risks.

The C-27J will improve the affordability of the Coast Guard's fixed-wing fleet, but the fleet as currently planned may not be optimal in terms of cost and flight hour capability. The Coast Guard submitted a business case to Congress in 2013 that determined the C-27J would save $837 million over 30 years, compared to the program of record, without reducing fleet performance. GAO estimates that the fleet the Coast Guard is currently pursuing achieves nearly all of these savings. However, the source of these savings has shifted. A significant portion of the savings now results from an 18 percent drop in flight hours due to a change in the mix of aircraft the Coast Guard intends to pursue. GAO used updated information in conducting its analysis, such as the expected service life of each aircraft type. Consistent with congressional direction, the Coast Guard is conducting a multi-phased analysis of its mission needs—including its flight hour goals and fleet of fixed-wing assets—but will not present the full results prior to its 2019 budget request. In the meantime, the Coast Guard has prudently paused its existing HC-144 acquisition program. However, since 2000, the Coast Guard has received 12 HC-130Js without budgeting for them and it may continue to receive these aircraft while it studies its fixed-wing fleet needs. If the Coast Guard continues to receive these aircraft in the near term, the capability and cost of the Coast Guard's fixed-wing fleet runs the risk of being dictated by the assets the Coast Guard already owns rather than what it determines it needs.

section_title: What GAO Recommends
paragraphs: The Department of Homeland Security (DHS) and the Coast Guard should advise Congress of the time frames for the Coast Guard's fleet analysis and to modify the provision of additional HC-130Js, as appropriate, in the interim. DHS agreed with the first recommendation, but did not agree with the second recommendation. If the Coast Guard accepts additional HC-130Js before completing the fleet mix study, the aircraft may be in excess of the Coast Guard's need.

section_title: Letter
paragraphs: Medium and long-range fixed-wing surveillance aircraft are integral to  achieving the Coast Guard’s missions and maritime surveillance needs.  For example, these assets are essential to the Coast Guard’s  counterdrug, search and rescue, and alien migrant interdiction operations.  This fixed-wing fleet is undergoing a transformation as the Coast Guard is  in the process of receiving 14 C-27J aircraft from the Air Force—valued at  approximately $500 million—as a result of a congressionally mandated  transfer. U.S. Army Special Operations Command (USASOC) also  received 7 C-27Js as a part of a separate transfer. The C-27J will be  added to the Coast Guard’s fixed-wing aircraft fleet, which currently  includes HC-144, HC-130J, and HC-130H aircraft. The Coast Guard is  working with the Navy to develop improved surveillance capabilities for its  fixed-wing fleet, including the C-27J. We have reported extensively on the  Coast Guard’s challenges in managing its broad multi-billion dollar major  acquisition portfolio, intended to acquire capabilities to conduct missions  ranging from marine safety to search and rescue. In 2014, we reported  that the Coast Guard’s portfolio continues to be unaffordable and  recommended that the Coast Guard create a 20-year fleet modernization  plan that makes trade-offs between acquisition programs to account for  projected budgets. The Department of Homeland Security (DHS) agreed  with the recommendation, but has not fully implemented it.

GAO was asked to review the transfer of the C-27J aircraft from the Air  Force to the Coast Guard. This report assesses (1) the status of the  transfer—including establishing a maintenance program, basing the  aircraft, cost and schedule estimates, and plans for increasing capability  and testing—as well as any risks the Coast Guard faces to field the  transferred aircraft; and (2) the extent to which acquiring the C-27Js  affects the overall cost and performance of the Coast Guard’s fixed-wing  aviation fleet.

To assess the transfer, we reviewed program documents from the Air  Force, Army, Navy, DHS, and Coast Guard. Through this assessment, we  worked with the Coast Guard to gain an understanding of the key steps in  the transfer process. We visited (1) Air Force’s 309th Aerospace  Maintenance and Regeneration Group (AMARG), more commonly known  as the Air Force “boneyard,” where 13 of the 14 C-27Js have been  stored; (2) L-3 Communications Corporation’s Platform Integration  Division (L-3 Communications)—which integrated military capabilities on  the aircraft and currently owns the 14th aircraft destined for the Coast  Guard; (3) Coast Guard’s Aviation Logistics Center; and (4) USASOC’s  Pope Airfield. We also visited the North American headquarters of Alenia  Aermacchi, which manufactures the C-27J and has knowledge and  experience associated with maintaining the aircraft. To determine whether  or not there are knowledge gaps or other risks facing the Coast Guard in  fielding this asset, we reviewed program and planning documents as well  as Air Force and USASOC maintenance and operations records. To  assess the total financial benefit to the Coast Guard of receiving the C- 27J, we analyzed the Coast Guard’s May 2012 business case analysis  and the subsequent analysis it provided to Congress in August 2013. We  then compared the 2012 business case analysis with the Coast Guard’s  current plans for its fixed-wing aviation fleet. Further, we interviewed  officials from the Coast Guard, Army, Air Force, the Defense Contract  Management Agency, private contractors, and other stakeholders to  determine the status of the transfer and any risks the Coast Guard faces  in fielding the C-27J.

We conducted this performance audit from July 2014 to March 2015 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 the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The history of the C-27J is complex and involves several government  agencies and private contractors. To meet the Army’s combat zone airlift  supply mission, in 2007 a joint Army and Air Force program office  awarded a contract for C-27Js to a company called Global Military Aircraft  Systems—a partnership between L-3 Communications and the  manufacturer, an Italian company called Alenia Aermacchi (a  Finmeccanica company). L-3 Communications, the lead partner, installed  U.S. military-specific equipment on the aircraft manufactured by Alenia  Aermacchi.  In addition, a separate division of L-3 Communications  provided full logistics support to the Army and Air Force under the Global  Military Aircraft Systems contract. The Air Force and Army began  purchasing these aircraft without fully developing a logistics plan that  established how to fully support the aircraft. Five years later, in 2012, the  Air Force canceled the program, citing budget constraints and its  determination that Air Force C-130s could provide nearly all of the Army’s  desired capability. The Air Force had not finished its logistics plan at the  time.

When the program was canceled in 2012, the Department of Defense  (DOD) had purchased 21 C-27Js—13 by the Army and 8 by the Air  Force. By mid-2013, the 13 aircraft that the Air Force fielded were sent to  AMARG (colloquially referred to as the “boneyard”) for preservation and 8  aircraft were still in production. The Air Force announced that these 21  aircraft would be made available to U.S. government agencies. In May  2012, the Coast Guard conducted a business case, which estimated that  receiving the 21 C-27J aircraft would save it $826 million, in fiscal year  2012 dollars, without changing planned performance targets. In August  2013, after USASOC also expressed interest in the aircraft, the Coast  Guard wrote a letter to Congress using its prior analysis to estimate that  receiving 14 C-27Js, instead of all 21 aircraft, would still save $799 million  ($837 million in fiscal year 2015 dollars) over 30 years. Figure 1 illustrates  the major events in the history of the C-27J.

In fall 2013, DOD transferred 7 C-27J aircraft to USASOC; 3 that had  since completed production and 4 aircraft still in production. Then, in  December 2013, as a part of the fiscal year 2014 National Defense  Authorization Act, Congress directed DOD to transfer the remaining 14 C- 27J aircraft to the Secretary of Homeland Security. These aircraft—13  from AMARG storage and 1 aircraft still owned by L-3 Communications— have been or will be transferred to the Coast Guard. Congress also  required Homeland Security to transfer 7 HC-130Hs to the Air Force after  certain modifications; the Air Force was required to transfer these aircraft  to the Secretary of Agriculture for use by the U.S. Forest Service.  These  HC-130H aircraft are to be supplied by the Coast Guard. Figure 2  illustrates the transfer of aircraft among these agencies.

The Coast Guard’s fixed-wing aviation fleet comprises several assets with  different capabilities. Table 1 illustrates the capability differences between  the Coast Guard’s long-range (HC-130H and HC-130J) and medium- range (HC-144 and C-27J) airframes in terms of payload, range,  endurance, and speed. For each asset, table 1 also includes the number  of annual planned flight hours, the designed service life, and cost per  flight hour.

The HC-144 and C-27J have a lower cost per flight hour than the HC-130.  Each aircraft is planned to have the same surveillance and  communication capabilities, and, according to program officials, the  extent to which the endurance, speed, range, and other attributes  increase performance largely depends upon the mission the aircraft is  performing. For example, all of these aircraft can conduct maritime  security and search and rescue missions in accordance with Coast Guard  needs; however, the HC-130J, with greater payload and endurance, is  better suited for responding to humanitarian disasters or mass casualty  incidents either domestically or overseas. The C-27J is larger than the  HC-144, but generally fits between the HC-144 and the HC-130J in terms  of the capability of the airframe.
subsections: section_title: Coast Guard Acquisition Strategy for Fixed-Wing Assets
paragraphs: In 2005, the Coast Guard developed a mission needs statement that  factored in new requirements for its fixed-wing assets following the  September 11, 2001, terrorist attacks. In particular, this document  emphasized the importance of persistent surveillance in accomplishing  Coast Guard missions—generated by flying more hours with surveillance- capable aircraft. Based on this analysis, the Coast Guard determined that  it needed 52,400 fixed wing flight hours per year to meet its missions  while moving toward a presence-based approach to enforcement, rather  than its conventional response-based approach. For example, according  to the mission needs statement, this presence-based approach will lead  to operations that detect and interdict threats as far from the United  States as possible. In 2007, based on the 2005 mission needs statement,  the Coast Guard published a baseline for all of its major acquisition  programs, which became a single program of record. The fixed-wing  portion of this program of record included 22 HC-130Js and 36 HC-144s,  which were planned to meet the annual goal of 52,400 flight hours. The  receipt of 14 C-27Js represents a significant change, in terms of fleet  composition, to the Coast Guard’s 2007 program of record.

section_title: Significant Work Remains to Field 14 Fully Capable C-27Js
paragraphs: As of January 2015, the Coast Guard has transferred 2 of 14 C-27Js to its  aircraft maintenance facility, after returning them to flyable status, and is  in the process of developing a detailed plan for fielding all 14 aircraft by  2022. The Coast Guard, based on DHS direction, has restructured its  HC-144 acquisition program to also encompass the transfer of the C- 27Js. This combined acquisition, termed the Medium Range Surveillance  Aircraft program, is considered a new, major program within DHS. The C- 27J transfer process is not simple, as significant work remains to achieve  three major milestones before the aircraft are fully operational: (1) induct  the aircraft (prepare for use), (2) establish operational units (bases), and  (3) add surveillance and advanced communication capabilities. In  addition, complicating these efforts are areas of risk that need to be  addressed before the Coast Guard can field fully operational C-27Js.  These three risk areas are: (1) purchasing spare parts, (2) accessing  technical data, and (3) understanding the condition of the aircraft. Figure  4 illustrates the milestones and risk areas the Coast Guard must address  before it can field a fully capable aircraft.

The Coast Guard’s 2012 business case estimated that it would cost about  $600 million in acquisition costs to transform the 14 C-27Js into fully  functioning Coast Guard assets, which includes purchasing sets of initial  spare parts (estimated at $150 million), flight trainers/maintenance  equipment/engineering costs (estimated at $150 million), and installing  surveillance capabilities (estimated at $300 million). However, these costs  are notional since the Coast Guard is in the process of developing a cost,  schedule, and performance baseline for the aircraft as part of its Medium  Range Surveillance Aircraft program. These costs are based on the  Coast Guard’s experience with other fixed-wing aircraft and do not  account for risks specific to the C-27J. The Coast Guard has awarded or  plans to award several contracts to assist with these steps, in some cases  partnering with USASOC. Coast Guard project officials recognize each of  these risk areas and are confident they can work through them given the  Coast Guard’s experience with foreign manufactured aircraft, such as the  HC-144.
subsections: section_title: DHS and Coast Guard Are Establishing a Medium Range Surveillance Aircraft Program to Oversee the C-27J Transfer and Modification Process
paragraphs: DHS oversees Coast Guard major acquisitions and in October 2014  issued an acquisition decision memorandum that outlined how the C-27J  would be incorporated into the DHS acquisition review process. In this  regard, DHS directed the Coast Guard to restructure its HC-144 program  to accommodate the addition of the 14 C-27J aircraft. These aircraft,  together, are now termed the Medium Range Surveillance Aircraft  program, which is a major DHS acquisition program.  DHS directed the  Coast Guard to pursue the Medium Range Surveillance Aircraft program  in two phases.

The first phase is the acquisition of the HC-144, which is currently  paused following the purchase of 18 out of 36 planned aircraft. The  Coast Guard previously estimated that it would complete the purchase  of 36 missionized HC-144s by 2025. DHS has instructed the Coast  Guard to develop a plan to close out this phase.

The second phase focuses on the acquisition of the C-27J aircraft and  has two segments.

Segment one is the induction and employment of the unmodified  C-27J aircraft that can perform missions, but without surveillance  capabilities.

Segment two is modification of the 14 aircraft, which principally  involves the addition of the surveillance and advanced  communication capabilities and operationally testing the asset.  The Coast Guard was directed to develop all acquisition  documents for the second segment of the C-27J acquisition,  including a life-cycle cost estimate and acquisition program  baseline. DHS further directed the Coast Guard to operationally  test a prototype of the C-27J with the new surveillance capabilities  before it modifies all 14 aircraft.   estimate, and logistics plan for the first segment of the C-27J phase of  this program.  2.  Include the funding requirements for the C-27J in the Coast Guard’s  forthcoming 5-year funding plan (fiscal years 2016 to fiscal years  2020).   3.  Submit a detailed schedule that includes C-27J engineering and  testing activities.   4.  Present operational test strategies to DHS’s Director of Operational  Test and Evaluation for the HC-144 and the C-27J.   5.  Provide a revised execution plan including a summary of funds  obligated and a spend plan for the fiscal year 2014 and 2015 C-27J  funding.  6.  Provide a business case analysis comparing Coast Guard operational  and depot maintenance to contracted maintenance for the C-27J.  7.  Provide a report on the process of adding a mission system to the C- 27J.

DHS also provided the Coast Guard with the authority to continue to  incorporate the C-27J aircraft into its fleet while it develops these areas of  knowledge and provides these action items to DHS.

section_title: The Coast Guard Has Transferred Two C-27Js and Is Taking Steps to Achieve Major Milestones
paragraphs: Three major milestones need to be accomplished before the Coast Guard  can field fully capable C-27Js:   1.  Induct the aircraft—The Coast Guard plans to continue removing the  aircraft from storage, establish a maintenance regimen, recondition  the aircraft, and develop manuals and user guides, among other  tasks. Currently, the Coast Guard is assessing the first two planes  and establishing the key steps necessary to finish inducting these  aircraft.  2.  Establish operational units—The Coast Guard plans to establish  the first C-27J operational unit (base) in California in fiscal year 2016  and a second unit at an as-yet undetermined location in fiscal year  2018. Training aircrew, among other key tasks, are completed as a  part of this milestone.    3.  Add surveillance and advanced communication capabilities—The  Coast Guard plans to convert the C-27J from a cargo aircraft to a  multi-mission aircraft with both cargo and surveillance capabilities to  fully meet Coast Guard mission requirements.
subsections: section_title: Induct the Aircraft
paragraphs: The Coast Guard is in the process of developing a baseline induction  process for the C-27J; however, Coast Guard program officials stated that  until they understand the condition of each aircraft, they cannot estimate  how long it will take to induct each plane. The first part of induction entails  removing the aircraft from the AMARG storage facility, which involves  taking off a protective compound, conducting system checks and basic  maintenance, and successfully completing a flight test—among other  steps. Figure 5 shows one of the Coast Guard’s C-27Js in preserved  status at AMARG.

Once the first part of the induction process is complete, the aircraft is  flown to the Coast Guard’s aviation maintenance center, called the  Aviation Logistics Center, where the Coast Guard has established a  project office responsible for completing the induction process and  fielding the C-27Js. Currently, this project office is assessing the first two  planes and establishing the key steps necessary to fully induct the  aircraft, such as incorporating the aircraft into the Coast Guard  maintenance system, building up the Coast Guard’s knowledge of the  aircraft by conducting training and test flights, repairing physical damage  (if any), replacing missing parts, and creating Coast Guard operational  and maintenance documents and procedures. When completing these  steps, complications can arise. For example, program officials stated that  the C-27J uses a liquid oxygen based aircrew breathing system similar to  the HC-130J. All other Coast Guard fixed wing aircraft use oxygen in gas  form; thus, the Coast Guard has to write new policies and train users on  how to work with this material on the C-27J.

The Coast Guard expects it will take about 9 months to induct the first two  aircraft and, therefore, plans to have them ready for operations by fiscal  year 2016. According to Coast Guard officials, the amount of time  required to induct subsequent C-27J aircraft should decrease after the  Coast Guard develops logistics, maintenance, and training systems with  the first two aircraft. In addition, in February 2015, the Coast Guard  signed a sole-source contract with Alenia Aermacchi for on-the-ground  troubleshooting support, which should also help to speed up the induction  process. Further, because a significant part of the induction process  involves integrating the C-27J into the Coast Guard’s maintenance  system, the time needed to induct future planes should also decrease as  maintenance and training procedures, among others, are developed and  documented. Thus far, to augment and develop its in-house maintenance  capabilities, the Coast Guard spent $3.2 million for 1 year of contractor  logistics support under a pre-existing USASOC contract with Lockheed  Martin set to expire in August 2015. The Coast Guard has decided to  exercise an option for this contract for an additional year while it builds  the capacity necessary to maintain the plane using Coast Guard  personnel and procedures.

section_title: Establish Operational Units
paragraphs: The Coast Guard plans to establish the first C-27J operational unit in  fiscal year 2016 in California with four fully inducted C-27Js; a second  undetermined location (likely on the east coast) is tentatively scheduled to  begin initial operations in fiscal year 2018. Coast Guard officials added  that plans for additional bases, if necessary, are not yet finalized.  According to Coast Guard aviation program managers, the C-27J fleet will  be based where it is most needed to help the Coast Guard fulfill its drug  and migrant interdiction, disaster response, and search and rescue  missions, among the Coast Guard’s other missions.

To establish the first base, pilots, aircrew, and aircraft maintenance  personnel all need training to effectively and safely operate and maintain  the C-27J. The Coast Guard plans to train an initial cadre of  approximately 20 pilots and 80 aircrew and maintenance personnel to  stand-up the base in California.  In addition, the Coast Guard plans to  build a $12 million maintenance training facility for the HC-144 and the C- 27J. In May 2014, the Coast Guard signed a $434,000 sole-source  contract with Alenia Aermacchi to train two Coast Guard pilots and two  aircrew members in Pisa, Italy. These personnel completed training in  September 2014. In addition, the Coast Guard is in the process of  contracting for the use of a C-27J flight simulator.

section_title: Add Surveillance and Advanced Communication Capabilities
paragraphs: To meet its requirements, the Coast Guard has to convert the C-27J from  a cargo aircraft to a multi-mission aircraft with both cargo and surveillance  capabilities—a $300 million effort, according to initial Coast Guard  estimates. These capabilities are enabled by a mission system that  primarily consists of a surface-search radar, electro-optical infrared  camera, and advanced communication capabilities to process and  distribute data gathered by these sensors. The process of adding a  mission system is called missionization. The Coast Guard plans to use a  mission system known as Minotaur—already in use by the Navy for  aviation surveillance activities—for all of its medium and long range  surveillance aircraft, including the C-27J. United States Customs and  Border Protection also uses this system for its surveillance aircraft,  potentially increasing the communication and data sharing across DHS.

The Coast Guard is in the early stages of replacing obsolete and poorly  performing mission systems on its existing fixed-wing fleet of HC-130Js  and HC-144s with the Minotaur system. In November 2014, the Coast  Guard completed a preliminary design review for the HC-130J system  and plans to begin installation of a prototype mission system this summer.  Prototyping and testing a system for the HC-144 is dependent on the  schedule for the HC-130J, but is currently planned to be completed in  fiscal year 2016. The C-27J will be the last to have the mission system  incorporated. To begin this effort, the Coast Guard entered into a $1  million agreement with the Navy’s Naval Air Warfare Center in November  2014 to evaluate mission system options on the C-27J. The Coast Guard  tentatively estimates that it will have a C-27J mission system prototype by  fiscal year 2017 and, following testing, plans to install and integrate this  equipment on additional aircraft beginning in fiscal year 2018. Notionally,  all 14 C-27Js are to have mission systems incorporated by fiscal year  2022.

section_title: The Coast Guard Must Address Risks Related to Spare Parts, Technical Data, and Understanding the Condition of the Aircraft
paragraphs: The successful and cost effective fielding of the C-27J is contingent on  the Coast Guard’s ability to address three risk areas, related to the  following:

Purchasing spare parts—The Coast Guard had to develop its own  list of spare parts for the aircraft, as existing lists are not available.  Further, the Air Force and USASOC have had difficulties obtaining  some spare parts.

Accessing technical data—The Coast Guard does not have full  access to the technical data for the C-27J, which are required to  maintain the aircraft over the long term and make modifications to the  aircraft’s structure—for example, to install sensors.

Understanding the condition of the aircraft—The condition of each  of the Coast Guard’s C-27Js is not fully known; for example, the  Coast Guard found an undocumented dent on one aircraft taken out  of AMARG and its 14th plane—still owned by L-3 Communications— was not properly preserved.

We have identified these three areas as risks because they represent  knowledge gaps for the Coast Guard and will likely require the largest  amount of resources during the process of fielding 14 fully capable  aircraft. For example, accessing technical data is key to installing  surveillance capabilities—an effort planned to cost $300 million. In  addition, these are areas in which the Air Force and USASOC have  experienced difficulties while operating the C-27J. In combination, these  risk areas could inhibit the number of hours per year that the C-27J will be  fully capable of accomplishing its missions and add additional costs to  these efforts.

To mitigate some of these risks, the Coast Guard is formulating a  partnership with USASOC to collaboratively maintain the C-27Js owned  by both services. For example, USASOC purchased technical manuals,  which it is sharing with the Coast Guard, while the Coast Guard is  contracting for a field service representative to work with both fleets. In  addition, the Coast Guard began participating in a user group with the  other countries that operate the C-27J, including Italy and Greece, though  this user-base is limited since only 76 C-27s have been sold by Alenia  Aermacchi (including the 21 C-27Js that belong to the United States  government). In general, Coast Guard officials have characterized these  risks as “good problems to have” because they are receiving 14 aircraft  without reimbursement and they see the C-27J as a valuable addition to  the Coast Guard’s fixed-wing fleet.
subsections: section_title: Purchasing Spare Parts
paragraphs: Spare parts are essential to keeping aircraft operational, but USASOC  and the Air Force have experienced a number of setbacks related to  acquiring necessary parts, particularly from Alenia Aermacchi.  While the  Air Force was operating the C-27J, it encountered issues keeping its fleet  in operable condition due to difficulties with obtaining spare parts. For  example, at the time the Air Force canceled the C-27J program, 11 of 14  planes were missing parts. Further, to support the deployment of two C- 27Js to Afghanistan in July 2011, the Air Force built a large pool of spare  parts by purchasing $65 million worth of spares from L-3  Communications. Due to delivery delays from Alenia Aermacchi, parts  were taken from a C-27J that was still in production at L-3  Communications. Using these parts, the C-27Js were in operable  condition 83 percent of the time from July 2011 to June 2012. However,  creating such a large and expensive pool of spares, relative to the  number of aircraft, is not a sustainable approach that the Coast Guard  can apply to maintaining its planes. Further, the Air Force did not obtain  access to key data such as spare parts demand information and ordering  history and, therefore, could not provide these data to the Coast Guard.

Since it began operating C-27Js in fall 2013, USASOC has made some  progress purchasing spare parts, though purchasing directly from Alenia  Aermacchi continues to present significant challenges, due to parts  pricing and delivery delays. Air Force and L-3 Communications officials  estimate that Alenia Aermacchi controlled up to 90 percent of the spare  parts for the C-27J. Through the efforts of its own logistics support  contractor, however, as of November 2014, USASOC has had to order  only 24 percent of the parts it needs directly from Alenia Aermacchi, with  the remainder coming directly from the original parts manufacturers or  U.S. government-approved suppliers. However, the 24 percent of parts  that USASOC ordered from Alenia Aermacchi comprised 40 percent of  USASOC’s total spending on spare parts; thus, Alenia Aermacchi  remains a significant stakeholder. Further, USASOC has had issues with  pricing and delayed deliveries. Alenia Aermacchi has increased the price  of parts on two USASOC purchases; for example, USASOC purchased a  refueling valve that previously cost $10,998, but it now must pay $15,121  for the part—a 37 percent increase. In addition, USASOC officials have  been frustrated by the length of time Alenia Aermacchi has taken to  provide parts. For example, as of November 2014, USASOC had  received 70 percent of the parts ordered from non-Alenia Aermacchi  suppliers but only 3 percent of the parts ordered from Alenia Aermacchi.  While Alenia Aermacchi officials recognize that there have been issues  with spare parts in the past, they told us that the company has recently  changed its logistics model and has the capability to fully support the  Coast Guard’s C-27Js. Further, according to USASOC contracting  officials, difficulties with Italian export controls have slowed the spare  parts and parts repair processes.  Alenia Aermacchi is in the process of  applying for Italian export control licenses for USASOC and the Coast  Guard. Once approved, these licenses will reduce delays attributable  solely to export issues—usually around 30 to 90 days—according to  Alenia Aermacchi officials.

The Coast Guard has already encountered some challenges with  purchasing spare parts. For example, when removing aircraft from  AMARG it is standard procedure to replace the aircraft’s filters. In doing  so, the Coast Guard was able to purchase only half of the filters through  U.S. government approved suppliers. The remaining filters had to be  purchased directly from Alenia Aermacchi because they were unavailable  from other sources. To mitigate export control delays, Coast Guard  officials said they used Alenia Aermacchi filters from USASOC’s  warehouse and paid for replacements to USASOC’s inventory.

Developing an initial set of spares for the C-27J, estimated to cost $8  million per aircraft, is another significant area of risk. The Coast Guard  received data from other countries’ air forces that fly the C-27J and, using  these data, have developed its own initial list of spares. The Coast Guard  must now find suppliers for these parts and then determine what portion  of these parts are economical to keep on-hand in the Coast Guard’s  supply chain. Further, according to Coast Guard project officials,  significant learning will occur as the Coast Guard inducts the C-27J and  generates its own data, as it starts flying the aircraft, on the failure rate of  the aircraft’s parts. These data will allow the Coast Guard to fine tune the  list of spare parts before the aircraft are fielded.

Lastly, the Coast Guard plans to fly its aircraft at a more aggressive  operating pace—up to 1,000 hours per year compared to about 500 hours  per year for the Air Force and USASOC—and in a maritime environment,  which is generally more demanding on assets due to increased corrosion  from the saltwater environment. Thus, its spare parts needs are likely to  be much higher than USASOC and the Air Force.

section_title: Accessing Technical Data
paragraphs: The Coast Guard does not yet have sufficient access to technical data to  fully support, maintain, and operate the C-27J. Alenia Aermacchi is the  sole owner of the full technical data associated with the C-27J aircraft.  Coast Guard project officials said they have approached the company  about acquiring a technical data licensing agreement. The Coast Guard  plans to meet immediate technical data requirements by utilizing  resources under the Alenia Aermacchi field service representative  contract. The Coast Guard continues to explore various options for  accessing this key information. These options can vary depending upon  the three basic types of technical data for aircraft:   1.  Flight and maintenance manuals–These manuals provide all of the  information required to safely and effectively fly and maintain the  aircraft—including detailed guidance on maintenance and flight  procedures—and function as the foundational documents necessary  for properly operating the aircraft. In 2014, the Air Force supplied the  Coast Guard with two sets of flight and maintenance manuals. The  first set, produced by L-3 Communications, translated the Alenia  Aermacchi manuals into Air Force-specific language and also covered  the modifications made to the plane by L-3 Communications. These  manuals were updated through March 2013 but never fully completed.  The second set, produced by Alenia Aermacchi, pertained only to the  aircraft in its originally manufactured condition prior to modifications.  This set continued to be updated by Alenia Aermacchi until the Air  Force transferred them to the Coast Guard in February 2014.  USASOC has since purchased flight and maintenance manuals from  Alenia Aermacchi, according to Coast Guard project officials, and  provided the Coast Guard access to them. The Coast Guard is in the  process of contracting for Coast Guard-specific instructions based on  these manuals for how to conduct basic aircraft maintenance.   2.  Depot level maintenance data–During periodic depot level  maintenance, the Coast Guard conducts major airframe inspections  and completes required repairs, which allows the service to  accomplish its missions with fewer resources over the long run. These  depot maintenance periods typically include removing large portions  of the aircraft to address core corrosion and rebuild key parts,  including engine work. At the time the Air Force canceled its C-27J  program, it was in the process of pursuing the data required for depot  maintenance from L-3 Communications, the lead contractor. However,  since Alenia Aermacchi owned the data, this process would have  been complex and, according to Air Force officials, was  unsuccessfully resolved. The extent to which the Coast Guard can  develop depot level maintenance procedures and conduct its own  engineering activities on the C-27J with only the basic flight and  maintenance manuals is unknown at present. The Coast Guard has  significant experience conducting depot maintenance on aviation  assets, which, according to project office officials, increases its ability  to overcome knowledge gaps associated with the lack of technical  data.   3.  Design and manufacturing data–These data contain information  such as the expected fatigue life—how long components last—of  pieces of the airframe and information required to manufacture key  parts. Access to design and manufacturing data is needed when  modifications are required to the aircraft, such as to add capability,  and manufacturing data are useful for competitively purchasing parts  or determining the cause of parts failures. Alenia Aermacchi has sole  ownership and access to these data. According to project officials, the  Coast Guard could purchase access to these data from Alenia  Aermacchi, either on an as-needed basis or in bulk. Alternatively,  Coast Guard officials added that they can learn about the aircraft  through testing, reverse engineering, and/or experimentation. Coast  Guard project officials stated that these options would require  significant resources, and that they will likely use a combination of  these approaches.

Without access to technical data for the C-27J, the Coast Guard faces  risks related to controlling costs and maintenance issues and installing  surveillance capabilities. Technical data can enable the government to  complete maintenance work in-house, as well as to competitively award  acquisition and sustainment contracts. In July 2010, we reported that for  service contracts pertaining to DOD weapons programs, the lack of  access to proprietary technical data and a heavy reliance on specific  contractors for expertise limits or precludes the possibility of  competition. Further, in May 2011, we reported that access to technical  data is needed to help control costs and maintain flexibility in the  acquisition and sustainment of DOD weapon systems. In addition, the  lack of technical data could ground the aircraft for longer periods than  necessary. For example, Air Force program officials told us about a  severe 2012 mishap with one of its C-27Js that grounded its fleet for  several months while Alenia Aermacchi investigated the incident. As  Alenia Aermacchi had sole access to the technical data, the Air Force  was reliant on it to conduct the investigation. After several months, Alenia  Aermacchi determined that the issue was the result of improper  manufacturing of an aircraft component at one of its suppliers’ facilities.  The Air Force then had to wait approximately 10 months while the parts  were re-made by the supplier and sent to the Air Force. Alenia Aermacchi  officials have expressed interest in serving as the sole maintenance  provider for the Coast Guard and USASOC’s aircraft as it does for many  of its international customers. Alenia Aermacchi officials note that they  are also accustomed to supporting agencies doing their own maintenance  by providing field service representatives, engineering support, and  technical publications.

The process of installing surveillance capabilities on the C-27J will be  shaped by the extent to which the Coast Guard can access design and  manufacturing data for the C-27J. The first step in this process is  purchasing the main sensor systems, a surface search radar and electro- optical infrared camera, and installing them on the aircraft. However, this  task is risky and could reduce capability if the Coast Guard does not gain  access to the C-27J’s technical data. For example, on the HC-130J, the  Coast Guard mounts the surface-search radar on the aircraft’s fuselage.  However, such modification to an aircraft requires technical data to  determine the impact on its structural integrity. Without access to the  necessary data, the Coast Guard would be reliant on Alenia Aermacchi to  perform the engineering required to mount the radar. However, the Coast  Guard is looking into alternatives that would require access to fewer data.  According to Coast Guard and USASOC officials, two possibilities for the  C-27J that would require a limited amount of technical data include (1)  mounting the electro-optical infrared camera on one of the aircraft’s doors  and (2) modifying the surface-search radar to fit on the nose of the  aircraft—replacing the existing weather radar, which may no longer be  necessary because the new radar would also perform weather-related  tasks. While possible, such an approach could require performance trade- offs—such as limiting the coverage of the radar and the camera.

section_title: Understanding the Condition of the Aircraft
paragraphs: An additional risk for the Coast Guard is addressing the physical condition  of the 14 aircraft.  USASOC has experienced a number of premature  failures and unexpected maintenance with its C-27Js that could also be  an issue for the Coast Guard. So far, during the 700 hours flown by the 6  operational USASOC aircraft between January 2014 and November  2014, they have had the following problems:

Fuel leaks were found in the wings of the aircraft, which are designed  to hold fuel similar to many commercial aircraft. The seams and joints  of three of USASOC’s seven aircraft were poorly sealed upon delivery  of the aircraft, requiring significant repairs.

The landing gear on one aircraft extended during landing without pilot  instruction due to a landing gear component deficiency, which is a  safety issue and grounded the aircraft.

Wheel assemblies on multiple aircraft were improperly constructed.

A cracked bracket required an aircraft to be grounded for 58 days.

A crack was discovered in a structural piece surrounding the left  wheel on four aircraft.

Problems were found with four different types of valves, including fuel  and de-icing valves on multiple aircraft.

Oxygen system leaks due to manufacturing errors on multiple aircraft.

Some of these issues are related to major manufacturing problems and  are consistent with findings of the Defense Contract Management  Agency, which oversaw the C-27J manufacturing process on behalf of the  Air Force. For example, in March 2013, the Defense Contract  Management Agency issued a request for L-3 Communications, as the  lead U.S. partner, to correct poor practices at Alenia Aermacchi that  would seriously compromise the reliability and safety of the C-27J if not  corrected. This corrective action request has been closed, but the extent  to which these problems extend through the Coast Guard’s 14 C-27Js,  built prior to these changes, is unknown.

While USASOC experienced the problems noted above on brand new  aircraft, the Coast Guard is receiving aircraft that the Air Force previously  used. When removing the first two planes from storage at AMARG, the  Coast Guard discovered numerous, though relatively minor, issues that  delayed delivery of the planes to the Coast Guard’s Aviation Logistics  Center by a few weeks. For example, the Coast Guard discovered a dent  on the underside of one C-27J that was not properly documented and  also found some corrosion, particularly with bolts on the wings of the  aircraft, which it replaced on both aircraft. Coast Guard officials stated  that the manufacturer may have installed the wrong bolts on the aircraft.  Coast Guard and Air Force officials determined that the first two aircraft  that they removed from AMARG are likely in the best condition. Two of  the most heavily used aircraft destined for the Coast Guard supported the  contingency operation in Afghanistan for 11 months. The Coast Guard will  continue to assess the condition of the other 11 planes as they are  removed from storage, which officials have identified as an area of  concern.

Apart from the 13 aircraft that have been stored at the AMARG, the 14th  plane destined for the Coast Guard is also missing parts and has been  stored outdoors since 2011 without being preserved by L-3  Communications (which still owns the aircraft). L-3 Communications  officials told us that they did not properly maintain the aircraft’s engines  and propellers because parts required to run the engines, necessary for  proper maintenance, were used for other C-27Js and not replaced in a  timely manner. However, L-3 Communications, at its expense, recently  sent the engines and propellers to be serviced by the original  manufacturer and these items are now properly stored. In October 2014,  we observed the aircraft at L-3 Communications’ facility in Waco, Texas.  The aircraft’s engines and propellers were not installed but were stored in  a nearby hangar consistent with original equipment manufacturer  direction, according to L-3 officials. However, the cockpit was missing  several components related to communications and operations functions,  and the body of the aircraft showed some corrosion—particularly under  each wing. L-3 Communications is now in the process of replacing 11 key  missing parts taken from the aircraft to support the Afghanistan  deployment and other C-27Js. At the time of our visit, L-3  Communications officials were optimistic that the aircraft would be  delivered to the Coast Guard in working condition by February 2015,  pending the delivery of the missing parts. However, as of March 2015,  Alenia Aermacchi had yet to deliver these parts to L-3 Communications.  L-3 Communications is now planning to deliver the aircraft to the U.S.  Government in June 2015, pending the delivery of parts expected by late  March 2015. Given that the airplane was not stored in accordance with  Air Force procedures and has been used for spare parts, there will likely  be some maintenance issues that L-3 Communications will have to  address before it can deliver the aircraft to the U.S. Government.

section_title: Current Fixed-Wing Fleet Plan Achieves Savings but Does Not Meet Flying Hour Needs, and Revised Analysis Is Years Away
paragraphs: The C-27J will improve the affordability of the Coast Guard’s fixed-wing  fleet, but the current fleet of aircraft that the Coast Guard is pursuing is  not optimal in terms of cost and flight hour capability. We estimate that  the Coast Guard’s current plan should save $795 million over the next 30  years, compared to the 2013 estimate of $837 million. However, the  source of these savings has shifted. A significant portion of the savings  now results from a drop in the number of flight hours the fleet will achieve  due to reducing the planned quantity of aircraft. For example, the 2013  plan achieves the Coast Guard’s stated goal of 52,400 flight hours per  year, while the current plan achieves 43,200 flight hours per year—an 18  percent reduction. This reflects a shift from a fleet of 58 planes primarily  composed of less-expensive HC-144s, to a fleet of 54 planes composed  of a higher number of larger and more expensive HC-130Js. Operating  more HC-130Js results in more expensive flight hours per year. The  Coast Guard is in the process of examining, in several stages, its mission  needs, including whether the current flight hour goal is still sound. But the  results will not be used to inform budgets prior to fiscal year 2019.  In the  meantime, DHS and the Coast Guard have paused the HC-144  acquisition program, but historically the Coast Guard has received C-130J  aircraft without budgeting for them. The Coast Guard already owns 20  aircraft that are not yet operational, including 14 C-27Js and 6 HC-130Js,  and are planned to be outfitted with surveillance capabilities in the coming  years. If the Coast Guard continues to receive additional aircraft before  the results of the study are known, options for optimizing its fleet mix may  be limited.
subsections: section_title: Current Fleet Plan Should Save Money but Does Not Meet Flight Hour Goal
paragraphs: To determine the potential impact of the C-27J on the cost and fight hour  capability of the Coast Guard’s fixed-wing fleet, we compared three  scenarios:   the 2007 program of record (without the C-27J), to which we applied  updated assumptions and the data in the Coast Guard’s business  case,  the Coast Guard’s C-27J business case as presented to Congress in  2013, and  the Coast Guard’s current plan, to which we applied updated  assumptions and the data in the Coast Guard’s business case.

Table 2 shows the total planned number of aircraft in each fleet we  compared, the total cost to fly the aircraft for the next 30 years, total flight  hours over the next 30 years, and the total estimated savings of each  fleet compared to the program of record.

We found that the Coast Guard’s current plan should save $795 million  over the next 30 years compared to the program of record fleet. While  the amount of savings is similar to the $837 million estimated by the  Coast Guard in 2013, the source of these savings has shifted, as shown  in figure 6. The Coast Guard’s savings in the initial plan were largely due  to acquisition cost savings. However, in the current plan, the savings are  now largely due to operating expenses based on the Coast Guard’s  planned reduction in flight hours.

In its August 2013 letter to Congress, the Coast Guard stated that  receiving 14 C-27Js would save money without reducing planned flight  hours below its goal of 52,400 hours per year, set forth in the Coast  Guard’s 2005 mission needs statement. To do this, the Coast Guard  planned to replace three HC-130Js with three C-27Js, gaining 600 flight  hours per year at a lower cost per flight hour, and to decommission its  HC-130Hs sooner than originally planned. However, the Coast Guard has  since changed its planned fleet composition, and is now on a path to  replace 14 HC-144s with 14 C-27Js and buy all 22 of the HC-130Js as  planned in the program of record. This change results in 9,200 fewer flight  hours per year (an 18 percent reduction) once the currently planned fleet  is fully operational. Also contributing to this reduction of flight hours is the  current plan to purchase 4 fewer medium range aircraft (HC-144s and C- 27Js) and reduce the HC-144 flight hours from 1,200 to 1,000 hours per  year—due primarily to the high cost of maintaining the aircraft while flying  at the higher pace.

Table 3 shows: (1) the aircraft that comprise each fleet plan, (2) the  planned annual flight hours once each fleet is built, and (3) the difference  in flight hours, if any, based on the planned flight hours per year. We  calculated this difference using the Coast Guard’s goal of 52,400 annual  flight hours as a baseline. The table also includes the actual quantity and  flight hour performance of the fleet, as of 2014, as a basis for comparison.

In all, the Coast Guard’s current plan is still an improvement over the  flight hours recorded in fiscal year 2014, when the Coast Guard flew 38  percent fewer hours compared to its stated needs. As reflected in the  table, however, the current plan also would result in a flight hour shortfall  compared to the program of record.

section_title: Coast Guard Also Faces Shortage in Surveillance Capability
paragraphs: In addition to the reduction in its planned flight hours, the Coast Guard  also has a shortage in its capability to meet its surveillance needs. To  fully meet its needs, the Coast Guard must fly 52,400 hours per year with  assets capable of conducting surveillance missions with advanced  communication capabilities, such as sharing data. The Coast Guard’s  2005 mission needs statement directed the Coast Guard’s fixed wing fleet  to be comprised of assets with improved surveillance capabilities, which  would allow the Coast Guard to become more proactive through  increased presence and surveillance rather than responding to events as  they occur.

The Coast Guard has not been able to build up its flight hours as quickly  as planned in 2007. The Coast Guard planned for the HC-144 and HC- 130J, the two fixed wing assets in the program of record fleet planned to  be outfitted with improved surveillance capabilities, to conduct  surveillance consistent with the surveillance goal. The C-27J, once  missionized, is also planned to have improved surveillance capabilities.  However, in 2014, the 16 HC-144s and the 5 HC-130Js that are currently  missionized and operational flew only 16,381 hours, about 31 percent of  the overall need. The remaining flight hours in 2014 were flown by HC- 130Hs and other legacy aircraft that do not have surveillance capabilities  consistent with the Coast Guard’s needs. The result, in fiscal year 2014,  was a 69 percent difference in these capabilities compared to the Coast  Guard’s 2005 mission needs statement.

Further, the surveillance shortage in today’s fixed wing fleet is likely larger  than 69 percent because the mission systems on the HC-144 and HC- 130J are not yet fully effective. For example, the Navy had to use non- Coast Guard software to assess the capabilities of the HC-130J’s radar  after determining that the software the Coast Guard uses does not work  well with the aircraft’s sensors. Moreover, we found in June 2014 that the  HC-144 did not meet key performance parameters related to surveillance  during operational testing. Replacement of the current mission system,  already underway, is planned to address the majority of deficiencies.  Once missionized, the HC-144, C-27J and HC-130J will reduce the  current surveillance shortage since these aircraft will comprise  increasingly larger proportions of the fleet over the next decade.

section_title: Current Fleet Plan Will Cost More per Flight Hour
paragraphs: While the fixed-wing fleet that the Coast Guard is currently pursuing  should save $795 million over 30 years, it will have a higher average cost  per hour of flight. The Coast Guard’s long-term approach, as reflected in  the current plan, is to replace HC-144s with C-27Js that cost  approximately $1,000 more per flight hour. This is a shift from the plan as  presented to Congress in 2013, which proposed replacing some of the  more expensive to operate HC-130Js with C-27Js. Both plans propose  replacing the HC-130H as soon as possible compared to the program of  record, which will improve the overall cost per hour of flight.

As table 4 illustrates, the current proposed mix of aircraft will cost $11,059  per hour of flight, which is greater than the program of record and the fleet  described to Congress in 2013. While the Coast Guard’s current plan  preserves much of the anticipated savings from receiving the 14 C-27Js  and increases the number of flight hours compared to the fleet the Coast  Guard is operating today, it results in fewer flight hours for the dollar.

section_title: New Fleet Mix Study Ongoing but Results Are Years Away
paragraphs: The Coast Guard is currently conducting a fleet-wide analysis, including  surface, aviation, and information technology, intended to be a  fundamental reassessment of the capabilities and mix of assets the Coast  Guard needs to fulfill its missions. The Coast Guard is undertaking this  effort consistent with direction from Congress. The Howard Goble Coast  Guard and Maritime Transportation Act of 2014 directed the Commandant  of the Coast Guard to submit an integrated major acquisition mission  needs statement that, among other things, identifies current and projected  capability gaps using mission hour targets. This mission needs statement  is to be completed concurrent with the President’s fiscal year 2019 budget  submission to Congress. Specifically, the Coast Guard plans first to  rewrite its mission needs statement and concept of operations by 2016.  Then, it will use a complex model to develop the full fleet mix study, which  will include a re-assessment of the fixed-wing flying hour goals. Based on  this, the Coast Guard plans to recommend a set of assets that best meets  these needs in terms of capability and cost. The Coast Guard plans to  complete the full study in time to inform the fiscal year 2019 budget,  though specific dates for these events have not been set forth.

The Coast Guard and DHS have undertaken several studies, starting in  2008, to reassess the mix of assets the Coast Guard needs. However, in  2011, we reported that it was unclear how DHS and the Coast Guard  would reconcile and use these multiple studies to make trade-off  decisions or changes to the program of record. To date, the Coast Guard  has made no changes to its program of record based on these analyses.

The upcoming mission needs statement and subsequent fleet mix  analysis will be important to inform decisions about the mix of fixed wing  assets the Coast Guard needs and can afford. For example, our  calculations and the Coast Guard’s 2012 business case demonstrate that  replacing HC-130Js with medium-range aircraft (such as the HC-144 and  C-27J) adds flight hours and reduces costs. Specifically, the savings the  Coast Guard presented to Congress in its 2013 letter were predicated on  replacing three HC-130Js with three C-27Js. According to the Coast  Guard, this action would add 600 flight hours per year and save $322  million over the next 30 years. Further, the Coast Guard’s analysis  showed that replacing nine HC-130Js would add 1,800 flight hours per  year and save nearly $1 billion. According to Coast Guard officials, the  fleet mix analysis will examine these cost savings while also accounting  for the level of performance provided by the HC-130J compared to the  other fixed-wing assets. Because the results of the fleet mix study will not  be available for several years, decisions that are made in the interim will  not be informed by the Coast Guard’s analysis. To illustrate, if this fleet  mix analysis were to establish needed flight hours at a lower number than  the current 52,400 goal, the Coast Guard could end up with excess  capacity. Further, if the analysis were to demonstrate that the optimal  fleet mix is comprised of more medium-range aircraft and fewer long- range aircraft, then the Coast Guard is currently on a path to end up with  a more expensive fleet than necessary and it would be too late to opt for  a fleet with a greater number of flight hours for the dollar.

Coast Guard budget and programming officials recognize the aviation  fleet may change based on the flight hour goals in the new mission needs  statement and the overall fleet mix analysis.  They therefore have not  included any additional fixed-wing asset purchases in the Coast Guard’s  five-year budget plan. For example, DHS and the Coast Guard have  formally paused the HC-144 acquisition program at 18 aircraft for the time  being. In addition, the Coast Guard already owns 20 aircraft, received  since fiscal year 2009, comprised of 14 C-27Js and 6 HC-130Js that are  not yet fully operational. These aircraft are planned to be outfitted with  surveillance capabilities in the coming years. In total, since 2000, the  Coast Guard has received 12 HC-130Js, currently valued at  approximately $100 million each, without including them in its budget  requests. The Coast Guard’s Major Systems Acquisition Manual  provides that the Coast Guard must manage its portfolio of assets to  ensure that public resources are wisely invested and that capital  programming is an integrated process of a component’s portfolio of  capital assets to achieve its strategic goals and objectives for the lowest  life cycle cost and least risk. Continuing to receive these aircraft in the  coming years, while the Coast Guard revisits its fixed-wing mission  needs, will diminish the Coast Guard’s flexibility to optimize its fleet.  Further, the Coast Guard may end up with aircraft it ultimately does not  need.

section_title: Conclusions
paragraphs: The Coast Guard is in the process of revisiting its fixed-wing fleet needs  while also addressing several unknowns regarding its newest asset, the  C-27J. While the transfer of the C-27Js to the Coast Guard may save  acquisition funds, the Coast Guard is still a long way from being able to  operate these aircraft efficiently and effectively. Overcoming the issues  we have highlighted is feasible. But it will take time and resources to  ensure that the C-27J will be able to function as a Coast Guard medium- range surveillance asset, particularly in terms of adding surveillance  capabilities and achieving 1,000 flight hours per year.

If the Coast Guard uses the C-27J to replace some HC-144s, as is the  current plan, the Coast Guard will fall short of its flight hour goals over the  next 30 years, but if the C-27J replaces some HC-130Js, the Coast  Guard can achieve more flight hours at a lower cost. The Coast Guard  has an opportunity to address these issues now, within the context of its  ongoing effort to assess its overall fleet of fixed wing assets. For example,  the fleet mix analysis will aid the Coast Guard in determining the right mix  of assets between the HC-130J—which the Coast Guard views as a  highly capable aircraft—or the greater number of lower cost flight hours  provided by the HC-144 or similar aircraft. However, the study results are  years away. In the meantime, although the Coast Guard has exercised  prudence in pausing the HC-144 program, it may continue to receive HC- 130Js before it knows that it needs these aircraft and before it has  determined the capabilities of its C-27J fleet. As a result, if the Coast  Guard continues to receive HC-130Js while it revisits its needs, the  capability and cost of the Coast Guard’s fixed-wing fleet runs the risk of  being dictated by the assets the Coast Guard already owns rather than  what it needs. Until the fleet mix study is concluded, the Coast Guard  does not know the quantities of each aircraft that optimally balance the  capability and presence of its fixed-wing fleet. Because the Coast Guard  already has HC-130J aircraft in the pipeline awaiting the addition of  surveillance capabilities and sensors, any impact of halting the provision  of these aircraft in the interim, prior to completion of the fleet mix study,  would be mitigated.

section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Homeland Security and the  Commandant of the Coast Guard inform Congress of the time frames and  key milestones for completing the fleet mix study, including the specific  date when the Coast Guard will publish its revised annual flight hour  needs and when it plans to inform Congress of the corresponding  changes to the composition of its fixed-wing fleet to meet these needs.

We also recommend that the Commandant of the Coast Guard advise  Congress to modify the provision of any additional HC-130Js, as  appropriate, pending the findings of the fleet mix study.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS for review and formal comment.  In its comments, DHS concurred with our first recommendation but did  not concur with our second recommendation. DHS’s written comments  are reprinted in appendix II. We also provided a full draft of this report to  DOD and draft sections of this report to Alenia Aermacchi and L-3  Communications, which provided us with technical comments that we  incorporated as appropriate.

In its letter, DHS stated that it disagreed with our analysis of cost and  flight hours because it contains updated assumptions that are not carried  through the entire report. During our review, the Coast Guard agreed that  changing these assumptions would provide a more accurate  understanding of the Coast Guard’s current fixed-wing fleet costs and  flight hours. DHS and Coast Guard officials stated that they are not  planning to conduct an analysis of the Coast Guard’s current fixed-wing  aircraft plan. To assess this plan accurately, as discussed in the  objectives, scope, and methodology of this report, we changed two key  assumptions from the Coast Guard’s 2013 letter to Congress. First, the  HC-144 is now planned to fly only 1,000 hours per year compared to the  original plan of 1,200 hours per year. Second, the original analysis  assumed all of the Coast Guard’s aircraft have a 30-year service life. In  reality, each aircraft type is projected to have a different service life: 40  years for the HC-144; 30 years for the HC-130J; and 25 years for the C- 27J. We applied these assumptions to all of our calculations and then  compared our results with what the Coast Guard presented to Congress  to determine what, if any, differences exist. We believe this analysis is  necessary to understand changes the Coast Guard has made and how  they compare to the total savings presented to Congress.

Regarding the first recommendation, on informing Congress of the time  frames and milestones for completing the fleet mix study, DHS concurred  with our recommendation but did not provide specific time lines for  meeting this recommendation. Based upon a project schedule we  received in fall 2014, DHS is currently working toward completing its full  fleet mix analysis effort, including providing a revised statement of annual  flight hour needs. The Coast Guard plans to complete its initial mission  needs statement and concept of operations by 2016, but these  documents will not identify the exact mix of assets the Coast Guard  needs to meet its missions. Once these documents are complete, the  Coast Guard will conduct further analysis to produce the fleet mix study.  Based on the study, the Coast Guard plans to recommend a fleet of  assets that best meets its needs and, according to officials, will take fiscal  constraints into account. The time line for this second effort is unclear but  officials told us that they plan for it to inform the fiscal year 2019 budget.  We believe it is crucial for Congress and other stakeholders to  understand when this information will be available so that key decisions  can be made with accurate and up-to-date data. Further, Congress needs  to know that the mix of the Coast Guard’s fixed-wing fleet assets will likely  change based upon the results of this study.

DHS did not agree with our second recommendation, that the  Commandant of the Coast Guard advise Congress to modify the  provision of any additional HC-130Js pending the results of the fleet mix  study. DHS stated that it would be inappropriate for the Coast Guard to  provide additional guidance, beyond the President’s budget, to the United  States Congress on how to appropriate funds. The context for our  recommendation reflects the fact that Congress uses many information  sources to make decisions on how to appropriate funds that are not  included in the President’s budget, such as information provided through  agency briefings and reports, input from congressional agencies, and  other sources. The Coast Guard has initiated an assessment that it states  will provide a definitive flight hour goal for its fixed-wing assets—and  subsequently the number and type of aircraft to meet this need. Without  knowing the outcome of that assessment, Congress risks providing  aircraft that may be in excess of the Coast Guard’s needs and that could  result in an additional $1 billion in costs to the Coast Guard. In the  meantime, as several C-130Js are already in the pipeline and 14 C-27Js  have recently been received, the Coast Guard has prudently decided to  pause the HC-144 program while it reassesses its needs. If receiving  more C-130Js could complicate or even obviate the fleet mix analysis,  now is the time to so advise Congress.

DHS and the Coast Guard also provided technical comments that we  incorporated into the report as appropriate.

We are sending copies of this report to the Secretary of the Department  of Homeland Security, Commandant of the Coast Guard, and Secretary  of the Department of Defense. In addition, the report is available on our  website at http://www.gao.gov.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to your offices. In addition,  the report will be available at no charge on the GAO Web site at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or mackinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to determine (1) the status of the  transfer of the C-27Js from the Air Force to the Coast Guard, including  cost and schedule estimates, plans for testing, and establishing a  maintenance program—as well as any obstacles the Coast Guard faces  to field the transferred aircraft, and (2) to what extent the acquisition will  affect the overall cost and performance of the Coast Guard’s fixed wing  aviation fleet.

To determine the status of the transfer of the C-27Js from the Air Force to  the Coast Guard, including cost and schedule estimates, plans for testing,  and establishing a maintenance program—as well as any obstacles the  Coast Guard faces to field the aircraft, we examined the Coast Guard’s C- 27J Implementation Plan as well as other key acquisition documents,  including life cycle cost estimates, acquisition program baselines, and  logistics studies. To develop a list of major steps in the transfer process,  we analyzed the Coast Guard’s initial C-27J Implementation Plan and  compared the steps in this plan to the Coast Guard’s Major Systems  Acquisition Manual as well as the most recent C-27J Acquisition Decision  Memorandum to identify what needed to be done and when. To gain a  better sense of the history of the aircraft and its past performance and  issues, we reviewed program documents on costs, and maintenance  history from both the Air Force and Army. We spoke to members of the  Air Force’s C-27J program office to identify how much knowledge the Air  Force gained through its acquisition process and gain an understanding  of the successes and challenges that they were having. We also reviewed  interagency contracting agreements the Coast Guard has with the Army  and Navy as well as C-27J contract documents. We interviewed Coast  Guard officials from the requirements and acquisitions directorates to  identify challenges for the transfer and sustainment of the aircraft, as well  as officials from the Command, Control, Communications, Computers,  Intelligence, Surveillance and Reconnaissance Project regarding the  acquisition and implementation of the mission system.

We developed a list of risk areas based on Coast Guard documentation  and what is needed to develop sufficient knowledge about the program.  We interviewed U.S. Naval Air Systems Command officials on  airworthiness standards as well as the mission system in development by  the Navy. We visited the Air Force 309th Aerospace Maintenance and  Regeneration Group (AMARG), located on Davis-Monthan Air Force  Base, to view the 13 C-27Js in storage and interview Air Force officials in  charge of the C-27Js on site, as well as collect flight and maintenance  logs regarding past C-27J operation. We met with U.S. Army Special  Operations Command officials at Fort Bragg, interviewed contracted  logistics support for the C-27J, and toured the parts warehouse and  viewed some of the C-27Js on site. We also interviewed program office  officials and contractor representatives from the Coast Guard’s C-27J  Asset Project Office to gain a better sense of operational challenges and  how they are being addressed and toured their respective facilities to  discuss issues related to the fielding of the aircraft. We visited L-3  Communications in Waco, Texas to discuss the progress of the 14th  plane, view the plane in its current condition, and interview Defense  Contract Management Agency officials.

To assess the costs of operating and fully equipping the C-27J for Coast  Guard missions compared to the program of record, we used the Coast  Guard’s May 2012 business case for information regarding all of the costs  associated with acquiring and operating this asset for the next 30 years— 2013 through 2042. This estimate, derived in May 2012 by the  Survivability/Vulnerability Information Analysis Center at Wright Patterson  Air Force Base in Ohio, used the costs for the HC-144 and the HC-130J  to estimate the costs of the C-27J using the relative weights of each  aircraft. We also used the same perspective as this analysis, in that we  looked at the costs to the Coast Guard over the next 30 years given the  options for fleet composition. We assumed—similar to the 2012 business  case—that the Coast Guard has to purchase the remaining HC-130Js  with acquisition funds even though these aircraft have been added by  Congress to the Coast Guard’s budget in prior years.

We changed three assumptions underlying the analysis to better reflect  the Coast Guard’s actual data:   1.  Flight Hours: The business case assumed that the C-27J and HC- 144 would fly 1,200 hours per year but the Coast Guard plans to fly  each aircraft for 1,000 hours per year. Our analysis used the 1,000  hour number because it is the actual planned amount.  2.  Designed Service Life: The Coast Guard’s business case assumed  that all three of its fixed-wing assets have the same designed service  life. However, the HC-144 has a 40-year designed service life, the C- 27J has a 25-year designed service life, and the HC-130J is designed  for a 30-year life. While the Coast Guard maybe able to extend the  service life of the C-27J, it could also do so for the HC-144 and HC- 130J. We accounted for this by dividing each asset’s full acquisition  cost by the designed service life and multiplying by the 30-year span  of the analysis.   3.  Spare Parts: The Coast Guard is not going to receive $42 million in  spare parts from the Air Force, which was factored into the original  business case but not our analysis.

We also used the business case to generate purchase and employment  schedules for each fixed-wing aircraft for the next 30 years. To assess the  Coast Guard’s current plan, we received the planned flight hours for the  next 10 years from the Coast Guard’s planning directorate and, similar to  the business case, extrapolated these numbers over the next 30 years.

To convert all information into fiscal year 2015 dollars, we used the  deflators for procurement, fuel, operations and maintenance, and military  pay as appropriate from the Office of the Under Secretary of Defense’s  National Budget Estimates for FY 2015, known as the green book.

The efficiency of each planned fleet was derived by taking the total  acquisition and operating costs of each planned fleet and dividing this  number by the total planned flight hours.

Lastly, we met with Coast Guard officials who put together the Coast  Guard’s estimate and assessed the estimate from the  Survivability/Vulnerability Information Analysis Center. In addition, we met  with Coast Guard officials who are working on the Coast Guard’s Fleet  Mix Analysis who provided schedules and briefings to us describing this  ongoing assessment.

section_title: Appendix II: Comments from the Department of Homeland Security

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Katherine Trimble, Assistant Director;  Laurier R. Fish; Marie Ahearn; Peter W. Anderson; Ozzy Trevino; and  Melissa Wohlgemuth all made key contributions to this report. Jonathan  Mulcare also made contributions to this report.

section_title: Related GAO Products
paragraphs: Coast Guard Acquisitions: Better Information on Performance and  Funding Needed to Address Shortfalls. GAO-14-450. Washington, D.C.:  June 5, 2014.

Coast Guard: Portfolio Management Approach Needed to Improve Major  Acquisition Outcomes. GAO-12-918. Washington, D.C.: September 20,  2012.

Observations on the Coast Guard’s and the Department of Homeland  Security’s Fleet Studies. GAO-12-751R. Washington, D.C.: May 31, 2012.

Coast Guard: Action Needed as Approved Deepwater Program Remains  Unachievable. GAO-11-743. Washington, D.C.: July 28, 2011.

Coast Guard: Deepwater Requirements, Quantities, and Cost Require  Revalidation to Reflect Knowledge Gained. GAO-10-790. Washington,  D.C.: July 27, 2010.


Question-summary annotations: questions: question: What are the Coast Guards plans regarding its C-27s?
answer: As of January 2015, the Coast Guard had transferred 2 of the 14 C-27J aircraft it is receiving from the Air Force to its aircraft maintenance facility, with plans to field 14 fully operational C-27Js by 2022.
child_questions: question: What funding is needed to operate these aircrafts?
answer: According to initial Coast Guard estimates, while the aircraft come at no cost, the Coast Guard needs about $600 million to fully operationalize them.

question: What issues exist in the preparation of the aircrafts?
answer: This process is complex and significant work and risk remain. For example, the Coast Guard must establish its needs and purchase a set of spare parts for each aircraft, but faces hurdles due to potential pricing issues and delivery delays from the manufacturer. Also, the Coast Guard does not have access to the manufacturer's technical data that are required for modifications to the aircraft's structure to, for example, incorporate radar.
child_questions: question: How is the Coast Guard responding to these risks?
answer: These and other risks may inhibit the Coast Guard's ability to operate the aircraft as planned. However, the Coast Guard is working to mitigate these risks.

questions: question: What is the current outlook for the C-27J fleet?
answer: The C-27J will improve the affordability of the Coast Guard's fixed-wing fleet, but the fleet as currently planned may not be optimal in terms of cost and flight hour capability.
child_questions: question: How did the Coast Guard make their case for the C-27Js?
answer: The Coast Guard submitted a business case to Congress in 2013 that determined the C-27J would save $837 million over 30 years, compared to the program of record, without reducing fleet performance.
child_questions: question: To what extent have they made good on this promise?
answer: GAO estimates that the fleet the Coast Guard is currently pursuing achieves nearly all of these savings. However, the source of these savings has shifted. A significant portion of the savings now results from an 18 percent drop in flight hours due to a change in the mix of aircraft the Coast Guard intends to pursue.
child_questions: question: What data did GAO use in this assessment?
answer: GAO used updated information in conducting its analysis, such as the expected service life of each aircraft type.

question: What is the status of the Coast Guard's mission analysis?
answer: Consistent with congressional direction, the Coast Guard is conducting a multi-phased analysis of its mission needs—including its flight hour goals and fleet of fixed-wing assets—but will not present the full results prior to its 2019 budget request.

question: What is the status of the aircraft fleet?
answer: In the meantime, the Coast Guard has prudently paused its existing HC-144 acquisition program. However, since 2000, the Coast Guard has received 12 HC-130Js without budgeting for them and it may continue to receive these aircraft while it studies its fixed-wing fleet needs.
child_questions: question: What is the likely effect of these acquisitions?
answer: If the Coast Guard continues to receive these aircraft in the near term, the capability and cost of the Coast Guard's fixed-wing fleet runs the risk of being dictated by the assets the Coast Guard already owns rather than what it determines it needs.

questions: question: What is the Air Force doing to the 14C-27s?
answer: The Air Force is transferring 14 C-27J aircraft to the Coast Guard.
child_questions: question: For what are the aircrafts being used?
answer: Once modified into surveillance aircraft, the C-27Js will be a part of the Coast Guard's fixed-wing aircraft fleet.

question: How does the Coast Guard establish its aircraft needs?
answer: In 2007, the Coast Guard established a baseline of aircraft quantities and costs known as the program of record. This baseline established the cost and quantity of aircraft necessary to achieve its goal of 52,400 flight hours per year.
child_questions: question: What is the importance of the Coast Guard's aircraft?
answer: The Coast Guard's aircraft, including the HC-144 and HC-130J/H, are integral to its missions, such as counterdrug and search and rescue.

questions: question: How should the DHS and Coast Guard address Congress on Coast Guard fleet?
answer: The Department of Homeland Security (DHS) and the Coast Guard should advise Congress of the time frames for the Coast Guard's fleet analysis and to modify the provision of additional HC-130Js, as appropriate, in the interim.
child_questions: question: How did the DHS respond to this recommendation?
answer: DHS agreed with the first recommendation, but did not agree with the second recommendation.

question: What might happen if the Coast Guard accepts additional HC-130Js?
answer: If the Coast Guard accepts additional HC-130Js before completing the fleet mix study, the aircraft may be in excess of the Coast Guard's need.