The Navy has three levels of naval aviation maintenance—organizational, intermediate, and depot—to support naval aviation. Organizational maintenance is performed by sailors on the flight line and generally items are repaired on the aircraft, whether at sea or at a naval station. The intermediate maintenance activity is generally performed by sailors at the Navy’s aviation intermediate maintenance departments, which focus on item repairs in close proximity to the flight line but off-aircraft. Depot maintenance activities, generally performed by civilian aviation depot artisans, provide a comprehensive combination of major repair, overhaul, and modifications to weapons systems and components, assemblies, and subassemblies in off-flight-line maintenance. The current aviation maintenance process generally flows as follows: when the organizational maintenance crews cannot fix a broken aircraft component or item, it is sent to the intermediate department; if the intermediate maintenance department cannot repair an item, it declares that the item is beyond its capability of maintenance. The broken item is then turned over to the supply system in exchange for a replacement part; and the broken item is shipped to the depot for further repairs or overhaul. The recommendation to establish fleet readiness centers affects the intermediate department and depot maintenance levels, but not the organizational level. It involves moving about 150 artisans from the depots to the intermediate departments to perform aviation repairs. In addition, six fleet readiness centers will be established to transform naval aviation maintenance at the intermediate departments and depots as seen in figure 1. According to this BRAC recommendation, relocating depot artisans to intermediate departments is expected to reduce the number of items that are declared to be beyond the capability of maintenance at the intermediate departments and therefore, will not require some items to be sent to the depot for repair. As a result, repeated and duplicated maintenance procedures are projected to be avoided and turnaround times projected to be reduced. More specifically, prior to implementing this recommendation, when an item is being repaired by military personnel at the intermediate department, they perform diagnostics, disassemble the item, and attempt to repair it. When they determine it cannot be repaired and declare that it is beyond their capability of maintenance, the item is reassembled, repackaged, and shipped to the depot for repair. Upon arrival at the depot, the artisans must perform similar diagnostics, and repeat the processes of disassembly and repair that have already been performed at the intermediate department. According to Navy officials, after fleet readiness centers are established, the depot artisans positioned at the intermediate departments are expected to be able to complete more repairs there, which will reduce or eliminate some packaging, shipping, and administrative costs as seen in figure 2. At the time DOD originally submitted its recommendations to the BRAC Commission, it estimated this recommendation would yield $341 million in annual recurring savings, or $4.7 billion net savings over 20 years. The preponderance of the annual recurring savings was expected to come from fewer items being sent to the depots for repair, thus reducing per item maintenance costs. DOD also expected to achieve significant onetime savings by reducing existing inventory levels of aircraft component parts. In July 2005, we reported that while there is potential for significant savings, there is some uncertainty over the full magnitude of savings. Our report noted that the Navy used assumptions that had undergone limited testing, and the full savings realization depends upon the transformation of the Navy’s supply system to achieve organizational efficiencies. Moreover, we pointed out that realizing the full extent of the savings would depend on actual implementation of the recommended actions. The BRAC Commission also believed DOD’s overall estimated savings were overstated because savings were derived from overhead efficiencies that had not been validated. The commission projected annual recurring savings of about $248 million a year or $3.7 billion net present value savings over a 20-year period—about $1 billion less than the DOD’s estimate. Also, the commission reduced the estimated savings because it eliminated the proposed realignment of workload from the Naval Support Activity in Crane, Indiana, to Whidbey Island, Washington, since the Navy planned to phase out the aircraft associated with the proposed workload transfer in 10 to 15 years regardless of BRAC. In addition, the commission found errors in DOD’s estimation of construction costs and the savings projections based on eliminated personnel. The President and the Congress accepted the BRAC Commission recommendations, which became effective on November 9, 2005. Once the recommendations became effective, the Office of the Secretary of Defense designated one of the military services or defense agencies as the business manager responsible for implementing each recommendation. The Navy is responsible for establishing the six fleet readiness centers. The Office of the Secretary of Defense also required the Navy to submit a detailed business plan to update estimated costs and savings and identify a schedule for implementing the recommendation. The Navy’s detailed business plan was approved to implement the recommendation to establish fleet readiness centers on August 1, 2006. However, the Office of the Secretary of Defense has requested that the Navy resubmit its plan to accurately reflect the savings realized based on the Navy’s current implementation of this BRAC recommendation. The Navy’s plan was still in-process as of March 15, 2007. In addition, the Navy must comply with Title 10, Section 2466 of the United States Code (U.S.C. ), which provides that not more than 50 percent of the funds made available in a fiscal year to the Navy for depot maintenance and repair workload may be used to pay for work performed by private contractors. The statute also requires the Secretary of Defense to submit a report to Congress (known as the “50/50” report) by April 1 annually, on public-private depot maintenance funding distributions. The 50/50 report notes the percentage of depot maintenance funding between the public and private sectors during the preceding fiscal year, the projected distribution for the current fiscal year, and the ensuing fiscal year. In comparing the Navy’s business plan with the BRAC Commission estimates of costs and savings, the Navy’s business plans shows an increase in one-time costs, a decrease in one-time savings, and an increase in annual recurring savings as seen in table 1 below. While the Navy has started to implement the recommendation and achieve savings, we believe the latest savings estimates are still overstated and uncertain. The majority of the savings consist of onetime savings from projected decreases in the inventory of aircraft components and replacement parts, and annual recurring savings from reduced depot labor and overhead charges and reductions in military personnel. While savings from lower inventory levels may be possible, our analysis of a judgmental sample of items targeted for inventory reduction concluded that the majority of these savings would not occur during the 6-year implementation period of this BRAC recommendation. Further, we believe the Navy’s estimated annual recurring savings remain overstated because they included savings from eliminating military personnel that are not expected to result in a reduction to its overall service force structure and included onetime savings erroneously reported as recurring savings. The Navy’s business plan shows onetime costs increased by 96 percent (from $34 million to $65 million) as compared to the BRAC Commission’s estimates, which was primarily due to increased costs associated with relocating depot employees to the intermediate level, other miscellaneous program management actions, and inflation. For example, Navy officials stated that they need to add more equipment or specialized workbenches to support depot artisans relocated to the intermediate departments. The program management costs are primarily for information technology upgrades. For example, Navy officials stated the need for an interim logistics tracking and accounting mechanism, using its current Naval Aviation Logistics Command/Management Information System to track depot maintenance repairs at the intermediate departments. While onetime costs have nearly doubled, they have limited effect on the long- term recurring savings expected from establishing fleet readiness centers once those savings offset implementation costs. While the Navy has reduced the projected onetime savings from lower levels of inventory, our analysis of a sample of aviation inventory items targeted for reduction concludes that the majority of these savings would not occur during the 6-year implementation period, and the amount of such savings over time is uncertain. In preparing the business plan, the Navy reduced its onetime savings by 92 percent (from $648 million to $54 million) mostly by lowering the estimated savings from reducing inventory of aircraft components and replacement parts. According to Navy officials, the initial inventory savings estimate was overly optimistic. In addition, the lower estimate was based on the BRAC Commission’s determination that the Navy’s projected savings were overstated because the commission found errors in the Navy’s savings estimates. Additionally, our July 2005 report stated that the magnitude of the expected savings for the fleet readiness centers is in part dependent upon transformation of the Navy’s supply system, such as eliminating unneeded management structures and duplicate layers of inventory in the supply system. DOD’s original submission to the BRAC Commission assumed that the dollar value of the inventory of aircraft components and replacement parts could be reduced by 15 percent. According to Navy officials, the 15 percent savings factor was based on the professional judgment of the Industrial Joint Cross Service Group members. They expected savings because fewer items would need to be kept in the shore-based aviation consolidated inventory because items would be getting repaired more quickly and returned to the inventory faster. However, the Navy officials stated that they did not have time during the BRAC process to discuss the estimated inventory and supply savings with officials from the Navy Supply Command to validate the estimate. Navy officials stated that they estimated the onetime savings from inventory reductions ($648 million) by multiplying the 15 percent factor times the total dollar value of the inventory and supply of aircraft components and replacement parts in fiscal year 2003. In developing the business plan, the Navy reduced the inventory and supply savings factor from 15 percent to less than 4 percent based on discussions with Naval Supply Command officials and a better understanding of how other BRAC recommendations affected DOD’s and Navy’s supply system.