In January 2001, we reported on Department of Defense management challenges and noted that the Department has had serious weaknesses in its management of logistics functions and, in particular, inventory management. We have identified inventory management as a high-risk area since 1990. In 1999, we reported on the Air Force’s specific problems in managing spare parts and noted an increase in the percentage of some of its aircraft that were not mission capable due to supply problems. (See appendix I for examples from our reports on management weaknesses related to the Air Force.) Also, the Secretary of the Air Force reported that the readiness of the Air Force has declined since 1996 and attributed this overall decline, in part, to spare parts shortages. Table 1 shows the percentage of all aviation systems that were mission capable and the percentage of aircraft that were not mission capable due to supply problems from fiscal year 1996 through the first quarter of fiscal 2001. As table 1 shows, the percentage of all Air Force systems reported as not mission capable due to supply problems steadily increased from fiscal year 1996 through fiscal year 2000. The Air Force requested additional funding to address concerns with spare parts shortages. The Air Force states in the Department of Defense Quarterly Readiness Report to the Congress for July through September 2000 that funding Congress provided in earlier years has begun to improve the availability of spares, citing a 58-percent reduction in parts that have been ordered but not received since December 1998. The Secretary also expressed cautious optimism that recent congressional funding would improve the availability of spare parts and aircraft mission-capable rates. In the most recent quarterly readiness report (Oct. through Dec. 2000), the Air Force cautions that although as of early December 2000 overall mission-capable rates had improved from average fiscal year 2000 rates, this improvement had come at the cost of the increased use of the practice of removing parts from one aircraft for use on another, that is, cannibalization. Because of concerns that spare parts shortages were causing readiness problems, the Air Force received in fiscal 1999 an additional $904 million in obligation authority from the Department of Defense to buy more spare parts. This amount consisted of $387 million to buy spare parts attributable to the Kosovo operation, $135 million to buy engine-related spare parts for the Oklahoma City Air Logistics Center, and $382 million to overcome the accumulated shortfall of spare parts inventories. Also in 1999, the Department of Defense announced plans to provide $500 million to the Defense Logistics Agency to purchase spare parts for all the services over fiscal years 2001-2004. Of that $500 million, $213.8 million is to be for parts to be used on Air Force aircraft. According to a Department of Defense official, the Air Force was provided the first $50 million in fiscal 2001 to pass on to the Defense Logistics Agency to pay for Air Force parts ordered in fiscal year 2000. The Air Force and the other military services received additional funds in fiscal year 1999 that, unlike the funds cited above, were placed largely in operations and maintenance accounts. In a separate report issued earlier this year, we indicated current financial information did not show the extent to which these funds were used for spare parts. However, the Department plans to annually develop detailed financial management information on spare parts funding uses but does not plan to provide it to Congress. We, therefore, recommended to the Secretary of Defense that the information to be developed annually by the Department and the services on the quantity and funding of spare parts be routinely provided to Congress as an integral part of the Department’s annual budget justification; the Department agreed to do so. The aviation systems that we reviewed are vital to the Air Force achieving its missions. The E-3 provides surveillance of the airspace and manages the flight of all aircraft in an assigned battlefield area. The Air Force first received E-3s in 1977, and an Air Force official told us that it is the oldest aircraft in the Air Force in terms of operational hours flown. The C-5 is the Air Force’s largest cargo aircraft, carrying cargo such as Army tanks, and is one of the largest aircraft in the world. About 70 percent of the oversized cargo required in the critical first 30 days of one major war scenario would be the type of cargo the C-5 carries. The Air Force first received operational C-5 aircraft in 1970, and according to Air Force officials, one of the reasons for the lower than expected mission-capable rates in recent years for the C-5 aircraft is its age. The F-100-220 engine powers many of the Air Force’s F-15 and F-16 fighter aircraft and, according to an Air Force official, will become increasingly critical to operations as some older engines are replaced with the F-100-220. For each of these systems, we judgmentally selected for review 25 parts, a total of 75, with the highest number of hours or incidents of unavailability for given time periods. Air Force spare parts are classified as either consumables or reparables. Consumable items, which are mostly managed by the Defense Logistics Agency, are those items that are discarded when they fail because they cannot be cost-effectively repaired. The Defense Supply Center Richmond is the lead center for managing aviation consumable spare parts. Reparable items, managed by the Air Force Materiel Command, are items that can be cost-effectively repaired. The Command’s mission is to research, develop, test, acquire, deliver, and logistically support Air Force weapon systems. The shortages of spare parts for the three aircraft systems we reviewed have not only affected readiness but also have created inefficiencies in maintenance processes and procedures and may adversely affect the retention of military personnel. Two aircraft we reviewed, the E-3 and C-5, did not meet their mission-capable goals in fiscal years 1996-2000 and were not mission capable due to supply problems from 7.3 percent to 18.1 percent during the same period. The number of usable spare F-100-220 engines that the Air Force had on hand fell short of its goal by as few as 6 and as many as 104 engines during the same period. The Air Force did not achieve its mission-capable goals during fiscal years 1996-2000 for any of the three Air Force aircraft systems we reviewed, in part, due to spare parts shortages. Table 2 shows the mission-capable goals and actual rates for the E-3 aircraft for fiscal years 1996-2000, and table 3 shows the rates at which the E-3 was not mission capable due to supply problems during the same period. The goal for the E-3 was lowered to 73 percent from March through September 2000 based on an Air Force assessment of its ability to achieve its mission-capable goal. The Air Force recognized that it had failed to achieve historical performance levels to the point that falling short of the standard had become the norm. Citing constraints regarding spare parts, maintenance personnel, and repair equipment, the Air Force lowered mission-capable goals for the E-3 and other aircraft with the intent of providing maintenance personnel with more achievable targets. The mission-capable goal for the E-3 aircraft rose to 81 percent in fiscal year 2001, and it is planned to return to 85 percent in fiscal year 2002. The goal was 12 percent or less from March through September 2000 and was raised based on an Air Force assessment of the aircraft’s ability to achieve the not mission capable due to supply problems goal for the E-3 and other aircraft. The Air Force recognized that it had failed to achieve historical performance levels to the point that falling short of the standard had become the norm. Citing constraints regarding spare parts, maintenance personnel, and repair equipment, the Air Force raised its goal for not mission capable due to supply problems for the E-3 and other aircraft with the intent of providing maintenance personnel with more achievable targets. The not mission capable due to supply problems goal changed to 8 percent in fiscal year 2001, and it is planned to return to 6 percent in fiscal year 2002. The reported rate for total not mission capable due to supply problems in fiscal year 2000, 11.3 percent, equated to about 3 or 4 E-3s of the total of 32 aircraft being not mission capable due to supply problems. The C-5 also did not achieve its goals during fiscal years 1996-2000. Table 4 shows the C-5’s mission-capable goals and actual mission-capable rates for those years, and table 5 shows the rates at which the C-5 was not mission capable due to supply problems as well as its goals during the same period. The reported rate for total not mission capable due to supply problems in fiscal year 2000, 18.1 percent, equated to almost 23 C-5s of the fleet of 126 aircraft being not mission capable, at least in part, due to supply problems. With regard to the F-100-220 engine, the Air Force never met its goal, called the war readiness engine goal, during fiscal years 1996-2000 (see table 6). The goal can change each fiscal year for the number of usable— ready to be installed in an aircraft—spare engines the Air Force would like to have on hand to meet wartime needs. In some cases, it has had F-15s or F-16s grounded due to the lack of the engine. When the number of usable spare engines is shown as a negative number, there are not enough engines for all the aircraft required for peacetime operations; in other words, aircraft that would otherwise be available to fly are grounded because they lack engines. During fiscal years 1996 through 2000, this occurred in five different quarters. To compensate for a lack of spare parts, maintenance personnel sometimes remove usable parts from aircraft for which spare parts are unavailable to replace broken parts on others. Maintenance personnel at Seymour-Johnson Air Force Base said that this practice is necessary to attempt to maintain mission-capable rates when spare parts are not available.