With over 54,000 engines to support its 17,400 aircraft, the Department of Defense (DOD) is the world’s largest owner of aircraft and aircraft engines. During fiscal years 1992 and 1993, the total cost for maintaining these engines was about $1.1 billion of the $13 billion depot maintenance program. Depot repair of engines and engine components requires more funding than any other commodity that is not an end-item weapon system, such as an aircraft or ship. Engine overhaul costs represent about 8.5 percent of the total depot maintenance budget. Military engines are maintained and overhauled in an extensive network of military service depots, private sector engine manufacturers, and private sector repair activities, such as airlines and independent repair service companies. Of the 51 types of military engines used today, 28 are generally repaired in military depots and 23 almost exclusively by contractors. The engines maintained by the private sector generally have commercial as well as military applications. Generally, commercial counterpart engines repaired by the private sector support fewer aircraft and require less inventory than engines that are maintained in military depots. In recent years, private sector firms have sought more of the military engine workload. At the same time, excess capacity has also been increasing in military depots, as both numbers of military aircraft and engines as well as engine overhaul requirements have declined. As a part of this review, we analyzed DOD’s approach to allocating engine depot repair between the public and private sectors. Engine maintenance has been the subject of recent congressional interest. Additionally, engines are DOD’s largest and most costly commodity group. Further, one category of engines—those with commercial counterparts—are either identical or very similar to engines used in the private sector. These characteristics enhance their potential cost-effectiveness as candidates for privatization. As a part of our analysis, we reviewed a March 1995 DOD report to Congress on the maintenance of military turbine engines with civilian engine counterparts. Depot maintenance involves repairing, overhauling, modifying, and upgrading defense systems and equipment. Depot maintenance also includes limited manufacture of parts, technical support, modifications, testing, and reclamation as well as software maintenance. DOD estimates that its depot repair facilities and equipment are valued at over $50 billion. Thousands of private sector firms also do depot-level repair. Appendix I provides a brief overview of the engine depot repair process, using a flow diagram and pictures. Depot-level maintenance is the third of the three maintenance levels used by the military services. Depot maintenance activities have historically had more extensive technical capability than the lower levels—in terms of the facilities, equipment, and trained personnel. However, various programs initiated in recent years by the military have resulted in blending some maintenance activities among the various levels. For example, the Air Force implemented a two-level maintenance concept that significantly reduced the second level of maintenance at the operational unit for some systems, including engines. Under this concept, faulty engine components are shipped from the unit to Air Force depots, including the two engine repair depots. The work done in the two-level shops is considered depot-level repair and is performed by a combination of military, civilian, and contractor personnel. DOD has depot-level capability to repair 28 different types of large turbine engines. Most of these engines are used to power DOD’s fleet of fixed- and rotary-wing aircraft. Three exceptions are the General Electric LM2500 ship engine, the Lycoming AGT1500 M-1 tank engine, and the Allison 501K, which is used for electrical power generators on ships. DOD also organically repairs many smaller gas turbine engines that provide auxiliary power to aircraft and ground support equipment. DOD contracts for most of the repair of 23 other engines, which power such aircraft as the KC-10, T-38, and C-9. Most of the 28 engines maintained in DOD’s public depots are military-unique and not used in the commercial market place. Military-unique engines include the F100 engine, which powers the F-15 and F-16 aircraft, and the F404 engine, which powers the F/A-18 and F-117A aircraft. However, 10 of the 28 engines maintained in DOD depots are comparable to engines used in the private sector. In addition, the Air Force is considering developing repair capability for the F117 engine, which powers the C-17 aircraft and is currently supported by the manufacturer. It is similar to the commercial engine that powers the Boeing 757 aircraft. Table 1.1 shows the 11 military engines with commercial counterparts for which DOD has or is considering developing depot maintenance capability. In most cases where it repairs a military engine with a commercial counterpart, DOD owns a significant portion of the engines in existence. For example, DOD has 25 percent of the F108/CFM56 engines, 54 percent of the T56, 62 percent of the TF33/JT3D, 78 percent of the TF34/CF34, and 95 percent of the T53. DOD depot maintenance workload requirements, including engines, have decreased from about 202 million direct labor hours in fiscal year 1987 to about 100 million direct labor hours projected for fiscal year 1996. Since geopolitical tensions eased in the late 1980s, changes in military strategy, reductions-in-force structure, and improved engine reliability have all contributed to decreased demand for engine repair requirements. The change in war-planning scenarios from a massive, protracted war in response to a Soviet invasion to shorter duration contingency scenarios also reduced the anticipated surge requirement for depot maintenance. Similarly, reductions in aircraft inventory have also reduced maintenance requirements. Between fiscal years 1985 and 1994, the services reduced their aircraft inventories from about 24,500 to 17,400. For example, the Air Force reduced its F-4 aircraft inventory from 1,597 to 61. Depot overhauls of the J79 engine, which supports the F-4 aircraft, also declined from over 500,000 direct labor hours in fiscal year 1986 to an estimated 0 for fiscal year 1997. Further reductions in aircraft inventories and associated engine repair requirements are expected as the services continue to phase out older weapon systems. In addition, improvements in technology have increased the reliability of turbine engines, reduced the number of depot-level overhauls, and reduced depot-level maintenance requirements. For example, three different engines have powered the KC-135 tanker aircraft. The first KC-135s were fitted with the J57 engine, which was later replaced with the TF33 engine. The Air Force is now replacing most of these engines with the F108. The F108 engine, with an unscheduled removal rate per 1,000 flying hours of 0.10, has 91 percent fewer unscheduled engine removals than the J57, which has an unscheduled engine removal rate of 1.16, and 79 percent fewer than the TF33, which has an unscheduled removal rate of 0.48. Similar engine reliability improvements have been achieved through modifications of other engines. For example, various upgrades over a 20-year period have increased the periods of time between scheduled overhauls for the F100 from 2 to 8 years. In response to declining requirements and criticisms for maintaining duplicate sources of repair, the military services have decreased the number of depots with depot engine repair capability. For example, the number of depots repairing turbine engines decreased from eight to six between 1990 and 1994. Additionally, DOD consolidated repair activities for most engine types at only one depot. As shown in table 1.2, 11 engine types were maintained at two or more depots in 1990. With only one exception, DOD now has only one organic depot-level repair site for each military engine. However, some engines are repaired both by a military depot and one or more private sector contractors. These workload consolidations began in 1990 as part of the DOD management review process and subsequent Base Closure and Realignment Commission (BRAC) decisions to close aviation depots. Specifically, Defense Management Report Decision 908 initially called for $3.9 billion in depot cost reductions over a 5-year period, but the target savings were later increased to $6.4 billion over a 7-year period. Efforts to achieve savings included consolidation, interservicing, and competitions between government depots and the private sector. Some of these efforts were superseded by the 1993 BRAC decision to close Alameda Naval Aviation Depot. For example, a single site for handling the T56 engine core workload was to be decided by a public-public competition between Alameda Naval Aviation Depot and San Antonio Air Logistics Center. Following the BRAC decision to close Alameda, the Navy transferred its T56/501K workload to the San Antonio Air Logistics Center. Despite these initiatives, DOD’s engine depot repair facilities continue to have significant excess capacity. During the 1995 BRAC process, DOD’s Joint Cross Service Group for Depot Maintenance noted that engines were among the five commodities with the greatest amount of excess capacity. We found this excess capacity to be about 5 million direct labor hours—about 45 percent of the total engine capacity. The Fiscal Year 1995 Department of Defense Appropriations Conference Report 103-747 required DOD to submit a detailed proposal for expanding competition for depot maintenance of jet engines with civilian counterparts to the House and Senate Committees on Appropriations. The report noted that DOD could save a lot by expanding competition for depot maintenance of equipment common to the military and industry, specifically, commercially developed aircraft turbine (jet) engines. On March 14, 1995, DOD provided the House and Senate Committees on Appropriations with its report. In its report, DOD concluded that the principal reason for maintaining depot maintenance capability is to support the readiness and sustainability in the Joint Chiefs of Staff major regional conflict scenarios.