Department of the Interior: Office of Aircraft Services and	 
Bureaus Can More Fully Recover and Further Reduce Aviation	 
Program Costs (17-APR-02, GAO-02-460).				 
                                                                 
The Department of the Interior's aviation accident rate has been 
cut in half since 1975, from 18.8 accident to 8.7 per 100,000	 
flight hours between fiscal years 1975 and 2000. The department's
reduced accident rate can be attributed to the implementation of 
a standard aviation operating policy and to aviation safety	 
standards that exceed the Federal Aviation Administration's	 
requirements. The Office of Aircraft Services (OAS) has not fully
recovered aviation program costs. From fiscal years 1999 to 2000,
OAS has charged bureaus about $4 million less than actual costs, 
representing an undercharge of about two percent. The undercharge
resulted from rates OAS set that were based on flight hour	 
projections of actual usage that turned out to be low. Further,  
OAS did not include all the cost elements that needed to be	 
considered. Periodic monitoring of the rates and actual costs	 
would ensure that all costs are recovered. OAS has not yet	 
developed a more cost-effective approach for using aircraft,	 
which could potentially lead to additional cost savings. To cut  
costs, OAS has reduced its staffing levels by 24 percent since	 
1992.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-460 					        
    ACCNO:   A02860						        
  TITLE:     Department of the Interior: Office of Aircraft Services  
and Bureaus Can More Fully Recover and Further Reduce Aviation	 
Program Costs							 
     DATE:   04/17/2002 
  SUBJECT:   Aviation						 
	     Cost analysis					 
	     Cost control					 
	     Safety						 
	     Cessna 206 Amphibian Aircraft			 
	     De Havilland DHC-2T Beaver Aircraft		 
	     Civil Service Retirement System			 


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GAO-02-460
     
Report to the Ranking Minority Member, Committee on Energy and Natural
Resources, U. S. Senate

United States General Accounting Office

GAO

April 2002 DEPARTMENT OF THE INTERIOR

Office of Aircraft Services and Bureaus Can More Fully Recover and Further
Reduce Aviation Program Costs

GAO- 02- 460

Page i GAO- 02- 460 Department of the Interior Letter 1

Results in Brief 2 Background 3 Interior?s Aviation Accident Rate Has
Improved Dramatically Since

OAS?s Safety Program Was Established 6 Rates Charged to Users of Fleet
Aircraft Have Not Fully Funded

the Cost of Fleet Operations 9 OAS Has Taken Actions to Control Program Cost
Increases, but

Improved Scheduling and Use of Aircraft Could Further Reduce Costs 11
Conclusions 16 Recommendations for Executive Action 16 Agency Comments 17
Scope and Methodology 17

Appendix I Comments from the Department of the Interior 19

Appendix II GAO Contacts and Staff Acknowledgments 22

Tables

Table 1: Charges and Costs for Interior Bureaus by Business Line, Fiscal
Years 1997 through 2000 9 Table 2: Potential Fixed Cost Savings
Opportunities Resulting from

Increases in Utilization 14 Table 3: Potential Variable Cost Savings
Opportunities Resulting

from Increases in Utilization 15

Figures

Figure 1: Bureaus? Fiscal Year 2000 Contract and Fleet Flight Hours 5 Figure
2: Decline in Interior?s Accident Rate Per 100,000 Flight

Hours, 1975 through 2001 7 Contents

Page 1 GAO- 02- 460 Department of the Interior

April 17, 2002

The Honorable Frank H. Murkowski Ranking Minority Member Committee on Energy
and Natural Resources United States Senate

Dear Senator Murkowski: To fight fires, enforce laws, and conduct search and
rescue operations on federal lands in Alaska, Hawaii, and throughout the
lower 48 states, the Department of the Interior?s eight bureaus must obtain
aircraft and aviation- related services through the Office of Aircraft
Services (OAS). OAS administers the department?s $102 million aviation
program and provides the bureaus with about 550 government- controlled
aircraft: about 100 owned by the government (fleet aircraft) and 450
obtained from the private sector through various long- term contracts and
leases (contract aircraft). OAS also has overall responsibility for the
department?s aviation safety program: it reviews the bureaus? aviation
safety efforts, assists in training fleet pilots, develops aviation safety
and aircraft accident prevention programs, and establishes aviation program
standards.

Each bureau is responsible for deciding whether OAS should contract or
purchase aircraft for that bureau, and schedules or coordinates aircraft use
within its operations and with other Interior bureaus, as well as with the
U. S. Department of Agriculture?s Forest Service. The bureaus must reimburse
OAS for aviation costs. For government- owned aircraft, the bureaus?
aviation managers meet annually to set the fleet rates OAS will charge the
bureaus in the upcoming fiscal years. To provide a basis for these rate-
setting decisions, OAS prepares cost projections based on historical data
and presents these estimates to the bureaus at the annual fleet rate
meeting. The factors that go into setting the rates vary from year to year
but include such considerations as historical usage, changes to mission
requirements, and anticipated maintenance costs. For aircraft obtained
through contracts, OAS relies on a competitive bidding process, and the
bureaus reimburse OAS for the costs of the contracts and for OAS?s costs for
servicing these agreements.

At the 2001 annual fleet rate meeting, OAS proposed a substantial surcharge
to the bureaus to recover a nearly $2 million shortfall in its Alaskan
operations over the previous 10 years. The bureaus were surprised to learn
that OAS had not recovered all fleet costs and could go

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 460 Department of the Interior

back as far as 10 years to assess these charges. Following this meeting,
several bureau officials expressed serious concerns about OAS?s overall
operations, including the lack of a reliable accounting system, questionable
cost recovery practices, and the lack of concern for cost- effectiveness. In
addition, some bureau officials believed that the escalating program costs
and OAS?s efforts to control these costs could compromise aviation safety.

As a result of these concerns, you asked us to determine the (1) trend in
the accident rate of Interior?s aviation safety program, (2) extent to which
OAS has recovered the costs associated with the aviation program, and (3)
extent to which OAS has implemented cost- reduction efforts.

Interior?s aviation accident rate has been cut in half since 1975, from 18.8
accidents per 100,000 flight hours in fiscal year 1975 to 8.7 accidents per
100,000 flight hours in fiscal year 2001. OAS officials attribute the
department?s reduced accident rate, in part, to the implementation of a
standard aviation operating policy for the department and to aviation safety
standards that exceed Federal Aviation Administration?s requirements. The
program specifies standards for pilot qualifications and proficiency
requirements as well as for aircraft maintenance and equipment inspections.

OAS has not fully recovered the costs associated with the aviation program.
From fiscal years 1997 through 2000, OAS had charged bureaus about $4
million less than actual costs. This represented an undercharge of about 2
percent. The undercharge resulted from several factors. First, the rates OAS
set were based on flight hour projections of actual usage that turned out to
be low. This occurred because the bureaus did not consistently provide OAS
with the information necessary to make more accurate projections.
Consequently, OAS had to rely on 5- year historical averages, which turned
out to be less than declining actual use in recent years. Second, OAS did
not include in its calculations all the cost elements that needed to be
considered in setting rates. For example, in the Alaskan operations, OAS
omitted the overhead cost for aircraft maintenance from the rate
calculation, which resulted in significantly lower rates than needed to
recover the costs. OAS has since taken actions to recoup the costs of the
Alaskan fleet maintenance operations and now includes these costs in its
rate calculations. Periodic monitoring of the rates and actual costs
incurred would help ensure that all costs are recovered. OAS?s failure to
recover all its costs from the bureaus was not due to any faults in OAS?s
accounting system. Although some bureaus raised concerns about Results in
Brief

Page 3 GAO- 02- 460 Department of the Interior

the reliability of the system, we found the accounting system capable of
producing reasonably complete, reliable, and useful financial information to
management for rate- setting purposes. We are making recommendations to the
secretary of the Department of the Interior aimed at ensuring that OAS fully
recovers its program costs and improves the rate- setting process.

OAS has taken a number of actions to reduce the aviation program?s costs,
but it has yet to develop a more cost- effective approach for using
aircraft, which could potentially lead to additional cost savings. Among the
actions OAS has taken to reduce costs, OAS has reduced its staffing levels
by about 24 percent since 1992. OAS also conducted cost comparisons and
determined it to be more cost effective to maintain aircraft under
government ownership than to contract for aircraft. Additional savings are
possible, however. For example, in 1995, Interior?s inspector general
reported that the department unnecessarily spent $2. 3 million throughout
1992 and 1993 because the bureaus did not coordinate the scheduling and use
(utilization) of the government- owned fleet. Our analysis confirms that
moderate improvements in aircraft utilization can translate into a savings
of several million dollars annually. Although OAS has attempted to control
its costs, it has not established performance measures to evaluate its
program outcomes. We are making a recommendation to the secretary of the
Department of the Interior that OAS and the bureaus work together to improve
aircraft scheduling and usage and establish performance measures to monitor
and assess progress toward improved aircraft utilization.

We provided a draft of this report to the Department of the Interior for
review and comment. Interior agreed with the information presented in the
draft, and stated that our findings and recommendations are reasonable. They
stated that the department?s aviation program is complex and multi- faceted
due to the widely diverse mission of the bureaus. Further, they stated that
our report recognizes that successful aviation management depends on a
partnership between OAS and the bureaus to seek more efficient and cost-
effective ways to manage the program.

The secretary of the Department of the Interior created OAS in 1973 to
resolve several aviation program problems: numerous accidents, improper
budgeting and financial management, and poor utilization of aircraft. A 1973
task force, comprising representatives from across the Interior bureaus,
attributed these problems to the decentralized aviation program- with each
bureau responsible for all aviation functions. The Background

Page 4 GAO- 02- 460 Department of the Interior

secretary of the Department of the Interior charged OAS with responsibility
for (1) coordinating and directing all fleet and contract aircraft; (2)
establishing and maintaining standards for safety, procurement, and
utilization; (3) budgeting for and financially controlling fleet and
contract aircraft; and (4) providing technical aviation services to the
bureaus. As the program evolved, OAS assumed responsibility for policy
oversight and aviation services, while the bureaus became responsible for
implementing safety requirements, deciding on whether to use fleet or
contract aircraft, and the scheduling and use of their aircraft.

OAS works with the Aviation Management Board of Directors to involve the
bureaus in formulating policy and managing aviation activities. In addition,
since 1996, the bureaus? aviation managers have also participated with OAS
in setting fleet rates and planning for aircraft replacement and projected
aviation program requirements. 1 Eight Interior bureaus use OAS?s services
in varying degrees to carry out their respective missions as shown in figure
1. 2 The Bureau of Land Management- which accounted for over one- third of
the OAS program in flight hours for fiscal year 2000- uses aircraft to carry
out its fire- fighting and resource management missions. The Fish and
Wildlife Service and the National Park Service depend heavily on OAS to
manage fleet aircraft to achieve their respective missions.

1 Bureaus must usually request additional appropriations for aircraft
replacement because bureaus contribute to the replacement reserve based on
the depreciated value, not the replacement value, of the aircraft. Bureaus
use their reserve balances and additional appropriations to purchase
replacement aircraft.

2 The eight bureaus include the Bureau of Land Management (BLM), Fish and
Wildlife Service (FWS), National Park Service (NPS), Minerals Management
Service (MMS), Bureau of Indian Affairs (BIA), Bureau of Reclamation (BOR),
U. S. Geological Survey (USGS), and Office of Surface Mining (OSM). The OSM
relied on short- term aircraft rental agreements to meet its aviation needs.
Since OSM did not use fleet or contract aircraft in FY 2000, the flight
hours are not reflected in figure 1.

Page 5 GAO- 02- 460 Department of the Interior

Figure 1: Bureaus? Fiscal Year 2000 Contract and Fleet Flight Hours

OAS is headquartered in Boise, Idaho, with significant operations located in
Anchorage, Alaska. It has additional offices in Boise; Atlanta, Georgia; and
Phoenix, Arizona. OAS operated with approximately 94 FTE in fiscal year
2000, 63 located in the lower 48 states and 31 located in the Anchorage
office. In fiscal year 2000, OAS managed 95 government- owned aircraft, 42
based in the lower 48 states and 53 based in Alaska. OAS contracts for
aircraft maintenance of fleet aircraft in the lower 48 states. In Alaska,
OAS contracts for maintenance of fleet aircraft with private vendors, but
maintains an in- house core maintenance staff.

To fulfill its responsibilities, OAS set up functional divisions, including
financial and information management, acquisition, and technical services.
However, OAS accounts for and reports costs across four lines of business:
fleet, contract, rental, and other. Of the $117 million spent on aviation
services in fiscal year 2000, OAS received an appropriation of only $800,000
(or approximately seven FTE) to provide oversight of OAS department- wide
aviation policies and procedures. Most of OAS?s costs are financed through a
working capital fund, established in the Office of the

Page 6 GAO- 02- 460 Department of the Interior

Secretary to finance a continuing cycle of operations, and must be repaid to
the fund by the bureaus and others using the services based on rates
determined by OAS. 3

Since 1975 Interior?s aviation accident rate has been cut in half, from 18.8
accidents per 100,000 flight hours in fiscal year 1975 to 8.7 accidents per
100,000 flight hours in fiscal year 2001. A number of OAS efforts have
contributed to this reduction. Prior to the establishment of OAS?s aviation
safety efforts, safety standards varied from bureau to bureau and between
regions within bureaus; in some cases, standards did not exist at all.
According to the 1973 task force, virtually no control over aviation
operations existed within the department, which resulted in a high accident
rate and higher operational costs. OAS officials attribute the department?s
reduced accident rate, in part, to the implementation of a standard aviation
operating policy. OAS sets pilot qualifications and proficiency standards as
well as standards for aircraft maintenance and equipment inspections. These
standards exceed the Federal Aviation Administration?s (FAA) requirements.
In addition, OAS periodically evaluates the bureaus? implementation of the
aviation program, with a special emphasis on safe operations.

The OAS Aviation Safety Management Office, reporting to the OAS director, is
responsible for policy development, implementation, and review of the
department?s (1) aviation safety management and aircraft accident/ incident
prevention programs; (2) accident and incident investigation; (3) management
of the department?s reporting system for aircraft accidents, incidents, and
hazards; and (4) management of the OAS aviation and occupational safety and
health programs. Since April 1995, OAS is required to report accidents
involving fatalities, serious injuries, or substantial damage to the
National Transportation Safety Board and to assist the board with accident
investigations when appropriate. The OAS Division of Technical Services
oversees many day- to- day safety concerns, such as pilot training, aircraft
engineering and maintenance, and technical policy development. The bureau
directors are ultimately responsible for adherence to standards and the
implementation of an effective accident prevention program.

3 43 U. S. C. 1467. Interior?s Aviation

Accident Rate Has Improved Dramatically Since OAS?s Safety Program Was
Established

Page 7 GAO- 02- 460 Department of the Interior

Since safety oversight was centralized under OAS, Interior has seen a
dramatic decline in the rate of accidents, as shown in figure 2.

Figure 2: Decline in Interior?s Accident Rate per 100,000 Flight Hours, 1975
through 2001

OAS accepts applicable FAA regulations as baseline criteria for its aviation
operations and then applies additional standards in order to reduce
accidents that occur during hazardous flying conditions and specialized
operations required by the bureaus? unique missions. These standards are
published in the department?s manual and in OAS?s operational procedures
memoranda. Additional policy directives issued by the bureaus may be more
restrictive but may never be less restrictive than OAS?s standards.

These manuals specify more stringent pilot qualifications than those
required by federal aviation regulations. For example, FAA requires pilots

Page 8 GAO- 02- 460 Department of the Interior

who fly passengers on commuter aircraft to have a commercial pilot
certificate, which requires a minimum of 250 flight hours. However, OAS
requires its contract pilots to have 1,500 flight hours to be eligible to
fly missions for Interior. OAS also requires most of its fleet pilots to
have a minimum of 500 hours of time commanding an aircraft to operate
government- controlled aircraft, although there is no similar requirement in
the federal aviation regulations.

OAS has also developed additional aircraft maintenance standards for all
Interior- owned aircraft and all contract aircraft that operate for
Interior. For example, OAS requires a flight test following an aircraft
overhaul, a major repair, or a replacement of engine or propeller. In
addition to requirements for flight tests and 100- hour inspections, OAS
developed standards for the inspection and maintenance of special use and
missionrelated equipment that is not covered by FAA regulations.

Although OAS strives to meet or exceed all FAA regulatory standards on
manufacturer requirements, OAS has granted exceptions to manufacturers?
weight requirements for certain aircraft- eight Cessna 206 Amphibians and
one De Havilland DHC- 2T Beaver aircraft. OAS granted these exceptions to
the Fish and Wildlife Service to allow the aircraft to exceed the
manufacturers? weight limitations when the service conducts surveys of
migratory birds. The exceptions were required to compensate for special
equipment needed to conduct these surveys and to carry extra fuel during
long flights over remote areas. OAS granted the exceptions with several
stipulations designed to enhance the safety of these operations.
Furthermore, to verify that the aircraft are operating under safe
conditions, OAS had an engineering analysis conducted on the eight Cessna
aircraft and has an engineering analysis in progress on the De Havilland
Beaver. OAS also awarded a development contract on June 5, 2001, to provide
a replacement aircraft that will meet all migratory bird mission
requirements, thereby eliminating the need for all overweight exceptions to
policy.

Page 9 GAO- 02- 460 Department of the Interior

From fiscal year 1997 through fiscal year 2000, OAS did not recover about $4
million from Interior?s bureaus. We found two primary reasons why OAS set
rates too low to fully recover its costs: (1) actual flight hours were lower
than the projected hours based on historical usage and (2) all costs were
not included in the estimates. As a result, OAS had to subsidize the costs
of the aircraft used by Interior bureaus in part with funds from its reserve
accounts, collected in prior years, such as the reserve fund for replacing
aircraft. OAS?s failure to recover all its costs from the bureaus was not
attributable to any faults in OAS?s accounting system but to deficiencies in
the fleet rate model and rate process. We found the accounting system
capable of producing financial information that is reasonably complete,
reliable, and useful to OAS management for the purposes of setting rates.

OAS recovers its costs from users by charging for its services. Costs for
fleet aircraft are recovered based on fleet rates, and costs for contract
aircraft are recovered based on agreements for the cost of the contract plus
OAS?s costs for servicing these agreements. OAS provides four lines of
services- fleet, contract, rental, and miscellaneous (other)- to Interior?s
bureaus and other agencies, such as those within the Departments of Defense
and of Agriculture. For fiscal years 1997 through fiscal year 2000, OAS
failed to recover about $4 million from the Interior sector of its business
while realizing a slight overcharge of approximately $400,000 from agencies
outside Interior. Table 1 shows, by business line, where these unrecovered
costs occurred.

Table 1: Charges and Costs for Interior Bureaus by Business Line, Fiscal
Years 1997 through 2000

Dollars in thousands Fleet Contract Rental Miscellaneous

reimbursable Total

Total charges $24,406 $169,355 $50,049 $11,462 $255,272

Total costs 27,512 169,673 50,877 11,367 259,429

(Under)/ overcharge ($ 3,106) ($ 318) ($ 828) $95 ($ 4,157)

Percentage of (under)/ overcharge to costs (11.3%) (0.2%) (1.6%) 0. 8%
(1.6%)

As table 1 shows, the majority of unrecovered costs were in the fleet
business line. The fleet business recovered less of its costs because OAS
and the bureaus? aviation managers had not correctly determined and set the
appropriate rates. To determine the rates it needs to charge its users to
Rates Charged to

Users of Fleet Aircraft Have Not Fully Funded the Cost of Fleet Operations

Page 10 GAO- 02- 460 Department of the Interior

recover the costs of its services, OAS captures the historical costs
associated with each aircraft. OAS then projects the future costs based on
its analysis of the historical costs, adjusted for inflation, and determines
a means by which to allocate projected costs to the appropriate user. Based
on this allocation, OAS calculates the hourly and monthly rates of the fleet
rates using a fleet rate model. OAS then meets with the bureaus? aviation
managers to get their input on the rates and makes subsequent adjustments to
its projections of future costs if necessary. Finally, the aviation managers
and OAS agree to the fleet rates, and OAS and each bureau sign an
interagency agreement that sets the rate. In order to allow the bureaus lead
time to budget for future costs, rates are set 2 years in advance and
adjusted, if necessary. OAS and the aviation managers do not have a process
to monitor rates periodically to determine if the rates fully recover costs.

Using this process for setting the fleet aircraft rates, OAS has not
recovered all costs because it relies on 5- year historical averages of
flight hours in its calculation of rates and has no provision for projecting
flight hours in its rate- setting process. If OAS had solicited the bureaus
for projected flight hours, which may change from year to year because of
changes in mission requirements, it would have had a more accurate
projection of usage and therefore could have set the rates more precisely.
The use of 5- year historical averages has resulted in an overestimation of
the number of flight hours when compared to declining actual usage in recent
years. According to an OAS official, the bureaus accept this higher
projection of flight hours based on 5- year historical usage, because it
results in lower rates. For example, if an aircraft has (1) an estimated
cost of $100,000 based on historical costs and (2) an estimated usage of 200
flight hours based on the historical averages, the resulting rate would be
$500 per flight hour. However, if the actual usage were reduced to 100
flight hours, the actual cost recovery for that aircraft would only be
$50,000 or one- half of the projected recovery. As a result, the rate set
would not fully recover the costs. While it is to be expected that flight
hours vary to some degree from the projected usage, the use of more accurate
projections and resulting rates would result in more accurate recovery of
the costs.

Additionally, OAS did not include in its calculations all the costs that
needed to be considered in setting rates. From 1991 through 2000, in the
Alaskan operations, OAS omitted from its rate calculation approximately $1.9
million in costs for aircraft maintenance. Fleet rates were therefore
significantly lower than needed to recover the costs. OAS did not have a
process in place to recognize the error and the resulting underrecovery of

Page 11 GAO- 02- 460 Department of the Interior

costs in a timely fashion. OAS has since taken actions to recoup the costs
of the Alaska fleet maintenance operations and now includes these costs in
its rate calculations. OAS has also not included in its projection all the
costs of employees? postretirement health benefits and of the Civil Service
Retirement System employee pension plan for current OAS employees engaged in
work directly related to aviation services and therefore is not recovering
these costs from its users.

OAS has taken steps to control increases in program costs, but could
potentially save several million dollars more annually if it implemented a
more cost- effective approach to using aircraft. In an effort to control
costs, OAS has reduced staff and implemented strategies to operate more
efficiently. As a further effort, OAS conducted cost comparisons and
determined that it was more cost effective to maintain aircraft under
government ownership than to contract for aircraft. Despite these efforts,
OAS has not managed the use and scheduling of aircraft, a major factor of
the aviation program?s cost. We analyzed the savings attributable to
improvements in fleet and contract utilization and found that a moderate
increase in average annual flight hours per aircraft could translate into
savings of several million dollars annually. However, until OAS sets
results- oriented performance goals and measures as part of a strategic
aviation planning process and monitors its performance on an ongoing basis,
it cannot track its progress in achieving additional program savings.

OAS has taken several actions to control the cost of operations to maintain
fleet rate cost increases consistent with the producer price index for
transportation since 1995. In particular:

 OAS decreased staffing levels from 124 staff in fiscal year 1992 to 94
staff in fiscal year 2000, a 24- percent decrease. Because most OAS costs
are personnel- related, this reduction significantly decreased OAS?s costs.

 The OAS Acquisition Management Division implemented new contracting
procedures to streamline the contracting process and established
interdepartmental agreements with the Department of Agriculture?s Forest
Service to facilitate aircraft sharing arrangements.

 OAS is developing Web- based training for bureau aviation personnel,
reducing training cost by more than $100,000 during the first 6 months of
program implementation. OAS Has Taken

Actions to Control Program Cost Increases, but Improved Scheduling and Use
of Aircraft Could Further Reduce Costs

OAS Has Acted to Control Program Cost Increases

Page 12 GAO- 02- 460 Department of the Interior

To examine the cost effectiveness of government ownership, OAS compared the
costs of fleet aircraft with the costs of contracted aircraft. OAS found
that, given the existing fleet aircraft, equipment, locations, and missions,
retaining the fleet under government ownership to be $243 per flight hour
less, on average, than contract aircraft. In making these comparisons, OAS
contracted for two comprehensive studies- one in 1996 and one in 2001- that
were to follow the standard requirements laid out in Office of Management
and Budget Circular A- 76, ?Performance of Commercial Activities,? for
ensuring that the cost comparisons between government and contracted
operations were conducted appropriately. The 1996 study concluded that all
but 2 of the 84 aircraft examined were, on average, significantly more cost
effective under government ownership. The 2001 study found that all but 1 of
the 89 aircraft reviewed to be cost effective.

OAS also contracted for a cost comparison of aviation maintenance costs and
solicited bids from private vendors to maintain the fleet in Alaska during
1995. As part of the A- 76 process, OAS also prepared a bid proposing a
streamlined government operation that would lower its maintenance costs by
reducing the number of maintenance personnel. While several vendors
expressed interest, none ultimately bid on the contract to assume
maintenance operations for the Alaskan service. Some bidders took exception
with the minimum wage provisions issued by the Department of Labor that were
included in the solicitation. OAS requested a clarification regarding wage
determination rates, but did not receive a reply; therefore, the wage
provisions remained in the solicitation as issued. OAS won the bid to
continue in- house maintenance and implemented the streamlined organization,
reducing the number of maintenance personnel from 13 to 9.

Although OAS was organized in 1973 to help improve the utilization of
government- controlled aircraft, the use of fleet aircraft declined from
about 350 hours per aircraft in fiscal year 1973 to 246 hours per aircraft
in fiscal year 2000. 4 The task force and several recent reports recommended
more centralization of scheduling; however, OAS has not been able to fully
implement these recommendations because the bureaus determine the aviation
resources needed to accomplish their missions.

4 The actual fiscal year 2000 average hours of 224 has been increased by 10
percent for comparison purposes due to a change in the method of recording
flight hours in 1996. OAS?s Cost Comparisons

Showed Fleet Operations to Be Cost Effective

OAS Has Not Acted to Improve Use and Scheduling of Aircraft to Reduce Costs

Page 13 GAO- 02- 460 Department of the Interior

In 1995, the inspector general of the Department of the Interior estimated
that Interior spent $2.3 million throughout 1992 and 1993 in unnecessary
costs because the bureaus did not schedule flights when fleet aircraft were
available and did not coordinate these aircraft either within each bureau or
among the bureaus. The report suggested that OAS could be a focal point for
scheduling and use of the government- owned fleet, or designate a bureau as
the schedule coordinator within specified regional areas.

In 1996, the General Services Administration also reviewed the Interior
aviation program and identified the potential for significant savings
related to utilization. At the time, the Interior average of 252 hours was
significantly less than the federal average of 350 hours per year, according
to the report. The report estimated that increasing the average hours per
aircraft to the federal average of 350 hours per year would result in an
annual savings of $715,000 in fixed costs and more than $4 million from the
disposal of multiple fleet aircraft. The General Services Administration did
not estimate any savings for variable costs.

We also analyzed the potential for program savings resulting from improved
aircraft utilization. Our analysis is meant to illustrate the potential for
savings- not to identify what utilization improvements should be made by OAS
and the bureaus. We considered two strategies to increase the fleet?s
average number of flight hours per year- either reduce the size of the fleet
or increase the total hours flown. Reducing the number of fleet aircraft
could reduce fixed program costs, while increasing the total number of hours
flown by fleet aircraft could reduce the variable program costs.

If fewer fleet aircraft could fly the required missions, then the
utilization of the fleet could be increased and the fixed cost associated
with some fleet aircraft could be eliminated. As shown in table 2, a 30-
percent reduction in the size of the fleet increases average flight hours
per aircraft per year from 221 to 316 hours per year based on actual fiscal
year 2000 fleet flight hours.

Page 14 GAO- 02- 460 Department of the Interior

Table 2: Potential Fixed Cost Savings Opportunities Resulting from Increases
in Utilization

Potential for savings under three scenarios Fiscal year

2000 Reduction in

fleet size of 10 percent

Reduction in fleet size of

20 percent Reduction in

fleet size of 30 percent

Number of fleet aircraft 100 90 80 70 Total fleet hours 22,125 22,125 22,125
22,125 Average flight hours per fleet aircraft 221 246 277 316

Potential reduction in fixed cost $0 $170,510 $370,529 $610,070

Note: The potential for fixed cost reductions is based on OAS?s cost data
and assumes that the least utilized fleet aircraft would be among the first
considered during any fleet streamlining decision process.

We also looked at the potential to realize variable cost savings. These
savings could be achieved by using fleet aircraft instead of contract
aircraft when fleet costs are less than contract costs. For example,
according to the OAS 2001 cost comparison study, certain contract aircraft
are 100 to 235 percent more expensive to operate. For these aircraft, the
OAS?s estimated average net variable cost savings between the fleet and
contract aircraft was $778 per flight hour. As shown in table 3, if it were
possible to convert 4,425 flight hours to fleet operations, then the average
utilization per fleet aircraft would increase by 20 percent, and the
potential variable cost saving would be about $3.4 million annually.
However, in order to determine the actual savings potential, OAS and the
bureaus would need to conduct a detailed review of opportunities on an
aircraftby- aircraft basis.

Page 15 GAO- 02- 460 Department of the Interior

Table 3: Potential Variable Cost Savings Opportunities Resulting from
Increases in Utilization

Potential for savings under three scenarios

Fiscal year 2000

Increase in utilization of

10 percent Increase in

utilization of 15 percent

Increase in utilization of

20 percent

Contract hours converted to fleet hours 0 2,213 3,319 4,425 Net savings per
converted contract hour 0 $778 $778 $778 Total fleet hours 22,125 24,338
25,444 26,550 Number of fleet aircraft 100 100 100 100 Average flight hours
per fleet aircraft 221 243 254 266

Potential reduction in variable cost $0 $1,721,325 $2,581,988 $3,442,650

Note: The potential for converted contract hours of 4, 425 (a 20- percent
increase in utilization) is based on actual FY 2000 contract hours flown by
74 Bell 206 and 412 helicopters. Since OAS operates only a few Bell
aircraft, the potential variable cost savings would be contingent upon the
acquisition of additional aircraft.

OAS and the bureaus have not been able to improve aircraft utilization.
Citing its history and relationship with the bureaus, OAS did not implement
all the utilization recommendations made in the prior studies because it
believes it lacks the authority and responsibility to mandate bureau program
and mission requirements- and hence, utilization- under departmental
regulations. While bureau aviation managers point to some examples in which
improved utilization has resulted in savings, they have not attempted to
make a systemwide improvement in utilization. Bureau aviation managers noted
that improvements in utilization are difficult to implement because of other
factors: weather, high- priority or time- critical missions, workload peaks,
mission- required equipment, and the aircraft?s physical location.

OAS does not set results- oriented performance goals and measures as part of
a strategic aviation planning process and does not monitor its performance
on an ongoing basis. As a result, it cannot effectively track its
performance or measure its results on a consistent basis. OAS has tracked
its performance on a sporadic basis in response to requests for information,
legislative requirements, or, most recently, as part of the rate- setting
process, but it has not linked performance measurement to results- oriented
goals. For example, OAS tracked the cost and OAS Cannot Demonstrate

How Its Cost Reductions Have Affected Program Outcomes

Page 16 GAO- 02- 460 Department of the Interior

performance of the Alaskan operations as part of the reorganization, but
discontinued monitoring the operations? performance after 2 years.

Rate setting is a critical component of OAS?s program operations because OAS
must recover its costs and maintain adequate funding for operations, future
aircraft replacement, and accident reserves. Shortfalls in program costs,
such as those resulting from inaccurately setting rates, would have been
less likely to occur year after year if the bureaus had evaluated whether
their reliance on historical averages correctly predicted future costs and
usage. Consideration of both historical and projected data would help OAS
bring the best available information to bear in estimating usage and setting
rates. Periodic comparisons of the rates set with the actual costs incurred
would have helped ensure that all costs were recovered.

OAS acting alone cannot improve the utilization of aircraft. Traditionally,
the bureaus have not coordinated their efforts to use their aviation
resources in a more cost- effective manner. As a result, fleet aircraft are
not being fully utilized; better utilization could lead to significant
savings. Absent a strategic aviation plan for the department, it is
difficult to analyze future requirements by mission and flight hours. OAS
and the bureaus could begin the process for fuller utilization if they
established a strategic aviation plan that, among other things, sets
results- oriented performance goals and measures for the department and
then, following that plan, analyzed future requirements for the department.
Such an analysis could help them identify new opportunities to reduce cost,
maintain the quality of services, and maximize the value of the aviation
program for the department.

To ensure that all program costs are fully recovered and to improve the
rate- setting process, we recommend that the secretary of the Department of
the Interior

 direct OAS to obtain forecasts of future usage from the bureaus and use
these forecasts, as well as other relevant information, to set rates; and

 direct OAS and the bureaus, upon completion of the rate- setting process
and calculation of associated payments, to determine whether the rates
recovered all costs and, if not, whether adjustments in the process used to
calculate the rates are necessary.

We also recommend that the secretary of the Department of the Interior
instruct the directors of the Office of Aircraft Services and of each bureau
Conclusions

Recommendations for Executive Action

Page 17 GAO- 02- 460 Department of the Interior

to improve scheduling and use of aircraft and establish performance measures
to monitor and assess progress.

We provided the Department of the Interior with a draft of this report for
review and comment. Interior agreed with the information presented in the
draft, and stated that our findings and recommendations are reasonable. It
stated that the department?s aviation program is complex and multi- faceted
due to the widely diverse missions of the bureaus. Further, it stated that
our report recognizes that successful aviation management within the
department depends on a partnership between OAS and the bureaus to seek more
efficient and cost- effective ways to manage the program. The comments of
the Department of the Interior and our responses to those comments are
included in appendix I.

We performed our review at OAS?s headquarters in Boise, Idaho, and at OAS,
Fish and Wildlife Service, and the National Park Service offices located in
Anchorage, Alaska. We discussed the OAS aviation program with aviation
managers and others from Interior?s Bureau of Land Management, Fish and
Wildlife Service, and National Park Service. For additional perspective, we
interviewed private- sector maintenance vendors in Alaska and
representatives of the state of Alaska aviation program.

We reviewed OAS?s and bureaus? aviation program documents and prior audit
reports, including laws, regulations, program plans, financial data, fleet
rate meeting minutes, and other documents. Although we did not conduct audit
procedures designed to completely evaluate or give an opinion on the OAS
accounting system and corresponding internal controls, we did review work
conducted by the Office of the Inspector General and also performed limited
testing of data reliability. We examined OAS?s cost comparisons as part of
the A- 76 process; we did not, however, evaluate the bureaus? future mission
needs or flight hour forecasts on which the study was based. To illustrate
the potential improvements in aircraft utilization, we relied on OAS?s most
recent comparison of contract and fleet costs and applied the estimated
costs to actual OAS fiscal year 2000 aircraft and flight hours.

We conducted our work from July 2001 through April 2002 in accordance with
generally accepted government auditing standards. Agency Comments

Scope and Methodology

Page 18 GAO- 02- 460 Department of the Interior

As we agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies to other interested
parties and make copies available to others who request them.

If you or your staff has any questions about this report, please call me or
Peg Reese at (202) 512- 3841. Key contributors to this report are listed in
appendix II.

Sincerely yours, Barry T. Hill Director, Natural Resources and Environment

Appendix I: Comments from the Department of the Interior Page 19 GAO- 02-
460 Department of the Interior

Appendix I: Comments from the Department of the Interior

Note: GAO comments supplementing those in the report text appear at the end
of this appendix.

See comment 2. See comment 1.

Appendix I: Comments from the Department of the Interior Page 20 GAO- 02-
460 Department of the Interior

See comment 3. See comment 5. See comment 4.

See comment 3.

Appendix I: Comments from the Department of the Interior

Page 21 GAO- 02- 460 Department of the Interior

The following are GAO comments on the Department of the Interior?s letter
dated March 27, 2002.

1. Interior agreed with our recommendation that historical and projected
data should be used to set rates but stated that our report implies that
fleet aircraft flight hour projections might be intentionally overestimated
in an effort to reduce planned hourly rates. We disagree. Our report
describes the process for making projections and attributes comments about
projections to OAS, but draws no conclusions about the intent on the part of
OAS or the bureaus. During our review, we noted that when total flight hours
decline year after year, projections based on historical averages will
inherently result in over- estimating future flight hour requirements.

2. Interior agrees with our findings and recommendation that periodic
monitoring of fleet cost and subsequent adjustment of rates would result in
more complete recovery of costs. Interior points out that, once rates are
established for budgeting purposes, increasing rates after budget allocation
would reduce flying hours, which in turn could adversely impact cost
recovery. We agree. Our report, however, recommends that actual costs be
compared with estimated costs and that adjustments be made as needed. We
acknowledge Interior?s concurrence to work with the bureaus and periodically
compare the rates set with actual cost incurred, examine usage, and
establish a methodology that will assist in more fully recovering fleet
costs.

3. We support Interior?s proposed actions to recover personnel costs, and
its actions to improve use and scheduling of aircraft.

4. Interior agrees that there may be opportunities to improve the efficiency
of its use of fleet aircraft. Interior stated that it will be reviewing its
scheduling policies to identify such opportunities. We support this
initiative.

5. Interior emphasizes that the department?s aviation program is complex and
multi- faceted due to the diverse missions of the bureaus and the high
priority of safety and mission accomplishment. We agree with this
assessment. Aviation program responsibility is shared by OAS and the
bureaus. We support OAS and bureau partnerships to seek more efficient and
cost- effective ways to manage the aviation program. GAO Comments

Appendix II: GAO Contacts and Staff Acknowledgments

Page 22 GAO- 02- 460 Department of the Interior

Barry T. Hill (202) 512- 3841 Peg Reese (202) 512- 9695

In addition to those named above, Mark Connelly, Robert E. Kigerl, Lisa
Knight, Dawn Shorey, and Carol Herrnstadt Shulman made key contributions to
this report. Appendix II: GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(360098)

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