Aviation Requirements: DOD Should Reassess the Marine Corps' Helicopter
Modernization Decision (Letter Report, 10/30/96, GAO/NSIAD-97-1).

GAO reviewed the Department of Defense's (DOD) efforts to reduce the
number of helicopters in its inventories, focusing on: (1) whether the
services were taking advantages of opportunities to increase commonality
of helicopters within DOD; and (2) the Marine Corps' plans to modernize
its fleet of UH-1 or Huey helicopters.

GAO found that: (1) the Navy, and the Marine Corps have not conducted an
in-depth analysis on the economic benefits of buying the alternative
Blackhawk utility helicopter and they do not plan to conduct such an
analysis; (2) DOD plans to have preliminary results of a commonality
analysis 4 months after the decision on whether to proceed with the
engineering and manufacturing phase of the Huey upgrade; (3) although
the Corps considered a derivative Blackhawk helicopter to be a viable
and desirable alternative to its Huey helicopter, it concluded that the
derivative's procurement and support costs would be $450 million more
than for the Huey upgrade; (4) purchasing the Blackhawk derivative may
be a more cost-effective alternative and could save as much as $717
million in research, development, and procurement costs; (5) these
savings might be partially offset by an estimated $90 million in
increased costs for the Cobra helicopter modernization; and (6) even
with the partial offset, savings from the Blackhawk derivative
procurement would be available to offset the Corp's procurement and
life-cycle costs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-1
     TITLE:  Aviation Requirements: DOD Should Reassess the Marine 
             Corps' Helicopter Modernization Decision
      DATE:  10/30/96
   SUBJECT:  Helicopters
             Cost effectiveness analysis
             Research and development costs
             Military procurement
             Systems conversions
             Military cost control
             Life cycle costs
             Inventory control
             Military inventories
IDENTIFIER:  UH-1 Helicopter
             Huey Helicopter
             UH-60 Helicopter
             Blackhawk Helicopter
             AH-1 Helicopter
             Cobra Helicopter
             
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Cover
================================================================ COVER


Report to the Secretary of Defense

October 1996

AVIATION REQUIREMENTS - DOD SHOULD
REASSESS THE MARINE CORPS'
HELICOPTER MODERNIZATION DECISION

GAO/NSIAD-97-1

Aviation Requirements

(707151)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense

Letter
=============================================================== LETTER


B-274610

October 30, 1996

The Honorable William J.  Perry
The Secretary of Defense

Dear Mr.  Secretary: 

We have completed our review of the Department of Defense's (DOD)
efforts to reduce the types and numbers of helicopters in its
inventories.  Our objective was to determine whether the services are
taking advantage of opportunities to increase commonality of
helicopters within DOD.  Generally, we found the services are taking
action to reduce numbers and types of helicopters.  The purpose of
this letter is to convey our concern about the Marine Corps' plans to
modernize its fleet of UH-1 (Huey) helicopters. 


   BACKGROUND
------------------------------------------------------------ Letter :1

In recent years, DOD has encouraged the services to use more of the
same types of aircraft.  According to DOD officials, greater
commonality should result in infrastructure savings in areas such as
training and program management.  In keeping with DOD's goal for
greater commonality, Navy officials informed us that the Navy plans
to replace its aging logistical support helicopter fleet with a
derivative of the Army's Blackhawk.  This derivative is similar to
helicopters already in the Navy's fleet.  The Air Force plans to
piggyback on other services' procurements of Blackhawk derivatives. 
The Marine Corps, on the other hand, evaluated buying a Blackhawk
helicopter derivative but has decided instead to upgrade
approximately 100 of its Huey utility helicopters at a total program
cost of $975 million,\1 or about $9.8 million per upgrade. 

Active and reserve Marine Corps squadrons currently use the Huey
utility helicopter to provide, among other things, airborne control
and coordination, aeromedical evacuation, and search and rescue. 
Although the Huey has been used by the Marine Corps for over 20 years
and is nearing the end of its useful life, the Marine Corps believes
it must keep its Huey utility helicopter fleet viable until the 2020
time frame, when a joint utility aircraft replacement program is
anticipated. 


--------------------
\1 All cost estimates in this report reflect constant fiscal year
1996 dollars. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

In deciding to modernize its fleet of utility helicopters, the Marine
Corps did not adequately consider the economic benefits of increased
commonality that could be achieved by buying an alternative utility
helicopter like the Blackhawk.  The Marine Corps evaluated a
Blackhawk derivative and found it to be a desirable alternative to
the upgraded Huey, but it concluded that the up-front procurement
costs would be a major impediment and the support costs would be too
high. 

Our analysis shows that purchasing the Blackhawk derivative may be
the more cost-effective alternative for DOD.  A May 1996 DOD study of
the alternatives shows that the life-cycle cost of the Blackhawk
derivative is $200 million more than the Huey upgrade, and a
September 1996 DOD study determined that the procurement acquisition
cost of the Blackhawk derivative would be about $450 million more
than the Huey upgrade.  However, our evaluation indicated that if DOD
were to increase the total annual buy of Blackhawk derivatives, as
much as $717 million in research and development and procurement
savings could result.  These savings could be used to offset the
Marine Corps' increased procurement and life-cycle costs. 


   DOD, NAVY, AND MARINE CORPS
   HAVE NOT CONSIDERED THE
   ECONOMIC BENEFITS OF
   ALTERNATIVES TO MODERNIZING THE
   HUEY
------------------------------------------------------------ Letter :3

DOD, the Navy, and the Marine Corps have not conducted an in-depth
analysis of the economic benefits of commonality for the Marine
Corps' utility helicopter modernization program.  Moreover, the Navy
and the Marine Corps do not plan to conduct such an evaluation.  In
its May 1996 cost-effectiveness study addressing Marine Corps utility
aircraft options, DOD noted that increasing commonality could result
in cost savings, but it did not do an analysis to determine those
savings. 

DOD planned to analyze the benefits of commonality in the utility and
attack helicopter areas, and the preliminary results were scheduled
to be available in February 1997.  In commenting on a draft of this
report, DOD noted that it had not yet funded the commonality study;
therefore, it has not been started.  In the meantime, DOD has
scheduled its Huey upgrade program Milestone II decision--the
decision to proceed with the engineering and manufacturing
development phase--for October 1996.  The Marine Corps' program
represents a major modernization of its utility helicopter fleet,
which benefits from the Marine Corps' Cobra modernization by sharing
common components with the Cobra, according to Marine Corps
officials. 

The Marine Corps evaluated a Blackhawk derivative for its utility
helicopter mission and found it to be a desirable alternative but
concluded it would be too costly to buy and logistically support. 
For example, Marine Corps officials said that procuring a new
aircraft creates a logistical burden because it would have to bear
the cost of (1) training maintenance personnel to work on the new
aircraft and (2) increasing the number of maintenance personnel for
each helicopter squadron by 36. 

A May 1996 DOD study shows that the 20-year life-cycle cost for the
Blackhawk derivative is $200 million more than the Huey upgrade--
$3.7 billion versus $3.5 billion respectively.  The analysis,
however, shows that the Blackhawk derivative may require only 12
additional maintenance personnel per squadron; therefore, the
maintenance burden may not be as great as that estimated by the
Marine Corps.  The analysis also shows that production costs are
within $300 million--the Blackhawk alternative costing about $3
million more per aircraft to procure.  DOD updated its procurement
acquisition cost estimate in September 1996 and increased the
alternative costs to about $4.5 million more per aircraft to procure
for a total difference of about $450 million. 


   PURCHASING BLACKHAWK
   DERIVATIVES MAY BE A MORE
   COST-EFFECTIVE ALTERNATIVE
------------------------------------------------------------ Letter :4

Purchasing additional Blackhawk derivatives may be the more
cost-effective modernization option for DOD because increasing the
annual buy could decrease (1) the procurement cost of the Navy's
planned helicopter buy as much as $670 million and (2) the Marine
Corps' research and development costs by about $47 million.  These
savings could be used to offset the procurement and life-cycle costs
the Marine Corps would incur with a Blackhawk derivative. 

The Navy plans to buy 134 Blackhawk derivatives to replace its aging
logistical support helicopter fleet.  It currently anticipates
spending about $15.8 million per aircraft at a peak production rate
of 9 aircraft a year for its initial buy of 39 aircraft.  The Navy
would like to increase its buy to
18 aircraft per year, and if allowed to do so, the cost per aircraft
would decrease about 18 percent, or about $2.8 million, according to
the Navy program office.  This would result in a decrease of about
$375 million in the total procurement cost.  In addition, if DOD were
to increase servicewide procurement of this aircraft to 36 per year,
the cost per aircraft, according to the Navy program office, would
decrease by $5 million, and the Navy would therefore save about $670
million.  If DOD used the savings to offset the Marine Corps' funding
requirements, the Marine Corps could buy the Blackhawk derivative. 

If the Marine Corps were to buy a Blackhawk derivative, it would save
$137 million in research and development funding, which could also be
used to help offset procurement costs for the alternative aircraft. 
The May 1996 DOD study showed research and development costs for the
new aircraft are significantly less than for the upgraded Huey--$35
million versus $172 million, respectively.  However, according to the
Marine Corps, not all of this may be available because the cost of
the Cobra modernization program will increase by about $90 million if
the Huey upgrade program is canceled.  Even with an estimated $90
million increase in the Cobra program, about $47 million could be
available to help offset the procurement and life-cycle costs needed
for the alternative aircraft. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :5

In view of DOD's goal of increasing common aircraft among the
services and achieving associated savings, we recommend that you (1)
direct DOD's Office of Program Analysis and Evaluation to conduct an
in-depth analysis of the economic benefits of increased utility
helicopter commonality and (2) consider the results of the
commonality study and information in this report in DOD's future
deliberations on the Marine Corps' helicopter modernization options. 
If the study and other available data demonstrate that potential
savings are sufficient to offset the Marine Corps' increased costs,
we recommend that you consider using these savings for a Marine Corps
Blackhawk derivative buy. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

DOD concurred with our recommendations.  However, regarding our
recommendation to consider potential savings as funding for the
Marine Corps buy, DOD pointed out that potential future year savings
do little to offset the affordability problem of higher near-year
procurement funding required.  We recognize that up-front funding
needs would increase at an increased annual production rate, but the
potential savings generated could justify this investment.  This
procurement strategy would reduce DOD's total outlays in the long
term by (1) decreasing the total program acquisition cost and (2)
achieving potential infrastructure savings through increased
commonality. 

In the October 10, 1996, Acquisition Decision Memorandum on the
Marine Corps upgrade program, the Under Secretary of Defense,
Acquisition and Technology, noted that DOD's Office of Program
Analysis and Evaluation will conduct a commonality study and an
expanded operational assessment of utility helicopter alternatives. 
The interim results will be available no later than December 16,
1996.  According to the Under Secretary, at the conclusion of the
study, DOD will make a decision on whether to proceed with the Marine
Corps Huey upgrade program.  See appendix I for DOD's detailed
comments. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To determine whether the services are taking advantage of
opportunities to increase commonality of helicopters within DOD, we
interviewed DOD, Army, Navy, Air Force, and Marine Corps officials
and reviewed the Navy and Marine Corps' aviation plans.  We also
reviewed the Navy's cost and operational effectiveness analysis,
which examined alternatives for modernizing its logistical support
helicopter fleet.  In addition, we reviewed the most recent DOD
cost-effectiveness study, which compared alternatives for the Marine
Corps' Huey modernization program.  We obtained and evaluated Navy
and Marine Corps funding requirements, acquisition costs, and
procurement rates for Blackhawk derivative helicopters.  We then
developed potential DOD cost savings associated with increased
procurement rates for alternative Navy buys.  We did not evaluate
Navy or Marine Corps helicopter requirements. 

We performed our work in Washington, D.C., at the Office of the
Secretary of Defense; the Departments of the Army, the Navy, and the
Air Force; and the Marine Corps.  Our review was conducted from July
to September 1996 in accordance with generally accepted government
auditing standards. 


---------------------------------------------------------- Letter :7.1

As you know, the head of a federal agency is required by 31 U.S.C. 
720 to submit a written statement on actions taken on our
recommendations to the Senate Committee on Governmental Affairs and
the House Committee on Government Reform and Oversight not later than
60 days after the date of this report.  A written statement must also
be submitted to the Senate and House Committees on Appropriations
with the agency's first request for appropriations made more than 60
days after the date of the report. 

We are sending copies of this report to the Chairmen and Ranking
Minority Members, Senate and House Committees on Appropriations,
Senate Committee on Armed Services, House Committee on National
Security, Senate Committee on Governmental Affairs, and House
Committee on Government Reform and Oversight; the Secretary of the
Navy and the Commandant of the Marine Corps; and the Director of the
Office of Management and Budget.  Copies will be made available to
others upon request. 

If you or your staff have any questions concerning this report,
please contact me at (202) 512-4841.  Major contributors to this
report were Robert J.  Stolba, Robert D.  Spence, and Lauri A.  Kay. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)

*** End of document. ***