Military Airlift: Options Exist for Meeting Requirements While Acquiring
Fewer C-17s (Chapter Report, 02/19/97, GAO/NSIAD-97-38).

Pursuant to a congressional request, GAO reviewed the basis for the
November 1995 recommendation by the Defense Acquisition Board that a
fleet of 120 C-17s be acquired to meet airlift needs, focusing on: (1)
whether less costly options exist to meet airlift needs; and (2) the use
of the C-17 to support a strategic brigade airdrop.

GAO found that: (1) an option not considered by the Defense Acquisition
Board would be to acquire 100 C-17s and no commercial transport
aircraft; (2) this option would save the government over $7 billion in
life cycle costs; (3) airlift needs could be met with this reduced
number of C-17s if the Department of Defense (DOD) implemented other
individual measures; (4) costs for implementing the measures would not
be significant compared with the potential savings and have been
accommodated in GAO's estimate of the potential savings; (5) a fleet
with 100 C-17s would also be sufficient to support missions that require
the unique military capabilities of the C-17; (6) until fiscal year
2004, however, the Air Force will not be able to support an extended
range brigade airdrop to a small, austere airfield as called for in the
Army's concept of operations; (7) in the interim, the Air Force and Army
are considering other alternatives to perform the extended range brigade
airdrop mission now required in DOD's Defense Planning Guidance; (8) GAO
believes alternatives could be used, with a fleet with 100 C-17s and
modified C-5s, to support an extended range airdrop to either a small,
austere or larger airfield either indefinitely or until the Air Force
begins replacing the C-5, currently planned to begin in 2007; (9) if DOD
and Congress determine that an extended range brigade airdrop to a
small, austere airfield is a valid need, this need could be considered
in choosing a replacement airlifter for the C-5; (10) for safety
reasons, the Army has imposed a restriction on paratroopers jumping from
C-17s in close airdrop formations due to turbulence created by the C-17;
(11) until this safety concern is resolved, the C-17 cannot be used to
support the brigade airdrop mission; (12) although Congress has approved
and DOD has awarded a multiyear contract with an accelerated production
schedule for the final 80 C-17s, that contract contains a clause that
would permit the government, if full funding for a production lot under
the multiyear contract were not available, to revert to single-year
options without paying cancellation costs; (13) while there would be an
increase in program discontinuation costs to close out the contract at
100 rather than at 120, those additional costs have been accounted for
in GAO's estimate of the potential savings; (14) DOD and McDonnell
Douglas have implemented initiatives to reduce the total program cost o*

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

 REPORTNUM:  NSIAD-97-38
     TITLE:  Military Airlift: Options Exist for Meeting Requirements 
             While Acquiring Fewer C-17s
      DATE:  02/19/97
   SUBJECT:  Military aircraft
             Air Force procurement
             Future budget projections
             Military cost control
             Defense contingency planning
             Military airlift operations
             Transportation safety
             Airborne operations
             Life cycle costs
             Contract termination costs
IDENTIFIER:  C-17 Aircraft
             DOD Nondevelopmental Airlift Aircraft Program
             C-141 Aircraft
             Starlifter Aircraft
             C-5 Aircraft
             Globemaster Aircraft
             DOD Major Aircraft Review
             DOD Mobility Requirements Study Bottom-Up Review Update
             Large Medium-Speed Roll On Roll Off Ship
             Air Force Strategic Airlift Force Mix Analysis
             DOD Tactical Utility Analysis
             Air Force Civil Reserve Air Fleet Program
             C-5A Aircraft
             KC-10 Aircraft
             KC-135 Aircraft
             C-33 Aircraft
             C-5D Aircraft
             DOD Bottom-Up Review
             Persian Gulf
             Korea
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Honorable
Elizabeth Furse, House of Representatives

February 1997

MILITARY AIRLIFT - OPTIONS EXIST
FOR MEETING REQUIREMENTS WHILE
ACQUIRING FEWER C-17S

GAO/NSIAD-97-38

Military Airlift

(707109)


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

  AMC - Air Mobility Command
  CRAF - Civil Reserve Air Fleet
  DAB - Defense Acquisition Board
  DOD - Department of Defense
  LMSR - Large Medium-Speed Roll On Roll Off
  MRSBURU - Mobility Requirements Study Bottom-Up Review Update
  NDAA - Non-Developmental Airlift Aircraft
  PE/PI - Producibility Enhancement/Performance Improvement
  SAFMA - Strategic Airlift Force Mix Analysis

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


B-272608

February 19, 1997

The Honorable Elizabeth Furse
House of Representatives

Dear Mrs.  Furse: 

This report responds to your request that we review the basis for the
November 1995 recommendation by the Defense Acquisition Board that a
fleet of 120 C-17s be acquired to meet airlift needs.  Specifically,
the report addresses the basis for the November recommendation,
explores whether less costly options exist to meet airlift needs, and
identifies an issue concerning the use of the C-17 to support a
strategic brigade airdrop. 

As you requested, we plan no further distribution of this report
until 5 days after its issue date.  At that time, we will send copies
to the Chairmen and Ranking Minority Members, Senate Committee on
Armed Services; House Committee on National Security; Senate
Subcommittee on Defense, Committee on Appropriations; and House
Subcommittee on National Security, Committee on Appropriations.  We
will also send copies to the Secretaries of Defense and the Air
Force; the Director, Office of Management and Budget; and other
appropriate parties.  We will make copies available to others on
request. 

Please call me at (202) 512-4841 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix III. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Congress had expressed concern about whether the C-17 was the
most cost-effective airlifter for the Air Force to procure, given the
aircraft's history of cost, schedule, and performance problems.  The
Congress had required the Department of Defense (DOD) to establish a
Non-Developmental Airlift Aircraft program to acquire a commercially
available transport aircraft as a substitute for or complement to a
fleet of C-17s.  As a result of a November 1995 decision by the
Defense Acquisition Board, DOD plans to buy 120 C-17s and no
commercially available transport aircraft.  DOD concluded that the
advantages of buying the C-17 outweighed any potential cost savings
from acquiring a mixed fleet.  Given the $43 billion price for the
C-17 program, Congresswoman Elizabeth Furse asked GAO to explore
whether less costly alternatives to procuring 120 aircraft exist
while still satisfying the nation's airlift requirements.  This
report responds to that request. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The C-17 aircraft, an air refuelable, four-engine jet transport, is
being manufactured by the McDonnell Douglas Corporation.  The C-17 is
to replace the C-141 transport in the current fleet and complement
the larger but less maneuverable C-5 aircraft.  When the program
began in 1982, the Air Force planned to acquire 210 C-17s to augment
its strategic airlift fleet.  In 1990, as part of DOD's Major
Aircraft Review, the Secretary of Defense reduced the program to 120
aircraft.  In December 1993, due to ongoing concerns with the C-17's
growing cost and continuing technical problems, the Secretary of
Defense announced that the program would be stopped at 40 aircraft
unless McDonnell Douglas could demonstrate that program cost,
schedule, and performance improvements warranted completing the
120-aircraft program.  Moreover, in March 1994, at congressional
direction, DOD initiated a program to acquire a transport aircraft
using commercial practices as a possible alternative or supplement to
the C-17. 

The Under Secretary of Defense for Acquisition and Technology
convened a Defense Acquisition Board in October/November 1995 to
determine (1) whether the C-17 aircraft program should continue past
40 aircraft and (2) how many additional C-17s and commercial
transport aircraft should be procured.  The Board decided to procure
120 C-17s and no commercial transports.  The decision was based on
several studies and analyses, including the results of the Joint
Chiefs of Staff's 1995 Mobility Requirements Study Bottom-Up Review
Update (MRS BURU), the Air Mobility Command's Strategic Airlift Force
Mix Analysis, DOD's Tactical Utility Analysis, and C-17 cost and
performance information presented by the Air Force. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

An option not considered by the Defense Acquisition Board, which may
satisfy strategic airlift requirements, would be to acquire 100 C-17s
and no commercial transport aircraft.  This option would save the
government over $7 billion in life-cycle costs (fiscal year 1996
dollars).  The savings would consist of over $4 billion in
acquisition costs and over $3 billion in operating and support costs. 
Airlift needs could be met with this reduced number of C-17s if DOD
implemented other individual measures, such as increasing
prepositioning of Army combat support and combat service support
materiel that would otherwise be delivered by air, using training
aircraft (assumed to be unavailable in the MRS BURU to support major
regional contingencies, increasing the use of Civil Reserve Air Fleet
aircraft, increasing slightly the time frame for delivery, or by
adopting some combination of these measures.  Costs for implementing
the measures would not be significant compared with the potential
savings and have been accommodated in our estimate of the potential
savings.  A fleet with 100 C-17s would also be sufficient to support
missions that require the unique military capabilities of the C-17,
such as landing on a short runway. 

The only mission that would require more than 100 C-17s in
conjunction with the current fleet is an extended range brigade
airdrop mission to a small, austere airfield directly from the
continental United States.  Until fiscal year 2004, when at least 114
C-17s will be available, the Air Force will not be able to support an
extended range brigade airdrop to a small, austere airfield as called
for in the Army's concept of operations.  In the interim, the Air
Force and the Army are considering other alternatives to perform the
extended range brigade airdrop mission now required in DOD's Defense
Planning Guidance.  GAO believes alternatives could be used, with a
fleet with 100 C-17s and modified C-5s, to support an extended range
airdrop to either a small, austere or larger airfield either
indefinitely or until the Air Force begins replacing the
C-5--currently planned to begin in 2007.  If DOD and the Congress
determine that an extended range brigade airdrop, to a small, austere
airfield is a valid need, this need could be considered in choosing a
replacement airlifter for the C-5. 

Further, for safety reasons, the Army has imposed a restriction on
paratroopers jumping from C-17s in close airdrop formations due to
turbulence created by the C-17.  Until this safety concern is
resolved, the C-17 cannot be used to support the brigade airdrop
mission. 

Although the Congress has approved and DOD has awarded a multiyear
contract with an accelerated production schedule for the final 80
C-17s, that contract contains a clause that would permit the
government, if full funding for a production lot under the multiyear
contract were not available, to revert to single-year options without
paying cancellation costs.  While there would be an increase in
program discontinuation costs to close out the contract at 100 rather
than at 120, those additional costs have been accounted for in our
estimate of the potential savings. 

Finally, DOD and McDonnell Douglas have implemented initiatives to
reduce the total program cost of the 120 C-17 program.  However, the
current estimated cost of $43 billion is about the same as that
estimated in 1994.  Although production costs have decreased, costs
for planned modifications and retrofit, further testing, and
contractor support of fielded aircraft have increased.  In addition,
the contract prices for the last 50 aircraft could increase by about
$1 billion if ceiling prices on those contracts are reached. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      STRATEGIC AIRLIFT
      REQUIREMENTS CAN BE MET WITH
      100 C-17S
-------------------------------------------------------- Chapter 0:4.1

The MRS BURU recommended that, to meet strategic mobility
requirements for a scenario involving two nearly simultaneous major
regional contingencies, an airlift fleet with 120 to 140 C-17s, or
their equivalents, be used and that afloat prepositioning be
increased.  The Strategic Airlift Force Mix Analysis showed that an
acceptable option to meet strategic requirements was to acquire 100
C-17s and 18 commercial transport aircraft, which would save $300
million compared with a fleet with 120 C-17s. 

On the basis of GAO's analysis, a fleet with 100 C-17s and no
commercial transport aircraft may also be a viable alternative that
could save the government over $7 billion in life-cycle costs as
shown in table 1. 



                                     Table 1
                     
                      Potential Life-Cycle Cost Savings From
                        Acquiring 100 Instead of 120 C-17s

                         (In millions of fiscal year 1996
                                constant dollars)

                                Military   Operating
Number of                     constructi         and
aircraft beyond   Acquisitio          on     support  Discontinuatio       Total
40                   n costs       costs       costs         n costs       costs
----------------  ----------  ----------  ----------  --------------  ==========
80                 $16,881.7     $ 162.0   $19,604.0         $ 118.0   $36,765.0
60                  12,840.1       137.0    15,820.0           360.0    29,157.1
Difference          $4,041.6       $25.0    $3,784.0        $(242.0)    $7,608.6
--------------------------------------------------------------------------------
This smaller fleet would provide sufficient outsize cargo carrying
capability and could adequately deal with potential constraints such
as reduced airfield availability and ramp space.  A fleet with 100
C-17s would be sufficient if DOD implemented one or a combination of
the following alternative measures: 

  -- Increase the amount of Army combat support and combat service
     support materiel planned for prepositioning.  For example, DOD
     could slightly increase the amount of prepositioned materiel
     planned for afloat prepositioned ships beyond that recommended
     in the MRS BURU.\1

  -- Use airlift assets not considered available in the study, such
     as C-17 and C-5 training aircraft and increased numbers of Civil
     Reserve Air Fleet aircraft. 

  -- Extend by a day or two the time frame in which a small amount of
     Army combat support and combat service support materiel would be
     delivered during the initial phase of the Mobility Requirements
     Study's major regional contingencies. 

Increased costs attributable to these measures would be minor when
compared with the potential savings.  Increased prepositioning aboard
ships results in only minor cost increases since sufficient space
will be available on the ships to accommodate tonnage not delivered
by a fleet, including 100 C-17s.  Since trainer aircraft will be part
of the inventory and in use, increased costs from their use would
only be the additional flying hours in direct support of the major
regional contingency.  The Civil Reserve Air Fleet has historically
been recognized as a low cost airlift option. 

Although GAO cannot estimate these costs exactly, it has accommodated
them, to the extent it could identify them, in the estimate of
potential savings.  DOD would have to determine the effect of a delay
of 1 or 2 days in delivery of a small amount of combat support and
combat service support materiel to the second major regional
contingency. 


--------------------
\1 "Afloat prepositioning" is the use of ships loaded with combat
equipment and support items located near potential trouble spots. 
This enables the ships to respond more quickly than if they were
deployed from the United States.  The MRS BURU recommended
regenerating (reloading) these ships after their cargo has been used
in an initial major regional contingency. 


      100 C-17S WOULD SUFFICE FOR
      LESSER REGIONAL
      CONTINGENCIES AND STRATEGIC
      BRIGADE AIRDROP
-------------------------------------------------------- Chapter 0:4.2

The purpose of DOD's Tactical Utility Analysis was to quantify the
C-17's benefits in responding to lesser regional contingencies such
as humanitarian relief, peacekeeping, and peace enforcement missions;
providing intratheater airlift and direct delivery to small, austere
airfields; and performing a strategic brigade airdrop.  The analysis
found that, with the exception of an extended range brigade airdrop,
100 C-17s or fewer would be sufficient.  The Tactical Utility
Analysis had found that about 120 C-17s would be needed to conduct
this mission directly from the continental United States to a small,
austere airfield, as desired by the Army. 


      ALTERNATIVES CAN BE USED TO
      MEET STRATEGIC BRIGADE
      AIRDROP REQUIREMENTS WITH
      100 C-17S
-------------------------------------------------------- Chapter 0:4.3

The Air Force does not currently have the capability to support an
extended range brigade airdrop mission as envisioned by the Army
within the desired time frame.  This capability will not exist until
fiscal year 2004, when at least 114 C-17s are available and 50 C-5s
have been modified for airdrop.  The Air Force is currently
considering alternatives for performing this mission.  Options
include moving some equipment and supplies to a base or bases closer
to the targeted destination as an initial step in the airdrop mission
or conducting the mission to a larger airfield accessible to the C-5. 
GAO believes such options would allow a fleet with 100 C-17s and 50
modified C-5s to perform the extended range brigade airdrop mission. 

As of July 1996, there were 74 C-5As in the airlift fleet.  The Air
Force's long-range airlift modernization plan calls for replacing the
C-5As beginning in 2007.  The Air Force plans to begin replacing
C-5As just
3 years after enough C-17s are scheduled to enter the inventory to
support the Army's concept for an extended range brigade airdrop.  An
option that could result in saving billions would be to extend the
alternative methods for accomplishing the extended range brigade
airdrop--using only 100 C-17s--until C-5A replacement has begun and,
if the Army's concept of operations for the extended range brigade
airdrop is considered a valid requirement, consider making some of
the replacements capable of airdropping equipment to replace C-17s in
the equipment airdrop role.  This would reduce the number of C-17s
needed for airdropping equipment and make them available for the
follow-on role of bringing equipment and troops into the captured
small, austere airfield.  The Air Force would then be able to support
an extended range brigade airdrop with only 100 C-17s. 


      C-17 AIRDROP CAPABILITY NOT
      PROVEN
-------------------------------------------------------- Chapter 0:4.4

The C-17 has not yet demonstrated the capability to safely perform a
mass airdrop of personnel while flying in close formation.  Due to
the dangers posed to paratroopers during their descent by the C-17's
wake turbulence, the Army has not approved the use of the C-17 for
this mission.  Until this problem is resolved, the C-17 cannot be
used to support the brigade airdrop mission.  Further, the C-17 does
not meet paratroop exit rate requirements when airdropping personnel
along with equipment bundles, which could extend the time required
for all paratroopers to get on the ground and increase their
separation.  Increased separation would further delay organizing
troops on the ground making it more difficult to execute the mission. 


      ESTIMATED PROGRAM COSTS
      REMAIN AT $43 BILLION AND
      COULD INCREASE
-------------------------------------------------------- Chapter 0:4.5

DOD and McDonnell Douglas have taken the following actions to reduce
prices for the last 88 aircraft of a 120 aircraft program:  (1)
imposed competitive pressure on McDonnell Douglas through the
Non-Developmental Airlift Aircraft program, (2) performed a should
cost analysis to serve as a basis for negotiating lower prices for
the last 88 aircraft, (3) implemented cost-reduction initiatives, (4)
accelerated the procurement rate, and (5) obtained congressional
approval for a multiyear procurement of the last 80 aircraft. 

GAO found that these actions held total program costs for 120 C-17s
to about the $43 billion amount estimated by the Air Force in January
1994.  Although production costs have decreased, costs for planned
modifications and retrofit, further testing, and contractor support
of fielded aircraft have increased.  Also, the contract prices for
the last 50 aircraft could increase.  The production lots for the
last 50 aircraft are covered by not-to-exceed ceiling prices, which
exceed the negotiated target prices by about $1 billion.  Further,
the contract provides for adjustments in the prices for the last 72
aircraft to account for changes in costs that could not be accurately
foreseen at the time the multiyear contract was negotiated. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:5

Because of the potential savings of over $7 billion and the relative
contribution of the final 20 C-17s, the Congress may wish to consider
funding only 100 C-17s and requiring DOD to reexamine the decision to
acquire 120 C-17s.  DOD can meet mission requirements by employing
various low-cost options and by extending the use of alternatives for
accomplishing the extended range brigade airdrop.  Further, before
approving the acquisition of the final 20 C-17s primarily to support
the brigade airdrop mission, the Congress should require that DOD
certify that the aircraft's wake turbulence problems have been
solved. 


   AGENCY COMMENTS AND GAO'S
   EVALUATION
---------------------------------------------------------- Chapter 0:6

In commenting on a draft of this report, DOD maintained that a fleet
providing the capability of 120 C-17 equivalents is the minimum fleet
required based on the MRS BURU and that all of the alternatives
suggested by GAO were operationally unacceptable.  DOD agreed that
the C-17 has a wake vortex problem and has not yet demonstrated the
capability to safely perform a mass airdrop of personnel while flying
in close formation. 

While the MRS BURU recommended that a fleet with the capacity of 120
C-17s be acquired, the basis for that recommendation included a set
of assumptions concerning the expected level of prepositioning and
the timing of the scenarios.  GAO is suggesting that there are
measures that DOD could implement that would change those
assumptions.  That is, alternatives that could be used either
separately or in combination to offset the need for the additional 20
C-17s.  For example, increased use of Civil Reserve Air Fleet
aircraft and KC-10s and the employment of C-17 and C-5 trainers all
have been used as short-term solutions to meet airlift needs in the
past.  DOD's assertion that GAO's suggested alternatives increase
risk to an unacceptable level is not based on analysis.  While DOD's
analyses offer increased flexibility as a rationale for acquiring 120
C-17s, they do not preclude the alternatives GAO has proposed. 

DOD also recommended that GAO withdraw its suggestion that the
Congress require DOD to certify that the aircraft's wake turbulence
problems have been solved prior to approving acquisition of the final
20 C-17s.  Since DOD agrees that there is a wake turbulence problem
and that the aircraft has not demonstrated the ability to safely
support a mass formation airdrop, GAO believes that the reasons for
requiring such certification remain valid. 


INTRODUCTION
============================================================ Chapter 1

In the post-Cold War period, the Department of Defense (DOD) must be
able to provide troops, equipment, and supplies throughout the world
in response to conflicts or crises affecting U.S.  interests.  DOD
relies on sealift, prepositioned assets, and airlift to accomplish
this mission.  DOD plans to use airlift to rapidly transport troops
and supplies to link up with prepositioned equipment, thus speeding
the deployment of heavier units early in a conflict. 

Airlift is classified as either intertheater (from one theater of
operation to another) or intratheater (operations within a theater). 
Strategic intertheater airlift services are provided by the Air
Force's Air Mobility Command (AMC), which has a fleet of C-5, C-141,
KC-10, KC-135, and C-17 aircraft to carry out that mission.  AMC also
uses the Civil Reserve Air Fleet (CRAF) to augment its military
airlift capacity during contingencies.  The Air Combat Command is
responsible for operating C-130 aircraft, which provide intratheater
airlift. 


   C-17 EXPECTED TO MODERNIZE
   AIRLIFT FLEET
---------------------------------------------------------- Chapter 1:1

To meet a need for additional long-range airlift, the Air Force
contracted with McDonnell Douglas Corporation in July 1982 to develop
and produce the C-17.  The C-17 is an air refuelable, four-engine jet
transport designed to operate in both the intertheater and
intratheater roles.  It is to replace the C-141 in the current air
fleet and complement the larger but less maneuverable C-5.  The C-17
is currently contracted to carry a payload of 119,125 pounds 3,200
nautical miles unrefueled and perform the full range of airlift
missions, including landing on small, austere airfields; airlifting
outsize cargo, such as tanks; and airdropping troops and equipment. 

When the program began in 1982, the Air Force planned to acquire 210
C-17 aircraft.  However, in April 1990, the Secretary of Defense,
citing the post-Cold War environment and fiscal constraints, reduced
the program to 120 aircraft.  During development and initial
production, the C-17 program experienced ongoing cost growth and
technical problems and the contractor fell behind schedule in
delivering the production aircraft.  In December 1993, because of
concerns with the C-17's growing cost and continuing technical
problems, the Secretary of Defense announced that the program would
be stopped at 40 aircraft unless McDonnell Douglas could demonstrate
that program cost, schedule, and performance improvements warranted
completing the 120 aircraft program.  The contractor was given a
2-year probationary period to improve its performance. 

In March 1994, DOD (at congressional direction) established a
Non-Developmental Airlift Aircraft (NDAA) program to procure a
transport aircraft using commercial practices as a possible
alternative or supplement to the C-17.  Although eight companies or
teams expressed interest in providing a commercial NDAA, only one,
the Boeing Company, responded to a request for proposal.  Boeing
proposed two variations of its 747-400F--one that included an
enlarged door and a strengthened floor and an unmodified version. 
The Air Force named the aircraft proposed by Boeing the C-33.  DOD
also obtained information from the Lockheed Martin Corporation on
costs for an upgraded version of the C-5, a C-5D model with improved
avionics and significantly improved reliability and maintainability. 

In October 1995, DOD convened a Defense Acquisition Board (DAB) to
determine whether the C-17 program should be continued beyond 40
aircraft, and if so, what mix of additional C-17s and NDAA should be
procured.\1 In November 1995, the Under Secretary of Defense for
Acquisition and Technology announced that as a result of the DAB
review, DOD planned to procure 80 more C-17s for a total of 120 and
not to purchase any NDAA aircraft.  In a separate action, in February
1996, the Under Secretary of Defense approved an Air Force plan for a
multiyear procurement for the last 80 of the 120 C-17 buy at a
maximum affordable production rate of up to 15 aircraft a year during
fiscal years 1997 through 2003.  The Congress approved this 7-year
plan in April 1996. 

In January 1994, the C-17 Program Director estimated that total
program costs for 120 C-17s would be about $43 billion in then year
dollars.  As of November 1996, McDonnell Douglas had delivered 29
C-17 aircraft for operational use. 


--------------------
\1 In January 1995, we reported that because of changes in the C-17's
intended role, less than anticipated performance, and continued
program cost growth, the Congress should not support the C-17 program
beyond the minimum number needed to fulfill unique military
requirements.  (See C-17 Aircraft:  Cost and Performance Issues
(GAO/NSIAD-95-26, Jan.  26, 1995.))


   SPECIFICS OF DOD CONTRACT WITH
   MCDONNELL DOUGLAS
---------------------------------------------------------- Chapter 1:2

Prior to the C-17 full-rate production decision in November 1995, the
Air Force had contracted with McDonnell Douglas, under seven
different production lots, for the production of 32 of the 120 C-17s
that it plans to buy.  As part of the program restructuring that
occurred during the probationary period, the Air Force negotiated
four separate sole-source contracts with McDonnell Douglas that
covered aircraft production, program and product improvements, and
support.  Previously, the Air Force had included improvements and
support tasks in the development contract or the individual contracts
for the first seven production lots. 

The four contracts were (1) a producibility enhancement/performance
improvement (PE/PI) contract for funding projects aimed at reducing
production costs and for funding C-17 performance and capability
improvements; (2) a field support contract to provide for depot
repair management and sustaining support to maintain fielded aircraft
in operational condition (including retrofitting aircraft, repairing
parts, and procuring support equipment and spare parts); (3) a
single-year contract for production lot VIII, increasing the number
of C-17s under contract from 32 to 40; and (4) a multiyear contract
for the next 80 aircraft that increased the number of C-17s under
contract from 40 to 120. 

In July 1995, the Air Force awarded a cost-plus-award-fee PE/PI
contract to McDonnell Douglas to fund cost-reduction initiatives that
include both improvements to the aircraft such as an improved engine
enclosure that costs less to build and install and improvements to
the manufacturing process, which would reduce the cost to assemble
the aircraft.  This contract has a maximum value of $1.1 billion.  As
of July 1996, the Air Force had provided the contractor about $385
million for various PE/PI tasks under this contract.  In February
1996, the Air Force awarded McDonnell Douglas the field support
contract.  The value of this contract as of August 1996 is $121.6
million for the period January through December 1996. 

Also, in February 1996, the Air Force and McDonnell Douglas agreed to
a $1.9 billion firm fixed-price contract for production of eight
aircraft under production lot VIII, increasing the number of C-17s to
be produced from 32 to 40.  This contract, referred to as the lot
VIII and beyond contract, also contained separate firm fixed-priced
options for the next three production lots (lots IX through XI), and
separate options, with not-to-exceed ceiling prices, for the
remaining production lots through 120 aircraft.  The contract
contained a variation in quantity clause allowing for an extensive
range of production schedules.  The minimum and maximum production
schedules allowed by this clause are shown in table 1.1. 



                                    Table 1.1
                     
                     Minimum and Maximum Production Schedules
                       Included in the Lot VIII and Beyond
                                     Contract

Fis
cal
yea
r
pro
fil
e     1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006
---  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----
Min      8      8      8      8      8      8      8      8      8      8      8
 im
 um
Max      8      9      9     13     15     15     15      4
 im
 um
--------------------------------------------------------------------------------
However, as a result of the Congress approving DOD's C-17 multiyear
procurement plan, the Air Force changed its C-17 procurement plan for
the last 80 aircraft from the single-year contract options, included
in the lot VIII and beyond contract, to a multiyear contract.  The
total value of the multiyear contract, dated June 1996, is $14.2
billion and is based on an accelerated production schedule as shown
in the table 1.2. 



                               Table 1.2
                
                  Accelerated C-17 Production Schedule
                   Included in the Multiyear Contract

Fiscal year             1997   1998   1999   2000   2001   2002   2003
---------------------  -----  -----  -----  -----  -----  -----  -----
Number                     8      9     13     15     15     15      5
----------------------------------------------------------------------

   OBJECTIVE, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

We undertook this review, at the request of Congresswoman Elizabeth
Furse, to determine whether less costly alternatives exist to
procuring 120 C-17 aircraft while still satisfying airlift
requirements. 

To determine whether less costly alternatives existed, we reviewed
three different analyses that provided the basis for determining the
number of additional C-17s to acquire beyond the 40-aircraft program. 
These were the Joint Chiefs of Staff's 1995 Mobility Requirements
Study Bottom-Up Review (MRS BURU); the Strategic Airlift Force Mix
Analysis (SAFMA), completed by AMC; and the Tactical Utility Analysis
undertaken by DOD's Director, Program Analysis and Evaluation.  We
met with representatives of the Joint Chiefs of Staff Logistics
Directorate, AMC, and DOD to discuss the results of the studies and
obtain the underlying support, assumptions, and methodologies used in
performing each of these analyses.  We were also briefed by
representatives from Boeing and Lockheed Martin on their NDAA
aircraft proposals. 

To assess the Air Force's and McDonnell Douglas's efforts to reduce
C-17 costs, we analyzed the Air Force's 1994 C-17 should cost review
and the Air Force and McDonnell Douglas's cost-reduction initiatives
for the production lot VIII contract and multiyear contract for the
last 80 C-17 aircraft.  In performing this work and analyzing the
technical performance of the C-17, we interviewed officials from the
C-17 program office; the NDAA program office; McDonnell Douglas; the
Air Force Operational Test and Evaluation Center; and DOD's Office of
the Director, Operational Test and Evaluation. 

We also met with representatives from the Army's Director of
Requirements, Office of the Deputy Chief of Staff for Plans and
Operations; AMC; and the Air Force's Deputy Chief of Staff for Plans
and Operations, Mobility Forces Division to discuss the strategic
brigade airdrop concept of operations. 

We performed our audit between February 1995 and October 1996 in
accordance with generally accepted government auditing standards. 


C-17 DEFENSE ACQUISITION BOARD
DECISION
============================================================ Chapter 2

The decision to purchase more than 40 C-17s was based on reports
showing first, that the aircraft and McDonnell Douglas had met the
cost, schedule, and aircraft performance criteria required to
continue production beyond 40 aircraft and second, that C-17
operational testing rated the aircraft operationally effective and
suitable.  The decision to acquire 120 C-17s and no NDAA was based on
the DAB's conclusion that 120 C-17s would provide a greater degree of
flexibility at an increased cost of only $300 million over the mixed
fleet option the DAB considered acceptable--100 C-17s and 18 C-33s
(modified Boeing 747-400Fs).\1

Specifically, the DAB found that the 120 C-17 option would (1)
provide a hedge against the potential reductions in the amount of
cargo delivered due to such things as reduced airfield availability,
ramp space, and services and (2) maximize the benefits provided by
the military capabilities of the C-17, which are not possessed by the
C-33 (a commercial air transport). 


--------------------
\1 Life-cycle costs stated in fiscal year 1996 dollars. 


   C-17 PROGRAM SHOWED NEEDED
   IMPROVEMENT
---------------------------------------------------------- Chapter 2:1

In November 1994, DOD established evaluation criteria for the C-17
full-rate production decision by the DAB.  These included (1)
acceptable dates for completing development and operational testing
and establishing initial C-17 operational capability, (2) the level
of acceptable cost performance for the approved 40- aircraft program,
and (3) the key aircraft performance indicators that would need to be
met.  These criteria generally included an objective criterion (a
goal that DOD would like to have seen achieved) and a threshold
criterion (a minimal performance expectation below which the program
would be in danger of being canceled).  For example, an objective was
established to declare initial operational capability by January
1995; a threshold of July 1995 was established for this event.  DOD
met the objective, declaring initial operational capability in
January 1995. 

The C-17 Program Manager reported to the DAB that the C-17 program
had successfully met the criteria for cost, schedule, and contractor
and aircraft performance that DOD had established in order for the
program to proceed beyond 40 aircraft.  (See app.  I for a complete
listing of the criteria.) He also reported that the Air Force and
McDonnell Douglas had negotiated significantly lower prices for
production lot VIII and the remaining production lot options to
complete the 120-aircraft program. 


      RESULTS OF C-17 OPERATIONAL
      TESTING
-------------------------------------------------------- Chapter 2:1.1

As a result of a multiservice initial operational test and
evaluation, the Air Force Test Director reported that the C-17 was
operationally effective and suitable and met or exceeded all the key
aircraft performance parameters established for the DAB. 

Although the Test Director informed the DAB that the C-17 was
operationally effective and suitable, he also identified areas
needing improvement.  These included (1) overcoming Army safety
concerns that preclude paratroopers from jumping from C-17s flying in
close formation and meeting established performance criteria for
paratroop and equipment bundles exiting the aircraft during personnel
airdrops;\2 (2) redesigning the litter capacity and fixing various
oxygen equipment problems needed in order to perform the aeromedical
evacuation mission; (3) correcting inadequacies with the aircraft's
mission computer and associated operating manuals, which caused the
mission computer to fail repeatedly, thereby increasing pilot
workload; and (4) fixing inadequacies with the aircraft's integrated
diagnostics causing high rates of false failure indications or
failures that could not be duplicated. 


--------------------
\2 The Army imposed this restriction because the air turbulence
created in the wakes of C-17s flying in close airdrop formation poses
risks to paratroopers jumping from following aircraft. 


   RESULTS OF THE DAB
---------------------------------------------------------- Chapter 2:2

Determining the appropriate C-17/NDAA mix was a primary goal of the
DAB.  That determination was based on the following analyses: 

  -- The Joint Chiefs of Staff's MRS BURU which established a
     strategic airlift requirement for supporting two nearly
     simultaneous major regional contingencies. 

  -- The SAFMA, an AMC study of possible airlift force mix options
     that could meet the strategic airlift capability recommendations
     of the MRS BURU. 

  -- The DOD Tactical Utility Analysis designed to quantify the
     benefits of using (1) C-17 capabilities such as landing on
     austere airfields and airdropping cargo and troops and (2) the
     C-17s strategic airlift capabilities in support of lesser
     regional contingencies not modeled in the MRS BURU. 


      THE STRATEGIC AIRLIFT
      REQUIREMENT
-------------------------------------------------------- Chapter 2:2.1

The MRS BURU study made recommendations regarding strategic mobility
requirements, including airlift.  The study's objectives were to
determine the capability of the fiscal year 2001 programmed strategic
mobility forces to deploy and sustain combat and support forces,
identify shortfalls in that capability, and recommend solutions to
eliminate identified shortfalls.  Employing a baseline airlift fleet
projected for the year 2001 that included C-17s, C-141s, C-5A/Bs,
KC-10s, KC-135s, and CRAF, the MRS BURU estimated the mobility
requirements for the initial halting phase of four different
scenarios involving either a single major regional contingency or two
nearly simultaneous major regional contingencies.\3

The most demanding MRS BURU scenario, for which additional airlift
capacity was recommended, was one involving two nearly simultaneous
major regional contingencies.  To meet the strategic mobility
requirements for this scenario, the MRS BURU recommended additional
afloat prepositioning and, after the retirement of C-141s, an airlift
fleet with the capacity of between 120 and 140 C-17s.  This fleet
would provide a delivery capability between 49.4 and 51.8 million
ton-miles per day.\4

The MRS BURU did not recommend a particular type of aircraft to meet
its recommended airlift capability.  The DAB would later make this
decision based on the results of the SAFMA. 


--------------------
\3 The halting phase is the initial phase of a major regional
contingency during which the advance of an enemy force is halted and
the loss of territory and critical facilities is minimized. 

\4 Million ton-miles per day is an aggregate, unconstrained measure
of airlift capacity.  It is based on aircraft utilization rate,
average ground speed, average payload weight, and a standard
productivity measure.  This measure does not take into account the
type of the payload, airfield limitations such as runway and parking
ramp size, and aircraft ground servicing time. 


      SAFMA
-------------------------------------------------------- Chapter 2:2.2

The SAFMA compared the relative performance of mixed fleets with
C-17s and NDAA against fleets with 120 C-17s and 140 C-17s to
determine which mixed fleets could meet the airlift performance
capability of a fleet with 120 or 140 C-17s during the MRS BURU's
most demanding scenario.  This analysis also evaluated the cost-
effectiveness of each of the fleet alternatives. 

DOD developed a detailed listing of equipment, munitions, and
supplies that would be airlifted using the MRS BURU recommended
airlift requirements.  It then modeled the operations of the
strategic airlift fleet during the initial phases of the two major
regional contingencies scenario.  Air refueling and delivery to
locations other than main operating bases were not considered in the
SAFMA. 

AMC used an airlift fleet with 120 C-17s as its primary performance
criteria in the SAFMA.  To be acceptable, mixed fleets of C-17s and
C-33s had to deliver as much or more outsize, oversize, and bulk
cargo as an airlift fleet with 120 C-17s.\5

The force mix evaluations began with 40 C-17s and progressed in
squadron size intervals up to 140 C-17s.  The Lockheed C-5D was
evaluated only at the 40 C-17 quantity breakpoint (40 C-17s and 50
C-5Ds).  The final SAFMA combinations of C-17s and C-33s are shown in
table 2.1. 



                               Table 2.1
                
                  Force Mix Options Considered in the
                                 SAFMA

----------------------  ----  ----  ----  ----  ----  ----  ----  ----
C-17                      40    58    72    86   100   120   132   140
C-33                      56    42    30    30    18     0    18     0
----------------------------------------------------------------------
The SAFMA study found that within the scope of fleet mixes being
actively considered (up to 120 C-17s) only two of the mixed fleet
alternatives, one with 86 C-17s and 30 C-33s and another with 100
C-17s and 18 C-33s, performed as well or better than a fleet with 120
C-17s.  These mixed fleets delivered as much outsize cargo but more
oversize and bulk cargo than a fleet with 120 C-17s.  For example, a
fleet with 100 C-17s and 18 C-33s delivered 5,000 more tons of
oversize cargo and about 2,000 more tons of bulk cargo in the
required time frame.  A fleet with 40 C-17s and additional C-5Ds
would not deliver as much outsize cargo as an airlift fleet with 120
C-17s. 

The AMC cost analysis showed the potential savings from the
acceptable mixed fleet options ranged from $300 million in fiscal
year 1996 dollars for a mixed fleet of 100 C-17s and 18 C-33s to
$1.85 billion for a fleet of 86 C-17s and 30 C-33s. 


--------------------
\5 Outsize cargo, such as Apache helicopters and M1 Abrams tanks, can
be carried only by the C-17 and C-5.  Oversize cargo exceeds the
dimensions of a 463L pallet but is smaller than outsize.  Examples
include 2-1/2 ton trucks and Bradley Fighting Vehicles.  Bulk cargo,
such as ammunition and food, will fit on a 463L pallet. 


      AIRFIELD CONSTRAINTS FAVOR
      C-17S
-------------------------------------------------------- Chapter 2:2.3

The SAFMA also addressed the impact of airfield constraints due to
reduced airfield availability, ramp space, and services; and other
limitations on the number of aircraft that can be accommodated and
serviced on the ground at one time.  The term maximum on ground
refers to the maximum number of aircraft on the ground that can be
parked, unloaded, and serviced in a given time period.  In this
regard, the MRS BURU and SAFMA studies assumed a moderate maximum on
ground, a reduced level of capability based on the experience of
Desert Shield/Desert Storm, AMC operation plans, and maximum on
ground assumptions used in a C-17/NDAA cost and operational
effectiveness analysis completed by the Institute for Defense
Analyses in December 1993.  Constrained maximum on ground conditions
favored the more maneuverable C-17 over the larger C-33 aircraft. 

Maximum on ground constraints and uncertainties were an important
consideration in the DAB's decision to procure 120 C-17s.  As part of
the force mix analysis, AMC examined the impact of reducing maximum
on ground below the levels assumed in the MRS BURU.  AMC found that
force mixes with more than 100 C-17s offered a better hedge against
uncertainties about airfield availability, congestion, and ground
support.  For example, when maximum on ground values were reduced by
15 percent in Northeast Asia during the halting phase, all fleet
options delivered less outsize cargo than the MRS BURU-established
requirement, but an airlift fleet with 120 C-17s delivered more of
the outsize cargo than the mixed fleets. 


      TACTICAL UTILITY ANALYSIS
-------------------------------------------------------- Chapter 2:2.4

In preparation for the November 1995 C-17 DAB, DOD also wanted to
ensure that the planned analysis for the DAB recognized the potential
benefits of the military capabilities of the C-17 that could not be
provided by a NDAA.  In December 1994, the Under Secretary of Defense
for Acquisition and Technology directed DOD's Director, Program
Analysis and Evaluation, in concert with the Army and the Air Force,
to complete a Tactical Utility Analysis.  This analysis was to
quantify the C-17's benefits in responding to lesser regional
contingencies such as humanitarian relief, peacekeeping, and peace
enforcement missions; providing for intratheater delivery and direct
delivery to austere airfields; and performing a strategic brigade
airdrop.  These capabilities were not addressed in the work done in
the SAFMA. 

The Tactical Utility Analysis found that the most demanding of the
lesser regional contingencies was the peace enforcement mission. 
This mission, as modeled in the study, could be accomplished with
varying numbers of C-17s.  The analysis showed that as more C-17s
were provided less total time was required to deliver troops and
equipment.  According to the study leader, in the peace enforcement
scenario, there were no time requirements and the delivery time saved
was not critical to completing the mission.  Also, the analysis
showed that the time saved between the 86 and 120 C-17 fleet levels
was only a few days. 

The Tactical Utility Analysis also evaluated the use of the C-17 in
an intratheater airlift role.  It indicated that a squadron of
aircraft dedicated specifically to this role might be beneficial. 
However, study analysts acknowledged that these aircraft would be in
addition to the 120 C-17 equivalents the MRS BURU found were required
for strategic airlift.  There is no requirement for using C-17s in an
intratheater role in DOD's fiscal years 1998 to 2003 Defense Planning
Guidance.  The Joint Chiefs of Staff completed a study of
intratheater airlift needs and concluded that one squadron of C-17s
dedicated to the intratheater mission would be useful.  However, that
study recommended further analysis of the issue.  The Air Force is
currently conducting additional intratheater airlift analyses.  That
analysis is planned to be completed in late spring 1997. 

Lastly, the Tactical Utility Analysis evaluated the need for C-17s to
accomplish a strategic brigade airdrop.  On the basis of the then
existing Defense Planning Guidance, which called for a limited
strategic range capability, an airlift fleet with 100 C-17s, along
with modified C-5s, would be sufficient to accomplish this mission. 
The Tactical Utility Analysis, however, also analyzed the number of
C-17s that would be used to conduct an extended range brigade
airdrop.  It found that acquiring 120 C-17s would allow the Air Force
to support a strategic brigade airdrop directly from the continental
United States to a small, austere airfield located beyond the range
required by the Joint Chiefs of Staff at the time of the C-17 DAB. 


      DAB DETERMINATION
-------------------------------------------------------- Chapter 2:2.5

The DAB determined that the C-17 program and McDonnell Douglas's
performance had improved sufficiently to warrant continued production
of the C-17.  From the options considered, the DAB found two
acceptable options that would provide sufficient strategic airlift
capability and a minimum of 100 C-17s to perform the strategic
brigade airdrop mission analyzed in the Tactical Utility Analysis. 
These were 120 C-17s and no NDAA and 100 C-17s and 18 NDAA.  The DAB
chose the 120 C-17 option because of the relatively small savings
from acquiring a mixed fleet--$300 million in life-cycle costs--and
the advantages in increased flexibility from acquiring 20 additional
C-17s. 


LESS EXPENSIVE OPTIONS FOR MEETING
REQUIREMENTS COULD SAVE BILLIONS
============================================================ Chapter 3

Our analysis of the strategic airlift requirement defined in the MRS
BURU and the information developed in the SAFMA and the Tactical
Utility Analysis indicate that DOD could save over $7 billion (fiscal
year 1996 dollars), by acquiring and operating an airlift fleet with
100 C-17s and no NDAA.  With 100 C-17s and the remaining airlift
fleet of C-5s, KC-10s, KC-135s, and CRAF, lower cost options exist to
meet strategic airlift requirements.  These include small increases
in the amount of materiel prepositioned afloat, the use of airlift
aircraft assumed not to be available in the MRS BURU, or the use of a
slightly longer delivery time frame on some combat support and combat
service support materiel.  Increased costs attributable to these
lower cost options and to discontinuing the program at 100 rather
than 120 C-17s have been accommodated in our estimate of savings. 

Further, although DOD revised its Defense Planning Guidance in April
1996 to require an extended range strategic brigade airdrop, options
also exist to meet this requirement, although not necessarily as
identified in the Army's concept of operations.  The Army's concept
of operations envisions accomplishing the extended range brigade
airdrop from the continental United States directly to a small,
austere airfield.\1

However, an extended range brigade airdrop to a small, austere
airfield is not specifically required by the current Defense Planning
Guidance and cannot be supported with the Air Force's current airlift
fleet. 

According to the Tactical Utility Analysis, performing the extended
range airdrop mission as envisioned by the Army will require at least
114 C-17s.  The Air Force is currently exploring alternatives to meet
the requirement until 114 C-17s can be fielded in 2004. 

Although the Congress has approved and DOD has awarded a multiyear
contract with an accelerated production schedule for the final 80
C-17s, that contract contains a clause that would permit the
government to revert to a contract with single-year options, allowing
for variations in quantity, if a production lot under the multiyear
contract is not fully funded.  While there is an increase in program
discontinuation costs to close out the program at 100 rather 120
aircraft, those additional costs have been accounted for in our
savings estimate. 


--------------------
\1 The Air Force defines a "small, austere airfield" as one with
limited taxiway, ramp space, and services.  Runways, paved or
semi-prepared, are occasionally longer than 5,000 feet, but are
usually less than 4,000 feet and normally 60 to 110 feet wide. 


   100 C-17S CAN MEET STRATEGIC
   MOBILITY REQUIREMENTS
---------------------------------------------------------- Chapter 3:1

In the MRS BURU, the Joint Staff identified a small, potential
airlift shortfall in the capability of mobility forces to deliver the
total tonnage of unit equipment scheduled for delivery early in the
halting phases of two nearly simultaneous major regional
contingencies.  The shortfall was about 4 percent of the unit
equipment tonnage delivered.  According to the Army's Office of the
Assistant Deputy Chief of Staff for Operations and Plans, this
shortfall is marginal.  It occurred in only one of the two major
regional contingencies and consisted of prepositionable combat
support and combat service support materiel.  To deliver the entire
shortfall by air would have required more than 140 C-17 equivalents. 
The study, however, recommended that a portion of the shortfall be
prepositioned afloat and that the remainder be airlifted into the
theater.  The solution recommended in the MRS BURU required at least
120 C-17s, or the equivalent capacity provided by a mix of C-17s and
NDAA. 

With some additional measures, an airlift fleet with 100 C-17s could
provide sufficient airlift capability, including the delivery of
outsize cargo, to meet the MRS BURU mobility requirements.  These
include (1) slightly increasing prepositioning, for example, by
placing the shortfall not delivered by 100 C-17s on prepositioned
ships when regenerating these ships between the two major regional
contingencies; (2) using airlift assets that were assumed not to be
available in the MRS BURU; (3) increasing slightly the time frame in
which the MRS BURU shortfall would be delivered; or (4) adopting a
combination of these measures. 

Further, an airlift fleet with only 100 C-17s also provides a hedge
against a more constrained airfield environment than that modeled in
the
MRS BURU.  A sensitivity analysis done as part of the force mix
analysis showed that under a more constrained airfield environment,
an airlift fleet with 100 C-17s delivered only 3 percent, about 500
tons, less outsize cargo than a fleet with 120 C-17s. 


      ADDITIONAL AFLOAT
      PREPOSITIONING WOULD REDUCE
      THE AIRLIFT REQUIREMENT
-------------------------------------------------------- Chapter 3:1.1

Prepositioning heavy combat equipment and supplies, both ashore and
afloat, can greatly reduce both the time required to deploy forces to
distant regions and the number of airlift sorties devoted to moving
such supplies.  Afloat prepositioning is a flexible means of
transporting materiel to where it is needed in a contingency.  Ships
loaded with combat equipment and support items are located near
potential trouble spots, enabling them to respond more quickly than
if they were deployed from the United States.  As a result of the
Bottom-Up Review in October 1993, DOD expanded the amount of planned
prepositioning needed for two nearly simultaneous major regional
contingencies. 

According to DOD, the MRS BURU reconfirmed the validity of the
Bottom-Up Review and the programs under way to meet those
requirements.  Besides verifying that expanded prepositioning of
heavy Army equipment in the Persian Gulf and Korea was warranted, the
MRS BURU recommended the addition of 15,000 tons of afloat
prepositioning and other prepositioning measures to support the
Army's afloat prepositioning program. 

Although the MRS BURU recommended airlifting a portion of the 4-
percent materiel shortfall, it found that the entire shortfall could
be delivered to the theater on afloat prepositioning ships.  Our
review indicates that the additional prepositioning needed, in
conjunction with an airlift fleet with only 100 C-17s, would add only
about a half percent to the 4-percent materiel shortfall identified
and the increased afloat prepositioning already assumed to be
necessary in the MRS BURU.  Sufficient space will be available on the
Army's prepositioned ships to accommodate tonnage not delivered by an
airlift fleet with 100 C-17s. 

The 1992 Mobility Requirement Study recommended the addition of 19
Large Medium-Speed Roll On Roll Off (LMSR) ships to accommodate the
requirement for increased lift capability needed to support a two
major regional contingency scenario.  Five of the ships are to be
refurbished, and 14 are to be newly acquired.  The MRS BURU
recommended that several of the new ships be used to support afloat
prepositioning of Army materiel for use in the major regional
contingencies and that others be used to provide a surge sealift
capability.  The MRS BURU recommended prepositioning ships would have
about 3.5 million square feet of cargo space.  According to planning
factors used by the Army, these ships can be loaded to 80 percent of
capacity.  As a result, there will be about 2.8 million square feet
of space available for prepositioned materiel. 

Current planning calls for the use of about 2 million square feet for
a brigade set of equipment and additional combat support and combat
service support materiel.  There will also be space needed for some
other planned prepositioned materiel besides the amount we are
recommending.  While the exact numbers are classified, the additional
materiel and our recommended additional prepositioned materiel can be
accommodated in the 800,000 square feet of available space on the
LMSRs recommended by the MRS BURU for afloat prepositioning. 

The MRS BURU's general officer steering committee rejected an option
to preposition the entire 4-percent shortfall.  In its opinion, this
alternative would limit a theater commander's flexibility to adjust
the planned flow of equipment and materiel into the theater. 
However, there is only about 2 percent of the planned force affected
by the proposed increased prepositioning.  Therefore, the 120 C-17
equivalents solution would increase a theater commander's flexibility
to change the structure of the force by only about 2 percent over
what it would be if the entire shortfall was prepositioned.  This
limited increase in flexibility would come at a significant increase
in cost. 


      ADDITIONAL AIRLIFT AIRCRAFT
      ARE AVAILABLE
-------------------------------------------------------- Chapter 3:1.2

Another option to alleviate the small shortfall in combat support and
combat service support materiel would be to use aircraft that were
assumed not available in the MRS BURU.  These include training
aircraft (C-5s and C-17s), additional KC-10s, and increased CRAF
assets. 

In the MRS BURU, eight C-17s and six C-5s set aside for training
purposes were not used for strategic airlift.  A DOD official told us
that, for planning purposes, training aircraft are assumed not to be
available to support contingencies.  However, U.S.  Transportation
Command officials stated that, in a two nearly simultaneous major
regional contingency scenario such as that envisioned in the MRS
BURU, it is likely that these aircraft would be used.  Training
aircraft, for example, were used in Operation Desert Shield/Desert
Storm to enhance strategic airlift capability. 

The 59 KC-10s in AMC's airlift fleet are dual-role aircraft,
performing both cargo-carrying and aerial refueling missions.  Only
37 of the 59 KC-10s in the Air Force inventory are dedicated to
strategic airlift.  In a two-major regional contingency scenario,
however, DOD would have the option of using some of the remaining
KC-10s to supplement the airlift flow.  U.S.  Transportation Command
officials told us that, in such a contingency, they would consider
using more KC-10s to provide strategic airlift.  However, these
officials also pointed out that these aircraft would be available
only if they were not needed for aerial refueling. 

The CRAF program is more robust than assumed in the MRS BURU, and
additional CRAF aircraft would be available to deliver cargo during a
two major regional contingency scenario.  The CRAF capacity under
contract for 1996 is 19.50 million ton miles per day, which is about
1 million ton miles per day greater than projected in the MRS BURU. 
The Secretary of the Air Force has reported that, although future
years' commitments are not certain, the calendar year 1996 level is
sustainable. 

In addition to these aircraft, a number of military airlifters are
held in reserve during contingencies for other priorities as
determined by the Joint Chiefs of Staff.  In the MRS BURU and SAFMA
studies, operational C-5s and C-17s were withheld to carry out other
airlift missions (such as providing presidential support).  If
needed, the Joint Chiefs would have the option of using CRAF aircraft
or KC-10s and KC-135s to fulfill some of these missions, thus freeing
the more effective military airlifters to meet contingency
requirements. 


      EXTEND MRS BURU TIME FRAME
      SLIGHTLY
-------------------------------------------------------- Chapter 3:1.3

Another alternative that could reduce the need for C-17s would be to
slightly extend the time frame required in the MRS BURU to deliver
the small remaining shortfall in Army materiel.  The Joint Staff
considered an option to increase the warning time between the start
of deployment and the onset of hostilities as a way to eliminate the
shortfall.  They rejected this option, however, because of the
reduced flexibility it would provide to respond if the assumption was
not valid. 

The Joint Staff did not consider extending the time frame to deliver
the Army equipment once hostilities commenced.  The Joint Staff did
not model an alternative with 100 C-17s and therefore did not provide
a specific number of days by which this materiel would be delayed in
arriving in the theater of operations.  On the basis of our analysis
of data from the SAFMA, we estimate that the delay would be 1 to 2
days.  Further, since the Army characterized the shortfall as
marginal, a slightly increased delivery time might not significantly
affect war-fighting capability.  However, this determination would
have to be made by DOD based on its war-fighting models. 


      100 C-17S PROVIDES
      SUFFICIENT OUTSIZE CARGO
      CAPABILITY
-------------------------------------------------------- Chapter 3:1.4

An airlift fleet with 100 C-17s would provide sufficient outsize
capacity to meet the MRS BURU requirements.  The delivery of outsize
cargo is important because a large part of most combat units'
fighting power consists of outsize cargo.  Only the C-17 and the C-5
are designed to carry outsize loads.  AMC, on the basis of a
sensitivity analysis done in conjunction with the SAFMA, found for
example, that in a projected Korean scenario, an airlift fleet with
120 C-17s, while delivering around 4,400 tons in total cargo, only
delivered about 250 more tons of outsize cargo during the halting
phase than a fleet with 100 C-17s. 

The relatively small difference in outsize cargo delivered is due to
the outsize cargo capacity of the C-5s.  With only 100 C-17s
available, C-5s were able to compensate for the loss of 20 C-17s and
carry the vast majority of the outsize tonnage delivered by a fleet
with 120 C-17s in an equivalent time frame. 


      DEALING WITH MAXIMUM ON
      GROUND CONSTRAINTS
-------------------------------------------------------- Chapter 3:1.5

Major factors in the DAB's decision to procure 120 C-17s were maximum
on ground constraints and uncertainties.  The Air Force showed the
DAB that, compared with mixed fleets of C-17s and NDAA, an airlift
fleet with 120 C-17s could deliver more cargo within the required
time frame when maximum on ground was constrained below the already
reduced levels assumed in the MRS BURU.  However, in Korea, the more
maximum on ground constrained theater, an airlift fleet with 100
C-17s delivered only 3 percent less outsize cargo and 2 percent less
oversize and bulk cargo than 120 C-17s under the more constrained
maximum on ground reductions. 

In a sensitivity analysis accompanying the SAFMA, AMC compared the
ability of various airlift fleet alternatives to meet the required
delivery timeline when maximum on ground was reduced by 15 percent in
one theater.  The analysis showed that a fleet with 120 C-17s
performed slightly better in delivering outsize cargo during the
halting phase of a Korean contingency than did the mixed fleet
alternatives.  Under these same maximum on ground constraints, an
airlift fleet with 100 C-17s carried only about 3 percent less
outsize cargo (500 tons) and 2 percent less oversize and bulk cargo
(1,700 tons) than a fleet with 120 C-17s.  Delaying this amount of
outsize cargo would add about one day to the scenario's cargo
delivery timeline. 


      OPTIONS FOR MEETING
      STRATEGIC AIRLIFT
      REQUIREMENT WILL INCREASE
      SOME COSTS
-------------------------------------------------------- Chapter 3:1.6

The SAFMA, conducted by AMC, developed life-cycle cost comparisons
for each of the force mixes to be considered by the DAB.  Based on
those cost comparisons, acquiring and operating 60 rather than 80
C-17s beyond the 40 that were already committed to prior to the DAB
decision would save about $7.6 billion as shown in table 3.1. 



                                    Table 3.1
                     
                      Potential Life-Cycle Cost Savings From
                         Acquiring 60 Instead of 80 C-17s

                         (In millions of fiscal year 1996
                                constant dollars)

                              Military     Operating
Number of     Acquisitio  construction   and support  Discontinuatio       Total
aircraft         n costs         costs         costs         n costs       costs
------------  ----------  ------------  ------------  --------------  ----------
80             $16,881.7       $ 162.0     $19,604.0         $ 118.0   $36,765.0
60              12,840.1         137.0      15,820.0           360.0    29,157.1
Difference      $4,041.6         $25.0      $3,784.0        $(242.0)    $7,608.6
--------------------------------------------------------------------------------
In addition to potential discontinuation costs (costs of terminating
the program), implementing several of the individual measures that
would be needed to meet the MRS BURU requirement, along with an
airlift fleet having 100 C-17s, would require some additional
expenditures.  The additional costs that would result from increased
prepositioning would vary depending on the prepositioning method
chosen.  In our example, the increased prepositioning would be part
of the planned afloat prepositioning regeneration recommended by the
MRS BURU.  Since space is available on the planned LMSR ships, the
costs would only be those needed to maintain the materiel during the
period it is prepositioned. 

On the basis of planning factors used by DOD to estimate the average
cost of maintaining prepositioned materiel afloat, we estimate this
cost to be less than $1 million.  If DOD chose to preposition the
materiel on land, these costs would be greater because materiel would
have to be procured for prepositioning and maintained for its
estimated useful life.  We estimate that acquiring the needed
materiel would cost about $43.3 million (on the basis of our
extrapolation of Army estimates of acquiring the types of materiel
that make up the MRS BURU shortfall) and maintaining the materiel for
its useful life would be about $166.4 million (based on Army planning
factors for the maintenance of prepositioned materiel) for a total of
$209.7 million.  We estimate, therefore, that the potential
life-cycle cost savings from acquiring 100 rather than 120 C-17s
would range from
$7.6 billion ($7,608.6 million less the cost of increased afloat
prepositioning) to $7.4 billion ($7,608.3 million less the estimated
cost of prepositioning on land). 

There are also some increased costs associated with the use of
trainer aircraft or the increased use of CRAF.  These costs, however,
should not be significant since trainer aircraft are already allotted
a certain level of flying hours.  The cost increase would only be the
additional flying hours needed to support a surge rate for the
scenario.  The increased CRAF costs would depend on the extent of
additional use and the agreed-on contract prices in effect at the
time of the contingency.  Since we cannot estimate how many
additional flying hours or additional CRAF flights would be needed or
the trade-off in costs between these options and the prepositioning
options, we are assuming that the increased use of trainers and of
CRAF would be offset by decreases in the additional prepositioning
costs we estimated. 


   TACTICAL UTILITY ANALYSIS
   INDICATES THAT 100 C-17S ARE
   SUFFICIENT
---------------------------------------------------------- Chapter 3:2

The Tactical Utility Analysis, which quantified the benefits of the
military capabilities of the C-17, considered the use of the C-17 in
responding to lesser regional contingencies ranging from humanitarian
relief to peace enforcement missions, providing intratheater airlift
and direct delivery capability, and performing the strategic brigade
airdrop mission required at the time of the DAB.  While the Tactical
Utility Analysis identified the number of C-17s that could be used in
a variety of scenarios with the commensurate benefits, it found that
the most demanding mission it evaluated in terms of the number of
C-17s required was the strategic brigade airdrop.  The analysis
reported that about 100 C-17s along with modified C-5s would be
required to perform the then defined limited range strategic brigade
airdrop. 

The Tactical Utility Analysis also determined that acquiring a fleet
of 120 C-17s, along with modifying C-5s, would provide the capability
to conduct an extended range brigade airdrop directly from the
continental United States to a small, austere airfield.  The extended
range brigade airdrop was subsequently (April 1996) included as a
requirement in the Defense Planning Guidance for fiscal years 1998 to
2003.  However, the requirement does not specify that the airdrop
will be to a small, austere airfield.  The Air Force will not have
the airlift capability to carry out this mission to a small, austere
airfield, as envisioned by the Army, until fiscal year 2004 when at
least 114 C-17s will have been delivered. 

Air Force and Army officials are currently evaluating alternatives to
perform this mission with fewer numbers of C-17s.  Options, including
staging from forward operating bases and using C-5-capable airfields
for airland missions, would allow the Air Force to conduct an
extended range brigade airdrop with 100 C-17s.  Further, the C-17's
ability to perform a strategic brigade airdrop has not yet been
demonstrated under operationally realistic conditions. 


      100 C-17S SUFFICIENT FOR
      LESSER REGIONAL
      CONTINGENCIES
-------------------------------------------------------- Chapter 3:2.1

While deterring and defeating major regional aggression is the most
demanding scenario identified in the United States' post- Cold War
defense strategy, U.S.  forces may be involved in operations short of
declared or intense war.  These lesser regional contingencies include
peace enforcement, peacekeeping, humanitarian assistance, and
noncombatant evacuation operations.  Sufficient airlift is needed to
transport and resupply combat forces involved in such missions. 

The Tactical Utility Analysis evaluated the ability of mixed airlift
fleets of C-17s and NDAA to support lesser regional contingency
operations.  The study found that airlift fleets with between 40 and
100 C-17s would be sufficient to support the scenarios identified in
the fiscal years 1996-2001 Defense Planning Guidance. 

The most demanding lesser regional contingency missions for airlift
are peace enforcement missions.  DOD officials told us that an
airlift fleet with 100 C-17s and no NDAA would be within the range of
acceptable mixes to meet airlift requirements for these missions. 


      INTRATHEATER AND DIRECT
      DELIVERY AIRLIFT NEEDS CAN
      BE MET WITH 100 C-17S
-------------------------------------------------------- Chapter 3:2.2

The Tactical Utility Analysis analyzed opportunities for using the
C-17 to provide intratheater lift to complement the C-130 fleet
during a major regional contingency.  The study director told us that
an airlift fleet with 100 C-17s could complement the C-130 fleet in
providing intratheater lift, on an ad hoc basis, without
significantly impacting the strategic airlift flow, particularly
after the halting phase.  The use of the C-17 to perform strategic
airlift combined with intratheater shuttle missions is consistent
with the aircraft's concept of operations, which envisions the C-17
performing intratheater shuttle missions as a leg of a return flight
before returning to the strategic airlift flow.  A recent RAND study
also showed that combining strategic airlift missions with
intratheater shuttle missions is an alternative to dedicating C-17
aircraft solely to intratheater lift. 

Direct delivery to other than main operating bases was not used in
the
MRS BURU and SAFMA.  On the basis of the Tactical Utility Analysis,
100 C-17s would be more than would likely be required for directly
delivering equipment and supplies from onload points to airfields
closer to their final destinations in the MRS BURU scenarios. 


      STRATEGIC BRIGADE AIRDROP
      REQUIREMENT
-------------------------------------------------------- Chapter 3:2.3

At the time of the November 1995 C-17 DAB, DOD's Defense Planning
Guidance required the Air Force to have the airlift capability to
support a limited range strategic brigade airdrop.  The Tactical
Utility Analysis showed that an airlift fleet with 100 C-17s, along
with modified C-5s, could meet this requirement.  In April 1996,
however, DOD incorporated an extended range strategic brigade airdrop
requirement in its Defense Planning Guidance for fiscal years 1998 to
2003. 

The Army's concept of operations for an extended range brigade
airdrop envisions accomplishing the mission from the continental
United States directly to a small, austere airfield.  The Tactical
Utility Analysis found that acquiring 120 C-17s would provide
sufficient capability to accomplish the extended range brigade
airdrop.  However, because the Air Force will not have a sufficient
number of C-17s available to perform both airdrop and airland
missions until 2004, the Air Force is exploring alternatives that
will enable it to support this mission in the interim. 

Alternatives for supporting the extended range brigade airdrop with
less than 120 C-17s include (1) staging a portion of the brigade at
locations closer to the final destination and (2) using C-5s and
C-17s to perform the airland portion (bringing in follow-on troops
and equipment) of the mission into larger airfields. 


         ARMY'S EXTENDED RANGE
         BRIGADE AIRDROP CONCEPT
         OF OPERATION
------------------------------------------------------ Chapter 3:2.3.1

Prior to the Tactical Utility Analysis, the Army had not clearly
defined the strategic brigade airdrop's required personnel,
equipment, and supplies, nor had AMC determined the airlift
capability needed to deliver that force.  In support of the analysis,
the Army reported that it would use a medium-sized airborne brigade
as the baseline force for planning this mission.  The Army's concept
of operations envisions the deployment of an airborne brigade in two
phases.  First, the Army would airdrop 2,552 paratroopers, 116
wheeled vehicles, 10 Sheridan tanks, 18 105mm howitzers, and 54
equipment bundles.  Second, within 24 hours, additional aircraft
would land at the captured airfield to deliver the balance of the
brigade, about 690 more troopers, and 224 wheeled vehicles, 28
helicopters, along with 33 equipment and supply pallets.  According
to AMC, 43 C-17 missions would be needed to deliver the airland
follow-on force into a small, austere airfield. 

The Army foresees using the strategic brigade airdrop capability,
mainly in third world areas, to capture a small, austere airfield. 
The Army would prefer to conduct both the airdrop and airland
portions of the mission directly from the continental United States,
without staging at locations near the final destination.  Army
officials believe that they would be better able to maintain an
element of surprise by staging an airborne assault directly from the
United States. 

The decision to define the mission as capturing a small, austere
airfield limits the follow-on deliveries to C-17s from strategic
distances, or C-130s and C-17s if staging is used.  However, the
current Defense Planning Guidance does not require a small, austere
airfield capability for the extended range airdrop mission. 

AMC, in support of the Tactical Utility Analysis, used the Army's
concept of operations to determine the number of C-17s and other
aircraft needed for an extended range strategic brigade airdrop. 
According to AMC's analysis, delivering the medium-sized brigade
directly from the continental United States to an airfield beyond
Central America or the Caribbean requires 114 C-17s plus 50 modified
C-5s.  The C-5's role would be limited to airdropping equipment. 
Since the Army's concept of operations envisions the capture of a
small, austere airfield, C-5s are assumed not to be suitable for the
airland mission. 


         OPTIONS TO MEET ARMY
         BRIGADE AIRDROP
         REQUIREMENT WITH 100
         C-17S
------------------------------------------------------ Chapter 3:2.3.2

The Air Force does not currently have the capability to airdrop the
medium-sized brigade, defined above, over an extended distance to an
austere airfield within the Army's specified time requirement.  The
Air Force will not possess such a capability until fiscal year 2004,
when at least 114 C-17s will be available and 50 C-5s have been
modified for airdrop.\2 The Air Force is currently devising other
methods to meet the Army's requirement. 

Options to enable the Air Force to support an extended range brigade
airdrop with 100 C-17s include (1) moving a portion of the brigade's
equipment and supplies to bases closer to their final mission
destination as an initial step in the mission and (2) using C-5s to
conduct some of the airland missions to a larger C-5-capable
airfield. 

From forward bases, the Air Force could recycle some of the C-17s
participating in the initial airdrop to do follow-on airland
missions.  According to AMC analysis, about 15 of the 43 C-17 airland
missions would have to be conducted from closer bases with a fleet of
100 C-17s.  Alternatively, C-5s could be used to carry out some of
the airland missions.  C-5s are operationally restricted in wartime
to landing on runways measuring at least 5,000 feet long by 90 feet
wide. 

We discussed the potential use of forward bases with both the Army
and the Air Force.  The Army's representatives said that the Army had
not yet evaluated the use of forward bases in support of an extended
range brigade airdrop.  AMC analysts did not evaluate the use of
forward bases in the modeling it did in support of the Tactical
Utility Analysis, but they plan to explore the concept as a way to
meet the strategic brigade airdrop requirement before fiscal year
2004. 

The Air Force does not plan to use the 74 C-5As to support the
strategic brigade airdrop mission because they are not considered
sufficiently reliable.  As of July 1996, 16 of the 74 C-5As in the
airlift fleet were undergoing depot maintenance or used for training
purposes.  The Air Force's long-range airlift modernization plan
calls for replacing the C-5As beginning in 2007.  Making at least
some of the C-5A replacements capable of airdropping equipment to
replace some C-17s in the airdrop role would provide the Air Force
the capability to conduct an extended range strategic brigade airdrop
with an airlift fleet having only 100 C-17s.  On the basis of AMC's
analysis, assuming an airlift fleet with 100 C-17s, using airdrop
capable C-5A replacements in place of 16 C-17s to airdrop heavy
equipment would eliminate the need to recycle C-17 aircraft from the
airdrop to the airland role.  This would allow the Air Force to
conduct an extended range airdrop directly from the continental
United States to a small, austere airfield within the specified time
frame. 


--------------------
\2 Of the 114 C-17s, 10 are spares to replace nonmission capable
aircraft, 7 are needed to ensure an 80-percent probability of mission
success, and 10 are assumed to be undergoing maintenance. 


      C-17'S ABILITY TO PERFORM
      STRATEGIC BRIGADE AIRDROP
      NOT PROVEN
-------------------------------------------------------- Chapter 3:2.4

The ability to safely perform a mass personnel airdrop while flying
in close formation is a key Air Force capability needed to conduct a
strategic brigade airdrop.  However, operational testers found that
C-17 aircraft wake air turbulence poses a danger to paratroopers
jumping from aircraft flying in close formation.  As a result, the
Army has not yet approved mass airdrops of personnel from C-17s
flying in close formation.  Also, flight parameters, imposed to
reduce the risk of paratrooper entanglements, increased pilot
workload for conducting personnel airdrops and are not conducive to
flying large numbers of aircraft in formation.  In addition, the C-17
does not meet paratrooper exit rate requirements when airdropping
personnel along with equipment bundles. 

During operational testing, the Air Force found that the air
turbulence created in the wake of C-17s, flying in close formation,
can cause parachutes dropping from following aircraft to oscillate,
partially deflate, or collapse.  These conditions could result in
serious injury or death to paratroopers if they occurred at altitudes
too low to allow time for recovery.  Until this problem is resolved,
the Army has not approved operational mass personnel airdrops from
C-17s flying in close formation.  Current Army safety restrictions
require the Air Force to maintain a 5.5-minute or greater separation
time between aircraft to avoid possible injury to paratroopers. 

The current 5.5-minute aircraft separation restriction essentially
prohibits formation flying, as it would take over 2.5 hours to
conduct a strategic brigade airdrop.  Army officials told us that
they were in the process of formulating a time requirement of about
30 minutes for completing a strategic brigade airdrop.  This is
longer than it takes using the C-141, which was the standard
initially desired by the Army.  The C-141 can complete a strategic
brigade airdrop in approximately 11 to 22 minutes, depending on
visual conditions and formation spacing. 

The Air Force, in June 1996, began a combination of follow-on
development and operational testing to better understand the impact
of C-17 wake turbulence on paratroopers and to identify operationally
acceptable aircraft formations that would mitigate the wake
turbulence problem.  The follow-on C-17 testing includes conducting
personnel formation airdrop tests during daylight hours using visual
flight rules.  Air Force officials estimate that this testing will be
completed by February 1997.  However, these officials told us that
formation personnel airdrop testing under night or limited visibility
conditions using instrument flight rules will not be conducted until
late 1997.  While there is no hard and fast rule, the Army generally
tries to conduct airborne assaults under the cover of darkness or
limited visibility to protect its forces and surprise the enemy. 

Also, operational testing found that, because of turbulent airflows
around the C-17, paratroopers jumping from both sides of the
aircraft, tend to cross over behind the aircraft.  This crossover
increases the risk of paratroopers colliding and becoming entangled
in their parachutes and could lead to serious or fatal injury if
paratroopers are unable to quickly free themselves.  To prevent this
crossover problem, C-17 pilots are required to maintain strict flight
parameters during personnel airdrop.  These parameters include a
high-deck angle (the nose of the aircraft is elevated 6 to 7 degrees
as opposed to a normal elevation of 3 degrees or less) and precise
airspeed.  Operational testers found that maintaining these
parameters created a high workload for C-17 pilots, who had
difficulty maintaining the desired combination of these flight
parameters at a constant altitude across the drop zone.  DOD's C-17
Operational Test and Evaluation Report (November 1995) indicated that
these conditions are not ideal when flying large numbers of aircraft
in formation. 

In addition, operational testing revealed that the C-17 does not meet
the Air Force and the Army requirement to airdrop equipment bundles
and 102 paratroopers in a single pass over an average size drop zone. 
If this requirement cannot be met, the Army would have to either
increase the length of the drop zone, require the aircraft to make a
second pass over the drop zone, or reduce the number of paratroopers
dropped on a single pass.  None of these alternatives would be
desirable to the Army because they would delay landing troops in the
drop zone and require additional time to consolidate and reorganize
troops once on the ground. 


   MULTIYEAR CONTRACT CANCELLATION
   PROVISIONS
---------------------------------------------------------- Chapter 3:3

Although the Congress has approved and DOD has awarded a multiyear
contract with an accelerated production schedule for the final 80
C-17s, that contract contains a clause that would permit the
government, if full funding for a production lot under the multiyear
contract were not available, to revert to single- year options
without paying cancellation costs.  While there would be an increase
in program discontinuation costs to close out the contract at 100
rather than a 120, those additional costs have already been accounted
for in our estimate of the potential savings.  This clause was
included at the direction of the Congress and would allow DOD to
continue acquiring C-17s under the conditions negotiated prior to
signing the multiyear contract. 


   CONCLUSION
---------------------------------------------------------- Chapter 3:4

An airlift fleet with 120 C-17s would cost over $7 billion more in
acquisition and operating and support costs than a fleet with 100
C-17s, while, in our opinion, providing only a marginal increase in
strategic airlift capability and tactical utility.  There are
alternatives for delivering the small amount of strategic cargo not
delivered by an airlift fleet with 100 C-17s in the MRS BURU. 
Employing one or a combination of these relatively low-cost
alternatives could result in saving over $7 billion in life-cycle
costs for the additional 20 C-17s.  These alternatives include a
minor amount of prepositioning beyond the amount currently planned,
using other airlift aircraft not considered available in the MRS
BURU, extending the delivery time frame slightly, or adopting a
combination of these alternatives. 

DOD officials have expressed concern that additional prepositioning
reduces the flexibility of the field commander to determine the force
mix that a major regional contingency will require.  However, the
additional reduction in flexibility would be about 2 percent if the
entire shortage were prepositioned and less than 2 percent to the
extent that training or set-aside aircraft were also used. 

The 100 C-17s would also provide sufficient military capabilities to
fulfill the missions modeled in the Tactical Utility Analysis with
the exception of an extended range strategic brigade airdrop directly
from the continental United States to a small, austere airfield. 
This capability, as set out in the Army's concept of operations, does
not currently exist and until about fiscal year 2004 would have to be
accomplished through the use of alternatives.  Since this mission can
be accomplished by moving some portion of the planned follow-on
equipment to bases closer to the planned target or by making the C-5A
replacement airdrop capable, we question the cost-effectiveness of
spending billions for additional C-17s. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 3:5

Because of the potential savings of over $7 billion and the relative
contribution of the final 20 C-17s, the Congress may wish to consider
funding only 100 C-17s and requiring DOD to reexamine the decision to
acquire 120 C-17s.  DOD can meet mission requirements by employing
various relatively low-cost options and by extending the use of
alternatives for accomplishing the longer range brigade airdrop. 
Further, before approving the acquisition of the final 20 C-17s
primarily to support the brigade airdrop mission, the Congress should
require that DOD certify that the aircraft's wake turbulence problems
have been solved. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 3:6

In commenting on a draft of this report, DOD stated that the
alternatives we suggested were operationally unacceptable.  More
specifically, DOD indicated that (1) CRAF aircraft cannot carry
outsized or oversized equipment, (2) KC-10s may be needed for
refueling, (3) training aircraft are needed to ensure a continuous
pipeline of trained crews, (4) additional prepositioning would reduce
flexibility, and (5) extension of the delivery time by 1 or 2 days
would create unacceptable risks.  (See app.  II for DOD's complete
comments.) However, careful review of DOD's comments indicates that
its blanket rejection of any combination of these alternatives fails
to recognize the following: 

  -- Not all of the cargo to be delivered is outsized or oversized
     and additional contributions of CRAF aircraft could free up C-5s
     and C-17s for the outsize and oversize loads. 

  -- Although the primary role of KC-10s is as refuelers, they could
     still make a contribution even if not dedicated to the airlift
     role, as they have in the past. 

  -- The eight C-17s and six C-5s set aside for training could be
     used on a short-term basis in two nearly simultaneous major
     regional contingencies, just as training aircraft were used
     during Desert Storm. 

  -- The reduction in flexibility from additional prepositioning is 2
     percent or less of the planned force. 

  -- While asserting increased risk, DOD has not rerun its
     war-fighting model with a delay of 1 or 2 days in the delivery
     time to determine whether there is, in fact, a significant
     increase in risk.  Further, DOD has assumed that risk will
     increase without allowing for any compensating effects through
     the use of the alternatives we have suggested. 

DOD agreed that 100 C-17s would be adequate to meet lesser regional
contingency requirements.  However, DOD indicated that an extended
range brigade airdrop could not be accomplished with a fleet that
included only 100 C-17s.  DOD stated that prepositioning airdrop
forces is not a realistic option because of time constraints, the
need to obtain agreement from other nations for use of their
territory, and the loss of the element of surprise. 

We are not suggesting that prepositioning, that is permanent storage
of equipment at forward bases, be used to support the brigade
airdrop.  We are suggesting that 15 or fewer loads of follow-on
equipment could be moved to an appropriate base during the early part
of the operation, close enough to the desired target to allow C-17s
used in the initial airdrop to pick up that equipment and deliver it
during the airland phase of the mission.  We agree that use of third
party bases would require obtaining permission for their use but
believe that much of the groundwork for this type of agreement can be
handled prior to the time when the bases would actually be needed. 
As regards to the element of surprise, we question whether the number
of aircraft involved in an operation of this nature could be launched
without attracting media attention during a crisis. 

DOD recognized the existence of a C-17 wake vortex problem but
recommended that we withdraw our suggestion that the Congress require
certification that the problem has been solved before authorizing the
final 20 aircraft.  DOD maintained that the problem is not unique to
the C-17 and a reporting requirement would be an inappropriate
exaggeration of the issue.  In our opinion, the ability of the
aircraft to accomplish a key mission specifically called for in the
justification for acquiring 120 C-17s (not just 100) is critical and,
therefore, certification that the wake vortex problem has been
resolved is a reasonable requirement. 


C-17 PROGRAM COST COULD EXCEED $43
BILLION DESPITE SAVINGS
============================================================ Chapter 4

The Air Force needs to achieve significant cost reductions to contain
total program costs for the 120 C-17 program at the $43 billion
amount estimated by the Air Force in January 1994.  Even after the
reductions in production prices for the last 88 aircraft that the Air
Force negotiated with McDonnell Douglas, total program costs
decreased by only about $174 million from the $43 billion January
1994 Air Force estimate.  Also, negotiated ceiling prices for
aircraft in production lots XII through XV potentially could increase
C-17 program costs by more than $1 billion if individual production
lots were to increase to their ceiling prices.  Further, the contract
provides for adjusting the prices for the last 72 aircraft to account
for changes in costs that could not be accurately foreseen at the
time the multiyear contract was negotiated. 


   GOVERNMENT AND MCDONNELL
   DOUGLAS COST-REDUCTION
   INITIATIVES
---------------------------------------------------------- Chapter 4:1

Initiatives undertaken by both the government and McDonnell Douglas
have significantly reduced prices for future C-17 aircraft.  First,
the Congress created a competitive environment for the C-17
contractor by directing DOD to establish the NDAA program to explore
the use of nondevelopment aircraft as an alternative or supplement to
the C-17. 

Second, several Air Force initiatives contributed to lower C-17
production prices.  The Air Force (1) performed a should cost
analysis to serve as a basis for negotiating lower prices for the
last 88 aircraft,\1 (2) provided the contractor an additional $372
million to fund cost-reduction initiatives, (3) accelerated the
production schedule, (4) negotiated fixed-price contracts with
McDonnell Douglas for the next four production lots (VIII-XI) and
not-to-exceed ceiling options for the balance of the 120- aircraft
buy, and (5) obtained congressional approval to purchase the last 80
aircraft using multiyear procurement. 

Also, as a result of the 1994 settlement,\2 McDonnell Douglas
undertook its own analysis to identify ways of reducing C-17
production prices and, as required by the settlement, will expend
$100 million of its own funds for additional projects to reduce C-17
production costs. 

In the fall of 1994, as a part of their price reduction efforts, the
C-17 program office and McDonnell Douglas jointly developed a
computer model for estimating and reaching agreement on production
costs for the last 88 aircraft, starting with production lot VIII. 
As part of this effort, in January 1995, the C-17 program office and
McDonnell Douglas agreed to a production price baseline of $24.2
billion ($275 million average unit price) to use in the model.  The
contractor used the model to determine the impact that its
cost-reduction initiatives would have on C-17 production labor hours,
costs, and prices. 

Table 4.1 summarizes the Air Force and contractor initiatives, which
together reduced production prices for the last 88 aircraft by $7.3
billion (from $24.2 billion to $16.9 billion).  The $16.9 billion
($192 million average unit price) is the negotiated contract price
for the annual production buys included in the lot VIII and beyond
contract assuming an accelerated production schedule.  The $16.9
billion price excludes the cost of engines and other equipment
furnished to McDonnell Douglas by the government.  The multiyear
contract, starting with production lot IX, reduced this price by
another $827 million to $16.1 billion ($183 million average unit
price). 



                               Table 4.1
                
                McDonnell Douglas C-17 Production Price
                          for Last 88 Aircraft

                    (Then-year dollars in millions)

                                           Price for last 88 aircraft
                                           ---------------------------
                                                                  Unit
                                                                (avera
Description                                Reduction     Total     ge)
-----------------------------------------  ---------  --------  ------
January 1995 baseline                                  $24,196    $275
Cost-reduction initiatives                    $5,100
Accelerated delivery                           1,356
Transferred to other contracts                   827
======================================================================
Total                                         $7,283  $(7,283)   $(83)
Lot VIII contract\a                                    $16,913    $192
Multiyear reduction                                      (827)     (9)
Lot VIII with multiyear                                $16,086    $183
----------------------------------------------------------------------
Note:  This is the production contract cost for McDonnell Douglas. 
It does not include costs for government-furnished equipment such as
engines. 

\a The lot VIII contract value assumes an accelerated production
schedule. 

The Air Force performed the should cost analysis to identify the most
probable production price for the remaining 88 aircraft.  This
analysis evaluated ongoing as well as new cost-reduction ideas for
McDonnell Douglas and its suppliers.  Following the should cost
study, McDonnell Douglas undertook its own detailed analysis and
identified other initiatives for reducing C-17 production costs. 
Program and contractor officials told us that McDonnell Douglas
reached agreement with the Air Force on many of these initiatives and
incorporated them into the joint C-17 production cost model.  These
initiatives lowered the negotiated target price for the remaining 88
aircraft by more than $5.1 billion from the January 1995 production
price baseline. 

Many of these initiatives, however, required additional funding by
both McDonnell Douglas and the Air Force.  These additional costs are
not reflected in the lot VIII and beyond contract prices.  For
example, McDonnell Douglas, as required by the 1994 settlement
agreement, is spending $100 million of its own funds to fund 40 of
these cost-reduction initiatives.  The Air Force also provided
McDonnell Douglas $372 million for additional cost- reduction
projects.  Included in this amount are (1) $112 million in incentive
payments for cost-reduction projects affecting production lots VIII
and beyond that had been authorized by the initial development and
production contract and implemented by the contractor prior to
production lot VIII\3 and (2) $260 million, under the PE/PI contract
to fund 37 new projects. 

Table 4.2 summarizes by major cost categories how the cost- reduction
initiatives reduced the production prices for the remaining 88
aircraft. 



                               Table 4.2
                
                Impact of Cost-Reduction Initiatives on
                C-17 Production Prices for the Remaining
                              88 Aircraft

                    (Then-year dollars in millions)

                                                     Decrease
                                            --------------------------
Cost category                                     Amount     Percent\a
------------------------------------------  ------------  ------------
Intercomponent work orders                        $1,805            35
Outside suppliers                                    976            19
Overhead                                             968            19
Direct labor                                         878            17
Other                                                473             9
======================================================================
Total                                             $5,100           100
----------------------------------------------------------------------
\a Percentages do not add due to rounding. 


--------------------
\1 The should cost analysis was designed to promote improvements in
the contractor's operations by challenging such things as existing
workforce, methods, materiels, and facilities and quantifying their
impact on price estimates. 

\2 In January 1994, DOD and McDonnell Douglas agreed to settle
outstanding business and management issues concerning the C-17. 
Under the settlement, the contractor agreed to a number of management
changes and improvements to ensure completion of the 120-aircraft
program and reductions in the aircraft's cost.  The government
increased funding to cover additional testing and some management
improvements and to settle all outstanding claims both filed and not
filed as of January 6, 1994.  The government also agreed to extend
delivery schedules and revise various C-17 specifications.  (See
Military Airlift:  The C-17 Program Update and Proposed Settlement
(GAO/T-NSIAD-94-166, Apr.  19, 1994.))

\3 Normally these incentive payments would have been paid to the
contractor at the time each production lot under contract was
awarded.  However, the C-17 program office wanted to close out the
initial C-17 development and production contract that authorized
these projects and chose to buy out these payments rather than
carrying the liability forward. 


      REDUCTION IN INTERCOMPONENT
      WORK ORDER COSTS
-------------------------------------------------------- Chapter 4:1.1

The largest reduction (about 35 percent) comes from reducing the cost
of intercomponent work orders.  These work orders are for C-17
manufacturing done at other McDonnell Douglas divisions away from the
main assembly facilities in Long Beach, California.  At these other
divisions, McDonnell Douglas is taking steps to reduce both direct
and indirect costs by improving the manufacturing processes and
efficiency at these facilities.  It is also transferring work to
either lower cost company facilities or to outside suppliers that can
do it more efficiently. 

For example, McDonnell Douglas plans to achieve more than $1 billion
in C-17 production costs reductions at its St.  Louis, Missouri,
facility by implementing a combination of cost- reduction initiatives
to improve efficiency and by transferring a portion of the work done
in St.  Louis to the contractor's Macon, Georgia, facility.\4 The
Macon facility has lower labor costs and higher productivity and
efficiency rates than other company facilities. 


--------------------
\4 In C-17 Aircraft:  Cost of Spare Parts Higher than Justified
(GAO/NSIAD-96-48, Apr.  17, 1996), we reported that the Air Force
paid significantly higher prices for spare parts manufactured at the
McDonnell Douglas St.  Louis Division. 


      REDUCTIONS IN SUPPLIER COSTS
-------------------------------------------------------- Chapter 4:1.2

McDonnell Douglas also plans to achieve significant reductions in the
prices charged by its suppliers.  The prime contractor is (1) working
with its suppliers to improve their manufacturing processes and/or
redesigning components provided by these suppliers, (2) transferring
work to more efficient suppliers, and (3) eliminating middleman costs
by directly procuring major parts and components from source
suppliers.  For example, McDonnell Douglas plans to achieve over $687
million in cost reductions at its largest supplier, Vought Aircraft
Division of Northrop Grumman Corporation.  This amount includes an
estimated $300 million savings by improving the design and
manufacturing of the C-17 engine enclosure. 


      REDUCTIONS IN OVERHEAD COSTS
-------------------------------------------------------- Chapter 4:1.3

McDonnell Douglas plans to decrease its overhead expenses by more
than $900 million.  The contractor, for example, has initiated
projects to reduce the cost of indirect staffing supporting the C-17
program by $443 million and to reduce the cost of group health
insurance and workman's compensation by $266 million. 

Specifically, the contractor plans to reduce the level of indirect
staffing by 577 positions from 2,250 at the beginning of 1995 to
1,673 in 2001.  For the entire corporation, McDonnell Douglas revised
its employees' group health insurance program to incorporate a new
point-of-service primary care program and to require supplemental
premium contributions from employees whose working spouses elect not
to accept their own employers' health insurance program as primary
coverage.  The contractor also projects significantly reduced costs
due to a reduction in the State of California workman's compensation
rates and improvements in the contractor's industrial accident safety
record. 


      DIRECT LABOR AND OTHER COST
      REDUCTIONS
-------------------------------------------------------- Chapter 4:1.4

McDonnell Douglas expects to reduce its C-17 program direct labor
costs by $878 million through the implementation of several labor
saving projects.  For the most part, these projects are being
implemented at the assembly facility in Long Beach to improve
assembly labor and reduce idle time and the time required for rework
and repair. 

Other reductions to the production price include decreases related to
profit/fee, warranty, facilities cost of money, and other nonlabor
costs.  For example, the estimated profit for the last 88 aircraft
decreased by over $275 million. 


      ACCELERATING PROCUREMENT
      SCHEDULE WILL SAVE OVER A
      BILLION DOLLARS
-------------------------------------------------------- Chapter 4:1.5

The Air Force and McDonnell Douglas reduced the contract price by
$1.4 billion by accelerating the baseline procurement schedule.  Both
the lot VIII and beyond and multiyear contracts contained an
accelerated procurement schedule approved by the Under Secretary of
Defense for Acquisition and Technology for use in planning and
budgeting for C-17 production at the maximum affordable rate.  The
baseline procurement profile used in the joint cost model provided
for nine production
lots (VIII-XVI) with a maximum procurement rate of 12 per year.  The
accelerated procurement profile provides for eight lots with a
maximum procurement rate of 15 per year.  A comparison of the two
procurement schedules with their respective prices is shown in table
4.3.  According to the contractor's proposal, the accelerated
procurement rate buildup and higher quantities allowed the company to
offer the reduced price. 



                                    Table 4.3
                     
                        Comparison of Contract Procurement
                        Baseline Profile With Accelerated
                     Procurement Profile for Last 88 Aircraft

                         (Then-year dollars in millions)

Fiscal                                                                     Total
year      1996   1997   1998   1999   2000   2001   2002   2003   2004     price
-------  -----  -----  -----  -----  -----  -----  -----  -----  -----  --------
Baselin      8      8      8      8     10     12     12     12     10   $18,269
 e
 number
Acceler      8      8      9     13     15     15     15      5      0    16,913
 ated
 number
Reducti                                                                   $1,356
 on
--------------------------------------------------------------------------------

      TRANSFER OF DEVELOPMENT AND
      SUPPORT COSTS
-------------------------------------------------------- Chapter 4:1.6

Contracts for C-17 development and prior production lots contained
provisions for improving the aircraft and for field support.  The Air
Force and the contractor estimated the cost of this work in the
January 1995 production price baseline to be about $827 million. 
Starting with the production lot VIII and beyond contract, the Air
Force transferred this work to the PE/PI and field support contracts. 
This was done to have the production contract reflect only the cost
of producing the aircraft and to increase management's visibility and
control over production costs. 


      MULTIYEAR PROCUREMENT WILL
      REDUCE CONTRACT PRICE
-------------------------------------------------------- Chapter 4:1.7

On the basis of a January 1996 proposal submitted by McDonnell
Douglas, the Air Force sought and obtained congressional approval for
multiyear procurement authority to purchase the last 80 C-17 aircraft
over a 7-year period.  In June 1996, the Air Force awarded McDonnell
Douglas a $14.2 billion 7-year multiyear contract for the last 80
C-17 aircraft starting with production lot IX in fiscal year 1997 and
ending with production
lot XV in fiscal year 2003. 

The multiyear contract reduced McDonnell Douglas's target prices for
the last 80 aircraft by $827 million.  On the basis of an accelerated
procurement profile, the contract provides for a 5.5- percent
discount from the negotiated prices in the annual lot VIII and beyond
contract for production lots IX through XV.  McDonnell Douglas's
original proposal offered a 5-percent discount, but the contractor
increased it to 5.5 percent due to a congressional desire for a
larger discount.  McDonnell Douglas did not identify how it would
achieve this additional reduction, and characterized it as a
management challenge. 

The multiyear contract also allows the Air Force to revert to the lot
VIII annual buy contract options without renegotiating prices, if any
year's buy under the multiyear contract is not fully funded.  The lot
VIII contract's variation in quantity clause allows the Air Force to
choose either a baseline or an accelerated procurement schedule. 


   C-17 PROGRAM COSTS REMAIN AT
   $43 BILLION
---------------------------------------------------------- Chapter 4:2

In April 1994, we testified that the $43 billion total program cost
estimate to acquire 120 C-17s exceeded the last DOD estimate to
acquire 210 aircraft.\5 A 1996 Air Force estimate of total program
costs for a 120 C-17s has decreased by only $174 million since that
time.  Although both the 1994 and the 1996 estimates include
multiyear procurement, the 1994 estimate is based on a maximum
procurement rate of 12 aircraft per year while the procurement rate
in the 1996 estimate is 15 aircraft per year. 

Table 4.4 compares the 1994 and the 1996 estimates of total program
costs.  It shows that the Air Force reduced its budget estimate for
C-17 production costs for the 120-aircraft program by over $3
billion.  This represents about a 10-percent decrease in production
costs, or an average reduction of $26.5 million per aircraft.  For
the most part, this decrease is a result of the Air Force negotiating
lower prices with McDonnell Douglas for the remaining 88 aircraft. 



                               Table 4.4
                
                    Total C-17 Program Costs for 120
                                Aircraft

                    (Then-year dollars in millions)

Description                                 1996       1994     Change
-------------------------------------  ---------  ---------  ---------
Research and development                $6,701.1   $5,709.9     $991.2
Production                              29,234.8   32,414.8  (3,180.0)
Support                                  3,147.0    2,103.4    1,043.6
Modifications                            1,278.7          0    1,278.7
Spares                                   2,197.2    2,523.3    (326.1)
Military construction                      346.0      327.4       18.6
======================================================================
Total                                  $42,904.8  $43,078.8   $(174.0)
----------------------------------------------------------------------
The $3.2-billion decrease in production costs was offset by increased
estimates for research and development, aircraft modifications, and
field support.  According to program officials, the $991-million
increase in research and development funds is mainly for additional
follow-on development and operational testing, and the $1.3-billion
increase in modification funds is for the development and
incorporation of modifications to the aircraft.  Examples of planned
funding for modification improvements include:  $247 million to
improve the C-17 cargo compartment system, $205 million to upgrade
the aircraft's avionics, and $150 million to enhance utilization of
the cockpit. 

According to the C-17 program office, the $1-billion increase in
support costs is due to (1) the extension from fiscal year 2001 to
2005 of McDonnell Douglas interim contractor support for fielded C-17
aircraft and (2) plans to fund many sustainment tasks under the
weapon system procurement account that were previously funded under
the operation and maintenance account. 


--------------------
\5 Military Airlift:  C-17 Proposed Settlement and Program Update
(GAO/T-NSIAD-94-172, Apr.  28, 1994). 


      MULTIYEAR CONTRACT ALLOWS
      FOR PROGRAM COST GROWTH
-------------------------------------------------------- Chapter 4:2.1

The contract prices for the last 50 aircraft could increase about $1
billion because of ceiling prices contained in the multiyear
production contract.  On the basis of our analysis, the ceiling
prices for contract options, starting with lot XII, exceed the
negotiated target prices by about $1 billion. 

Further, the multiyear contract contains contract clauses that
allocate the risk of unforseen events between the government and the
contractor.  These clauses allow for increases or decreases in the
price (for production lots X and XI) and the target cost and ceiling
price for production lots XII through XV.  For example, increases or
decreases to materiel costs due to changes in inflation or currency
exchange rates would result in adjustments to the price, target cost,
target price, and ceiling price for a lot.  These contract amounts
could also be adjusted for cost increases or decreases to the prime
contractor for changes in labor and overhead rates, loss of
suppliers, new government compliance requirements, and extraordinary
events such as earthquakes or fire if the net effect of these changes
(upward or downward) is 2 percent or greater of the applicable fixed
price or target cost amounts stated in the contract. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 4:3

In commenting on a draft of this report, DOD agreed that the
estimated program cost remains at $43 billion, but pointed out that
the costs for additional research and development, testing, and
modifications were not included in the earlier estimates because the
items being covered by these costs were not known at that time.  The
need for the modifications was identified during testing.  We agree
that these costs were not reflected in the earlier estimates. 
However, major weapon systems generally require modifications as a
result of testing.  Not including any potential costs of these
modifications ignores prior experience and understates potential
costs. 


DOD-APPROVED C-17 PROGRAM COST AND
SCHEDULE AIRCRAFT PERFORMANCE
CRITERIA FOR CONTINUING THE
PROGRAM BEYOND 40 AIRCRAFT
=========================================================== Appendix I

DOD-established criteria               Objective       Threshold      Compliance
--------------------------------  --------------  --------------  --------------
C-17 program Date milestone
--------------------------------------------------------------------------------
Complete development testing             Dec. 94         June 95         Dec. 94
Start operational testing                Dec. 94         June 95         Dec. 94
Complete operational testing             June 95         Dec. 95         June 95
Initial operational capability           Jan. 95         July 95         Jan. 95
 (12 aircraft)
Reliability, maintability, and           July 95         Jan. 96         Aug. 95
 availability evaluation
Full-rate production decision            Nov. 95          May 96         Nov. 95
 milestone IIIB

Program costs for Estimate (fiscal year 1981 base-year millions)
first 40 aircraft
--------------------------------------------------------------------------------
Research and development                $4,089.1        $4,702.5        $4,070.1
Procurement                              8,769.3         9,207.8         8,462.8
Military construction                      138.0           158.7           133.0
Average unit procurement                 219.233         252.118           211.6

Program aircraft Performance parameter performance
--------------------------------------------------------------------------------
Payload at 3,200 nautical miles      130,000 lbs     110,000 lbs     131,000 lbs

landing field length                         lbs     140,000 lbs             lbs
Backup capability                       2% grade      1.5% grade       3+% grade
Turning capability (feet for       96 ft unpaved     90 ft paved    80 ft paved/
 180-degree turn)                                                  96 ft unpaved
Rolling stock/outsize cargo          15 vehicles     15 vehicles     15 vehicles
Airdrop                            102 personnel   102 personnel   102 personnel
                                     110,000 lbs      60,000 lbs     110,000 lbs
                                  40 CDS bundles  30 CDS bundles  30 CDS bundles

Aircraft (Projected range) reliability and maintability
--------------------------------------------------------------------------------
Mean time between maintenance,              0.78            0.75    0.88 to 1.37
 corrective
 (mean flight hours)
Mean time between removal                    2.8             2.5    4.23 to 6.11
 (mean flight hours)
Mean man hours to repair                    7.35            7.35     3.7 to 4.45
--------------------------------------------------------------------------------



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



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's (DOD)
letter dated January 2, 1997. 

GAO COMMENTS

1.  Although the Mobility Requirements Study Bottom-Up Review Update
(MRS BURU) recommended that a fleet with the capacity of 120 C-17s be
acquired, the basis for that recommendation was a set of assumptions
concerning the (1) war fight, (2) expected levels of prepositioning,
and (3) timing of the scenarios.  Our review indicated that there are
individual measures that DOD should implement to change the basis for
those assumptions.  DOD asserted that less than 120 C-17 equivalents
would increase risk to an unacceptable level, without considering the
MRS BURU scenario in terms of any of our suggested measures to offset
a reduction in airlift.  DOD's assertion that there would be an
increase in risk beyond the moderate range is not established by
evidence or analysis. 

2.  To ensure that no misunderstanding occurs, we have modified the
report to identify the portion of the $7 billion expected savings
that would come from reductions in acquisition and the portion that
would be foregone operating costs over the life of the aircraft. 

3.  We agree that replacing 234 C-141s with 100 or 120 C-17s will
result in fewer aircraft in the fleet.  However, DOD decided in April
1990 that a significant reduction in the number of aircraft was
acceptable when it reduced the planned C-17 buy from 210 to 120.  The
reduction was based on the increased capability of the C-17 and the
change in the threat.  The Defense Acquisition Board's decision was
based on the findings of the
MRS BURU, the Strategic Airlift Force Mix Analysis, and the Tactical
Utility Analysis, which considered wartime requirements, not the Air
Mobility Command's peacetime operating tempo. 

4.  DOD claims that additional prepositioning in support of two major
regional contingencies is unacceptable because it would reduce
flexibility.  However, the MRS BURU found that the materiel shortfall
could be delivered to the theater on prepositioning ships.  The
decision on how much to preposition afloat was based on the decision
that the airlift fleet would include 120 C-17 equivalents.  More
prepositioning would diminish by 2 percent the theater commanders's
flexibility to alter the airlift flow.  However, the Joint Staff
could not provide any analysis to support why a 2 percent or less
decrease would be unacceptable.  Further, our analysis has accounted
for the costs involved in prepositioning either on land or on ships. 
Also, the increased risk is, in our opinion, minimal.  The equipment
is a very small portion of the amount of equipment involved in any
contingency operation, it would be located in areas that are the most
likely sites of potential trouble, and it would not be substantially
further from potential use sites than if it were retained in the
United States. 

5.  DOD states that the use of staging bases during a brigade airdrop
is not a realistic option because of the time involved.  However, we
are not suggesting that troops or equipment be prepositioned at an
overseas base for a potential strategic brigade airdrop.  We are
suggesting that some of the equipment delivered as part of the
airland follow-on phase of the brigade airdrop--less than 15 C-17
loads--be moved first to staging bases as part of the initial
deployment so that it can be picked up by C-17s used in the initial
airdrop.  This would eliminate the time needed by these C-17s to
return to the United States to pick up this equipment. 

6.  Although DOD considers this a realistic objective, DOD cannot
currently accomplish this directly from the United States to a small,
austere airfield as desired by the Army.  Our point is not that this
capability never be acquired but that a delay in acquiring it will
result in significant savings. 

7.  We have modified the report to reflect that there are 74 C-5As in
the airlift fleet of which 16 are undergoing depot maintenance or
used for training purposes. 

8.  The costs DOD refers to will occur as a result of replacing the
C-5A whether or not any other actions are taken. 

9.  DOD's response states that the strategic brigade airdrop
operational capability release is targeted for February 1997, using
20-foot static lines and 40,000 foot spacing between 3-ship C-17
elements.  However, DOD's response fails to address two important
points.  First, the Army does not have an operational 20-foot static
line.  It needs to be developed, tested, and certified.  Second,
standard spacing for formation personnel airdrop using C-141s is
6,000 to 12,000 feet between elements.  The larger separation of the
C-17, in addition to the formation being wider than with other
aircraft, would result in a longer time to complete the airdrop, and
a greater dispersion of troops over a larger drop zone.  This would
delay getting troops on the ground and require additional time to
consolidate and reorganize those troops into an effective fighting
force, thereby increasing the risk to the operation. 

10.  We agree that it is in the contractor's interest to maximize
profit.  However, clauses included in the multiyear contract allocate
risk between the government and the contractor that arises from
events over which they may have little or no control.  If these
events occur, then the cost of the contract to the government can
increase. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Thomas J.  Denomme
Penny D.  Stephenson
Michele Mackin

LOS ANGELES FIELD OFFICE

Noel J.  Lance
Carlos M.  Garcia
Dorian R.  Dunbar
Larry J.  Bridges

*** End of document. ***