Army Acquisition: Longbow Hellfire Missile Procurement Quantities
Significantly Overstated (Letter Report, 05/14/97, GAO/NSIAD-97-93).

GAO reviewed the Army's Longbow Hellfire missile program, focusing on
whether the: (1) Army had adequately justified the requirement and
quantities of the missile; and (2) missile had successfully demonstrated
its requirements during the Initial Operational Testing and Evaluation.

GAO noted that: (1) the Apache Longbow weapon system, which includes the
Longbow Hellfire missile, completed initial operational test and
evaluation in March 1995; (2) the tests concluded that the system was
operationally effective and suitable; (3) however, the Army's current
Longbow Hellfire missile requirement of 12,722 may be overstated by over
8,300 missiles; (4) the Army made computational errors and a
questionable assumption in calculating missile requirements that
resulted in a potential overstatement of 7,145 missiles; (5) in
addition, test results indicate that the missile quantity could be
reduced by another 1,184 missiles; (6) moreover, significant cost
reductions can be achieved with lower missile quantities; (7) while cost
estimates for an 8,300 missile quantity reduction are not yet available,
the Office of the Secretary of Defense estimates that up to $500 million
in program cost savings can be achieved by reducing quantities by
approximately 4,000 units; (8) the Army's method of computing the
quantities contains three critical errors; (9) the Army used an outdated
helicopter carrying capability of 16 missiles instead of the current 12,
double counted missiles when figuring the residual readiness portion of
the requirement, and used an unsubstantiated mix ratio between the
Longbow Hellfire and Hellfire II missiles; (10) correcting these
mistakes would potentially reduce the current 12,722 missile requirement
for Longbow Hellfire missiles by 7,145 missiles; (11) in addition, the
Army Materiel System Analysis Activity's independent evaluation of the
Apache Longbow weapon system disclosed that the Apache Longbow system's
weight needs to be reduced by almost 600 pounds to achieve its vertical
rate of climb specification; (12) according to Army data, the system's
current demonstrated capability is calculated using 8 missiles instead
of 12; and (13) if the Army lowers its missile carrying capability to 8
to meet the Apache Longbow system weight limitation, this would further
reduce the missile requirement by 1,184.

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

 REPORTNUM:  NSIAD-97-93
     TITLE:  Army Acquisition: Longbow Hellfire Missile Procurement 
             Quantities Significantly Overstated
      DATE:  05/14/97
   SUBJECT:  Advanced weapons systems
             Missiles
             Army procurement
             Military cost control
             Combat readiness
             Helicopters
             Defense capabilities
IDENTIFIER:  Army Longbow Hellfire Missile
             Army Longbow Hellfire II Missile
             AH-64D Helicopter
             Apache Helicopter
             Army Longbow Hellfire Cost-Reduction Program
             Kiowa Helicopter
             Cobra Helicopter
             AH-1 Helicopter
             
******************************************************************
** 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 Congressional Committees

May 1997

ARMY ACQUISITION - LONGBOW
HELLFIRE MISSILE PROCUREMENT
QUANTITIES SIGNIFICANTLY
OVERSTATED

GAO/NSIAD-97-93

Army Acquisition

(707203)


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

  AMSAA - Army Material System Analysis Activity
  DOD - Department of Defense
  IOT&E - initial operational testing and evaluation
  OSDPA&E - Offfice of the Secretary of Defense, Program Analysis
     and Evaluation
  OSD - Office of the Secretary of Defense

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


B-276071

May 14, 1997

Congressional Committees

In response to congressional concerns about the increasing cost of
weapon systems entering full-rate production, we initiated a review
of the Longbow Hellfire missile to assess its acquisition strategy
and associated costs.  Specifically, our objectives were to determine
if (1) the Army had adequately justified the requirement and
quantities of the missile and (2) the missile had successfully
demonstrated its requirements during initial operational testing and
evaluation (IOT&E).  We conducted this review under our basic
legislative responsibilities and are addressing this report to you
because the matters discussed in it fall within your committees'
jurisdiction. 


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

Longbow Hellfire is an air-to-ground missile designed to be fired
from a modified AH-64D Apache helicopter.  The Army plans to convert
all of its 758 Apache helicopters so that they can carry a mix of
Longbow Hellfire and Hellfire II missiles.  Both Longbow Hellfire and
Hellfire II missiles are complementary and can be employed singly or
as a mixed load on the Apache.  Longbow Hellfire is to receive
targeting information from a fire control radar mounted on the
modified Apache helicopters.  However, only 227 of the 758
helicopters are expected to be equipped with the fire control radar. 
Targeting information will be digitally transmitted from these
helicopters to those without the fire control radar. 

The Army's current acquisition strategy for the Longbow Hellfire
missile is contained in its December 1, 1994, Longbow Hellfire
Cost-Reduction Program plan.  This strategy was developed in response
to the Under Secretary of Defense's November 16, 1994, Acquisition
Decision Memorandum, which directed program cost-reduction efforts. 
The strategy calls for a reduction in the length of the 13,311
Longbow Hellfire missile procurement program from 10 to 8 years in an
attempt to reduce program costs by 25 percent or more.  The Army
plans to accelerate the production schedule, increase production
rates, award a multiyear contract, and make numerous missile hardware
and process improvements.  As a result of this strategy, the Army
estimates it can reduce unit costs from $234,000 to $169,000. 

Since the Cost-Reduction Program plan was implemented, the Army
reduced the quantity of missiles from 13,311 to 12,722 based on
across-the-board funding reductions.  Program officials stated that
the Cost-Reduction Program plan will not be adversely affected by
this reduction.  According to the Office of the Secretary of Defense,
Program Analysis and Evaluation (OSDPA&E) data, the annual
full-production rates will be around 1,900 a year instead of the
originally planned 2,200. 

The Longbow Hellfire missile is currently in its low-rate initial
production phase.  The Army plans to award a full-rate production
contract in November 1997 and seek congressional approval for a
multiyear contract in fiscal year 1999.  According to 10 U.S.C. 
2306b, a military service can award multiyear contracts for the
purchase of weapon systems if certain criteria are met.  One
criterion is that the minimum need for the weapon system to be
purchased is expected to remain substantially unchanged during the
contract period in terms of production rate, procurement rate, and
total quantities. 


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

The Apache Longbow weapon system, which includes the Longbow Hellfire
missile, completed IOT&E in March 1995.  The tests concluded that the
system was operationally effective and suitable.  However, the Army's
current Longbow Hellfire missile requirement of 12,722 may be
overstated by over 8,300 missiles.  The Army made computational
errors and a questionable assumption in calculating missile
requirements that resulted in a potential overstatement of 7,145
missiles.  In addition, test results indicate that the missile
quantity could be reduced by another 1,184 missiles.  Moreover,
significant cost reductions can be achieved with lower missile
quantities.  While cost estimates for an 8,300 missile quantity
reduction are not yet available, OSD estimates that up to $500
million in program cost savings can be achieved by reducing
quantities by approximately 4,000 units. 



                                Table 1
                
                Summary of Longbow Hellfire Requirement
                                 Issues

                                                                Number
                                                                    of
                                                                missil
                                                                    es
--------------------------------------------------------------  ------
Current Army requirement                                        12,722
Less: computational errors and questionable assumption          (7,145
                                                                     )
Less: test problems                                             (1,184
                                                                     )
Alternative requirement                                          4,393
----------------------------------------------------------------------
The Army's method of computing the quantities contains three critical
errors.  The Army used an outdated helicopter carrying capability of
16 missiles instead of the current 12, double counted missiles when
figuring the residual readiness portion of the requirement, and used
an unsubstantiated mix ratio between Longbow Hellfire and Hellfire II
missiles.  Correcting these mistakes would potentially reduce the
current 12,722 missile requirement for Longbow Hellfire missiles by
7,145 missiles. 

In addition, the Army Material System Analysis Activity's independent
evaluation of the Apache Longbow weapon system disclosed that the
Apache Longbow system's weight needs to be reduced by almost
600 pounds to achieve its vertical rate of climb specification. 
According to Army data, the system's current demonstrated capability
is calculated using 8 missiles instead of 12.  If the Army lowers its
missile carrying capability to 8 to meet the Apache Longbow system
weight limitation, this would further reduce the missile requirement
by 1,184. 


   CURRENT LONGBOW MISSILE
   QUANTITIES ARE SIGNIFICANTLY
   OVERSTATED
------------------------------------------------------------ Letter :3

According to OSDPA&E and our calculations, the current Longbow
Hellfire missile procurement quantity of 12,722 missiles could be
overstated by 7,145 missiles.  Our work shows that the current
Longbow Hellfire missile requirement contained an outdated helicopter
missile-carrying capability and double counted missiles.  In
addition, the Army used an unsubstantiated higher ratio of Longbow
Hellfire to Hellfire II missiles than previously used when
determining the appropriate mix between these complementary systems. 

Department of Defense (DOD) instruction 4100.41 establishes the
capabilities based munitions requirement process as the method DOD
and the military departments are to use to compute requirements. 
According to officials in the Office of the Deputy Chief of Staff for
Operations and Plans, the capabilities based munitions requirement
process was used to determine the requirement for both Longbow
Hellfire and Hellfire II.  The Army then applied a ratio to the total
combined requirement to determine the appropriate number of each type
missile. 

According to data supplied by the Army, the combined requirement for
Hellfire II and Longbow Hellfire missiles for use on the AH-64D
Apache as of November 1996 was just over 19,700 missiles, excluding
training and testing requirements.\1 Our review of this data showed
that the Army used a helicopter carrying capability of 16 missiles
instead of the current 12 and double counted missiles when it
calculated the residual readiness element of the requirement.  The
residual readiness requirement is the munitions necessary to provide
a combat capability beyond that required for the two major regional
contingencies.  We determined that adjusting for these corrections
would reduce the combined total requirement for both missiles to
11,153. 

The Army representative who is responsible for developing munition
requirements confirmed that our adjustments were appropriate.  He
stated that the Army's current requirement was based on a helicopter
carrying capability of 16 missiles and that double counting did occur
in the residual readiness calculation.  He explained that the double
counting was caused by the Army not applying the missiles designated
as combat supply toward its residual readiness calculation. 
Forty-three days of combat supply is included in requirements to give
operational flexibility during a conflict.  According to the residual
readiness definition, these missiles should be used to offset the
residual readiness requirement.  Failure to count the supply missiles
in the Army's residual readiness calculation doubles this quantity. 
He also stated that additional changes need to be made in how
residual readiness is calculated because expected aircraft attrition
was not factored in and it should be.  He did not have the aircraft
attrition numbers available for us to calculate the impact this
correction would have on the requirement.  However, he agreed this
would further lower the recalculated requirement of 11,153. 

To determine the Longbow Hellfire and Hellfire II individual
requirements, the Army applied a ratio factor to the total
requirement.  The Army used a three-to-one mix of Longbow Hellfire to
Hellfire II missiles in determining the appropriate requirement for
each weapon.  However, according to agency officials, up until last
year, the Army had used a one-to-one ratio to calculate the
requirement.  Army and DOD representatives stated that there is no
support to justify either ratio and could offer no explanations for
why they changed the ratio.  According to the Army officials, they
used their best judgment to determine the appropriate mix. 

While there is no justification for either ratio, preliminary results
from the ongoing Deep Attack Weapons Mix study suggest that a
one-to-one ratio may be more appropriate than Army's current
three-to-one ratio.  In response to our 1995 report that raised
questions concerning the number of missiles required,\2 DOD stated
that the calculations were made prior to the capabilities based
munitions requirement process being included in the Defense Planning
Guidance and agreed to review the requirement in accordance with
direction from the Secretary of Defense.  Army officials confirmed
that the requirement is being reviewed.  However, one study that may
change the requirements--the Deep Attack Weapons Mix study--is not
yet complete.  Army and DOD representatives told us that preliminary
study results favor the use of the Hellfire II over the Longbow
Hellfire.  These preliminary results suggest that the one-to-one
ratio is more appropriate than the three-to-one ratio.  Applying the
one-to-one ratio to the recalculated combined requirement of 11,153
missiles for use on Apache helicopters would result in a 5,577
Longbow Hellfire requirement and a 5,577 Hellfire II requirement. 
Therefore, the current Longbow Hellfire requirement of 12,722 could
be reduced by 7,145 missiles. 

In July 1996, OSDPA&E took an official position that the current
Longbow Hellfire missile requirement should not exceed 8,880
missiles.  The OSDPA&E official responsible for this analysis agreed
with our calculation of a combined Hellfire requirement of 11,153
missiles.  The 8,880 recommended quantity would still give the Army
the three-to-one mix it desires using the newly recalculated total
requirement.  According to this official, 8,880 Longbow Hellfire
missiles are more than adequate for Army needs.  He stated that his
office was not willing to take a position on the mix ratio question
since there was no support for either mix ratio figure.  He stated
that OSDPA&E's bottom line was to recommend a 30-percent cut in the
Longbow Hellfire missile program quantity. 


--------------------
\1 The total Hellfire II missile requirement is greater than the
Longbow missile requirement because in addition to being launched
from the Apache, it is also launched from Army Kiowa Warrior and
Marine Corps Cobra helicopters.  The Army is to finish procuring
Hellfire II missiles in fiscal year 1997. 

\2 Longbow Apache Helicopter:  System Procurement Issues Need to Be
Resolved (GAO/NSIAD-95-159, Aug.  24, 1995). 


   TEST RESULTS AND ARMY STUDY
   SHOW POTENTIAL EXISTS FOR
   FURTHER QUANTITY REDUCTIONS
------------------------------------------------------------ Letter :4

Operational testing results and an Army study raise issues that
should further reduce the number of Longbow Hellfire missiles that
need to be bought.  Although the Longbow Apache equipped with the
fire control radar successfully demonstrated its effectiveness and
suitability in operational testing, the tests raised serious concerns
regarding the effectiveness of Longbow Hellfire missiles on Apaches
without the fire control radar.  Current Army plans call for each
Apache company to receive three fire control radar helicopters and
five non-fire control radar helicopters.  The aircraft with radars
are to locate and classify targets, then digitally hand over some of
the targets to the non-fire control radar helicopters for engagement. 
According to the Director of Operational Test and Evaluation's
October 1995 report, the handoff procedure had significant problems
during the test.  Most of the crews in the radar aircraft chose not
to hand off targets because the one-at-a-time handoff process was
time-consuming and unreliable.  Consequently, the non-fire control
helicopters did not expend their missiles.  As a result, the report
found a

lethality difference between fire control and non-fire control radar
helicopters that was so great that the report recommended the Army
review its helicopter mix.  These hand-off deficiencies raise
questions about the rationale for buying Longbow Hellfire missiles
for use on non-fire control radar helicopters. 

The Army Material System Analysis Activity's (AMSAA) independent
evaluation of the Longbow Apache helicopter weapon system revealed
that neither version of the airframe is meeting its vertical rate of
climb requirement.  The report states that to meet this requirement,
weight needs to be reduced further.  For example, AMSAA estimates
that the Longbow Apache without the fire-control radar would need to
lose almost
600 pounds to achieve its goals.  In addition, the December 1995
Selected Acquisition Report for the Longbow Apache system reported
that the system's demonstrated capability was only eight missiles. 
If the Army has to reduce requirements from 12 to 8 missiles to
reduce weight, the combined total Longbow Hellfire and Hellfire II
missile requirement would decline from the recalculated 11,153
missiles to 8,785.  Using the one-to-one ratio between the 2
missiles, the Longbow Hellfire missile requirement would be lowered
by an additional 1,184 missiles to 4,393; a reduction of over 8,300
missiles from the existing 12,722 requirement. 


   CURRENT ACQUISITION PLANS
   OVERSTATE PROGRAM COSTS
------------------------------------------------------------ Letter :5

OSDPA&E estimates that procuring its recommended reduced quantity of
8,880 missiles will generate possible program savings ranging from
$100 to $500 million (see table 1.1).  The variability in savings
results from using different missile production rates.  The most
favorable cost-reduction scenario assumes an annual multiyear
production rate of 1,400 missiles, only 500 fewer than currently
planned.  Although the average missile unit cost would increase from
$152,000 to $176,000, total program costs would decrease from $2.1
billion to $1.6 billion, according to OSDPA&E's estimates. 



                                     Table 2
                     
                     Alternative Longbow Hellfire Program and
                               Unit Cost Estimates

                                              Total cost     Savings   Unit cost
                                               (billions   (millions  (thousands
                   Production                   of then-    of then-   of fiscal
                     rate per                       year        year   year 1997
Total buy                year  Buy period       dollars)    dollars)    dollars)
-----------------  ----------  -------------  ----------  ----------  ----------
Current Army            1,900  Fiscal years          2.1           0         152
 requirement of                 1996-2003
 12,722
PA&E's                  1,400  Fiscal years          1.6         500         176
 recommended                    1996-2003
 quantity of
 8,880
PA&E's                    700  Fiscal years          2.0         100         208
 recommended                    1996-2008
 quantity of
 8,880
--------------------------------------------------------------------------------
Source:  Data provided by OSDPA&E. 

The Longbow Program Office cost analyst stated he was unable to
provide a revised cost estimate for procuring 8,880 missiles or any
significant quantity revision.  He stated that if the program
quantity is reduced to 8,880 or below, the Cost-Reduction Program
plan would have to be totally revised and many of the agreements made
with the contractor to reduce costs would have to be renegotiated. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

We recommend that the Secretary of Defense direct the Secretary of
the Army to (1) reduce Longbow Hellfire missile procurement
requirements to reflect the current information on the number of
missiles that the Apache can carry, the correct residual readiness
computational procedures, and the appropriate Hellfire II to Longbow
Hellfire mix ratio and (2) prepare a new procurement strategy that
reflects the reduced requirement and recomputed expected cost. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

In commenting on a draft of this report, DOD partially concurred and
acknowledged that we had highlighted significant issues regarding (1)
how the current Longbow Hellfire and Hellfire II requirements were
determined, (2) the Apache helicopter's problem in achieving its
vertical rate of climb requirement, and (3) the time-consuming and
unreliable handoff process between radar and non-radar helicopters. 
Concerning our recommendations, DOD commented that it would consider
an updated acquisition strategy for the Longbow Hellfire and the
Hellfire II missiles after the receipt and analysis of the results of
the ongoing joint Deep Attack/Weapons Mix study and the Quadrennial
Defense Review Study.  DOD indicated that it does not expect to
finalize its position on Hellfire missile quantities until the fiscal
year 1999 budget submission.  The DOD response is included in
appendix I. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
------------------------------------------------------------ Letter :8

With the questions we have raised on the current Longbow Hellfire
requirement and the uncertain impact of the Weapons Mix study and the
Quadrennial Defense Review, every effort should be made to avoid
committing to the production of an excessive quantity of Longbow
Hellfire missiles.  Congress may wish to consider limiting the fiscal
year 1998 procurement quantities request to fiscal year 1997
production levels until the Secretary of the Army recalculates the
required quantities of Longbow Hellfire and Hellfire II missiles and
updates the acquisition strategy for these missiles. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To determine if the Army had adequately justified its Longbow
Hellfire missile requirement and quantities, we reviewed the Army's
Cost-Reduction Plan and the models used to determine the quantities
of missiles with officials in the Army's Air to Ground Project
Office, Redstone Arsenal, Alabama.  We also obtained information on
the models and data used by the Army Office of the Deputy Chief of
Staff for Operations and Plans, Washington, D.  C., for calculating
the quantities of missile.  In addition, we obtained models and data
from the Office of the Secretary of Defense, Program Analysis and
Evaluation Office. 

To determine if the Army had successfully demonstrated the Longbow
Hellfire missile's requirements during IOT&E, we reviewed operational
test reports and Army studies.  We discussed these documents with
officials in the Longbow Missile Program Office, the Longbow Radar
Project Office in St.  Louis, Missouri, and with representatives from
the Office of the Director, Operational Test and Evaluation,
Washington, D.  C. 

To determine if the missile was on schedule to achieve its planned
cost reduction, we reviewed the Army's Cost Reduction Plan, current
estimates, and projected costs for reduced quantities with officials
in the Army's Air to Ground Project Office, Redstone Arsenal,
Alabama; the Army's Office of the Deputy Chief of Staff for
Operations and Plans, Washington, D.  C.; and the Office of the
Secretary of Defense, Program Analysis and Evaluation Office. 

We conducted our review from October 1996 to February 1997 in
accordance with generally accepted government auditing standards. 

We are sending copies of this report to the Secretaries of Defense
and the Army and the Director of the Office of Management and Budget. 
Copies will also be made available to others upon request. 

If you or your staff have questions concerning this report, please
contact me at (202) 512-4841.  The major contributors to this report
were Lee Edwards, Laura Durland, and John Randall. 

Louis J.  Rodrigues
Director, Defense Acquisitions Issues

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ronald V.  Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C.  W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives




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



(See figure in printed edition.)


*** End of document. ***