GAO Report: Navy's A-12 Avenger Program Costs and Requirements, Exams of Accounting

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Page (^2) GAO/NSLAD-91-98 Navy’s A-12 Avenger

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Figure2:TheA-6EIntruder

Source, Navy

In December 1989, the Secretary of Defense directed a Major Aircraft

Review of four aircraft programs, including the A-12. During his

April 26, 1990, testimony on the Major Aircraft Review, the Secretary of

Defense proejected that first flight of the A-12 would take place by early

199 1 and t,hat the full-scale development program would be completed

within the current fixed-price incentive contract ceiling. On *June 1,

1990, the contractor team advised the Navy that a significant slip

occurred in the schedule for the first flight, the full-scale development

effort would overrun the contract ceiling by an amount that the con-

tractor team could not absorb, and certain performance specifications of

the contract could not be met. On *July 9, 1990, the Secretary of the

Page 3 GAO/NSIAD-91-98^ Navy’s^ A-12 Avenger

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medium attack mission with fewer aircraft. Navy plans to use another

aircraft, the S-3, for refueling could be limited because of a shortage of

S-3s. However, shifting of any of the refueling mission from the medium

attack community may reduce overall A-l 2 requirements.

The Navy’s A-l 2 total program cost estimates do not include operation

and support costs or the cost of developing and incorporating certain

improvements to enhance the performance of most A-l 2 aircraft. In

addition, changes to a number of cost projection variables have

occurred. First, cost projections, which are based on guaranteed produc-

tion lot prices, may be voided and renegotiated in a noncompetitive envi-

ronment if certain funding levels are not obtained. Second, a decision to

delay the Air Force’s participation in the A-12 program is expected to

place an additional cost burden of about $2.4 billion on the Navy. Third,

changes in the inflation indexes used to project program cost have

resulted in a program cost increase, and the indexes will likely change

again during the program’s life. Finally, increases in the A-12’s weight

and other developmental difficulties have increased costs and delayed

first flight and initial deployment by more than a year.

A-1 2 Requirements

Fluctuate

In December 1989, the Navy planned to buy 858 A-12s to support 15

aircraft carriers, with 15 carrier air wings, each with 20 A-12s. This

total includes aircraft for maintenance, training, and attrition. The buy

of 858 A-12s was projected to have a total cost of $74.3 billion and a

program acquisition unit cost of $86.6 million. However, due to budget

constraints, the Secretary of Defense initiated the Major Aircraft

Review of four systems planned for procurement, including the A-12. On

the basis of this study, the Secretary testified on April 26, 1990, that it

would be necessary to reduce the number of aircraft carriers to no more

than 14 through the rest of the century and A-12 requirements to 620.

According to Navy officials, 620 A-12s would support 12 active and 1

reserve carrier air wings. The Secretary estimated that if only 620 A-12s

are procured, total costs will be reduced to about $57 billion. (In the

next section, we discuss issues that will contribute to raising projected

A-12 program acquisition unit cost to over $100 million.) As of August

1990, the Navy had not received official guidance from the Secretary of

Defense to change A-l 2 procurement plans. However, according to A- 12

program office officials, a preliminary fiscal year 1992 budget based on

620 A-12s has been developed.

The Secretary also testified that “it may be necessary to scale back fur-

ther our active aircraft carrier force structure in order to accommodate

Page 6 GAO/NSIAD-91-98 Navy’s A-12 Avenger

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DOD'S [Department of Defense] declining future budgets.” If the Navy

reduces the number of its aircraft carriers to 12, we calculate that only

573 A-12s would be needed. Besides fewer aircraft carriers, other fac-

tors that affect requirements that should be considered are as follows.

On the basis of a 1984 carrier air wing composition study, the Navy

plans to replace all current air wing configurations with the Roosevelt

air wing, which calls for an increase in the number of A-6E aircraft from

the 10 currently assigned to most aircraft carriers to 20. Accordingly,

Navy plans call for 20 A-l& in each air wing to replace the A-6&. How-

ever, the A-12 is planned to be significantly more capable and surviv-

able than the A-6& and it is expected to have double the reliability of

the A-6E, while needing only half the maintenance staff-hours. Conse-

quently, fewer A- 12s may be required to perform the missions the A-6&

now accomplish.

Some aircraft in medium attack squadrons (KA-6Ds or A-6Es) perform

refueling operations. On certain aircraft carriers, the S-3 aircraft pcr-

forms part of that operation. The Navy told us during our review that it

planned to accomplish refueling operations with the S-3 aircraft begin-

ning in fiscal year 1994. The Navy now states that a shortage of S-

aircraft will not allow it to shift all refueling to the S-3. The Navy con-

tinues to have refueling as an attack aircraft mission. Therefore,

shifting of any of the refueling mission from medium attack may result

in an overall reduction in A-12 requirements.

The Navy calculated its requirements for 858 A-l 2s based on using the

aircraft for 30 years. According to Navy officials, it is likely the aircraft

will be kept in service for 30 years, considering the history of the A-

and the foreseeable budget constraints, However, the A-12 will be engi-

neered to last only 20 years. Based on Navy figures, total requirements

would be reduced by approximately 25 percent if the A-12 is kept in

service for 20 years rather than 30 years because fewer replacement

aircraft would be included in the program’s requirements.

A-12 Costs Not Fully

In addition to Navy requirements, there are a number of other changing

Defined

variables, some of which are not included in cost projections, that affect

A-l 2 costs. Two contractor teams submitted bids on the program.

According to Navy officials, provisions in the contract require that cer-

u

tain minimum funding levels be maintained to preserve the pricing guar-

antees of certain production lots. IIowever, recent technical difficulties

Page 6 GAO/NSIAD-91-98 Navy’s A-12 Avenger

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and 1989 resulted in an $11.5 million increase in A-12 program acquisi-

tion unit cost.1 If A-12s are in production for many years as currently

planned, further changes in the inflation indexes may occur, which

could affect the cost of the A- 12.

According to Navy officials, problems in maintaining the planned weight

of the A-12 and in manufa.cturing the A-12 have resulted in program

delays and cost increases. According to Navy estimates, weight growth

increased program acquisition unit costs by $8 million from fiscal years

1988 to 1989. Attempts to control weight growth and other production

difficulties have delayed the first flight and fleet introduction of the

A-12 by more than a year. Navy officials are concerned that the A-12’s

weight will increase further and that other manufacturing problems

may cause additional program delays. If these problems continue, the

assumptions used to project initial production costs will change, making

future production cost estimates invalid.

Total program acquisition cost estimates are important to deci-

sionmakers who must make budget and program decisions. Yet, A-

program estimates do not include total operation and support or

preplanned product improvement costs. The Navy has not finalized an

estimate for operation and support costs for 620 aircraft, but for a total

program buy of 858 aircraft it projected operation and support costs of

$28.7 billion in fiscal year 1990 dollars. Further, all cost estimates to

date are for the baseline A-12. The Navy has identified, partially esti-

mated, but not reported as part of A-12 costs the amount needed to

develop, incorporate, and support preplanned product improvements to

enhance performance in the A-12 fleet. The costs of these upgrades,

which are expected to be significant, will add to the total cost of the

program.

Recommendation

We recommend that the Secretary of Defense update A- 12 program

requirements and cost estimates and periodically provide the Congress

with the latest information needed to make decisions on A- 12 procure-

ment/In updating A-12 requirements and cost information, the Secre-

tary should consider the possibility of further reductions in the number

of aircraft carriers from the 14 currently in the fleet to 12 or fewer.‘fiHe

should also consider the possibility of using fewer than 20 A-l 2s in each

‘This cost equals the total estimated cost for research, development, test, and evaluation; procure- ment; acquisition-related operations and maintenance; and system-specific military construction for the acquisition program, divided by the program acquisition quantity.

Page 8 GAO/NSIAD-91-98 Navy’s A-12 Avenger

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air wing, given the A-12’s increased capability, survivability, maintain-

ability, and reliability over the A-G& and the transfer of a portion of

the refueling mission to the S-3 or other aircraft.

In reporting A- 12 costs, the Secretary should include all expenditures

associated with the procurement and ownership of the aircraft,

including

l total A- 12 operation and support costs and

. the development, and introduction of preplanned product improvements

to the A-l 2 fleet.

Further, in calculating and reporting A-l 2 costs, the Secretary should

recognize the potential cost impact of

. losing the competitively obtained prices for the A- 12 aircraft,

l delaying the procurement of the Air Force version,

. lowering the A-12 production rate from 48 to 36 aircraft per year and

possibly losing the ability to compete production, and

l delaying t/he A-l 2’s first flight and fleet introduction schedules.

Agency Comments and

The focus of this report and the intent of its recommendations is that

Our Evaluation

the Navy should provide the Congress with the latest information to

make informed *judgments on the A-12 program. DOD’Sresponse that it

either partially concurs or does not concur with most of the report cen-

ters on the availability of current program data in the Selected Acquisi-

tion Reports that ~)ODsubmits to the Congress. Since 1969, Selected

Acquisition Reports have been the primary means by which IWD informs

the Congress of the status of major weapon system acquisitions.

I)(X) said that its .June 1990 Selected Acquisition Report incorporated all

cost impacts that were quantifiable at the time. However, the *June 1990

Selected Acquisition Report was not transmitted to the Congress until

October 29, 1990. The IIouse and the Senate had already passed the

Defense Appropriation bill on October 25 and 26, respectively, and

ad.journed on October 28, 1990. Thus, the latest detailed information

included in the Selected Acquisition Report was not available to the Con-

gress before it finished debates on the defense budget.

The previous Selected Acquisition Report, dated December 1989, which

was the most current report available at the time of congressional delib-

erations, was transmit,ted to the Congress on April 25, 1990. It showed

Page 9 GAO/NSIAD91-98 Navy’s A-12 Avenger

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Our objectives, scope, and methodology are described in appendix I. We

plan no further distribution of this report until 7 days from its issue

date. At that time, we will send copies to the Chairmen, Senate Com-

mittee on Armed Services and Senate and House Committees on Appro-

priations; the Secretaries of Defense, the Air Force, and the Navy; and

the Director, Office of Management and Budget.

Please contact me at (202) 275-6504 if you or your staff have any ques-

tions concerning this report. Major contributors to this report are listed

in appendix III.

Sincerely yours,

Martin M Ferber

Director, Navy Issues

Page 11 GAO/NSIAD-91-98 Navy’s A-12 Avenger

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Appendix I

Objectives, Scope, and Methodology

Our objectives were to examine the Navy’s (1) projected requirements

and (2) cost estimates for the A-12 aircraft. In performing this review,

we examined documents and interviewed officials at the following

locations:

l A-12 Project Office, Washington, D.C., to obtain data on A-12 cost,

requirements, schedule, and performance;

. Office of the Under Secretary of Defense for Acquisition, Washington,

D.C., to obtain data on the conduct and results of the Major Aircraft

Review;

. Office of the Chief of Naval Operations, Washington, D.C., to examine

A- 12 requirements;

l Naval Strike^ Warfare^ Center, Fallon, Nevada, to obtain information^ on

the need for and required operating characteristics of the A-12 from the

perspective of fleet operators; and

l General Dynamics Corporation, Fort Worth, Texas, and McDonnell

Douglas Aerospace Corporation, St. Louis, Missouri, to collect data on

the cost and progress of their contractual A-12 development efforts

Our review was performed between August 1989 and July 1990 in

accordance with generally accepted government auditing standards.

Page 12 GAO/NSIAD-91-9s Navy’s A-12 Avenger

Appendix II Comments From the Department of Defense

A-12 is a significant improvement over the A-6, there are a number of other factors that must be considered in determining the number of each type of aircraft assigned to an air wing. Those factors include changes in threat, aircraft missions, warfighting requirements, and air wing composition. The requirement for effective and affordable use of the carrier deck space in order to optimize the fighting potential of the carrier battle group is the only constant. As directed by the Defense Planning Resources Board, the Navy is conducting a study to determine the most cost effective carrier air wing composition. The results will be incorporated into the rebaselining of the A-12 program at the Defense Acquisition Board program review.

The report appears to imply that the Navy has not recognized or reported all A-12 program costs or cost growth. The GAO report reflects A-12 cost growth due to the Major Aircraft Review decisions in the spring and summer timeframe. The June 1990 A-12 Selected Acquisition Report incorporates cost impacts identified within the GAO report that were quantifiable at the time the Selected Acquisition Report was prepared.

Detailed comments on the GAO findings and recommendations are enclosed. The Department appreciates the opportunity to review the report in draft form.

Sincerely,

ti/hbfQ Charles M. Herzfel

Enclosure

Page 14 GAO/NSIAD-91-98 Navy’s A-12 Avenger

Appendix (Comments From the Department of Defense

Now on p 1

GAO DRAFT REPORT - DATED OCTOBER 15, 1990 (QAO CODE 394325) OSD CASE 8506

"NAVY A-12: COST AND REQUIREMENTB"

Department of Defense Comments

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FINDINQS

o FINDING a: Btatus of A-6 Aircraft. The GAO reported that the A-6A first was introduced into the fleet in 1963 as the Navy's only day/night, all weather, medium attack aircraft, and the latest version, the A-6E, was introduced in to the fleet in 1972. The GAO noted that the A-6 is also used to refuel other carrier based aircraft. The GAO found, however, that in the early 198Os, wing cracks caused many of the A-6Es to be restricted to less demanding flight maneuvers or to be removed from flight status until appropriate repairs could be made. The GAO reported that, in FY 1988, the Navy awarded a contract for the last A-6E production lot of eight aircraft to be delivered in 1991--and the Navy has no plans to buy additional A-6Es. The GAO observed that the A-12 will replace the A-6. The GAO noted that awarding the A-12 contract, while also continuing to procure A-6Es, was due in part to the uncertainty of fielding the A-12. (pp. l-2/GAO Draft Report)

POD REBPONBE: Partially Concur.

-- With respect to the flight status of the A-6E, once an A-6E uses 67 percent of its wing life and is restricted to a maximum of 3 Gs, it remains restricted (i.e., not combat- capable) until retired or until the aircraft is re-winged. Also, the Navy may need to procure additional A-6 composite wings in order to solve its critical near-term inventory shortfall, particularly if the A-12 Initial Operational Capability slips.

-- The Navy continued to procure A-6 aircraft after A-12 contract award because the Medium Attack inventory was still well below requirement, (^) not because of any uncertainty in fielding the A-12.

0 FINDXNQ 4: A-12. The GAO reported that, in December 1989, the Navy reported a need for 858 A-12 aircraft to support 15 aircraft carriers with 15 carrier air wings. The GAO observed, however, that due to budget constraints, the Secretary of Defense initiated a major aircraft review of four systems planned for procurement, including the A-12. The GAO noted that, in April 1990, the Secretary of Defense testified that the number of aircraft carriers would be reduced from 15 to 14 and that requirements for the A-12 would be reduced to

Enclosure

Page15 GAO/NSIAD-Sl-98Navy'sA-12Avenger

Appendix II Comments From the Department of Defense

Now on pp 6.

costs of a new aircraft must be taken into account, if the A-12 is used for only 20 years.

(^0) PINDINa: a-12 Costar Am Not FUUY ~Mine4. The GAO found that the Navy total program cost estimates for the A-12 do not included operation and support costs-- or the cost of developing and incorporating certain improvements to enhance the performance of most of the A-12 aircraft. In addition, the GAO observed that changes to a number of cost projection variables have occurred since the estimates were prepared.

First, the GAO found that current cost projections, which are based on competitively obtained prices, may be voided and renegotiated in a noncompetitive environment if certain funding levels are not obtained. The GAO noted it is the Navy position that the reduction in yearly production rates from 40 to 36 may still allow competition in production, but will cost about $1.03 billion more. The GAO also reported, however, that according to Navy officials, a further reduction in the rate will not allow the workload to be competed--and that the contractors have expresses an interest in not competing. The^ GAO^ concluded that a lack of competition would require a further revision of estimated costs.

Second, the GAO found that Navy A-12 cost projections assume that the Air Force will procure a version of the A-ll--the Advanced Tactical Aircraft--beginning in FY 1993 and will split 50/ nonrecurring cost related to A-12 production. The GAO observed, however, that the Secretary of Defense testified that the Air Force would not begin buying the Advanced Tactical Aircraft until FY 1998 or later. The GAO noted the Navy estimates that its Costs will increase by about $2.4 billion with delayed Air Force participation because the nonrecurring costs, which are highest early in the program, will now be funded by the Navy alone.

Third, the GAO found that an increase in projected inflation rates between FY 1988 and FY 1989 resulted in an $11.5 million increase in A-12 program acquisition unit cost. The GAO observed that, if the A-12 aircraft are in production for many years--as currently planned--further changes in the inflation indices may occur, which could also affect the cost of the A-12.

Finally, the GAO reported that increases in the weight of the A-12 aircraft, as well as other developmental difficulties, have increased costs and delayed first flight and initial deployment by approximately one year.

The GAO concluded that total program cost estimates are important to decision makers who must make budget and program decisions-- yet the A-12 total program cost estimates do not include total operation and support or preplanned product improvement costs. The GAO noted that the Navy has yet not finalized an estimate for operation and support costs for the 620 aircraft. (^) (PP. 3-4,

Page17 GAO/NSIAIk91-98 Navy’s A-12 Avenger

Appendix II Comments Prom the Department of Defense

Now on p 8

//pp. 6-lo/GAO Draft Report)

DoD: Partially^ Conour.

-- The finding appears to imply that the Navy has not recognized or reported all A-12 program costs or cost growth. The June 1990 A-12 Selected Acquisition Report incorporates cost impacts identified within the GAO report that were quantifiable at the time the Selected Acquisition Report was prepared. In addition, A-12 acquisition related costs will be incorporated as they are identified.

-- The statement regarding competition is correct, except that elimination of airframe/engine competition and deferral of the top 29 cost component competition to coincide with Air Force production remains viable and will be considered during the DOD A-12 Program Review. The effect of reduced competition has already been included in program cost estimates and is reflected in the June 1990 Selected Acquisition Report.

The statement regarding increased Navy costs is correct except that nonrecurring tooling requirements is the responsibility of the Service causing the increase and, therefore, will not be split 50/50. The cost increase to the Navy is primarily related to having to procure more aircraft earlier in the program without the increased quantity and learning curve benefits the earlier Air Force production program would have provided.

-- The statement regarding the general effect of inflation is correct. The specific $11.5 million increase due to inflation effects between FY 1968 and FY 1989 cannot, however, be substantiated.

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RECONMENDATIONB

(^0) RECOMMENDATION2 The GAO recommended that the Secretary of the Navy update the A-12 program requirements and cost estimates, and periodically provide the Congress with the latest information needed to make decisions related to A-12 procurement. (^) (p. lo/GAO Draft Report)

-2 Conour. The recommendation is, however, essentially moot. While initially considered a highly sensitive classified program, the A-12 has been reported as a special access Selected Acquisition Report since 1988, in compliance with section 127 of the National Defense Authorization Act for fiscal years 00-09. The June 1990 Selected Acquisition Report incorporates all cost impacts identified within the GAO report that were quantifiable at that time. The DOD is currently

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