Aircraft Acquisition:

Affordability of DOD's Investment Strategy

NSIAD-97-88: Published: Sep 8, 1997. Publicly Released: Oct 9, 1997.

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GAO reviewed the Department of Defense's (DOD) aircraft acquisition investment strategy, focusing on: (1) DOD's and the Congressional Budget Office's estimates of the annual funding needed for aircraft programs, as a percentage of the overall DOD budget, and a comparison of that percentage to a long-term historical average percentage of the defense budget; (2) the potential long-term availability of funding for DOD's planned aircraft procurements; and (3) DOD's traditional approach to resolving funding shortfalls.

GAO noted that: (1) to meet its future aircraft inventory and modernization needs, DOD's current aircraft investment strategy involves the purchase or significant modification of at least 8,499 aircraft in 17 aircraft programs, at a total procurement cost of $334.8 billion (fiscal year 1997 dollars) through their planned completions; (2) DOD has maintained that its investment plans for aircraft modernization are affordable within expected future defense budgets; (3) DOD had stated earlier that sufficient funds would be available for its aircraft programs based on its assumptions that: (a) overall defense funding would begin to increase in real terms after fiscal year (FY) 2002; and (b) large savings would be generated from initiatives to downsize defense infrastructure and reform the acquisition process; (4) DOD's aircraft investment strategy may be unrealistic in view of current and projected budget constraints; (5) recent statements by DOD officials, as well as congressional projections, suggest that overall defense funding will be stable, at best, for the foreseeable future; (6) DOD's planned funding for the 17 aircraft programs in all but one year between FY 2000 and 2015 exceeds the long-term historical average percentage of the budget devoted to aircraft purchases and, for several of those years, approaches the percentages of the defense budget reached during the peak Cold War spending era of the early-to-mid-1980s; (7) the amount and availability of savings from infrastructure reductions and acquisition reform, two main claimed sources for increasing procurement funding, are not clearly evident today; (8) GAO's recent reviews of these initiatives indicate there are unlikely to be sufficient savings available to offset projected procurement increases; (9) to deal with a potential imbalance between procurement funding requirements and the available resources, DOD may need to: (a) reduce planned aircraft funding and procurement rates; (b) reduce funding for other procurement programs; (c) implement changes in force structure, operations, or other areas; or (d) increase total defense funding; (10) DOD has historically made long-term commitments to acquire weapon systems based on optimistic procurement profiles and then significantly altered those profiles because of insufficient funding; and (11) to avoid or minimize affordability problems, DOD needs to bring its aircraft investment strategy into line with more realistic, long-term projections of overall defense funding, as well as the amount of procurement funding expected to be available for aircraft purchases.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD partially concurred with the recommendation, stated that it was fully aware of the investment challenge and that its recent Quadrennial Defense Review (QDR) addressed both near- and long-term affordability of all DOD modernization programs. Although this is still a contentious issue and solutions are not clear, the Congress is well informed about the problem. DOD believes that the procurement budget must increase to $60 billion to achieve sufficient funding for modernization, including aircraft procurement.

    Recommendation: The Secretary of Defense should, in close consultation with the defense and budget committees of the Congress, define realistic, long-term projections of overall defense funding and, within those amounts, the portion of the annual procurement funding that can be expected to be made available to purchase new or significantly improved aircraft. In developing the projections, the Secretary should consider whether the historical average percentage of the total budget for aircraft purchases is appropriate in today's security and budgetary environment.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD stated that the QDR essentially fulfilled this recommendation. The QDR included some actions to improve affordability of aircraft investment plans. However, DOD and the Congress have not reached agreement on the infrastructure reductions and reforms that DOD is counting on to provide funding for modernization investments (i.e., increasing the procurement budget to $60 billion by 2001). The intent of the recommendation has essentially been fulfilled; however, the affordability still depends on agreements to reduce infrastructure and implement reforms, or a substantial increase in the overall defense budget.

    Recommendation: The Secretary of Defense should reassess and report to the Congress on the overall affordability of DOD's aircraft investment strategy in light of the funding that is expected to be available. The Secretary should clearly identify the amount of funding required by source, including: (1) any projected savings from infrastructure and acquisition reform initiatives; and (2) any reductions elsewhere within the procurement account or within the other major accounts.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: DOD agreed that long-term projections can be useful in making near-term decisions on defense programs. However, DOD believes that uncertainties in long-term planning preclude its use for setting binding constraints for elements of near-term defense programs.

    Recommendation: The Secretary of Defense should fully consider the availability of long-term funding for any aircraft program before approving the procurement planned for that system.

    Agency Affected: Department of Defense


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