The C- 17 is more modern, has a higher mission capable rate, and is more flexible  in that it also provides tactical (intratheater) airlift to austere, forward- deployed bases. C-17 procurement began in 1988 and the Air Force’s current plan is to  acquire a total of 205 C-17s for $66 billion. The Air Force is now engaged in a new mobility  capabilities study, the results of which will be briefed in May 2009. While officials believe this mix will allow DOD to meet its strategic airlift  requirement, the number of C-5s DOD modernizes and C-17s it procures  may change again, pending the results of ongoing mobility studies,  potential C-5 retirements, and the eventual cost estimates of C-5  modernization. At this time, DOD  officials have not determined what metrics it will use to make strategic  airlift decisions. Further, the cost estimate does  not include the costs for a new modernization upgrade program slated to  begin in fiscal year 2010 that would fix AMP deficiencies and add new  capabilities. Alternatively, some future modification costs may be avoided  should the Air Force justify retirement of some older C-5s. The Air Force Must Make a Decision Soon Regarding C-17 Acquisition and Eventual Shutdown of the Production Line

Results from the two mobility studies, potential C-5 retirements, and  future modernization cost increases could lead to a decision to extend C- 17 production beyond the 205 now authorized. Careful Planning Needed to Avoid Shutting Down and Restarting the Production Line

Two alternatives to completely shutting down the C-17 production line  would be to slow down the rate of production or to close out current  production while preserving some ability to restart the line should  conditions change and additional C-17s are needed. Analysis indicates that, once closed, it would not be  feasible or cost effective to restart production due to costs for hiring and  training a new workforce, reinstalling tooling, and reestablishing the  supply base. Air Force Has Not Budgeted Sufficient Funds for the C-17 Production Shutdown

At this writing, the Air Force has allocated $37 million in its outyears  budget for C-17 production shutdown, far less than what is believed to be  needed. In 2006, Boeing and the Air Force developed considerably different  estimates of about $1 billion and $465 million, respectively, for the cost of  shutting down production completely. Differences between the two estimates can largely be attributed to the  underlying assumptions used. Therefore, they  included costs to demolish facilities and for environmental remediation in  their estimate. Recommendations for Executive Action

To better inform decision makers and provide improved and quantifiable  projections of airlift mobility requirements and investment needs, we  recommend that the Secretary of Defense direct the Office of the  Secretary of Defense (Program Analysis and Evaluation) and U.S.  Transportation Command to take the following action:    Ensure that the new mobility capabilities study specifies the ton-mile  per day metric and other relevant metrics to support sound strategic  airlift decisions, including (1) the cost-effective mix of C-5 and C-17  aircraft consistent with national security strategy; (2) the number of   C-5s required to airlift equipment that can only be carried by that  aircraft; (3) C-5A retirement schedules, if warranted by analysis;   (4) the number of C-17s needed to accomplish both its strategic and  tactical roles; and (5) future procurement and modernization needs. Specifically, we (1) identify the impact C- 5 modernization cost increases have had on the mix of aircraft DOD needs  to meet its strategic airlift requirement, (2) assess the current C-5  modernization cost estimate, and (3) identify C-17 production plans and  issues related to a production line shutdown. We collected information on the 14 options  DOD considered to meet its strategic airlift requirements following the C-5  Reliability Enhancement and Reengining Program (RERP) cost breach  notification to Congress. We identified  issues related to DOD’s 2005 mobility study and discussed DOD’s efforts to  address these same issues in the current study with DOD officials.
Why GAO Did This Study

The Department of Defense's (DOD) C-5 Galaxy and C-17 Globemaster III aircraft play key roles in transporting weapons and other cargo. Since September 2001, these aircraft have delivered over 2.4 million tons of cargo to staging and operating bases in Iraq and Afghanistan. Yet determining the number and mix to meet current and future airlift requirements has become increasingly challenging given distinct differences between the two aircraft. While the C-5 can carry more cargo, the newer C-17 is more flexible since it can deliver to forward-deployed bases and has a higher mission capable rate. GAO was asked to identify the impact C-5 modernization cost increases have had on the mix of aircraft; assess the current C-5 modernization cost estimate; and identify C-17 production plans and issues related to production line shutdown. To conduct its work, GAO reviewed options DOD considered to meet its current and future strategic airlift requirements, and evaluated C-5 modernization and C-17 production line shut down cost estimates.

What GAO Found

The Air Force has cut the number of C-5s it plans to fully modernize by more than half because of substantial cost increases in the C-5 Reliability Enhancement and Reengining Program (RERP) and plans to acquire more C-17s, with additional congressional funding. Currently, the Air Force plans to provide avionics upgrades to all 111 C-5s, limit RERP to 52 C-5s, and acquire 205 C-17s. However, this mix may change again, based in part on the results of a new mobility capabilities study, the findings of which DOD plans to release in May 2009. While the new study is expected to consider transport needs for the future force, DOD has not identified specific metrics it will use to make strategic airlift decisions--a concern GAO raised about DOD's previous mobility capabilities study and one DOD agreed to address in future studies. The Air Force currently estimates it will spend $9.1 billion on upgrading the C-5s. However, this estimate may be understated because DOD did not apply risk or uncertainty analyses to its RERP major cost drivers. Moreover, the current RERP is underfunded by almost $300 million and may be unachievable if the engine production schedule is not met. At the same time, the Air Force has not priced or budgeted for a new upgrade program it plans to begin in fiscal year 2010 to address certain modernization deficiencies and to add new capabilities. Some future costs, however, may be avoided should the Air Force justify retirement of some older C-5s and forego planned modifications. Careful planning is needed to ensure C-17 production is not ended prematurely and later restarted at substantial cost. Current production plans call for shutting down the C-17 production line in September 2010. However, results from the new mobility capabilities studies and potential C-5 retirements could lead to decisions to extend C-17 production beyond the 205 now authorized. Both the manufacturer and Air Force agree that shutting down and restarting production would not be feasible or cost effective due to the costs to reinstate a capable workforce, reinstall tooling, and reestablish the supplier base. At some point, the C-17 production line will shut down, and DOD will have to pay substantial costs that have not yet been budgeted. The manufacturer and Air Force shutdown estimates differ significantly--about $1 billion and $465 million, respectively--in large part because the manufacturer's estimate included assumptions about demolishing facilities and environmental remediation, while the Air Force's did not.