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Military Exports: Recovery of Nonrecurring Research and Development Costs
(Letter Report, 05/31/95, GAO/NSIAD-95-147).

Pursuant to a congressional request, GAO provided information on
military exports, focusing on: (1) the government's recovery of
nonrecurring research and development costs on sales of major defense
equipment; (2) the effect of charging a flat or standard rate rather
than the current pro rata fee; and (3) views from supporters and
opponents on the recovery of these costs.

GAO found that: (1) the Department of Defense (DOD) recovered $181
million in nonrecurring costs on foreign military sales in fiscal year
(FY) 1994 and the Defense Security Assistance Agency waived about $273
million in nonrecurring cost charges on sales to North Atlantic Treaty
Organization countries and Japan in FY 1994; (2) DOD anticipates
recoveries of $845 million between FY 1995 and FY 1999; (3) if the
charge for nonrecurring costs is repealed, as proposed, some collections
would continue for years as charges are recovered on deliveries
associated with prior years' sales; (4) an alternative to the current
pro rata charge is a flat rate charge, which would be easier to
calculate and would not need to be periodically updated; (5) the effect
of using a flat rate varies, depending on the way it is applied; (6)
supporters of cost recovery believe that recovery cost charges should be
collected on both foreign military sales and direct commercial sales;
and (7) opponents of the charges believe they adversely affect the
defense industry's competitiveness in the world market and could affect
the national economy in the long run.

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

 REPORTNUM:  NSIAD-95-147
     TITLE:  Military Exports: Recovery of Nonrecurring Research and 
             Development Costs
      DATE:  05/31/95
   SUBJECT:  Foreign military sales
             Exporting
             Research and development costs
             Defense cost control
             International economic relations
             Competition
             Defense industry
             Advanced weapons systems
             Foreign military sales costs
             Government collections
IDENTIFIER:  Australia
             New Zealand
             Japan
             F-16A/B Aircraft
             F-16C/D Aircraft
             Norway
             Turkey
             Foreign Military Sales Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

May 1995

MILITARY EXPORTS - RECOVERY OF
NONRECURRING RESEARCH AND
DEVELOPMENT COSTS

GAO/NSIAD-95-147

Military Exports


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

  DOD - Department of Defense
  DSAA - Defense Security Assistance Agency
  MDEL - Major Defense Equipment List
  NATO - North Atlantic Treaty Organization

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


B-259466

May 31, 1995

The Honorable Benjamin Gilman
Chairman
The Honorable Lee Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives

As requested, we are providing information on (1) the government's
recovery of nonrecurring research and development costs on sales of
major defense equipment, (2) the effect of charging a flat or
standard rate rather than the current pro rata fee, and (3) views
from supporters and opponents of the recovery of these costs.  We
believe that this information will help the Congress in its
deliberations on proposals concerning the legislative requirement to
collect such charges on future military sales. 


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

The Department of Defense (DOD) has been recovering nonrecurring
research and development and one-time production costs on sales of
weapon systems to foreign governments since 1967.  The requirement to
recover a proportionate amount of these costs was codified in the
Arms Export Control Act in 1976, 22 U.S.C.  section 2761 (e)(1)(B). 
The intent of the act was to control U.S.  costs and the extent of
weapons sales to foreign governments.  The law required the recovery
of costs on foreign military sales (government-to-government sales),
but DOD retained its policy to collect nonrecurring costs on direct
commercial sales (between the contractor and the buying entity) as it
had been doing before the law was enacted.  In 1992, DOD canceled its
policy to recover nonrecurring costs on direct commercial sales in an
effort to increase the competitiveness of U.S.  firms in the world
market.  In 1995, a number of bills were introduced that could affect
the recovery of nonrecurring costs on military sales. 

DOD interpreted the Arms Export Control Act as requiring the recovery
of research and development costs on a pro rata basis.  Between 1974
and 1977, DOD used a pro rata rate up to 4 percent of the total sales
price.  Currently, the services calculate the pro rata rate by
dividing total research and development and other one-time production
costs by the anticipated total number of units to be produced for
both domestic and foreign use.  A separate charge is calculated for
each item of major defense equipment.  The Defense Security
Assistance Agency (DSAA) must approve all charges.  They are
published in the Major Defense Equipment List (MDEL) as part of DOD
Manual 5105.38-M.  DSAA officials acknowledged that the current pro
rata calculation is complex and subject to error, particularly if
sales fall short of or exceed projections. 

Nonrecurring cost charges are considered offsetting proprietary
receipts and are deposited into the U.S.  Treasury General Fund. 
They are credited to DOD's total budget authority and total outlays
but cannot be spent unless specifically appropriated. 

The Arms Export Control Act also specifies that waivers or reduced
charges of nonrecurring costs are permitted on sales to the North
Atlantic Treaty Organization (NATO) countries, Australia, New
Zealand, and Japan to further standardization and mutual defense
treaties.  However, each waiver and reduction requires written
justification. 


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

DOD recovered $181 million in nonrecurring costs on foreign military
sales in fiscal year 1994 and estimated, based on historical trends,
that collections could amount to $845 million between fiscal years
1995 and 1999.  However, DSAA waived almost $273 million in
nonrecurring cost charges on sales to NATO countries and Japan in
fiscal year 1994.  The total value of waivers for fiscal years 1991
through 1994 amounted to $773 million.  If the charge for
nonrecurring costs is repealed, as has been proposed, some
collections would continue for a few more years as the charges are
recovered on deliveries associated with prior years' sales. 

If the legislative requirement to collect nonrecurring cost charges
is not repealed, one alternative to the current pro rata charge is a
flat rate charge.  A flat rate would be easy to calculate and would
not need to be periodically updated, as is the case in calculating a
pro rata charge.  However, the effect of using a flat rate varies,
depending on the way it is applied.  In some cases, the amount the
U.S.  government would collect on each unit sold would be less than
the pro rata charge; in others, it would be considerably more.  We
calculated flat rate charges of 3, 5, 8, and 10 percent on the
acquisition cost of 68 weapons and compared them to current pro rata
charges.  We used two different methods of calculation. 

  First, we calculated the charges after aggregating the weapon
     systems into four categories--projectiles, missiles, aircraft,
     and aircraft engines.  In this case, the total charges for each
     group of weapon systems were generally lower than the current
     pro rata charges when using 3 and 5 percent but were comparable
     or higher for the most part when using 8 and 10 percent. 

  Second, we calculated the charges on the individual weapon systems. 
     In this case, the differences between the pro rata charges and
     the flat rate charges varied widely for each flat rate and, for
     example, were considerably higher for some aircraft but lower
     for some missiles. 

We also calculated the average of the current pro rata charge on the
acquisition cost of the 68 weapon systems; the average was 5.18
percent. 

Supporters and opponents of the recovery of nonrecurring costs differ
on its benefits and drawbacks.  Supporters, including some arms
control advocates, believe that the charges serve national security
interests by keeping weapon systems out of unstable regions of the
world and the weapons industry should not be subsidized at taxpayers'
expense.  Opponents of the charges, on the other hand, believe the
charges adversely affect U.S.  industry's competitiveness in the
world market and could affect the U.S.  economy in the long run.  The
United States has been the world's leading defense exporter since
1990, and based on orders received but not yet filled, the United
States is likely to retain its first place position in the world
market at least for the short term. 


   NONRECURRING COST COLLECTIONS
   AND WAIVERS
------------------------------------------------------------ Letter :3

DOD collected $181 million in nonrecurring costs under the foreign
military sales program in fiscal year 1994.  Fiscal year 1990-92
collections total $559.4 million--$337.3 million for foreign military
sales and $222.1 million for direct commercial sales.  Fiscal year
1993 collections totaled $177.9 million.  DSAA estimated in February
1995 that collections during fiscal years 1995-99 could amount to
$845 million.\1 DSAA based these estimates primarily on past sales. 
DSAA also estimated that if the charge on foreign military sales is
dropped as proposed, collections would decrease by $73 million
through 1999.  Some collections would continue based on deliveries to
be made on current contracts.  (See fig.  1.) A DSAA official stated
that collections would probably stop completely in fiscal year 2002
if the charge is repealed in fiscal year 1995. 

   Figure 1:  Impact of Repealing
   the Nonrecurring Cost Charge on
   Foreign Military Sales

   (See figure in printed
   edition.)

Note:  Estimates include amounts due on remaining direct commercial
sales deliveries. 

Source:  DSAA. 

In May 1995, DSAA estimated that if a requirement to collect
nonrecurring costs on direct commercial sales were reimposed in
fiscal year 1996, it would resume collections in fiscal year 1998,
given production and delivery lead times, and recover about $198
million through fiscal year 1999.  Table 1 shows estimated
collections on both foreign military and direct commercial sales
(including a charge on direct commercial sales). 



                           Table 1
           
           Estimated Nonrecurring Cost Collections
               If Charge Is Reimposed on Direct
                       Commercial Sales

                    (Dollars in millions)

                       Foreign         Direct
                      military     commercial
Fiscal year              sales          sales          Total
---------------  -------------  -------------  =============
1995                      $177              0           $177
1996                       173              0            173
1997                       169              0            169
1998                       165            $90            255
1999                       161            108            269
============================================================
Total                     $845           $198         $1,043
------------------------------------------------------------
Source:  DSAA. 


--------------------
\1 A DSAA official stated that the fiscal years 1993 and 1994 actual
and fiscal years 1995-99 estimates include amounts due on commercial
sales, but the amounts are not available. 


      WAIVERS CONSTITUTE A MAJOR
      LOSS OF REVENUE
---------------------------------------------------------- Letter :3.1

DOD waived $273 million in nonrecurring costs to NATO members and
Japan in fiscal year 1994, about $92 million more than DOD collected
in nonrecurring cost charges in the same year.\2

About 90 percent of the waivers involved Norway's purchase of
missiles and Turkey's purchase of missiles, aircraft, gun mounts,
sonars, and vertical launchers.  DOD's justification for the waivers
involving Norway was to help achieve standardization, and the
justification for waivers involving Turkey related to base rights
agreements.  Table 2 shows the aggregated totals of authorized
waivers to NATO, 12 individual NATO countries, Australia, and Japan
for fiscal years 1991 to 1994.  Waivers on direct commercial sales
represent sales agreements signed before the 1992 repeal. 



                           Table 2
           
                  Nonrecurring Cost Waivers

                    (Dollars in millions)


Type of
sale            1991      1992      1993      1994     Total
----------  --------  --------  --------  --------  ========
Foreign       $185.9     $88.2    $119.6    $272.5    $666.2
 military
Direct          58.0       5.9      43.0       0.3     107.2
 commercial
============================================================
Total         $243.9     $94.1    $162.6    $272.8    $773.4
------------------------------------------------------------
Source:  DSAA. 


--------------------
\2 In addition, DOD does not collect nonrecurring cost charges from
countries using U.S foreign military financing to buy weapon systems. 


   COMPARISON OF CURRENT PRO RATA
   CHARGES WITH FLAT RATES
------------------------------------------------------------ Letter :4

We focused our analysis on the comparison of current pro rata charges
with flat rate charges of 3, 5, 8, and 10 percent on the acquisition
cost of
68 weapon systems sold.\3 First, we calculated the charges on four
categories of weapons--projectiles, missiles, aircraft, and aircraft
engines.  The flat rate charges of 3 and 5 percent generally resulted
in lower total charges for each category of weapon systems--in the
aircraft category, the charge was considerably less at 3
percent--than the total pro rata charges.  Flat rate charges of 8 and
10 percent in most cases resulted in comparable or considerably
higher total charges than the current pro rata charges for the four
categories of weapon systems.  For example, a 3-percent flat rate
charged on the sale of each of 27 aircraft resulted in total charges
of $20.4 million, or $9.5 million less than the $29.9 million
recovered under the pro rata system.  On the other hand, a 10-percent
flat rate charge on the sale of each of the 27 aircraft resulted in a
total charge of $67.9 million, or $38 million more than the $29.9
million recovered under the pro rata system. 

On the 68 weapon systems we examined, current pro rata charges ranged
from 0.07 percent to 15.95 percent of acquisition cost and averaged
5.18 percent.  Thus, for a given flat rate of 3, 5, 8, or 10 percent,
the difference between the flat rates and pro rata charges varies
widely.  For example, a 3-percent flat rate would be greater than a
pro rata charge for 19 of the 27 aircraft we examined whereas a
3-percent flat rate was larger than the pro rata charge for only 2 of
the 13 missiles we examined.  However, on some sales of commonly sold
military items, DOD might not recover the same level of charges using
a nominal flat rate that it would under the pro rata system.  For
example, DOD anticipated collections of $279 million in nonrecurring
cost charges on the sales of 228 F-16 A/B aircraft and 131 F-16 C/D
aircraft when they are delivered to the buying countries.\4 A flat
rate of 3 percent on these sales would yield about one-half the pro
rata charges; a 6-percent flat rate would yield an amount comparable
to the pro rata charges.  On sales of HARM AGM-88 missiles to three
countries, total pro rata charges for the 181 missiles sold amount to
$3.85 million.  A 3-percent flat rate on these sales would provide
only 40 percent of the pro rata charges; a 7.5-percent flat rate
would yield an amount comparable to the pro rata charges. 

Appendix I compares the current pro rata charges with flat rate
charges of 3, 5, 8, and 10 percent on the weapon systems we examined. 

The benefit of computing nonrecurring cost charges with a flat rate
is its ease of administration.  In addition, some of the U.S. 
government's research and development investment would be recovered,
though perhaps not accurately or equitably for some specific weapons
or categories of weapons.  Total recoveries are affected by sales,
which are affected by a buyer's assessment of economic factors such
as price, quality, availability, and competition, and must also be
considered.  We did not analyze flat rate charges on commercial sales
because of the proprietary nature of commercial sales prices. 
However, DSAA officials stated that the same rate would apply to both
types of sales should the nonrecurring cost charge be reimposed on
direct commercial sales. 


--------------------
\3 We did not analyze the impact of different flat rates on total
charges recovered by the U.S.  government because total recoveries
would depend on the level of sales. 

\4 Actual charges vary based on how an aircraft is equipped. 


   PRIOR RECOMMENDATIONS FOR FLAT
   RATES
------------------------------------------------------------ Letter :5

We reported in 1986 that the pro rata system had inaccuracies that
prevented DOD from collecting accurate nonrecurring cost charges.\5
For example, DOD was unable to accurately predict future costs and
future U.S.  and foreign quantity requirements.  At that time, we
recommended that DOD improve the existing pro rata system or develop
a new approach for recovering research and development costs.  The
approach we suggested was to apply a flat rate to the acquisition
price of all equipment sold abroad.  We reported that with the use of
a flat rate, DOD would recover comparable research and development
costs yet simplify the complex administrative and review process of
calculating a pro rata fee. 

In 1986, DOD opted to retain the pro rata calculation and stated that
the Arms Export Control Act would need to be revised to permit the
use of a flat rate fee.  DOD's reasoning at the time was that a flat
rate would not recover a "proportionate" share of investment on
individual items as the law required.  DSAA's General Counsel now
interprets 22 U.S.C.  section 2761 (e)(1)(B) as allowing a flat rate
to be collected because the law requires recovery of a proportionate
amount, not a pro rata share.  Thus, the DSAA General Counsel
concluded that the law would not have to be amended to permit the use
of a flat rate.  In our view, it is not clear that DOD would have
authority under current law to use a flat rate. 


--------------------
\5 Nonrecurring Costs:  Improvements Needed in DOD Cost Recovery
Efforts (GAO/NSIAD-86-95, Apr.  18, 1986). 


   OPPOSING VIEWS ON COST RECOVERY
------------------------------------------------------------ Letter :6

Supporters and opponents of recovery of nonrecurring costs differ on
its benefits and drawbacks.  On one hand, supporters of nonrecurring
cost recovery that we spoke with, including arms control advocates,
argue that nonrecurring cost charges should be collected on both
foreign military sales and direct commercial sales for a number of
reasons. 

  Some supporters believe that, from an economic standpoint, the
     United States should recover all its costs and not subsidize the
     weapons industry by forgoing recovery of a portion of its
     research and development investments. 

  Others believe that arms sales decisions should be based on
     national security concerns, not the economic interests of
     private firms.  One group pointed to successful conversions of
     elements of the defense industry to competitive members of the
     international market for civilian goods as a means to counter
     declining defense production. 

  Some arms control advocates assert that higher prices may deter
     sales and lessen any threat to the United States by reducing the
     availability of arms worldwide. 

  Some supporters told us that recovered charges are deposited into
     the U.S.  Treasury and thus relieve the U.S.  budget deficit and
     benefit U.S.  taxpayers.  Some groups believe waivers to NATO
     and other foreign countries should be abolished as well. 

Opponents of recovery that we spoke with, generally industry
representatives, favor repeal of the charge on foreign military sales
and are adamantly against reimposing it on direct commercial sales. 
They expressed concerns that the charges raise sales prices and
inhibit U.S.  businesses' competitiveness in the world market.  They
asserted that any addition to the cost of weapons could price U.S. 
industry out of the world market with a cascading adverse impact on
U.S.  jobs, income, and tax revenue.  They also stated that lost
sales, whether government-to-government or direct commercial sales,
raise prices to the U.S.  military services because they lose the
benefit of lower unit costs. 

Industry officials also stated that the charge is an unfair tax that
does not accurately represent U.S.  research and development
investment and is applied in an arbitrary manner.  Many industry
representatives said that the U.S.  research and development
investment benefits U.S.  forces regardless of foreign sales and
should not be imposed on foreign customers. 

DOD officials stated that they believe the elimination of the
recovery charge would not negatively affect national security
interests and the elimination of the recovery charge would, overall,
be beneficial to the United States. 

In a May 1995 report, we compared U.S.  government support for
military exports with that of France, Germany, and the United
Kingdom.  We pointed out that, among other things, (1) the United
States has been the world's leading defense exporter since 1990, with
almost 50 percent of the global market; (2) based on orders placed
but not yet filled, U.S.  industry will likely remain strong in the
world market, at least for the short term; and (3) the U.S. 
government already provides substantial financial and other support
to the U.S.  defense exporters.  Because of the large size of the
U.S.  domestic defense program, European businesses believe they are
at a disadvantage when competing with U.S.  firms.\6


--------------------
\6 Military Exports:  A Comparison of Government Support in the
United States and Three Major Competitors (GAO/NSIAD-95-86, May 18,
1995). 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

In written comments on a draft of this report, DOD concurred with the
report.  DOD indicated that (1) the Department fully supported the
administration's proposal to repeal the statutory requirement to
recover nonrecurring costs on foreign military sales of major defense
equipment, (2) a consistent policy for foreign military and direct
commercial sales is essential, and (3) the current imbalance between
the two types of sales should be eliminated.  DOD's comments are
reprinted in appendix II.  DOD also provided technical suggestions to
clarify the report and they have been incorporated where appropriate. 
It should be pointed out that our review was not to assess the
legislative proposals, but rather to focus primarily on the financial
effects of using a flat rate instead of the current pro rata fees. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

We obtained information for this review from officials of DOD, DSAA,
and the military services.  We reviewed applicable statutes and DOD
regulations governing recovery of nonrecurring costs on foreign
military sales.  We also discussed the benefits and drawbacks of
recovering nonrecurring costs with supporters and opponents of
recovery. 

To determine the effect of imposing a flat rate charge, we obtained
from each of the services the acquisition value\7 of selected major
defense equipment sold under the foreign military sales program.  We
calculated nonrecurring cost charges using flat rates of 3, 5, 8, and
10 percent of the acquisition values of the selected weapon systems. 

We did our work between January and March 1995 in accordance with
generally accepted government auditing standards. 


--------------------
\7 We defined acquisition value as the amount paid by the U.S. 
government to the contractor plus the cost of government-furnished
equipment for major defense equipment. 


---------------------------------------------------------- Letter :8.1

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 10 days from its issue date.  At
that time, we will send copies to the Chairmen of the Senate and
House Committees on Appropriations, the Secretaries of Defense and
State, and the Director of the Office of Management and Budget. 
Copies will also be made available to others on request. 

Please contact me on (202) 512-4128 if you or your staff have any
questions concerning this report.  Major contributors to this report
were Diana Glod, Barbara Schmitt, and George Taylor. 

Joseph E.  Kelley
Director-in-Charge
International Affairs Issues


PRO RATA AND FLAT RATE CHARGES
=========================================================== Appendix I



                                    Table I.1
                     
                        Pro Rata and Flat Rate Charges on
                                   Projectiles


15
5
mm              Nonrecurring
pr                  pro rata
oj                    charge  Nonrecurri
ec               (percent of      ng pro
ti  Acquisitio   acquisition        rata         3         5         8        10
le      n cost         cost)      charge   percent   percent   percent   percent
--  ----------  ------------  ----------  --------  --------  --------  --------
M1        $156          2.13          $3        $5        $8       $12       $16
 07
M4         456          0.48           2        14        23        36        46
 8
 3
 /
 4
 8
 3
 A
 1
M5         635          2.17          14        19        32        51        64
 49
 H
 E
 R
 A
 P
M6       4,328          2.56         111       130       216       346       433
 9
 2
 /
 M
 7
 3
 1
 H
 E
 A
 D
 A
 M
M7      34,057         12.19       4,152     1,022     1,703     2,725     3,406
 12
 G
 L
 G
 P
 C
 o
 p
 p
 e
 r
 h
 e
 a
 d
M7       1,638          3.49          57        49        82       131       164
 1
 8
 /
 M
 7
 4
 1
 R
 A
 A
 M
 S
M8         765          6.14          47        23        38        61        77
 64
 H
 E
Av                      4.17
 e
 r
 a
 g
 e
================================================================================
To                                $4,386    $1,262    $2,102    $3,362    $4,206
 t
 a
 l
--------------------------------------------------------------------------------
Note:  Numbers for tables I.1 through I.4 have been rounded. 

Source:  DSAA and GAO computations. 



                                    Table I.2
                     
                        Pro Rata and Flat Rate Charges on
                                     Missiles


                Nonrecurring
                    pro rata
Mi                    charge  Nonrecurri
ss               (percent of      ng pro
il  Acquisitio   acquisition        rata         3         5         8        10
e       n cost         cost)      charge   percent   percent   percent   percent
--  ----------  ------------  ----------  --------  --------  --------  --------
AI    $260,000          2.94      $7,646    $7,800   $13,000   $20,800   $26,000
 M/
 R
 I
 M
 -
 7
 F
 /
 M
AI     260,000         15.48      40,258     7,800    13,000    20,800    26,000
 M/
 R
 I
 M
 -
 7
 P
AI      45,000          5.79       2,604     1,350     2,250     3,600     4,500
 M-
 9
 L
AI      59,009          5.86       3,457     1,770     2,950     4,721     5,901
 M-
 9
 H
AI      96,000          6.63       6,368     2,880     4,800     7,680     9,600
 M-
 9
 M
AG     281,953          7.54      21,249     8,459    14,098    22,556    28,195
 M-
 8
 8
RG   1,003,559          4.39      44,083    30,107    50,178    80,285   100,356
 M-
 8
 4
 D
 -
 1
RG     981,131          4.49      44,083    29,434    49,057    78,490    98,113
 M-
 8
 4
 D
 -
 3
UG   1,258,630          3.50      44,083    37,759    62,932   100,690   125,863
 M-
 8
 4
 -
 1
AG     835,648          5.28      44,083    25,069    41,782    66,852    83,565
 M-
 8
 4
 D
 -
 1
RI     438,542          2.87      12,602    13,156    21,927    35,083    43,854
 M-
 6
 6
 B
 -
 2
 /
 6
 6
 B
 /
 6
 6
 E
 (
 M
 R
 )
 /
 6
 7
 A
RI     358,352          7.09      25,423    10,751    17,918    28,668    35,835
 M-
 6
 6
 G
 /
 H
 /
 I
RI     400,597          9.73      38,965    12,018    20,030    32,048    40,060
 M-
 6
 6
 K
 /
 L
Av                      6.28
 e
 r
 a
 g
 e
================================================================================
To                              $334,904  $188,353  $313,922  $502,273  $627,842
 t
 a
 l
--------------------------------------------------------------------------------
Source:  DSAA and GAO computations. 



                                    Table I.3
                     
                        Pro Rata and Flat Rate Charges on
                                     Aircraft

                              (Dollars in millions)


                Nonrecurring
                    pro rata
Ai                    charge  Nonrecurri
rc               (percent of      ng pro
ra  Acquisitio   acquisition        rata         3         5         8        10
ft      n cost         cost)      charge   percent   percent   percent   percent
--  ----------  ------------  ----------  --------  --------  --------  --------
A-       $10.6          2.26      $0.240    $0.318    $0.530    $0.848    $1.060
 7D
 w
 i
 t
 h
 o
 u
 t
 F
 L
 I
 R
A-         9.4          4.15       0.390     0.282     0.470     0.752     0.940
 10
 w
 i
 t
 h
 o
 u
 t
 T
 F
 -
 3
 4
 e
 n
 g
 i
 n
 e
 s
C-       129.9          9.78      12.700     3.897     6.495    10.392    12.990
 5A
 G
 a
 l
 a
 x
 y
C-        14.6          0.68       0.100     0.438     0.730     1.168     1.460
 1
 3
 0
 H
 e
 r
 c
 u
 l
 e
 s
 w
 /
 4
 T
 5
 6
 e
 n
 g
 i
 n
 e
 s
C-        29.8          2.99       0.890     0.894     1.490     2.384     2.980
 1
 4
 1
 A
 S
 t
 a
 r
 l
 i
 f
 t
 e
 r
C-        42.6          2.09       0.890     1.278     2.130     3.408     4.260
 1
 4
 1
 B
 S
 t
 a
 r
 l
 i
 f
 t
 e
 r
F-        11.0          1.45       0.160     0.330     0.550     0.880     1.100
 4E
F-        15.1          4.44       0.670     0.453     0.755     1.208     1.510
 4G
 W
 i
 l
 d
 W
 e
 a
 s
 e
 l
 (
 M
 O
 D
 o
 n
 l
 y
 )
F/         3.7          1.08       0.040     0.111     0.185     0.296     0.370
 R
 F
 -
 5
 A
 /
 B
 T
 i
 g
 e
 r
 \
 a
F/         5.3          1.32       0.070     0.159     0.265     0.424     0.530
 R
 F
 -
 5
 E
 T
 i
 g
 e
 r
 I
 I
 \
 a
F/         8.4          2.50       0.210     0.252     0.420     0.672     0.840
 R
 F
 -
 5
 F
 T
 i
 g
 e
 r
 I
 I
 \
 a
F-        25.5          7.25       1.850     0.765     1.275     2.040     2.550
 1
 5
 A
 /
 B
 E
 a
 g
 l
 e
 \
 b
F-        28.2          6.74       1.900     0.846     1.410     2.256     2.820
 1
 5
 C
 /
 D
 E
 a
 g
 l
 e
 \
 b
F-        30.0         13.13       3.940     0.900     1.500     2.400     3.000
 1
 5
 E
 E
 a
 g
 l
 e
 \
 b
F-        12.4          5.16       0.640     0.372     0.620     0.992     1.240
 1
 6
 A
 /
 B
 F
 i
 g
 h
 t
 i
 n
 g
 F
 a
 l
 c
 o
 n
F-        15.0          6.80       1.020     0.450     0.750     1.200     1.500
 1
 6
 C
 /
 D
 \
 c
F-        25.2          0.63       0.160     0.756     1.260     2.016     2.520
 1
 0
 6
 A
 /
 B
 D
 e
 l
 t
 a
 D
 a
 r
 t
F-        37.2          1.64       0.610     1.116     1.860     2.976     3.720
 1
 1
 1
 A
F-        36.5          1.67       0.610     1.095     1.825     2.920     3.650
 1
 1
 1
 D
F-        37.8          1.61       0.610     1.134     1.890     3.024     3.780
 1
 1
 1
 E
F-        39.4          1.55       0.610     1.182     1.970     3.152     3.940
 1
 1
 1
 F
KC        77.8          1.52       1.180     2.334     3.890     6.224     7.780
 -
 1
 0
 E
 x
 t
 e
 n
 d
 e
 r
KC        18.0          1.22       0.220     0.540     0.900     1.440     1.800
 -
 1
 3
 5
 A
 S
 t
 r
 a
 t
 o
 t
 a
 n
 k
 e
 r
RF        10.0          1.10       0.110     0.300     0.500     0.800     1.000
 -
 4
 C
 P
 h
 a
 n
 t
 o
 m
T-         0.7          0.40       0.003     0.021     0.035     0.056     0.070
 3
 3
 A
T-         1.0          2.00       0.020     0.030     0.050     0.080     0.100
 37
T-         3.9          2.05       0.080     0.117     0.195     0.312     0.390
 3
 8
 A
Av                      3.22
 e
 r
 a
 g
 e
================================================================================
To                               $29.853   $20.370   $33.950   $54.320   $67.900
 t
 a
 l
--------------------------------------------------------------------------------
\a Without two J-85 engines. 

\b Without engines, AN/APG-63 radars, multistage improvement program,
and towed electronic warfare system. 

\c With engines. 

Source:  DSAA and GAO computations. 



                                    Table I.4
                     
                        Pro Rata and Flat Rate Charges on
                                 Aircraft Engines

                              (Dollars in millions)


Ai
rc              Nonrecurring
ra                  pro rata
ft                    charge  Nonrecurri
en               (percent of      ng pro
gi  Acquisitio   acquisition        rata         3         5         8        10
ne      n cost         cost)      charge   percent   percent   percent   percent
--  ----------  ------------  ----------  --------  --------  --------  --------
CF      $2.959          0.07      $0.020    $0.089    $0.148    $0.237    $0.296
 M-
 5
 6
F1       2.670         10.64       0.284     0.080     0.134     0.214     0.267
 0
 0
 -
 P
 W
 -
 1
 0
 0
 /
 2
 0
 0
 (
 A
 F
 E
 )
F1       3.270         11.16       0.365     0.098     0.164     0.262     0.327
 0
 0
 -
 P
 W
 -
 2
 2
 0
 (
 A
 F
 E
 )
F1       4.700         13.57       0.638     0.141     0.235     0.376     0.470
 0
 0
 -
 P
 W
 -
 2
 2
 9
 (
 I
 P
 E
 )
F1       2.954         12.36       0.365     0.089     0.148     0.236     0.295
 1
 0
 -
 G
 E
 -
 1
 0
 0
 (
 A
 F
 E
 )
F1       4.000         15.95       0.638     0.120     0.200     0.320     0.400
 1
 0
 -
 G
 E
 -
 1
 2
 9
 (
 I
 P
 E
 )
F4       1.236          5.18       0.065     0.037     0.062     0.099     0.124
 04
F4       1.236         13.29       0.164     0.037     0.062     0.099     0.124
 0
 4
 -
 G
 E
 -
 4
 0
 0
 /
 4
 0
 2
J6        0.63          4.76       0.003     0.002     0.003     0.005     0.006
 0
 P
 -
 3
 /
 3
 A
J7       0.300          9.67       0.029     0.009     0.015     0.024     0.030
 5
J7       0.686          3.94       0.027     0.021     0.034     0.055     0.069
 9-
 G
 E
 1
 7
 /
 1
 7
 A
 /
 1
 1
 9
J8       0.520          3.46       0.018     0.016     0.026     0.042     0.052
 5
T5       0.020         10.00       0.002   0.001\a     0.001     0.002     0.002
 3-
 L
 -
 7
 0
 3
T5       0.819          1.59       0.013     0.025     0.041     0.066     0.082
 6
T5       0.500          4.00       0.020     0.015     0.025     0.040     0.050
 8
T6       0.767          5.03       0.039     0.023     0.038     0.061     0.077
 4
T7       0.505          5.94       0.030     0.015     0.025     0.040     0.051
 0
 0
 -
 G
 E
 -
 7
 0
 1
 /
 7
 0
 1
 A
 /
 7
 0
 1
 A
 1
T7       0.505          4.95       0.025     0.015     0.025     0.040     0.051
 0
 0
 -
 G
 E
 -
 7
 0
 1
 C
TF       1.354          3.25       0.044     0.041     0.068     0.108     0.135
 30
TF       1.018          2.06       0.021     0.031     0.051     0.081     0.102
 34
TF       3.654         12.10       0.442     0.110     0.183     0.292     0.365
 39
Av                      7.33
 e
 r
 a
 g
 e
================================================================================
To                                $3.252    $1.015    $1.688    $2.699    $3.375
 t
 a
 l
--------------------------------------------------------------------------------
\a Actual amount is $600. 

Source:  DSAA and GAO computations. 




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