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Defense Inventory: Management of Surplus Usable Aircraft Parts Can Be Improved (Letter Report, 10/02/97, GAO/NSIAD-98-7).

Pursuant to a congressional request, GAO reviewed selected aspects of
the Department of Defense's (DOD) disposal process, focusing on whether:
(1) DOD destroyed usable aircraft parts during the disposal process that
did not have military technology and flight safety implications; and (2)
the military services recalled aircraft parts from the disposal process
to preclude unnecessary purchases or repairs.

GAO noted that: (1) management of the aircraft parts disposal process
can be improved; (2) DOD destroyed some usable aircraft parts and sold
them as scrap; (3) these parts were in new or repairable condition and
did not have military technology or flight safety implications; (4) the
parts could possibly have been sold intact at higher than scrap prices;
(5) this situation occurred for several reasons; (6) for example,
disposal offices destroyed parts because the demilitarization codes the
military services had assigned to the parts were inaccurate; (7) the
codes indicated the parts contained military technology when they did
not; (8) GAO work showed that the Oklahoma city disposal office
destroyed 62 of 71 sample items, even though they did not have
technology implications, because the assigned codes required their
destruction; (9) personnel responsible for assigning and reviewing the
codes had not been sufficiently trained and guidance was not adequate;
(10) in addition, policies and practices designed to prevent the
inadvertent or unauthorized release of parts with military technology
and flight safety implications did not distinguish between parts with or
without such implications; (11) parts without military technology and
flight safety concerns were destroyed along with parts that had these
characteristics; (12) GAO work also showed that DOD could have purchased
or repaired fewer aircraft parts if it would have recalled the needed
parts from the disposal process; (13) for example, the Army could have
reduced current and planned purchases by about $200,000 by using Cobra
helicopter parts scheduled for destruction; (14) DOD regulations require
the military services to know which parts they have placed in the
disposal process; (15) however, interface problems between service and
disposal office computer systems precluded the services from knowing
what parts were at the disposal offices; (16) the military services had
not instituted alternative ways to obtain this information on routine
basis; (17) problems with the disposal process are likely not unique to
the three disposal yards GAO visited because DOD, military service, and
Defense Logistics Agency policies and procedures generally apply to
activities being performed at all locations; and (18) GAO past reviews
and DOD internal studies have identified similar problems at these and
other locations over the past 10 years or earlier.

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

 REPORTNUM:  NSIAD-98-7
     TITLE:  Defense Inventory: Management of Surplus Usable Aircraft 
             Parts Can Be Improved
      DATE:  10/02/97
   SUBJECT:  Inventory control systems
             Aircraft components
             Military materiel
             Military inventories
             Surplus federal property
             Defense conversion
             Military cost control
             Property disposal

             
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Cover
================================================================ COVER


Report to the Chairman, Committee on National Security, House of
Representatives

October 1997

DEFENSE INVENTORY - MANAGEMENT OF
SURPLUS USABLE AIRCRAFT PARTS CAN
BE IMPROVED

GAO/NSIAD-98-7

Defense Inventory

(709234)


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

  DOD - Department of Defense
  DRMO - Defense Reutilization and Marketing Office

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


B-276828

October 2, 1997

The Honorable Floyd D.  Spence
Chairman, Committee on National Security
House of Representatives

Dear Mr.  Chairman: 

As requested, we reviewed selected aspects of the Department of
Defense's (DOD) disposal process.  When the military services no
longer need aircraft parts, they turn them over to the Defense
Logistics Agency, which manages DOD's disposal process.  As one
option within the disposal process, the Agency can either sell the
parts intact to the public or destroy the parts and sell them as
scrap.  Also, if for some reason a military service later determines
there is a new need for parts still in the disposal process, it can
request their return.  This report addresses whether (1) DOD
destroyed usable aircraft parts during the disposal process that did
not have military technology and flight safety implications and (2)
the military services recalled aircraft parts from the disposal
process to preclude unnecessary purchases or repairs.  We will report
separately on whether DOD properly destroyed aircraft parts with
military technology and safety implications. 

In fiscal year 1996, DOD sold about 3.3 million usable aircraft parts
to the public through the disposal process' surplus sales program. 
These parts had an acquisition value of over $2.3 billion.  Our
review focused on a judgmentally selected sample of 271 surplus items
at three disposal offices.  These offices handle some of the largest
volumes of surplus aircraft parts within the disposal process.  The
scope and methodology of our work are described in appendix I. 


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

The Federal Property and Administrative Services Act of 1949, as
amended (40 U.S.C.  471-486), places responsibility for the
disposition of government real and personal property with the General
Services Administration.  The General Services Administration
delegated disposal of DOD personal property to the Secretary of
Defense, who in turn delegated it to the Defense Logistics Agency. 
The Defense Reutilization and Marketing Service, a component of the
Defense Logistics Agency, carries out the disposal function.  The
complexity of DOD's disposal process is characterized by the massive
volumes of surplus property.  In fiscal year 1996, DOD disposed of
millions of items with a reported acquisition value (the amount
originally paid for the items) of almost $24 billion.  The focus of
this report, aircraft parts, represents $2.3 billion of this total. 


      AIRCRAFT PARTS DISPOSAL
      PROCESS
---------------------------------------------------------- Letter :1.1

DOD provides overall guidance for determining if aircraft parts
should be disposed of.  The military services and the Defense
Logistics Agency determine if specific parts for which they have
management responsibility are excess to their needs.  Once the
military services or the Defense Logistics Agency declares aircraft
parts excess to their needs, they enter the disposal process.  These
parts are sent to one of 170 worldwide Defense Reutilization and
Marketing Offices (DRMO), or disposal yards.  Upon receipt, DRMO
personnel inspect the parts for condition, acquisition value, and
special handling requirements such as those for military sensitive
items.  DRMOs, consistent with legislative requirements, have
disposition priorities to make the excess parts available for
reutilization within DOD or transfer to other federal agencies. 
Parts that remain are designated as surplus and can be donated to
eligible entities such as state and local governments, among many
others.  After these priorities have been served, parts that remain
may be sold to the general public.  Figure 1 shows the usual process
for disposing of aircraft parts. 

   Figure 1:  Usual Process for
   Disposing of Aircraft Parts

   (See figure in printed
   edition.)

Surplus aircraft parts can generally be divided into four categories
of condition:  (1) new; (2) worn, but still working; (3) broken, but
repairable; and (4) scrap.  In this report, we refer to the first
three categories of parts as potentially usable, since they can be
repaired or used as is.  The fourth category--scrap--refers to those
parts that DOD does not intend to reuse and sells for their basic
material content value. 


      MILITARY TECHNOLOGY AND
      FLIGHT SAFETY CONSIDERATIONS
---------------------------------------------------------- Letter :1.2

Because of concerns about safeguarding military technology and
maintaining flight safety, DOD has specific policies and procedures
relating to the disposal of aircraft parts.  For parts that have
military technology involving weapons, national security, or military
advantages inherent in them, DOD requires the parts to be
demilitarized so that the technology remains within DOD. 
Demilitarization makes the parts unfit for their originally intended
purpose, either by partial or total destruction, before or as a
condition of sale to the public.  For parts that could cause an
aircraft to crash if the parts fail during a flight, DOD components
have local policies requiring the destruction of certain used parts
with flight safety implications to prevent the parts from reentering
the DOD supply system or being made available to the civil aviation
industry.  In our 1994 report,\1

we cited concerns from the Federal Aviation Administration and the
Department of Transportation's Inspector General that DOD aircraft
parts, sold as scrap, reentered civil aviation as usable.  As a
result, in July 1995, DOD initiated a departmentwide program to
identify and prevent parts with potential flight safety risks from
being sold intact through DRMOs.  The services and the Defense
Logistics Agency began identifying parts with flight safety
characteristics so they could destroy the parts before they were
sold. 

Some usable aircraft parts DOD sells as surplus fit only on military
aircraft but have no military technology implications.  These parts
are called "nonsignificant military unique" parts.  Examples include
bolts, fuel controls, engine parts, and airframe parts that have been
strengthened to withstand rigorous military use.  Companies buy
military unique parts on the speculation that DOD may need these
parts at a future date.  Other usable aircraft parts DOD sells as
surplus have applications to aircraft used in civil aviation or by
other government agencies and foreign countries.  These parts are
called commercial-type parts.  Examples include the Air Force's
KC-135 air refueling tanker that has many of the same parts as a
commercial Boeing 707 aircraft; the Air Force's C-130 cargo plane
that has many of the same parts as a Lockheed 382 Hercules aircraft
used by 49 foreign countries; and the Army's UH-1 Huey utility
helicopter that has many of the same parts as a commercial Bell 205
helicopter.  Companies buy commercial-type parts on the speculation
that they can resell the parts to civil aviation, foreign countries,
or DOD. 


--------------------
\1 Commercial Practices:  Opportunities Exist to Enhance DOD's Sales
of Surplus Aircraft Parts (GAO/NSIAD-94-189, Sept.  23, 1994). 


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

Management of the aircraft parts disposal process can be improved. 
DOD destroyed some usable aircraft parts and sold them as scrap. 
These parts were in new or repairable condition and did not have
military technology or flight safety implications.  The parts could
possibly have been sold intact at higher than scrap prices.  This
situation occurred for several reasons.  For example, disposal
offices destroyed parts because the demilitarization codes the
military services had assigned to the parts were inaccurate.  The
codes indicated the parts contained military technology when they did
not.  Our work showed that the Oklahoma City disposal office
destroyed 62 of 71 sample items, even though they did not have
technology implications, because the assigned codes required their
destruction.  Personnel responsible for assigning and reviewing the
codes had not been sufficiently trained and guidance was not
adequate.  In addition, policies and practices designed to prevent
the inadvertent or unauthorized release of parts with military
technology and flight safety implications did not distinguish between
parts with or without such implications.  Parts without military
technology and flight safety concerns were destroyed along with parts
that had these characteristics. 

Our work also showed that DOD could have purchased or repaired fewer
aircraft parts if it would have recalled the needed parts from the
disposal process.  For example, the Army could have reduced current
and planned purchases by about $200,000 by using Cobra helicopter
parts scheduled for destruction.  DOD regulations require the
military services to know which parts they have placed in the
disposal process.  However, interface problems between service and
disposal office computer systems precluded the services from knowing
what parts were at the disposal offices.  The military services had
not instituted alternative ways to obtain this information on a
routine basis. 

Problems with the disposal process are likely not unique to the three
disposal yards we visited because DOD, military service, and Defense
Logistics Agency policies and procedures generally apply to
activities being performed at all locations.  Our past reviews and
DOD internal studies have identified similar problems at these and
other locations over the past 10 years and earlier. 


   MANAGEMENT OF SURPLUS AIRCRAFT
   PARTS CAN BE IMPROVED
------------------------------------------------------------ Letter :3

DOD could have avoided destroying certain usable aircraft parts that
were in the disposal process.  The parts were destroyed because (1)
the military services improperly coded parts without military
technology as having military technology implications and (2)
policies and practices intended to prevent an inadvertent sale of
military technology or flight safety items did not adequately exclude
parts without military technology or flight safety implications. 
Until DOD improves the accuracy of assigned demilitarization codes,
adopts better management policies and practices, and moves to use
private sector techniques, such as identifying highly marketable
parts, some usable parts will be unnecessarily destroyed during the
disposal process. 


      ASSIGNED DEMILITARIZATION
      CODES ARE NOT ACCURATE
---------------------------------------------------------- Letter :3.1

The three DRMOs we visited destroyed usable parts because the
demilitarization codes the military services had assigned were
inaccurate.  For example, we evaluated 71 sample items at the
Oklahoma City DRMO.  We selected these items because they were
commercial-type items but, at the time of selection, the military
services had coded the parts as having military technology
implications.  We found usable quantities for 10 of our sample items
that were marked for destruction at the DRMO.  Records showed that
the DRMO had previously destroyed quantities of the other 61 sample
items. 

We met with Air Force and Navy equipment specialists and policy
officials and questioned the demilitarization codes assigned to each
of the 71 items.  The policy officials told us that they require
equipment specialists to periodically review the demilitarization
codes for accuracy and that equipment specialists had recently
corrected the codes on nine items.  The equipment specialists did not
agree on the need to change the codes on the remaining 62 items until
we pointed out that these were commercial-type parts.  The equipment
specialists confirmed that the assigned demilitarization
codes--requiring the parts to be destroyed due to military technology
content--were incorrect for each of the 62 sample items.  The
specialists revised each of the demilitarization codes to identify
the parts as having no military technology implications. 

At the San Antonio DRMO, the assigned demilitarization codes were
inaccurate for 22 of 27 sample items because the parts had no
military technology implications.  Similarly, at the Corpus Christi
DRMO, the assigned demilitarization codes were inaccurate for 13 of
17 sample items.  Each of the military services and the Defense
Logistics Agency were responsible for sample items with assigned
codes that were inaccurate.  Examples of parts destroyed because the
assigned codes were wrong can be found in appendix II. 


         INACCURATE CODING IS A
         LONG-STANDING PROBLEM
-------------------------------------------------------- Letter :3.1.1

DOD has had problems with the accuracy of assigned demilitarization
codes for many years.  In 1987, the Deputy Secretary of Defense
directed the military services and the Defense Logistics Agency to
review the assignment of demilitarization codes.  The Deputy
Secretary was concerned because a partial audit of seven weapon
systems revealed that 43 percent of the items checked had been coded
incorrectly.  In 1994, the Defense Logistics Agency found that 28
percent of the assigned demilitarization codes it reviewed were
incorrect.  DOD officials told us that historically they assigned
demilitarization codes to parts the first time the parts were
purchased for a new weapon system.  They said that for expediency
purposes, they often assigned codes that showed military technology
content for all parts on new weapon systems rather than evaluating
individual items. 

Recognizing the need for trained personnel to assign proper codes,
DOD developed a course on demilitarization.  Despite such efforts to
correct the erroneous codes, in April 1997, the DOD Inspector General
reported\2 that 52 percent of the demilitarization codes assigned to
parts for new weapon systems it reviewed were incorrect.  The
Inspector General reported that training was not adequate for
personnel responsible for assigning and reviewing demilitarization
codes and that documentation showing the rationale for their
decisions did not exist.  According to the Inspector General, DOD's
training course provided only general awareness of the
demilitarization program and did not provide the specific details
necessary to make decisions on selecting the appropriate
demilitarization codes. 


--------------------
\2 Coding Munitions List Items (DOD Inspector General Audit Report
No.  97-130, April 16, 1997). 


         GUIDANCE COULD BE
         IMPROVED
-------------------------------------------------------- Letter :3.1.2

Our review shows that DOD could improve the accuracy of assigned
demilitarization codes by providing its personnel with guidance on
how to make prudent decisions on selecting the appropriate codes. 
For our sample items at Oklahoma City, the Air Force equipment
specialists completed a demilitarization code assignment worksheet. 
The worksheet is a draft document the Air Force is developing for the
equipment specialists to follow to identify the proper code and to
document the rationale they use in assigning the code.  We found that
the draft worksheet was a useful tool that provided a step-by-step
process in determining the correct demilitarization code.  The
worksheet also provided documentation supporting how the equipment
specialist arrived at the demilitarization code.  Moreover, the
worksheet proved useful to equipment specialists that had not
received recent training.  Until DOD provides its personnel with the
specific details necessary to make prudent decisions on selecting the
appropriate demilitarization codes, inaccurate codes will continue to
cause the unnecessary destruction of usable aircraft parts. 


      POLICIES AND PRACTICES ARE
      NOT ADEQUATE
---------------------------------------------------------- Letter :3.2

Policies and practices intended to prevent an inadvertent sale of
military technology or flight safety items did not adequately exclude
parts without military technology or flight safety implications.  The
policies and practices in question dealt with the destruction of
usable parts categorized as (1) scrap when the parts were usable, (2)
sensitive items when the parts were not sensitive, (3) flight safety
items when the parts had no flight safety implications, and (4)
causing a storage space problem when there was no storage space
shortage. 


         SOME SCRAP PARTS ARE
         USABLE
-------------------------------------------------------- Letter :3.2.1

In 1994, the Defense Reutilization and Marketing Service directed the
DRMOs to destroy all parts categorized as scrap or downgraded to
scrap.  The reason usable parts were destroyed involved DOD's
categorization of parts as scrap.  DOD defines scrap parts as
material that has no value except for its basic material content,
whereas DOD defines usable parts as material that has value greater
than its basic material content and has potential to be used for the
originally intended purpose.  Commercial company officials told us
that some parts that DOD considers scrap have value beyond basic
material content and are repairable and reusable in the commercial
sector.  For the most part, this situation occurs because DOD labels
containers of parts it does not want to repair for economic reasons
as scrap.  On the basis of their experience and independent analyses,
commercial companies frequently did not agree with DOD's economic
determinations.  In such cases, the companies wanted to buy the used
parts, repair them, and resell them for a profit. 

For example, DOD pays the manufacturer $866 each for first stage
turbine vanes used on the T-56 engine.  Because DOD's cost to repair
a turbine vane is $750, or 87 percent of the cost of a new vane, DOD
considers the vane uneconomical to repair and categorizes it as scrap
when worn or broken.  However, the manufacturer sells the same first
stage turbine vane to commercial customers for $2,020 each.  Because
of the higher commercial acquisition cost, commercial users can
justify the repair cost, which is 37 percent of the commercial
acquisition cost. 

DRMO officials told us that usable parts without military technology
were destroyed because of the policy to destroy items categorized as
scrap.  After receiving complaints from potential buyers and DRMOs
that usable parts were needlessly destroyed, the Defense
Reutilization and Marketing Service revised its policy in June 1996
to state that only those items categorized both as scrap and as
sensitive items are to be destroyed.  The Service considers aircraft
parts to be sensitive items if the assigned stock number corresponds
to 1 of 18 federal supply classes or groups that frequently contain
military technology.  The classes or groups include weapons, rocket
engines, and communication equipment.  DRMOs destroyed items
considered sensitive property when the items were received as scrap
or downgraded to scrap, irrespective of whether the assigned
demilitarization codes indicated the parts had military technology
implications. 

DOD officials stated that due to the time and resources required to
destroy and document the destruction of material, it is not in DRMOs'
best interest to destroy parts that do not contain military
technology.  However, the officials said destruction was necessary to
prevent an inadvertent release of parts with military technology
implications.  We recognize the need for DOD to prevent the
inadvertent sale of parts with military technology implications. 
However, DOD management policies and practices resulted in the
destruction of commercial-type parts and nonsignificant military
unique parts that did not have technology and safety implications. 

We previously reported\3 that DOD could increase proceeds from the
sale of surplus aircraft parts--not by destroying them--but by
adopting private sector practices.  Specifically, we stated that DOD
should use techniques to enhance the marketability of its aircraft
parts, including identifying highly marketable commercial-type parts
that would yield the greatest benefits at the minimum cost.  We
pointed out that some commercial airlines identify parts that have a
high demand or command a high price and place them on a special
listing for marketing purposes.  This review shows that DOD has not
implemented similar procedures. 


--------------------
\3 Commercial Practices:  Opportunities Exist to Enhance DOD's Sales
of Surplus Aircraft Parts (GAO/NSIAD-94-189, Sept.  23, 1994). 


         PARTS NOT ON THE
         SENSITIVE ITEMS LIST
-------------------------------------------------------- Letter :3.2.2

DRMO personnel also destroyed parts, even though they were not on the
sensitive items list.  According to DRMO officials, the personnel did
this to increase sales proceeds.  They explained that historically
DRMOs received scrap value for usable parts.  They stated that by
destroying usable parts, surplus parts dealers would get what they
paid for and nothing more.  The officials reasoned that once surplus
dealers realized that DRMOs destroyed the parts, they would be
willing to buy the usable parts before they were destroyed and would
pay higher than scrap value for them.  As a result, sales proceeds
would increase. 

We reviewed 83 sample items at the San Antonio DRMO that were not on
the sensitive items list and that the disposal histories showed were
categorized as scrap or downgraded to scrap after receipt.  Our
analysis identified instances where the DRMO offered usable parts for
sale but did not sell them because bids did not exceed scrap value. 
The DRMO subsequently destroyed the parts and sold them as scrap. 
Some of the parts were worth more than scrap value and should have
been held for another sale as usable parts.  An example of parts
destroyed because of the DRMO practice of destroying scrap not on the
sensitive items list can be found in appendix II. 


         FLIGHT SAFETY PARTS
-------------------------------------------------------- Letter :3.2.3

As a result of our 1994 report, DOD initiated a departmentwide
program to identify and prevent parts with potential flight safety
risks from being sold intact through DRMOs.  The military services
and the Defense Logistics Agency began identifying parts with flight
safety characteristics so they could destroy the parts before they
were sold.  However, our review showed that aircraft parts were
destroyed as flight safety risks when the parts had no flight safety
implications.  This destruction occurred because DRMO practices
intended to prevent the inadvertent sale of parts with flight safety
implications also caused the planned destruction of parts without
these implications. 

For example, in response to a potential buyer's complaint on
September 20, 1996, that the San Antonio DRMO was destroying usable
blades for the T-56 engine, the San Antonio Air Logistics Center
investigated.  The Center found 7,018 blades, originally costing
$1.06 million, that the Air Force had incorrectly categorized as
scrap because of a breakdown in inspection procedures and had sent
them to the DRMO.  San Antonio DRMO officials said the destruction
was to prevent an inadvertent sale of flight safety items.  However,
Center officials said that these parts were incorrectly sent to the
DRMO and did not have to be destroyed for flight safety reasons. 
DRMO officials said they preferred to err on the side of safety.  We
recognize the need for DRMOs to prevent the inadvertent sale of parts
with flight safety implications.  However, DRMO practices resulted in
the planned destruction of commercial-type parts and nonsignificant
military unique parts that did not have flight safety implications. 
An additional example of parts being unnecessarily destroyed as
flight safety risks is in appendix II. 

An interim Army Aviation and Troop Command instruction to destroy all
parts with flight safety implications also resulted in the
destruction of some helicopter parts without such implications. 
According to DRMO and Army records, for example, on February 5, 1997,
a potential buyer witnessed the destruction of between 200 and 300
UH-1 helicopter gear shafts and 10 turbine rotors at the Texarkana,
Texas, DRMO.  The destroyed parts were new, were in the original
equipment manufacturer's boxes, had a manufacturer's list price
totaling about $1 million, and were categorized as flight safety
critical parts.  After the buyer complained, the Army agreed that the
parts were new and should not have been destroyed. 

According to DRMO officials, the interim instruction resulted in the
destruction of large quantities of new, unused parts that had no
flight safety risks.  After receiving complaints from DRMOs and
potential buyers that new parts were being destroyed, the Command
revised its instructions and authorized the sale of flight safety
critical parts under certain conditions, such as when the parts are
new and unused.  To determine if the procedural change was working,
we reviewed a sample of 73 items at the Corpus Christi DRMO that the
Army had identified as having flight safety implications and that
DRMO records indicated were new.  Our analyses showed that the DRMO
either offered each sample item for sale or had already sold it.  We
concluded that no unnecessary destruction of new parts occurred on
the transactions we reviewed.  Examples of flight safety items
properly sold can be found in appendix II. 


         STORAGE SPACE
-------------------------------------------------------- Letter :3.2.4

At the Corpus Christi DRMO, we observed quantities of 157 different
usable parts for the AH-1 Cobra helicopter scheduled for destruction
(see fig.  2).  Specifically, we noted that there was a total of
1,972 usable, mostly new, helicopter parts in a DRMO warehouse.  The
parts originally cost $6.9 million.  According to the DRMO Chief,
these parts were to be destroyed beginning May 3, 1997, to free up
storage space.  We contacted the Defense Reutilization and Marketing
Service and advised it of our concern with the scheduled destruction
because the assigned demilitarization codes indicated no military
technology was associated with 155 of the 157 different parts and
because there were sufficient amounts of warehouse storage space for
the parts. 

   Figure 2:  Cobra Helicopter
   Parts Stored at Corpus Christi
   DRMO

   (See figure in printed
   edition.)

Defense Reutilization and Marketing Service officials said that in
February 1996, they placed a prohibition against selling Cobra parts
at DRMOs because the Army-assigned demilitarization codes were
inaccurate.  The property disposal specialist responsible for the
prohibition said the Army planned to review and validate the
demilitarization codes for the Cobra helicopter parts and he wanted
to be sure the codes were accurate before proceeding with a sale or
destruction action.  He said the Army had not completed its
demilitarization code review.  The specialist said he also instructed
the DRMOs to destroy the parts if they started experiencing a storage
impact.  After a meeting with the Chief of the Corpus Christi DRMO,
the Defense Reutilization and Marketing Service issued a memorandum
directing the DRMOs not to destroy any Cobra parts unless they are in
a scrap condition and to hold usable parts in storage until the Army
completes the demilitarization code review. 

Army Aviation and Troop Command officials who are responsible for
reviewing and validating demilitarization codes for Cobra helicopter
parts told us they were waiting to complete the demilitarization code
review until after Army headquarters makes a decision on whether or
not to sell disarmed, surplus Cobra helicopters to the public for use
in such purposes as fighting forest fires.  In our opinion, accurate
code assignments are required regardless of whether the helicopters
are sold to the public. 


   DOD COMPONENTS NEEDED SOME
   SURPLUS PARTS
------------------------------------------------------------ Letter :4

The military services' inventory managers did not have adequate
information on aircraft parts located in DRMOs.  DOD Materiel
Management Regulation 4140.1-R requires inventory managers to have
information on parts transferred to DRMOs, to recall parts for
reutilization to prevent concurrent procurement and disposal, and to
prevent the repair of unserviceable items when serviceable items are
available.  However, we found that they did not have the needed
information and that DRMOs destroyed quantities of parts DOD
components needed. 

For example, at the Corpus Christi DRMO, we compared the 157
different usable Cobra helicopter parts scheduled to be destroyed by
the DRMO with Army budget and procurement records.  The records
showed that the Army needed quantities for 22 of the 157 parts,
totaling $196,500.  We discussed our findings with the Defense
Reutilization and Marketing Service, which notified the Army Aviation
and Troop Command of the need to return the parts to the DOD supply
system.  The Command had not responded to this notification at the
time our field work was completed.  Additional examples of parts
needed by DOD components can be found in appendix II. 

Air Force and Army officials said that, despite the requirements of
the DOD regulation, they did not have adequate visibility over parts
in DRMOs.  They stated that interface problems between military
service and DRMO computer systems precluded the services from knowing
what parts were in DRMOs.  Since the services did not have adequate
visibility over parts in DRMOs, the DRMOs were destroying the same
parts the services were purchasing or repairing.  DOD headquarters
officials commented that DOD was working to correct the computer
interface problem as part of a Total Asset Visibility program, but it
would be several years before the problem is fixed.  The officials
stated that DOD had neither established milestones for correcting the
computer interface problem nor instituted alternative ways to obtain
the needed information on a routine basis.  For example, aircraft
parts available at DRMOs can be identified by telephone calls, the
Internet, or physical inspections. 


   CONCLUSIONS AND RECOMMENDATIONS
------------------------------------------------------------ Letter :5

The conditions described in this report result in an unnecessary
expenditure of resources to destroy parts that do not actually
require destruction.  In some instances, the government also loses
the increased revenue that could be derived from the sale of usable
parts to prospective buyers and the opportunity to return usable
parts to the DOD supply system to avoid unnecessary procurements or
repairs.  Accordingly, we recommend that the Secretary of Defense
take the following actions to prevent the destruction of usable
aircraft parts. 

  -- Provide guidance on selecting appropriate demilitarization codes
     that includes the specific details necessary to make appropriate
     decisions.  The guidance could take the form of the draft
     demilitarization code assignment worksheet being used by the Air
     Force. 

  -- Exclude commercial-type parts and nonsignificant military unique
     parts that do not have military technology and flight safety
     implications from policies and practices intended to prevent an
     inadvertent sale of parts with these implications.  Work closely
     with the private sector to identify and list commercial-type
     aircraft parts and nonsignificant military unique parts the
     private sector needs and require the DRMOs to check this list
     before destroying parts. 

  -- Require the Army to complete its validation of the
     demilitarization codes assigned to Cobra helicopter parts so
     commercial-type parts and nonsignificant military unique parts
     can be sold. 

  -- Establish milestones for correcting computer interface problems
     that preclude the military services from having visibility of
     parts located in DRMOs and from following regulations that
     require parts to be returned to the supply system when needed to
     prevent unnecessary procurements or repairs.  In the interim,
     institute alternative ways to obtain this information on a
     routine basis.  For example, aircraft parts available at DRMOs
     can be identified by telephone calls, the Internet, or physical
     inspection. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

DOD generally agreed with the report and stated that the concepts
presented appear to be beneficial to the disposal of aircraft parts
(see
app.  III).  Concerning our first recommendation, DOD agreed that a
code assignment sheet may be useful in assigning demilitarization
codes and stated that it would work with the military services and
the Defense Logistics Agency to determine the feasibility of
departmentwide use of the Air Force, or a similar, worksheet.  In
response to our second recommendation, DOD agreed that, when properly
coded by item managers, usable parts that do not have military
technology and flight safety implications do not have to be
destroyed.  DOD noted that challenge programs are available if parts
are miscoded.  With regard to our recommendation that the Army
complete its validation of the demilitarization codes assigned to
Cobra helicopter parts, DOD stated that it is monitoring the Army's
validation process.  The validation, which will determine which parts
are commercially available and can be sold, is expected in November
1997. 

DOD partially agreed with our recommendation that it work closely
with the private sector to identify and list parts the private sector
needs and require the DRMOs to check this list before destroying
parts.  DOD stated that it previously attempted to obtain private
sector input but the response was minimal.  DOD also stated that the
identification of commercial-type aircraft parts should be
incorporated into an existing database rather than utilizing a
separate list.  DOD added that, although it is DOD policy that DRMOs
destroy parts only when demilitarization is required or they are
identified as having flight safety implications, inaccurate
information does occur and use of all available data to reduce
unnecessary destruction should be used by the DRMOs. 

We continue to believe that DOD should work closely with the private
sector because DOD's previous inquiries were limited to the original
equipment manufacturers.  Officials from the companies we contacted,
including the National Association of Aircraft and Communication
Suppliers, told us that, although they are buyers of large quantities
of aircraft parts at DRMO sales, DOD had not asked them for input to
identify commercial-type aircraft parts.  Our report documents
examples where DRMOs destroyed usable parts that did not have
military technology or safety implications.  Because the current
system for identifying commercial-type and nonsignificant military
unique parts the private sector needs is not working, we also
continue to believe that DOD needs to list these parts separately. 

DOD also partially agreed with our recommendation that it establish
milestones for correcting the computer interface problems that
preclude the military services from having visibility of parts
located in DRMOs and, in the interim, institute alternative ways to
obtain this information on a routine basis.  DOD stated that the
interface problems are addressed as they arise and that a joint Total
Asset Visibility office is working with the military services to
finalize a functional description for automated visibility of
disposal assets to prevent unnecessary buys and repairs.  Once
finalized, milestones for implementation will be developed based on
the complexity of the information system changes required.  DOD
stated that the earliest projected date for development of milestones
is the first quarter of fiscal year 1998.  DOD also stated that, in
the interim, many other sources are available to the military
services that provide visibility of parts at the DRMOs, including the
Internet, an Interrogation Requirements Information System, and
formal and informal contacts between DRMOs and item managers. 

While we agree that the long-term solution rests with implementation
of the Total Asset Visibility program, we continue to be concerned
that routine interim procedures do not exist.  Although DOD
acknowledges that many other sources are available to the military
services that provide visibility of parts in DRMOs, our report shows
that DOD guidance is needed because the military services are not
routinely checking with these sources. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the
Air Force; the Director, Defense Logistics Agency; and the Director,
Office of Management and Budget. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  The major contributors to this
report are listed in appendix IV. 

Sincerely yours,

David R.  Warren
Director, Defense Management Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

We reviewed policies, procedures, disposal histories, transaction
histories and related records obtained from the Defense Reutilization
and Marketing Offices (DRMO) and item managers and documented
disposal practices.  We interviewed policy officials, disposal office
personnel, item managers, and equipment specialists.  To determine
the Department of Defense's (DOD) policies and practices for
destroying aircraft parts during the disposal process, we held
discussions and performed work at the Office of the Deputy Under
Secretary of Defense (Logistics), Washington, D.C.; the Army, the
Navy, and the Air Force Headquarters, Washington, D.C.; the Defense
Logistics Agency, Fort Belvoir, Virginia; and the DOD Inspector
General, Washington, D.C.  and Columbus, Ohio. 

To obtain information on how surplus parts are received and processed
for sale, we documented procedures and practices at three DRMOs
located in Oklahoma City, Oklahoma; San Antonio, Texas; and Corpus
Christi, Texas.  According to DOD officials, the Oklahoma City and
San Antonio DRMOs handle the largest volumes of surplus aircraft
parts.  Since these DRMOs handle surplus parts used mostly on Air
Force and Navy aircraft, we also selected the Corpus Christi DRMO,
which handles large quantities of surplus parts used mostly on Army
aircraft.  We also collected budget, procurement, inventory, weapon
system application, and disposal information from item managers,
equipment specialists, and policy officials at the Oklahoma City Air
Logistics Center, Tinker Air Force Base, Oklahoma; the San Antonio
Air Logistics Center, Kelly Air Force Base, Texas; the Corpus Christi
Army Depot, Corpus Christi, Texas; the Army's Aviation and Troop
Command, St.  Louis, Missouri; and the Naval Inventory Control Point,
Philadelphia, Pennsylvania. 

We also visited and collected data from members of the National
Association of Aircraft and Communication Suppliers, Inc., Alamo
Aircraft Supply, Inc., and Dixie Air Parts Supply, Inc., San Antonio,
Texas; Jet Reclamation, Inc., Bulverde, Texas; and Rick's Mfg.  and
Supply, Choctaw, Oklahoma to identify specific problems they were
having with DOD's disposal practices. 

We judgmentally selected 271 surplus items for review to determine
the adequacy of DOD's policies and procedures for ensuring that
aircraft parts without military technology and flight safety
implications are not unnecessarily destroyed.  We selected 83 items
at the San Antonio DRMO involving the disposal of usable parts as
scrap material and 27 items involving the accuracy of assigned
demilitarization codes; 73 items at the Corpus Christi DRMO involving
flight safety and 17 items involving the accuracy of assigned
demilitarization codes; and 71 items at the Oklahoma City DRMO
involving the accuracy of assigned demilitarization codes.  We
selected these items because they were commercial-type parts or
nonsignificant military unique parts that were either coded for
destruction due to military technology content or alleged by the
Association to have been unnecessarily destroyed.  We also reviewed
the results of prior DOD internal studies. 

To determine whether parts being destroyed at the three DRMOs were
needed by the military services, we compared selected sample items
with the services' budget stratification databases and requirements
computations.  We checked to see if there were current or future buy
and repair requirements for the items.  We informed the military
services of any sample items that had current or planned requirements
so the parts could be recalled from the DRMOs. 

We performed our review between January 1997 and June 1997 in
accordance with generally accepted government auditing standards. 


EXAMPLES OF SELECTED AIRCRAFT
PARTS
========================================================== Appendix II


   PARTS ASSIGNED INACCURATE
   DEMILITARIZATION CODES
-------------------------------------------------------- Appendix II:1

The Air Force decided that 184 TF-33 engine combustion chambers
(Stock No.  2840008285214RV) (see fig.  II.1) used on the KC-135
aircraft were surplus and sent them to the Oklahoma City DRMO.  The
parts originally cost $452,352.  On April 15, 1997, the DRMO
destroyed the 184 parts, although the parts were repairable.  The
DRMO destroyed the parts because the Air Force had assigned a
demilitarization code to the parts requiring total destruction to
protect military technology.  The DRMO estimated that it spent $211
to destroy the parts and sold them as scrap for $3,450.  After we
pointed out that this was a commercial-type item, the Air Force
equipment specialist said the assigned demilitarization code was
incorrect because the parts contained no military technology.  As a
result, the DRMO destroyed parts that the private sector could have
used.  The equipment specialist corrected the demilitarization code. 

   Figure II.1:  Engine Combustion
   Chamber

   (See figure in printed
   edition.)

On April 9, 1997, we observed the destruction with a cutting torch of
20 nozzle rings (Stock No.  2840011611133RV) (see fig.  II.2) used on
the KC-135 aircraft engine.  These parts originally cost $94,400. 
The Oklahoma City DRMO destroyed the parts because the Air Force had
assigned a demilitarization code that required total destruction to
protect military technology.  According to the equipment specialist,
the Air Force replaced the parts with a newer version.  He said that
the parts sent to the DRMO, although usable, were no longer needed by
the Air Force.  After we pointed out that this was a commercial-type
item, the equipment specialist said the assigned demilitarization
code was incorrect because the part contained no military technology. 
He also said the destroyed parts were usable on commercial Boeing 707
aircraft in the private sector.  As a result, the DRMO destroyed
parts that the private sector could have purchased.  The equipment
specialist corrected the demilitarization code. 

   Figure II.2:  Nozzle Rings

   (See figure in printed
   edition.)

On April 14, 1997, the Corpus Christi DRMO destroyed 53 circuit card
assemblies (Stock No.  5998013370963) used on the UH-60 helicopter. 
The parts originally cost $54,392.  The DRMO destroyed the parts
because the Army had assigned a demilitarization code to the parts
requiring total destruction to protect military technology.  After we
questioned if military technology was involved with this part, the
Army equipment specialist said the assigned demilitarization code was
incorrect because the part, although military unique, was
nonsignificant and contained no military technology that needed to be
protected.  As a result, the DRMO destroyed parts that the private
sector could have purchased.  The equipment specialist corrected the
demilitarization code. 

During fiscal year 1996, the San Antonio Air Logistics Center sent
six usable support assemblies (Stock No.  2840011932157RW) used on
the C-130 aircraft engine to the DRMO because the parts were no
longer needed.  The parts originally cost $19,660.  The San Antonio
DRMO destroyed the six parts because the Navy had assigned a
demilitarization code to the part requiring total destruction to
protect military technology.  After we pointed out that this was a
commercial-type item, the Navy equipment specialist said that the
assigned demilitarization code was incorrect because the part
contained no military technology.  He said the destroyed parts were
usable on commercial aircraft in the private sector.  As a result,
the DRMO destroyed parts that the private sector could have
purchased.  The equipment specialist corrected the demilitarization
code. 


   PARTS THAT ARE NOT SENSITIVE
-------------------------------------------------------- Appendix II:2

On February 26, 1996, the San Antonio DRMO downgraded to scrap 13
nozzle assemblies (Stock No.  2840010668071RW) used on the T-56
engine and destroyed them.  The parts were destroyed to prevent
surplus dealers from buying usable parts at scrap prices.  The parts
originally cost $15,953.  These parts did not appear on the Defense
Logistics Agency's sensitive item list and had no military technology
or safety implications.  The destroyed parts sold for about $2 each. 
By contrast, on August 20, 1996, the DRMO sold 24 usable nozzle
assemblies intact for $1,183, or over $49 each. 


   PARTS WITHOUT FLIGHT SAFETY
   IMPLICATIONS
-------------------------------------------------------- Appendix II:3

The San Antonio Air Logistics Center considered 72 turbine vanes
(Stock No.  2840004262571RW) for the T-56 engine not usable because
they were worn and cracked and sent them to the DRMO for disposal. 
These parts originally cost $200,000.  The San Antonio DRMO Chief
said that he decided to destroy these parts at his own management
discretion strictly for flight safety reasons.  He said that he would
not want parts in such poor condition to be refurbished and installed
on an aircraft that he or anyone else was a passenger on.  However,
Center officials said these parts had no safety implications.  After
reviewing this matter, the Center's Commander told the DRMO to sell
the parts intact. 


   FLIGHT SAFETY PARTS PROPERLY
   SOLD
-------------------------------------------------------- Appendix II:4

On October 7, 1996, the Corpus Christi DRMO received 1,101 turbine
rotor blades (Stock No.  2840001523806) (see fig.  II.3) used on the
CH-47 helicopter for disposal.  Since the Army had assigned
demilitarization
code F to the parts, indicating that they had flight safety
implications, the DRMO requested disposition instructions from the
Army Aviation and Troop Command.  The Command instructed the DRMO to
destroy the part unless it was (1) unused, (2) in serviceable
condition, (3) physically marked with the manufacturer's code, and
(4) in the manufacturer's original packaging.  The DRMO decided that
the parts met this exception and offered them for sale.  DRMO records
showed that the turbine rotor blades were sold in a lot with another
turbine rotor blade for $13,796. 

   Figure II.3:  Turbine Rotor
   Blades in Manufacturer's
   Original Packaging

   (See figure in printed
   edition.)

On September 29, 1996, the Corpus Christi DRMO received notice that
six transmission cartridge assemblies (Stock No.  1615011167083) used
on the UH-1 helicopter were no longer needed by the Army.  These
parts originally cost $36,774.  Since the Army had assigned
demilitarization code F to the parts, the DRMO requested disposition
instructions from the Army Aviation and Troop Command.  On December
12, 1996, the Command instructed the DRMO to destroy the part unless
it was (1) unused, (2) in serviceable condition, (3) physically
marked with the manufacturer's code, and (4) in the manufacturer's
original packaging.  The DRMO determined that these parts met this
exception and on May 29, 1997, prepared a notice for the assemblies
to be listed for sale in the International Sales Office catalog.  At
the completion of our fieldwork, the sales office had not set the
date of sale. 


   PARTS NEEDED BY DOD COMPONENTS
-------------------------------------------------------- Appendix II:5

At the Oklahoma City DRMO, we observed two nozzle rings (Stock
No.  2840009911048RV) for the TF-33 engine being destroyed with a
cutting torch.  The two nozzle rings, originally costing $7,000, were
being destroyed at the discretion of a DRMO employee.  We obtained
documents that showed these parts were in usable condition and that
the Air Force needed the parts and had recently placed orders to buy
107 new nozzle rings.  After we pointed this situation out to the
Oklahoma City Air Logistics Center, the Center implemented new
procedures to prevent usable engine nozzle rings and other needed
parts from being destroyed.  The procedures require equipment
specialists to periodically inspect parts sent to the DRMO.  Within a
month, the Center identified and prevented the destruction of 200
additional usable parts that were at the DRMO. 

In response to a potential buyer's complaint on September 20, 1996,
that the San Antonio DRMO was destroying usable blades (Stock
No.  2840011123776RW) for the T-56 engine, the San Antonio Air
Logistics Center investigated.  The Center found 7,018 blades,
originally costing $1.06 million, that the Air Force had incorrectly
categorized as scrap because of a breakdown in inspection procedures
and sent them to the DRMO.  San Antonio DRMO officials said the
destruction was to prevent an inadvertent sale of flight safety
items.  However, Center officials said that these parts did not have
to be destroyed for flight safety reasons and were needed to satisfy
depot maintenance requirements.  The DRMO returned the blades to the
Air Force. 




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



(See figure in printed edition.)

Now on p.  13. 

Now on p.  13. 



(See figure in printed edition.)

Now on p.  13. 

Now on p.  13. 

Now on p.  13. 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Charles Patton
James Murphy

DALLAS FIELD OFFICE

Roger Tomlinson
Jackie Kreithe
Bonnie Carter
Frederick Lyles

*** End of document. ***





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