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Navy Aviation: V-22 Cost and Capability to Meet Requirements Are Yet to Be Determined (Letter Report, 10/22/97, GAO/NSIAD-98-13).

GAO reported on the V-22 Osprey Program, which is intended to provide
the armed services with 523 new tilt-rotor aircraft, focusing on: (1)
the status of the program and areas of potential cost increases or
performance challenges; and (2) whether the aircraft being developed
will meet the stated requirements of each of the services.

GAO noted that: (1) the V-22 has been in development for almost 15
years; (2) although Congress has provided significant funding and
support to the Department of Defense (DOD), the system has not yet
achieved program stability in terms of cost or aircraft design; (3)
there are large disparities among the cost estimates from the program
office, the contractors, and the Office of the Secretary of Defense; (4)
these estimates range from about $40 million to $58 million for each
aircraft; (5) the design of the aircraft will not be stabilized until
further testing is completed and several important performance and
operational issues, such as payload capability, aerial refueling, and
downwash are resolved; (6) resolution of these issues, which could also
require mission trade-offs or changes to planned operational concepts,
will likely escalate program costs and extend the program schedule; (7)
the April 1997 low-rate initial production (LRIP) decision was based, in
large part, on the results of early operational testing using aircraft
produced under an earlier full-scale development program; (8) however,
those aircraft are not representative of the aircraft currently being
developed during the engineering and manufacturing development phase of
the V-22 program; (9) furthermore, the DOD Director, Operational Test
and Evaluation (DOT&E), has characterized the tests on which the LRIP
decision was based as extremely artificial because of significant test
limitations; and (10) future production decisions for the V-22 should be
based on more realistic testing.

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

 REPORTNUM:  NSIAD-98-13
     TITLE:  Navy Aviation: V-22 Cost and Capability to Meet 
             Requirements Are Yet to Be Determined
      DATE:  10/22/97
   SUBJECT:  Defense capabilities
             Testing
             Aircraft research
             Aircraft components
             Product performance evaluation
             Cost effectiveness analysis
             Military procurement
             Military aircraft
             Military cost control
IDENTIFIER:  Osprey Aircraft
             V-22 Aircraft
             CH-53D Helicopter
             CH-46E Helicopter
             AN/APQ 174 Multi-Function Radar
             AN/AVR-2A Laser-Warning Receiver
             
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Cover
================================================================ COVER


Report to Congressional Committees

October 1997

NAVY AVIATION - V-22 COST AND
CAPABILITY TO MEET REQUIREMENTS
ARE YET TO BE DETERMINED

GAO/NSIAD-98-13

Navy Aviation

(707156)


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

  DOD -
  EMD -
  IOC -
  LRIP -
  ORD -
  SO4COM -
  SOCOM -
  SAR -
  QDR -

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


B-272631

October 22, 1997

Congressional Committees

This report conveys the results of our review of the V-22 Osprey
program.  The program is intended to provide 523 new tilt-rotor
aircraft--425 for the Marine Corps, 50 for the Special Operations
Command (SOCOM), and
48 for the Navy.  Since the program began over 15 years ago, Congress
has continued to provide funding, while expressing concern that the
planned low rate of production is inefficient.  Our objective was to
review the status of the program to identify areas of potential cost
increases or performance challenges and assess whether the aircraft
being developed will meet the stated requirements of each of the
services.  We are addressing the report to the congressional
committees that have jurisdiction over the matters we discuss. 


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

The V-22 Osprey program was approved in 1982.  The V-22 was being
developed to meet joint service operational requirements that would
satisfy various combat missions, including medium-lift assault for
the Marine Corps, search and rescue for the Navy, and special
operations for the Air Force.  The program advanced into full-scale
development in 1986.  In December 1989, the Department of Defense
(DOD) directed the Navy to terminate all V-22 contracts because,
according to DOD, the V-22 was not affordable when compared to
helicopter alternatives.  DOD notified Congress that in order to
satisfy the joint service requirements, the aircraft would require
substantial redesign and testing.  Congress continued to fund the
program and in August 1992, the Acting Secretary of the Navy
testified that a V-22 that met the joint service operational
requirements could not be built with the funds provided.  In October
1992, the Navy terminated the V-22 full-scale development contract
and awarded a contract to begin engineering, manufacturing, and
development (EMD) of a V-22 variant. 

During the FSD phase, five prototype aircraft were built.\1 We have
been monitoring the V-22 program for the past several years.  Our
reports\2

consistently discussed testing and development issues such as weight,
vibration, avionics, flight controls, landing gear, and engine
diagnostic deficiencies. 

The current V-22 program, which entered EMD in 1992, is scheduled to
proceed with developmental testing through 1999.  During the EMD
phase, the contractor is required to build four production
representative aircraft to Marine Corps specifications and deliver
them to Patuxent River Naval Air Station, Maryland, in 1997 for
developmental and operational testing.  Operational testing for the
Marine Corps' V-22 is scheduled to extend into fiscal year 2000. 

After completion of operational testing to determine whether the EMD
aircraft will meet Marine Corps requirements, one of the aircraft
will be remanufactured and tested to determine whether it will meet
SOCOM requirements.  Operational testing for the SOCOM variant is
scheduled to extend through fiscal year 2002. 

In March 1997, one EMD aircraft was delivered to Patuxent Naval Air
Station to begin developmental and operational testing.  Three more
aircraft are under construction and are expected to be delivered by
October 1997.  DOD approved the program to begin low-rate initial
production (LRIP) in April 1997 and will purchase 25 V-22 aircraft in
4 LRIP lots of 5, 5, 7, and 8 through fiscal year 2000. 

Full-rate production is scheduled to begin in fiscal year 2001 and
continue through fiscal year 2018.  Initial operational capability
(IOC)\3 for the V-22 Marine Corps variant is scheduled for 2001 and
in 2005 for the SOCOM version.  IOC for the Navy V-22 aircraft has
not yet been specified. 

Through fiscal year 1997, more than $6.5 billion has been provided
for the program. 


--------------------
\1 Two of these prototype aircraft were destroyed in crashes.  The
cause of the first crash, which occurred in June 1991, was reported
to be incorrect wiring in a flight-control system.  The cause of the
second crash, which occurred in July 1992, was reported to be an
on-board fire due to component failures and design problems in the
engine nacelles. 

\2 Defense Acquisition Programs:  Status of Selected Systems
(GAO/NSIAD-90-30, Dec.  14, 1989); Naval Aviation:  The V-22
Osprey-Progress and Problems (GAO/NSIAD-91-45, Oct.  12, 1990); and
Naval Aviation:  V-22 Development Schedule Extended, Performance
Reduced, and Costs Increased (GAO/NSIAD-94-44, Jan.  13, 1994). 

\3 IOC is the first attainment of the capability to effectively
employ 12 aircraft, operated by an adequately trained, equipped, and
supported military unit. 


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

The V-22 has been in development for almost 15 years.  Although
Congress has provided significant funding and support to DOD, the
system has not yet achieved program stability in terms of cost or
aircraft design.  There are large disparities among the cost
estimates from the program office, the contractors, and the Office of
the Secretary of Defense.  These estimates range from about $40
million to $58 million for each aircraft.  The design of the aircraft
will not be stabilized until further testing is completed and several
important performance and operational issues, such as payload
capability, aerial refueling, and downwash\4

are resolved.  Resolution of these issues, which could also require
mission trade-offs or changes to planned operational concepts, will
likely escalate program costs and extend the program schedule.  The
April 1997 LRIP decision was based, in large part, on the results of
early operational testing using aircraft produced under an earlier
full-scale development program.  However, those aircraft are not
representative of the aircraft currently being developed during the
engineering and manufacturing development phase of the V-22 program. 
Furthermore, the DOD Director, Operational Test and Evaluation, has
characterized the tests on which the LRIP decision was based as
"extremely artificial" because of significant test limitations. 
Future production decisions for the V-22 should be based on more
realistic testing. 


--------------------
\4 The downward force from the V-22 proprotor blades while in a hover
mode. 


   COST ESTIMATES VARY
------------------------------------------------------------ Letter :3

The cost data reported in the December 31, 1996, V-22 Selected
Acquisition Report (SAR) is different from the data in the program
office submission to support the fiscal year 1998-99 President's
Budget.  For example, the SAR indicates that average unit flyaway
costs\5 at program completion would be about $55.4 million, while the
program office estimate for the President's Budget shows that average
unit flyaway cost will be about $57.5 million at program completion. 
Table 1 provides a comparison of the various cost estimates at
different program milestones.  (See app.  I for a more detailed
comparison.)



                                     Table 1
                     
                       Comparison of V-22 Cost Estimates at
                      Various Program Milestones (then-year
                               dollars in millions)

                                            Program office
                                                 data              SAR data
                                          ------------------  ------------------
                                             Average unit        Average unit
                       Units produced        flyaway cost        flyaway cost
                    --------------------  ------------------  ------------------
Milestone     Year    Annual  Cumulative  Annual  Cumulative  Annual  Cumulative
----------  ------  --------  ----------  ------  ----------  ------  ----------
LRIP          1997         5           5  $116.0      $116.0  $112.3      $112.3
 begins
Last year     2000         8          25    76.4        91.3    73.9        88.5
 LRIP
Full-rate
 productio    2001        16          41    73.7        84.5    71.2        81.8
 n/SOCOM
 V-22
 begins
Production    2005        31         158    53.9        65.1    51.8        62.7
 lot 9\a
Navy V-22     2010        26         299    52.2        59.0    50.2        56.8
 begins
Program       2018        30         523    59.3        57.5    57.0        55.4
 completion
--------------------------------------------------------------------------------
\a This lot is included because it contains production unit number
153, the point at which the program is expected to reach the
contractor estimated unit cost of $40.9 million. 

Furthermore, the contractor is estimating that the average unit
flyaway cost, in then-year dollars, for the V-22 will eventually get
down to about $40.9 million.  The contractor estimate is based on the
assumption that the production quantities and cost will stabilize
(commonly referred to as the production learning curve) at about the
time that aircraft number 153 is produced.  Thus, the contractor
estimate of $40.9 million would occur at a point in time in the
program when the program office estimate and the SAR indicate that
the average unit flyaway cost would be about $53.9 million and about
$51.8 million, respectively. 

These widely differing estimates indicate that the V-22 has not
matured to the point that there can be reasonable confidence that the
costs are stable.  This is particularly true because, as discussed
later, the aircraft design is not yet stable and further changes are
expected as the test program continues.  Resolution of performance
and operational issues will likely increase V-22 program costs.  In
that regard, we and other organizations, such as the Congressional
Budget Office and the Institute for Defense Analyses, have performed
reviews of weapon systems over the years that have shown that,
historically, the cost of major weapons programs increases by over 20
percent.\6


--------------------
\5 We used unit flyaway cost estimates for comparison because they
are more standardized and concentrate on those costs directly related
to the production of the aircraft.  This includes the cost of the
basic system equipment, as well as both recurring and nonrecurring
costs associated with the production of a usable end item of military
hardware. 

\6 Weapons Acquisition:  A Rare Opportunity for Lasting Change
(GAO/NSIAD-93-15, Dec.  1992); CBO Papers:  An Analysis of the
Administration's Future Years Defense Program for 1995 Through 1999
(Jan.  1995); and The Effects of Management Initiatives on the Costs
and Schedules of Defense Acquisition Programs, Volume 1:  Main Report
(IDA Paper P-2722, Nov.  1992). 


   UNRESOLVED ISSUES MAY IMPACT
   MULTI-MISSION REQUIREMENTS
------------------------------------------------------------ Letter :4

At this point in the V-22 program, it is questionable whether the
aircraft being produced will be able to meet the multi-mission
requirements outlined in the current Operational Requirements
Document (ORD).  The following are some issues that must be resolved
before a determination can be made as to whether the V-22 will
satisfy the services' stated requirements. 


      EXTERNAL PAYLOAD
---------------------------------------------------------- Letter :4.1

The current Marine Corps medium-lift helicopter fleet, consisting of
CH-46E and CH-53D helicopters, is aging and now has an average age of
24 to 27 or more years.  Navy and Marine Corps documents indicate
that this fleet is deficient in payload, range, and speed.  In
addition, the fleet is incapable of providing the operational
performance needed by the Marine Corps.  And, according to Marine
Corps officials, the medium-lift aircraft inventory is well below
what is required. 

While the V-22 is to replace the Marine Corps' CH-46E and CH-53D
helicopters, its payload capabilities have yet to be demonstrated. 
The ORD stipulates that the V-22 must be able to lift external loads
up to
10,000 pounds.  By comparison, the CH-46E and CH-53D are able to lift
8,000 to 12,000 pounds.  Testing to evaluate the V-22's lift
capability, and to measure structural load/stresses/strains in flight
and the operational capabilities to carry external cargo is planned
to take place in fiscal year 1998.  Moreover, it has yet to be
determined if the high-speed capability of the V-22 will enhance the
Marine Corps' external lift capabilities, since the airborne behavior
of operational equipment such as multi-purpose vehicles, heavy
weapons, and cargo vehicles carried at speeds at or in excess of 200
knots has yet to be tested.  If the V-22 cannot rapidly move
operational equipment, then its utility as an external cargo carrier
to replace current Marine Corps medium-lift assets will have to be
reevaluated. 


      TERRAIN FOLLOWING/TERRAIN
      AVOIDANCE CAPABILITY
---------------------------------------------------------- Letter :4.2

The V-22 ORD requires that, at a minimum, the CV-22 have the
capability to fly at 300 feet using terrain following/terrain
avoidance, in all weather conditions during both daylight and
night-time environments.  Testing done with the FSD prototype V-22
aircraft has shown that the AN/APQ 174 multi-functional radar, which
would provide this capability, interferes with the V-22's radar
jamming system.  Further EMD aircraft testing with the AN/APQ 174
radar system is necessary to resolve this issue.  That testing is not
scheduled to be completed until the middle of fiscal year 2001. 


      REFUELING PROBE
---------------------------------------------------------- Letter :4.3

According to the ORD, the V-22 must have an aerial refueling receiver
capability compatible with current Marine Corps and SOCOM tanker
assets.  SOCOM personnel told us that it was vital for both the pilot
and the co-pilot to be able to see the probe during aerial refueling. 
However, the current V-22 design prevents the pilot in the left seat
of the aircraft from being able to see the refueling probe.  Testing
to date with the full-scale development version of the aircraft shows
that the pilot in the left seat must either raise the seat or lean
forward in the seat to clearly see the refueling probe. 

According to SOCOM officials, being able to readily see the refueling
probe from both pilot seats without the pilot having to make these
physical adjustments is essential to safe flight operations.  From a
mission and training point of view, these officials claim that it is
critical that both pilots be able to see the entire refueling
operation in the event that the pilot in the left seat has to take
over the operation.  While SOCOM pilots perform significantly more
missions requiring refueling, Marine Corps officials told us that
they believe that as long as the pilot in the right seat can clearly
see the probe, the pilot in the left seat could make necessary
adjustments to safely conduct the refueling mission should the need
arise. 

V-22 program officials have agreed that if future testing shows that
the current design of the refueling probe is a problem, necessary
steps will be taken to correct the baseline aircraft.  However, if a
redesign is necessary, it could have an impact on aircraft
performance (weight, range, and speed) or other aircraft systems,
such as the radar. 


      PROPROTOR DOWNWASH
---------------------------------------------------------- Letter :4.4

The downward force from the V-22 proprotor blades while in the hover
mode (referred to as downwash) continues to be an area of concern. 
Downwash is a concern for both the Marine Corps and SOCOM in areas
such as personnel insertions/extractions, external load hookups, fast
rope exercises, and rope ladder operations. 

According to DOD documentation, the extremely intense rotor downwash
under the aircraft makes it a challenge to stand under the aircraft,
let alone perform useful tasks.  According to the DOD Director,
Operational Test and Evaluation report issued in March 1997,
resolution of this issue will require further testing.  Program
officials told us that downwash is a common concern with rotary
aircraft and V-22 users will have to adjust mission tactics while
under the aircraft to compensate for downwash. 


      SURVIVABILITY TRADE-OFFS
---------------------------------------------------------- Letter :4.5

Survivability is a critical concern as the services seek to perform
their missions, particularly in hostile environments.  The V-22 ORD
defines the necessary capabilities that must be available on each
configuration of the aircraft.  However, our review showed that in
order for the aircraft to meet key performance parameters, such as
range, trade-offs are being considered.  Critical subsystems may be
delayed or deleted, while others may require future upgrades or
modifications that may affect the program's cost and schedule. 

One such subsystem is the AN/AVR-2A laser-warning receiver.  By
giving the pilot advance warning, this subsystem would reduce the
susceptibility of the aircraft to laser illumination and attacks. 
The ORD requires that consideration be given to protecting crew and
electro-optical sensors from low- to medium-powered lasers.  While
the Marine Corps V-22 aircraft will have this capability, the SOCOM
V-22 aircraft will only have space and wiring provisions.  Currently,
the SOCOM variant will not have the laser-warning receiver because,
according to SOCOM officials, it would prevent the aircraft from
meeting its range requirements.  In that regard, the V-22 ORD states
that a key performance parameter for the SOCOM variant is the
requirement for a mission radius of 500 nautical miles; that is, the
aircraft must have the ability to fly from a base station out to 500
nautical miles, hover for 5 minutes, and return.  According to SOCOM
officials, the V-22 will not meet this range requirement with the
laser-warning subsystem installed.  SOCOM officials contend that the
lack of the laser warning receiver is a concern relative to
successful mission accomplishment and survivability of aircraft and
crew. 

Another survivability concern is the lack of a defensive weapon on
the V-22.  The requirement document states that the V-22 must have an
air-to-ground and air-to-air weapon system compatible with night
vision devices.  This is a required capability for the Marine Corps
variant and a desired capability for the SOCOM variant.  Originally,
the V-22 was to be equipped with a 50-caliber machine gun; however,
for affordability reasons, it will now be produced without a
defensive weapon system. 

Finally, the ORD requires that the V-22 include a ground collision
avoidance and warning system with voice warning.  Currently, the Navy
claims that this requirement was added to the ORD after the V-22 had
validated its design and, therefore, was not included in the planned
production.  Instead, the system is a potential limitation to the
Marine Corps' V-22 configuration and will be included as a preplanned
product improvement to be evaluated through the course of the test
program.  The Navy intends to correct this deficiency, most likely
through a retrofit process, and pay for it within program baseline
funding. 


   MORE REALISTIC TESTING NEEDED
------------------------------------------------------------ Letter :5

The V-22 program was approved to proceed with LRIP in April 1997. 
One of the primary criterion that the program was required to meet
was the completion of an operational assessment endorsing potential
operational effectiveness and suitability\7 of the V-22's EMD
design.\8 Three series of early operational assessments were used to
support DOD's LRIP decision.  Due to the significant limitations of
these early operational assessments, their reliability as the basis
for deciding to proceed into LRIP is questionable and future
production decisions should be based on more realistic tests. 

The three operational assessments that have been conducted used
aircraft produced under the earlier full-scale development program. 
Previously, DOD had determined these aircraft to be incapable of
meeting V-22 mission requirements and, at one point, the Secretary of
Defense sought to cancel the full-scale development program.  V-22
program officials believe that even though the full-scale development
aircraft did not meet mission requirements, the lessons learned from
having produced them reduced the risk associated with developing the
current EMD aircraft. 

The first of the three early operational assessments was conducted
between May and July 1994; the second assessment between June and
October 1995.  These assessments were conducted jointly by the Navy's
Operational Test and Evaluation and the Air Force's Operational Test
and Evaluation Center.  In both assessments, the joint test teams
concluded that the development aircraft demonstrated the potential to
be operationally effective and suitable.  Although the third
assessment was not completed at the time of the decision to proceed
with LRIP, an interim report was prepared for this milestone.  This
report highlighted limitations and risks remaining from previous
assessments and cited additional areas of concern, but still
projected that the V-22 will be potentially operationally effective
and suitable. 

In March 1997, DOD's Director for Operational Test and Evaluation
issued the Fiscal Year 1996 Annual Report.  In that report, the
Director, Operational Test and Evaluation, concluded that V-22
testing had concentrated on system integration and flight envelop
expansion, but had "not extensively investigated mission applications
of tiltrotor technology and potential operational effectiveness and
suitability of the EMD V-22." The report also highlighted the
following operational test and evaluation limitations relative to the
operational assessments of the V-22.  The aircraft

  -- was not cleared to hover over unprepared landing zones,

  -- could not hook up to or carry any external loads,

  -- could not carry any passengers, and

  -- was not cleared to hover over water. 

The Director, Operational Test and Evaluation report also stated that
the aircraft configuration was not representative of any mission
configuration.  The Director, Operational Test and Evaluation said
this combination of limitations to clearance and configuration
results in an "extremely artificial" test environment for early
operational test and evaluation.  The Director, Operational Test and
Evaluation also reported serious concerns regarding the effects of
downwash previously mentioned in this report and recommended further
evaluation in this area. 

The initial flight of the first of four EMD aircraft, originally
scheduled for December 1996, was delayed until February 1997.  As a
result, the required ferry to Patuxent River was delayed until March
1997.  The aircraft arrived at the test facility needing several
changes before the test program could continue as planned.  In order
to meet the ferry date and thus obtain approval to proceed with LRIP,
component changes and modifications were not completed at the
contractor's facility.  Instead, they were to be completed at
Patuxent River after the required ferry flight.  During a visit to
the Naval Air Station test facilities in April 1997, we observed the
aircraft undergoing modifications by contractor personnel.  According
to test officials with whom we spoke, the modifications were
originally only expected to take about 2 weeks.  However, as of June
16, 1997, the modifications were still ongoing, nearly 2 months after
they began. 

The next major milestone decision for the V-22 is the LRIP lot 2
production decision.  That decision is scheduled for early 1998 and
will represent DOD's approval to procure the next five V-22 aircraft. 
The criteria that must be met for LRIP lot 2 approval are: 

  -- delivery of two additional EMD aircraft and

  -- completion of certain static tests to determine the structural
     strength of the aircraft. 


--------------------
\7 Operational effectiveness is the degree to which a system can
accomplish its missions when used as expected.  Operational
suitability is the degree to which the system can be placed
satisfactorily in field use, considering such things as availability,
reliability, and safety. 

\8 Additional criteria, which were met, were (1) empty weight would
not exceed 34,182 pounds, (2) complete ferry to Patuxent River Naval
Air Station, and (3) demonstrate airspeed of 220 knots. 


   IMPACT OF ACCELERATED
   PRODUCTION ON SCHEDULE AND
   TESTING
------------------------------------------------------------ Letter :6

Congressional committees have expressed concern that the planned V-22
production schedule (4 LRIP lots of 5, 5, 7, and 8 aircraft with
eventual full-rate production of as many as 31 aircraft per year
through 2018) is inefficient.\9

(See app.  I for complete V-22 program schedule and cost estimates.)

In August 1996, the contractors submitted an unsolicited cost
estimate to the Under Secretary of Defense for Acquisition and
Technology that suggested that accelerated production rates, combined
with a multi-year procurement strategy, could result in savings of
nearly 25 percent over the life of the V-22 program.  The contractor
proposed accelerating the production schedule to a rate of 24
aircraft by fiscal year 1999, instead of the 7 aircraft currently
planned in fiscal year 1999.  DOD responded that while this strategy
had the potential for significant savings, it was inappropriate to
consider such an alternative until the aircraft design was more
stable.  DOD indicated that to do otherwise would unnecessarily
increase technical risk to the program.  In addition, DOD stated that
such an increase in annual procurement quantities would not be
affordable within the overall defense budget.  Further, the May 1997
Quadrennial Defense Review recommended lowering the number of V-22
aircraft to be procured from 523 to 458 and increasing the planned
production rate after the program enters full-rate production.  The
recommendation retains the limited LRIP rates currently planned by
DOD. 

According to V-22 program test personnel, accelerating the production
schedule and increasing the rate would add risk to the program in the
event the test program finds problems that require a significant
amount of time and resources to fix, and result in a larger number of
aircraft to retrofit or modify.  These views are consistent with the
conclusions in our February 13, 1997, report that described the
effects of increased production during LRIP of 28 weapon systems and
the cost and schedule impact to these programs.\10 This report showed
that when DOD inappropriately placed priority on funding production
of unnecessary quantities during LRIP, the result was a large number
of untested weapons that subsequently had to be modified.  Moreover,
it points out that because of overall budgetary constraints,
decisions to buy unnecessary quantities of unproven systems under
LRIP forced DOD to lower the annual full production rates of proven
weapons thereby stretching out full-rate production for years and
increasing unit production costs by billions of dollars. 


--------------------
\9 H.R.  Rep.  No.  104-563, at 48 (1996) and S.  Rep.  No.  104-267,
at 59 (1996) on the National Defense Authorization Act for Fiscal
Year 1997. 

\10 Weapons Acquisition:  Better Use of Limited DOD Acquisition
Funding Would Reduce Costs (GAO/NSIAD-97-23, Feb.  13, 1997). 


   CONCLUSIONS AND RECOMMENDATIONS
------------------------------------------------------------ Letter :7

There is no consensus on the acquisition strategy for acquiring the
V-22 Osprey.  Congress has been attempting to increase the annual
production rates to achieve more efficient production and DOD has
been attempting to keep the annual production rates at a more limited
quantity.  The key to efficient production and the efficient use of
the funds Congress has provided for the V-22 is program stability. 
However, after 15 years of development effort, the V-22 design has
not been stabilized.  To begin the process of achieving consensus on
the acquisition strategy for the V-22, we believe that DOD needs to
present Congress with a strategy for overcoming the production
inefficiencies that Congress views as present in the current
acquisition strategy.  As part of that strategy, we believe that DOD
needs to introduce more realistic testing into the program to achieve
aircraft design stability.  Ideally, this testing should be done as
early as possible in the program schedule and should be directed at
ensuring that the required capabilities of the V-22 are adequately
demonstrated before a significant number of aircraft are procured. 
In that regard, the next scheduled major program milestone is the
LRIP lot 2 production decision scheduled for early 1998. 

Accordingly, we recommend that the Secretary of Defense provide in
the Department's next request for V-22 funds an explanation of how it
plans to (1) introduce more realistic testing earlier into the V-22
program schedule and (2) achieve the production efficiencies desired
by Congress.  An agreement between Congress and DOD in this regard
would be a significant step toward reaching consensus on the
acquisition strategy for the V-22 program. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

DOD reviewed and partially concurred with a draft of this report.  In
its comments, DOD agreed to continually assess and correct
operational deficiencies found during V-22 testing.  However, DOD did
not concur with our recommendation to provide Congress an explanation
of how it plans to introduce more realistic testing earlier into the
V-22 program schedule and achieve production efficiencies.  DOD
stated that it considers test results, production efficiencies, and
other factors in developing its budget and does not consider
additional explanatory materials necessary.  DOD also stated that the
Defense Acquisition Board, in April 1997, determined that the V-22
test program was adequate and properly sequenced. 

We continue to believe that the V-22 test program and the criteria
for proceeding with the low-rate production program should be made
more realistic.  Given the artificial nature of the prior operational
testing that was used to justify LRIP lot 1 production and the fact
that earlier tests were conducted using nonproduction representative
aircraft developed under the earlier V-22 full-scale development
program, we believe that DOD should expand the LRIP lot 2 criteria to
introduce more realistic testing into the program, using aircraft
produced under the EMD phase of the program.  We believe that at a
minimum, the limitations of the prior tests, which were disclosed by
the Director, Operational Test and Evaluation in its March 1997
report, should be addressed before a decision is made to proceed into
the next LRIP lot.  This would allow the test program to validate the
projected capabilities of the EMD-configured aircraft without
injecting unnecessary risk into the program. 

DOD also emphasized in its comments on our draft report that the
Quadrennial Defense Review (QDR) resulted in an accelerated
production profile that addresses many of the production efficiencies
desired by Congress.  The QDR recommends an overall reduction in
aircraft for the Marine Corps, from 425 aircraft to 360 with an
increase in the rate of production during the full production phase
of the program.  The four low-rate production lots of 4, 5, 7, and 8
aircraft planned during the period 1997-2000 are retained.  It is
during this LRIP phase of the program that we believe more realistic
testing is needed and should be included as criteria for procuring
the next EMD LRIP lots.  Therefore, we believe our position is
consistent with the intent of the QDR recommendation, which would not
take effect until the full-rate production phase of the V-22 program. 

DOD's comments and our evaluation of them are presented in their
entirety in appendix II. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

We reviewed the status of the V-22 aircraft development and readiness
of the program to proceed into production.  We reviewed and analyzed
test plans and reports, including the Test and Evaluation Master Plan
and results of three V-22 Operational Assessments; cost and budget
estimates, including the SAR and President's Budget Estimates for
fiscal years 1997-99; and other program documentation, including the
ORD and the EMD and LRIP contracts.  We also obtained information on
Marine Corps medium-lift requirements and capabilities of existing
assets.  In addition, we met with officials in the office of the
Secretary of Defense and conducted interviews with program officials
from the following locations: 

  -- U.S.  Navy Headquarters, Washington, D.C.;

  -- U.S.  Marine Headquarters, Arlington, Virginia;

  -- Office of the Chief of Naval Operations, Washington, D.C.;

  -- U.S.  Special Operations Command, Tampa, Florida;

  -- V-22 Program Office, Crystal City, Virginia; and

  -- Naval Air Warfare Station, Patuxent River, Maryland. 

Finally, we visited contractor facilities at Boeing Defense and Space
Group- Helicopters Division, Philadelphia, Pennsylvania, and Bell
Helicopter Textron, Fort Worth, Texas. 

We performed our review from March 1996 through June 1997 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Secretary of the Navy;
the Secretary of the Air Force; the Commandant of the Marine Corps;
and the Director, Office of Management and Budget.  We will also make
copies available to others on request. 

Please contact me at (202) 512-4841 if you or your staff have any
questions concerning this report.  Major contributors to this report
were
Steven F.  Kuhta, Assistant Director; Samuel N.  Cox,
Evaluator-in-Charge; and Brian Mullins, Senior Evaluator. 

Louis J.  Rodrigues
Director, Defense Acquisitions Issues

List of Congressional Committees

The Honorable Strom Thurmond
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ronald V.  Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C.  W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives


V-22 PROCUREMENT SCHEDULE AND COST
ESTIMATE
=========================================================== Appendix I

                   ((Then-year dollars in millions))

                              Program office      Selected acquisition
                                 estimate                report
                          ----------------------  --------------------
                             Program        Unit     Program      Unit
                    Unit     flyaway     flyaway     flyaway   flyaway
Fiscal year            s        cost        cost        cost      cost
------------------  ----  ----------  ----------  ----------  --------
1997                   5      $579.9      $116.0      $561.3    $112.3
1998                   5       494.8        99.0       480.7      96.1
1999                   7       597.6        85.4       579.0      82.7
2000                   8       611.0        76.4       591.3      73.9
2001                  16     1,179.5        73.7     1,139.9      71.2
2002                  24     1,617.2        67.4     1,559.3      65.0
2003                  31     1,810.1        58.4     1,738.4      56.1
2004                  31     1,720.4        55.5     1,652.5      53.3
2005                  31     1,671.8        53.9     1,606.8      51.8
2006                  31     1,642.7        53.0     1,578.8      50.9
2007                  31     1,629.6        52.6     1,566.2      50.5
2008                  29     1,499.9        51.7     1,442.0      49.7
2009                  24     1,239.2        51.6     1,192.0      49.7
2010                  26     1,356.5        52.2      1304.9      50.2
2011                  26     1,371.2        52.7     1,318.9      50.7
2012                  27     1,440.7        53.4     1,385.9      51.3
2013                  27     1,463.4        54.2     1,407.6      52.1
2014                  27     1,478.9        54.8     1,422.4      52.7
2015                  27     1,500.2        55.6     1,443.2      53.5
2016                  30     1,690.3        56.3     1,626.2      54.2
2017                  30     1,715.0        57.2     1,649.9      55.0
2018                  30     1,778.4        59.3     1,710.8      57.0
======================================================================
Total                523   $30,088.3       $57.5   $28,958.0     $55.4
----------------------------------------------------------------------



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



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's (DOD)
letter dated August 27, 1997. 


   GAO COMMENTS
--------------------------------------------------------- Appendix I:1

1.  We recalculated the cost data obtained from the V-22 Selected
Acquisition Report, using DOD inflation indices, to reflect then-year
dollars for comparison to program office budget estimates.  The
recalculated cost data are reflected in the final report. 

2.  We agree that the Operational Requirements Document (ORD)
validated by the Joint Requirements Oversight Council in June 1995
does not specify an airspeed requirement for carrying external loads. 
However, the V-22 program was justified on the basis that it would
overcome the shortcomings of the Marine Corps' current medium-lift
helicopters.  In that regard, the ORD is specific in identifying
inadequate payload, range, speed and survivability in the current
medium-lift force that severely limit the Marine Corps' ability to
accomplish the assault support missions in current and future threat
environments. 

We also agree that the ORD does not identify the specific equipment
that the V-22 must have to protect the aircraft and crew from laser
threats.  However, the ORD does require that the aircraft be designed
for operations in a hostile environment with features that increase
aircraft, crew, and passenger survivability.  Specifically, it
requires that consideration be given to protecting crew and
electro-optical sensors from low- to medium-powered lasers.  While
the MV-22 will be equipped with an AN/AVR-2A laser-warning receiver,
the CV-22 will not be so equipped.  Instead, the aircraft will be
produced with available space and wiring for installation of laser
protection capabilities. 

3.  We note that the approved CV-22 exit criteria is as follows: 

  -- For lot 1 advanced procurement funding, flight testing of the
     first of two CV-22 flight test aircraft must have started. 

  -- For lot 1 full funding and advanced procurement for lot 2,
     flight testing with the second CV-22 aircraft must have started
     and the terrain following/terrain avoidance testing must have
     started using the first CV-22 aircraft. 

We question the value of "flight test started" as sufficient criteria
for making an informed decision to proceed with production of the
CV-22 model aircraft. 

4.  This comment is consistent with the discussion in the report. 


*** End of document. ***




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