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Military Airlift: Observations on the Civil Reserve Air Fleet Program (Letter Report, 03/29/96, GAO/NSIAD-96-125).

Pursuant to a congressional request, GAO reviewed the Civil Reserve Air
Fleet (CRAF) program, focusing on: (1) the extent to which commercial
carriers' CRAF participation meets wartime requirements; (2) Department
of Defense (DOD) efforts to ensure future carrier participation; and (3)
the C-17 Defense Acquisition Board's (DAB) review of the CRAF program.

GAO found that: (1) commercial carriers have committed 19 of the 44
aircraft needed for aeromedical evacuation, 114 of the 120 wide-body
equivalent aircraft needed for cargo airlift, and 161 of 136 aircraft
needed for passenger airlift; (2) the cargo aircraft shortage has not
yet affected DOD ability to quickly deploy troops and equipment, but the
Air Mobility Command (AMC) may have difficulties in evacuating
casualties; (3) AMC is evaluating evacuation needs and contractors'
proposals to resolve problems with aeromedical evacuation conversion
kits; (4) AMC is considering using DC-10 aircraft in addition to B-767
aircraft for aeromedical evacuation, but the conversion kits would have
to be modified; (5) carriers are considering reducing their
participation unless the CRAF program is changed; (6) to sustain carrier
participation, DOD and the General Services Administration require
carriers to participate in the CRAF program if they want government
passenger or cargo business, and AMC is considering additional
incentives and requirements; (7) AMC and the Federal Aviation
Administration have modified the Aviation War Risk Insurance Program to
address carriers' concerns about their insurance coverage, and DOD is
seeking legislation to allow it to pay claims from any unobligated
funds; and (8) the C-17 DAB directed DOD to study ways to stabilize
carrier participation and increase commitment of freighter aircraft, but
all of the proposed strategies would be difficult to implement.

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

 REPORTNUM:  NSIAD-96-125
     TITLE:  Military Airlift: Observations on the Civil Reserve Air 
             Fleet Program
      DATE:  03/29/96
   SUBJECT:  Commercial aviation
             Military airlift operations
             Combat readiness
             Emergency medical services
             Airline industry
             Transportation contracts
             Defense contingency planning
             Airlift services
             Strategic mobility forces
IDENTIFIER:  Desert Shield
             Desert Storm
             C-17 Aircraft
             Boeing 747-400 Aircraft
             Boeing 767 Aircraft
             DC-10 Aircraft
             FAA Aviation War Risk Insurance Program
             Air Force Civil Reserve Air Fleet Program
             
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Cover
================================================================ COVER


Report to the Chairman and Ranking Minority Member, Subcommittee on
Seapower, Committee on Armed Services, U.S.  Senate

March 1996

MILITARY AIRLIFT - OBSERVATIONS ON
THE CIVIL RESERVE AIR FLEET
PROGRAM

GAO/NSIAD-96-125

Military Airlift

(703118)


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

  AMC - Air Mobility Command
  CRAF - Civil Air Reserve Fleet
  DAB - Defense Acquisition Board
  DOD - Department of Defense
  GSA - General Services Administration

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


B-271418

March 29, 1996

The Honorable William S.  Cohen
Chairman
The Honorable Edward M.  Kennedy
Ranking Minority Member
Subcommittee on Seapower
Committee on Armed Services
United States Senate

This report responds to your request that we provide information on
the Civil Reserve Air Fleet (CRAF) program, which augments military
airlift during emergencies.\1 According to Air Mobility Command (AMC)
documents, CRAF aircraft performed a vital role in Operations Desert
Shield/Storm by providing 62 percent of the Air Force's passenger
airlift capability and 27 percent of its cargo airlift capability. 
In this report, we discuss (1) the extent that participation by
commercial carriers in the CRAF program meets wartime requirements,
(2) the Department of Defense's (DOD) efforts to ensure future
carrier participation, and (3) the recent review of the CRAF program
that was directed by the C-17 Defense Acquisition Board (DAB). 


--------------------
\1 We last reported on the program in Military Airlift:  Changes
Underway to Ensure Continued Success of Civil Reserve Air Fleet
(GAO/NSIAD-93-12, Dec.  31, 1992). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The extent of carrier participation varies in different segments of
the CRAF program. 

  Commercial carriers have committed only 19 of the 44 aircraft
     required for aeromedical evacuation.  As a result, AMC could
     have difficulties evacuating casualties from an overseas
     contingency operation. 

  Carriers have committed 114 of the 120 wide-body equivalent
     aircraft required for cargo airlift.  However, this shortage of
     aircraft has not affected DOD's ability to quickly deploy troops
     and equipment. 

  Participation in passenger airlift exceeds requirements--a
     commitment of 161 wide-body equivalent aircraft to meet a
     requirement of 136. 

To encourage continued carrier participation, AMC has proposed making
the award of additional DOD and other government airlift business
contingent on some form of commitment to the CRAF program. 
Additionally, AMC is addressing carriers' concerns about war risk
insurance coverage. 

The recent C-17 DAB decision, recognizing the importance of the CRAF
program, directed that DOD study ways to stabilize carrier
participation and increase commitment of B-747-400 freighter
aircraft.  The final results are not due until June 1, 1996. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The CRAF program is managed by AMC, a component of the U.S. 
Transportation Command, located at Scott Air Force Base, Illinois. 
Established in 1952, the CRAF program was designed to provide DOD
with access to commercial aircraft to augment military airlift during
emergencies.  CRAF is composed of civil air carriers that voluntarily
commit cargo and passenger aircraft to support airlift requirements
that exceed the capabilities of Air Force-owned aircraft. 

The rewards for CRAF participation--shares of DOD's peacetime
business with cargo and passenger aircraft services--are detailed in
contracts with each carrier.  Excluding the amounts paid for
Operations Desert Shield/Storm airlift, the amount of annual
international contracts to the carriers has averaged about $536
million from fiscal years 1989 through 1996. 

The carriers pledge aircraft at one or more of three stages.  Stage
I-- committed expansion--was activated for the first time on August
17, 1990, during Operations Desert Shield/Storm.  Stage II--defense
airlift emergency--was subsequently activated on January 17, 1991.
Stage III--national emergency--has never been activated. 

A major benefit of the CRAF program is that it provides up to half of
the nation's strategic airlift capability without the government
having to purchase additional aircraft, pay personnel costs, or fly
and maintain the aircraft during peacetime.  According to a recent
RAND study, replacing the CRAF capability with military aircraft
would have cost DOD about $1 billion to $3 billion annually over the
past 30 years.\2


--------------------
\2 Finding the Right Mix of Military and Civil Airlift, Issues and
Implications, RAND (1994). 


   CRAF CARRIER PARTICIPATION
------------------------------------------------------------ Letter :3

AMC currently has a major shortage of aircraft committed to
aeromedical evacuation and a minor shortage of wide-body equivalents
for cargo airlift.  However, the aeromedical evacuation requirement
is being reassessed.  Carrier participation in passenger airlift
exceeds current requirements. 


      AEROMEDICAL EVACUATION
      SHORTAGE
---------------------------------------------------------- Letter :3.1

As of January 31, 1996, commercial carriers had committed only 19
B-767s for aeromedical evacuation, and only 4 of the 19 aircraft were
ready for activation.  Because of this shortage, AMC could have
difficulty evacuating medical casualties.  DOD currently requires 44
B-767 aircraft for aeromedical evacuation.  However, according to AMC
officials, an ongoing joint U.S.  Transportation Command-AMC study
suggests that this requirement could be lowered significantly. 

Additionally, a problem exists with the modified cargo door on 15 of
the committed B-767s.  The kits used to convert the passenger
aircraft to an evacuation aircraft need modification.  As a result of
changes made by aircraft manufacturers to enlarge cargo doors on
these aircraft, parts of the aeromedical evacuation kits sit
unsupported in front of the cargo door, making the system unusable. 
AMC is evaluating contractor proposals to resolve the problem and
hopes to have it corrected later this year. 

To help alleviate the aircraft shortage, AMC is considering using the
DC-10 aircraft as well as the newer B-767 aircraft, which carriers
are more reluctant to commit to the program.  But first the
aeromedical evacuation kits will have to be modified.  AMC officials
expect a feasibility study on using the DC-10s to be completed in
early spring 1996.  According to AMC officials, a reduced requirement
could negate the need for the DC-10 aircraft.  In addition, they said
AMC is looking at using more military aircraft to help fill the
requirement. 


      CARGO AIRCRAFT SHORTAGE
---------------------------------------------------------- Letter :3.2

The CRAF program is just below its requirement for aircraft to fly
long-range international cargo.\3 Commercial carriers have committed
114 of the 120 required wide-body equivalent aircraft to the CRAF
program.  However, the current commitment is above the 17.5-million
ton miles/day of capability (or 101 wide-body equivalent aircraft)
AMC depends on getting from the CRAF program.  Although DOD's cargo
deployment capability is currently sufficient, if the shortage
worsens, this capability could be threatened. 


--------------------
\3 These aircraft support AMC's global operations, such as Operations
Desert Shield/Storm, and are required to be capable of extended
overwater operations. 


      PASSENGER AIRCRAFT EXCEED
      REQUIREMENTS
---------------------------------------------------------- Letter :3.3

Commercial carrier participation in the CRAF long-range international
passenger component is well above the recently revised requirement. 
The current CRAF commitment for passenger aircraft is 161 wide-body
equivalents.  In 1995, the requirement was reduced from 210 to
136 wide-body equivalents based on a reassessment of wartime
requirements. 


   FUTURE CARRIER PARTICIPATION
------------------------------------------------------------ Letter :4

Although commercial carriers responded promptly to the activation and
played a key role in Operations Desert Shield/Storm, they raised a
number of concerns about the CRAF program.  According to all the
carriers we interviewed, they were considering reducing future
aircraft commitments unless AMC changed the CRAF program.  AMC's
ability to maintain current and future levels of CRAF participation
depends primarily on whether it can maintain adequate incentives for
the carriers and resolve differences concerning war risk insurance
coverage. 


      INCENTIVES TO INCREASE
      CARRIER PARTICIPATION
---------------------------------------------------------- Letter :4.1

To maintain carrier participation, DOD and the General Services
Administration (GSA) are now requiring that commercial carriers
wishing to participate in passenger business through GSA be members
of the CRAF program.  Once in CRAF, carriers are required to commit
30 percent of their passenger fleet or 15 percent of their cargo
fleet to the program.  AMC is also considering additional incentives
and/or requirements, such as

  allowing carriers to bid for contracts to transport small packages
     if they commit more than the minimum number of aircraft required
     for the CRAF program;

  allowing carriers to use military bases for commercial operations
     if they meet or increase the minimum number of aircraft
     committed to the program; and

  working with other federal agencies, such as the Federal Emergency
     Management Agency or the Departments of Transportation and
     State, to require that carriers wishing to do business with
     those agencies be enrolled in the CRAF program. 


      WAR RISK INSURANCE
---------------------------------------------------------- Letter :4.2

Normal commercial insurance policies generally exclude coverage for
air carriers operating in war zones or during CRAF activation
periods.  Thus, commercial carriers flying during an activation must
generally rely on supplemental insurance programs provided by the
government for carrier hull and liability claims.  The Aviation War
Risk Insurance Program, administered by the Federal Aviation
Administration under
49 U.S.C.  44302-03, provides this insurance.  The program generally
covers losses due to war, capture, seizure, nuclear detonation,
hijacking, strikes, and vandalism. 

During Operations Desert Shield/Storm, carriers had problems with the
types of coverage provided under the Aviation War Risk Insurance
Program.  AMC, in conjunction with the Federal Aviation
Administration, has substantially modified the insurance program to
address many of these problems. 

Although the government would eventually reimburse carriers for
aircraft losses during a CRAF activation, carriers are still
concerned that insufficient funds are available for the timely
settlement of insurance claims.  The Aviation War Risk Insurance
Program currently has about $60 million available to it.  According
to U.S.  Transportation Command officials, this fund is less than
half the amount needed to cover the loss of a commercial aircraft
valued at over $150 million and substantially less than the estimated
$1 billion in associated liabilities.  According to DOD officials, to
resolve this problem, DOD has proposed legislation allowing the
Secretary of Defense to tap unobligated funds from any source to
promptly pay carrier liability claims. 


   C-17 DAB STUDY
------------------------------------------------------------ Letter :5

The C-17 DAB directed the Air Force to study (1) the use of long-term
contracts to stabilize CRAF commitment and (2) ways to encourage
carriers to purchase more militarily capable aircraft, such as the
enhanced version of the B-747-400 freighter aircraft.  (The enhanced
B-747-400 is the commercial alternative to the C-17.)

The DAB-directed study results are due on June 1, 1996.  According to
the study plan, AMC will evaluate alternative contracting strategies
and the potential for long-term contracts to increase CRAF
commitments.  However, according to AMC officials, several factors
make multiyear contracts difficult to use for the CRAF program. 
First, some carriers are unwilling to assume the increased activation
risk that is inherent in longer- term contracts.  Second, AMC's
customers find it difficult to accurately predict the amount of
commercial business they will receive during the next fiscal year
with any accuracy.  Third, CRAF is now tied to other programs awarded
on an annual basis, such as the transporting of passengers through
GSA. 

The study will also assess the incentives needed for carriers to
acquire and commit B-747-400 freighter aircraft to the CRAF program. 
However, a number of carrier representatives that we interviewed said
it would be difficult, if not impossible, to provide enough
incentives to encourage them to purchase B-747-400s.  The
capabilities of these aircraft exceed the carriers' normal commercial
requirements, and government business is not large enough for them to
buy aircraft that do not fit well with their commercial operations. 
According to a representative of one major air carrier, for example,
AMC contract revenue provided less than 1 percent of his company's
fiscal year 1995 revenue. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

We performed our audit work primarily at the U.S.  Transportation
Command and AMC at Scott Air Force Base, Illinois.  We also contacted
representatives of seven CRAF air carriers, representing all major
CRAF segments and 42 percent of total aircraft committed to the CRAF
program, to solicit their views on the program. 

We obtained written comments of a draft of this report from the
Transportation Command and AMC and discussed the information
presented in this report with the responsible program official from
DOD's Office of the Secretary of Defense.  These officials generally
concurred with our observations, and their comments have been
incorporated in the report where appropriate.  We conducted our
review between October 1995 and February 1996 in accordance with
generally accepted government auditing standards. 


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

We are sending copies of this report to the Secretaries of Defense
and the Air Force and other interested congressional committees. 
Copies will be made available to others upon request. 

Please contact me at (202) 512-3961 if you or your staff have any
questions concerning this report.  Major contributors to this report
were Elliott C.  Smith, Gregory J.  Symons, Claudia J.  Saul-Dickey,
and Karen Rieger. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues


*** End of document. ***