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[H.A.S.C. No. 106–25]









OCTOBER 7, 1999

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HERBERT H. BATEMAN, Virginia, Chairman
WALTER B. JONES, Jr., North Carolina
BOB RILEY, Alabama
CURT WELDON, Pennsylvania

JOHN M. SPRATT, Jr., South Carolina
ADAM SMITH, Washington
JAMES H. MALONEY, Connecticut
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MIKE McINTYRE, North Carolina

Joseph F. Boessen, Professional Staff Member
Diane W. Bowman, Staff Assistant



    Thursday, October 7, 1999, Spare and Repair Parts Shortages

    Thursday, October 7, 1999



    Bateman, Hon. Herbert H., a Representative from Virginia, Chairman, Military Readiness Subcommittee

    Ortiz, Hon. Solomon P., a Representative from Texas, Ranking Member, Military Readiness Subcommittee
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    Amerault, Vice Adm. James, Deputy Chief of Naval Operations (Logistics)

    Babbitt, Gen. George T., Commander, Air Force Materiel Command, U.S. Air Force

    Coburn, Gen. John G., Commander, Army Materiel Command

    Lynn, William J., III, Under Secretary of Defense (Comptroller and Chief Financial Officer)

    McKissock, Maj. Gen. Gary S., Deputy Chief of Staff, Installations and Logistics, Headquarters, U.S. Marine Corps

    Stone, Rear Adm. Daniel H., Commander, Defense Logistics Support Command, Defense Logistics Agency


[The Prepared Statements can be viewed in the hard copy.]

Amerault, Vice Adm. James
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Babbitt, Gen. George T.

Coburn, Gen. John G.

McKissock, Maj. Gen. Gary S.

Stone, Rear Adm. Daniel H.

[There were no Documents submitted for the Record.]

[The Questions and Answers can be viewed in the hard copy.]
Mr. Bateman

Mr. Jones


House of Representatives,
Committee on Armed Services,
Military Readiness Subcommittee,
Washington, DC, Thursday, October 7, 1999.

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    The subcommittee met, pursuant to call, at 9:00 a.m. in room 2212, Rayburn House Office Building, Hon. Herbert Bateman (chairman of the subcommittee) presiding.


    Mr. BATEMAN. The subcommittee will come to order. We will commence our hearing this morning. I would like to welcome everyone here to this hearing by the Subcommittee on Military Readiness of the House Armed Services Committee. My intention in having this hearing is to help members of the subcommittee understand the causes of and any proposed remedies for what seems to be a chronic shortages of spares and repair parts in the military services.

    I must say that I am personally frustrated that after the numerous efforts by this committee and the Congress over the past five years to provide extra money to the military to fix this problem, commanders in the field still cannot get the parts necessary to fix their aircraft, vehicles, and supporting equipment.

    A recent General Accounting Office report shows that a survey of 1,000 active duty troops in retention critical specialties revealed that many of the respondents to the survey are dissatisfied and intend to leave the service. Under the reasons given for this dissatisfaction was their quality of life due to the unavailability of parts and operational equipment, which was listed number one and two, respectively, among enlisted and officer respondents.
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    Recently, while visiting with an Air Force wing commander, I was disappointed to learn of the lack of availability of critically needed spare and repair parts. It was pointed out that the results of these parts shortages were numerous aircraft that were inoperable, with some sitting on the flight line with holes where there should be engines. When pressed, the commander could not tell me when he could expect to get the parts necessary to fix the aircraft.

    Although this subcommittee has worked very hard since I became chairman to solve this parts shortage problem, more emphasis in this area is needed. This hearing is intended to help us focus on the causes of the shortages so we can take steps to fix this problem once and for all.

    We want to better understand the process by which money is allocated to the logistical community to purchase spares and repair parts. This committee has provided an additional $2.8 billion above the budget requests to depot maintenance between fiscal years 1994 and 1999, funding that purchases and/or produces repair parts. In addition, Congress provided $155 million above the budget request in fiscal year 1999 for additional repair parts. On top of all that, Congress provided an additional $1.1 billion for spares and repair parts in the fiscal year 1999 Kosovo emergency supplemental appropriations; and yet after all this increased attention to this problem, parts are still not available and operational commanders tell me there is no relief in sight.

    In field hearings the past several years at installations throughout the United States and overseas, we continue to hear about the shortage of maintenance personnel, especially first line supervisors. In trying to understand this problem, we have found that maintenance personnel are spending much of their time cannibalizing equipment and vehicles for spare parts. A General Accounting Office April 1999 report points out that ''Air Combat Command and the Air Mobility Command records showed that from October 1, 1996 through September 1998, maintenance personnel spent about 178,000 hours removing inventory items on the B–1B, F–16 and C–5 aircraft to replace broken items on other planes. This equates to about 434 people working eight hours a day, five days a week for two years.''.
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    The report goes on to say that, quote, ''it took maintenance personnel weeks and in some cases months to put an aircraft back together once parts were removed from the aircraft.''.

    This parts cannibalization work increases the workload of an already understaffed maintenance workforce. The requirement to take parts from designated inoperable aircraft and vehicles to ensure units can meet the minimum operational needs of the day creates frustration and disillusionment among the maintenance crews and ultimately often leads to a reluctance to reenlist. Our highly trained and motivated military personnel cannot understand the problem with the lack of spare parts and frankly neither can I.

    I would hope that today's hearing will provide the members of the committee with a good understanding of the funding process for spares and repair parts. I am told by the services that money has been withheld from the services at the Department of Defense level. I want to understand the reasons for this withholding and what impact it has on the services' ability to manage their requirements for parts.

    I am also anxious to hear how the services forecast their parts needs and what flexibility they have to buy and distribute their parts. Indications are that there is some excess parts inventory being maintained by service supply centers at all levels. I want to understand the magnitude of the excess problem, but I am even more interested in understanding why there remains numerous shortages and critical spares and repair parts. This too much of unneeded parts and too few needed parts creates frustration in the operational units and are the reasons for units reporting lower readiness ratings.
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    For the past four years, Congress has been adding money to the defense budget only to read in the press that it is for pork that the military did not ask for. I submit to you that if we had not added over $6 billion to the military readiness budget during the past few years, the state of readiness and the lack of resources available to obtain and maintain would be even worse than it is. It is my intention to continue to address this problem. It may be there are other problems in this area that increased funding alone will not remedy.

    We are very fortunate today to have a panel of witnesses consisting of senior civilian and military leaders representing the Department of Defense and the four military services who work these problems on a regular basis. We hope the package can give us insight into the challenges they face and some ideas about how we can all work toward fixing the problems. We look forward to their testimony.

    Before we get into proceeding further, I would like to yield to my good friend from Texas, the Ranking Democratic member of the subcommittee, the Honorable Solomon Ortiz, for any comments he may wish to make.

    Mr. Ortiz.


    Mr. ORTIZ. Thank you, Mr. Chairman. I take great pleasure in joining you in welcoming our witnesses to this hearing today. I want to assure the witnesses and members of the Readiness Subcommittee recognize that we are addressing a very important part of the readiness equation and not just the near term readiness but also our long-term readiness. It is part of the heart and soul of our ability to maintain the equipment at the unit level and provide the required sustained logistics support to the forces.
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    It isn't just talking about support for the two major regional conflict (MRC) strategy; use of equipment and training or in providing disaster relief or in support of humanitarian activities all increase maintenance requirements. If the equipment is not properly maintained, training as well as the other important activities, my friends, cannot take place.

    It also has direct impact on the ability for our public depots to perform their mission. You cannot have efficient and cost competitive public depots with a chronic repair parts shortage.

    A few days ago I was again reminded that the availability of repair parts has very long arms and plays heavily in retaining a quality force. In the recently released GAO report on a survey of personnel dissatisfactions, those things that detract from satisfaction and retention, shortage of repair parts and materials were high on the list of items cited by both officer and enlisted personnel.

    It is not clear to me just what is the character and extent of the repair parts problem. I am repeatedly told by the services that there is no problem, that there might be isolated shortages of some items, and the resupply of repair and spare parts are within the expected norm. At the same time, when we visit units, we hear horror stories about uncontrolled cannibalization and equipment that is deadlined because repair parts are not available. Unit supply maintenance personnel tell us that the spare parts bins are more often empty than filled.

    I understand the requisition process and the just in time resupply concept, but I also remember from my time in the service that you cannot repair equipment with a requisition slip if you do not have the needed repair parts in hand. You simply cannot perform the maintenance. That means having the right parts at the right place at the right time and in the quantity needed.
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    If you join me in a visit to the depot in my district, I assure you that we would hear stories about equipment that cannot be repaired because there are no repair parts available as well as the case with the informed personnel in the GAO survey. I am very much concerned about the impact of the shortage of repair parts on the morale of our civilian employees. Do we really have a money shortfall? Why are the funds authorized and appropriated for repair parts frequently reprogrammed for other purposes? Who makes those decisions on one level in the organization? Is there a problem with getting parts from the industrial base? What is the impact of having to maintain equipment that has been in the inventory long past its program life? Are war reserve repair parts stocks adequately maintained?

    Mr. Chairman, there is a desperate need to establish some facts on this issue and at a level where we have a common understanding of this subject. I hope each of the service representatives will provide us with some clarifying information and help us understand this problem. Without a clear understanding of the problem, we will never be able to come up with the appropriate solution.

    Mr. Chairman, I thank you.

    Mr. BATEMAN. Thank you, Mr. Ortiz. At this point of course we now turn to our panel of witnesses whom again we are pleased to have with us today. That panel consists of Mr. William J. Lynn III, Under Secretary of Defense, Comptroller and Chief Financial Officer of the Department of Defense; General John C. Coburn, Commander of the Army Materiel Command; General George T. Babbitt, Commander, Air Force Materiel Command; Vice Admiral James Amerault, Deputy Chief of Naval Operations for Logistics; Major General Gary S. McKissock, Deputy Chief of Staff, Installations and Logistics, Headquarters, U.S. Marine Corps; and Rear Admiral Daniel H. Stone, Commander, Defense Logistics Support Command, Defense Logistics Agency. We are pleased to have all of you here. Secretary Lynn, you may proceed if you will.
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    Mr. LYNN. Thank you very much, Mr. Chairman. Appreciate the opportunity to appear before this committee and testify on the important issues that you cited in terms of spare parts and addressing shortages. Also appreciate the fact that you have invited the other five members of the panel who are truly the experts in this area.

    Let me start by saying maintaining the readiness of our armed services and all its dimensions, people, training, equipment, is the highest priority that we have in putting together the defense budget. We appreciate the efforts of the committee in supporting that budget and increasing it in areas where you have seen fit, and over the years you have certainly been on this issue right from the start, even before I think other people realized there was an issue here. But there is indeed an issue. Over the past several years, shortages and spare parts have contributed to drops in mission capable rates in some major areas of equipment, particularly Air Force aircraft, but there are others. What I would like to do briefly in some opening comments and then turn it to the other panelists is explore what the causes of that shortfall is and what we are doing to fix it.

    First, what are the causes? Those causes are complex and many are individual to the different services. I will leave the detail to the other witnesses to lay out for you, but I want to describe briefly some overarching dynamics that apply in nearly all the cases where there are shortages of spares.
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    At the core of this issue are the strong pressures over the past decade to bring spare inventory levels down dramatically. Those pressures come from several sources, prominently the force structures that began at the end of the 80's with the end of the Cold War. Those led to corresponding pressures to bring inventory levels down at a corresponding level with the force structure brought out. Second, the desire to emulate commercial practices of just in time delivery. That too leads to reduced spare part stockage levels with the hope that we can get them directly from industry in a just in time delivery pattern.

    Those two pressures and others have led us to reduce our inventory from $109 billion in 1989 to about 61 billion today. Much of that justification is justified—excuse me, much of that reduction is justified. But we are finding in a few cases we have overshot the mark. At the same time—and part of the reason for that is at the same time inventory levels were falling, there were two factors that increased demand for spares. First, the increased operating tempo of our forces over the course of the 1990s have put new and increased demands on those forces that led to more of a demand for parts. Second, the aging of some of our forces, some of our major end items in particular aircraft has also led to increased demand for spares. It is this combination of reduced supply and increased demand, the tension between that, that is what has led to the spare parts shortages.

    Let me make clear that although you are absolutely right we have spare parts shortages, the recent operation in Kosovo, I think, shows that the military has been able to operate extremely well in allocating those shortfalls. The record in Kosovo, the fill levels, the mission capable rates were all extremely high. Now, you pay for that in the non-deployed forces and they have some sliding but in terms of the forces that were at the pointy end of the spear; they performed extremely well and they were supported extremely well by the logistics chain. But we need to address the full problem, both the deployed and non-deployed force and toward that end we propose several solutions.
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    Over the past two years, we've worked vigorously with the Congress in general, this committee in particular, to address the problems. In each of the last three budgets, that is fiscal 1998, fiscal 1999, and fiscal 2000, spending for spares has been increased. In some cases the initiative for those increases have come here from Congress and in other cases they have been proposed by the administration. But overall, spending on spares between fiscal '97 and 2000 is up over 40 percent.

    It takes time, however, for the impact for this new funding to be felt. Lead times on acquiring some of the most complex spares, repairable parts, are 24 or 18 to 24 months. So we are just beginning now to see the impacts of the increased funding that began in fiscal '98.

    Increasing the funding is not the only solution. It will help correct the problem but it will only do so if it is well targeted. In this regard, all of the services and the Defense Logistics Agency have taken steps to target those inventory increases toward the sources of the readiness problems. For example, we just completed a study with Defense Logistics Agency (DLA) that identified high cost-low demand consumables as a significant part of the problem. We are taking steps in this budget to increase those items so that we will be in a better position to support the full readiness of the forces. And there are other examples. I am sure the other members of the panel will be happy to elaborate for you.

    Let me just close with a final point that the senior leadership of the Department of Defense is thoroughly engaged in addressing this problem. The Senior Readiness Oversight Council, who is chaired by the Deputy Secretary of Defense and the Vice Chairman of the Chiefs of Staff, meets on a monthly basis to review our progress on all readiness issues and they have taken a particular focus on the spare parts issue.
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    The Defense Resource Board has focused this year as in the past two years on ensuring that funding levels for spares are adequate. Money is not the only problem but to the extent that it is the problem, we are taking steps to address it. That completes my statement.

    Mr. BATEMAN. Thank you, Mr. Lynn. And now I am pleased to recognize General John G. Coburn, Commander, Army Materiel Command, for any comments he wishes to make.

    I would say with respect to General Coburn and all the rest of the panel, we have your written statements in advance. I have spent some time going through them. You may proceed to summarize if you choose but your full statements will be a part of the record.


    General COBURN. Thank you, Mr. Chairman. Good morning to the distinguished members of the subcommittee. I appreciate the opportunity to appear before you this morning. Mr. Chairman, the essence of my testimony this morning will be that the Army does have a spare part shortage, the most significant of which is aviation spares, but notwithstanding the shortage, near term readiness rates continue to be high. I will further testify that my main concern is future or long-term readiness, which continues to pose some risk. To mitigate that risk, we must continue to fully fund our OPTEMPO, which we are committed to doing, fill our war reserves. We have a problem there but we are making significant progress more than we have in many years. And we need to develop a program to fix our aging equipment. This aging equipment is causing increased utilization of manpower, increased consumption of spare parts, and overall increased costs.
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    I look forward to your questions.

    [The prepared statement of Gen. Coburn can be found in the Appendix.]

    Mr. BATEMAN. Thank you, General. And now we are pleased to hear from General George T. Babbitt, Commander of the Air Force Materiel Command.

    General Babbitt.


    General BABBITT. Mr. Chairman, members of the committee, I thank you for the invitation to appear here today. Let me start out by acknowledging that the Air Force does have a spare parts problem and it has affected readiness of our weapons systems. I, like many of you, have heard pilots and mechanics express their frustration over spare parts shortages and the resulting extra work and lost training. At least half of the decline we have seen in mission readiness is a result of delays caused by lack of immediately available parts.

    Fortunately, parts shortages have not prevented support of national emergencies. The recent air war over Serbia employed over 400 Air Force aircraft. Supply support was good. Parts were available, information systems were effective, and distribution of resupply was handled quickly and efficiently; but to some extent the success in Serbia was achieved at the expense of other units.
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    Non-deployed units, training units and depot repair facilities have for several years experienced lower levels of supply support. Demand for American air power around the world has grown. We are rapidly approaching a time when all units must be ready and sustainable. We can no longer provide good supply support only to high priority units. Our goal must be to provide it for all.

    What caused this problem and how will we fix it? In my comments for the record, I discuss five contributing factors. Let me speak to four of those. First, pressure to reduce inventory. We pushed hard to reduce inventory. With downsizing after the Cold War, this was both logical and appropriate. But too often we press so hard that we fail to invest in inventory needed to support readiness. The last two years we discovered a deficit in inventory required for readiness.

    Second, changing needs for readiness spares. We have also pressed hard to reduce pipeline times and with some success. In the recent air war over Serbia, 93 percent of all replacement parts were shipped to combat units using commercial express carriers; for example, VHL and Fed Ex. The average time from shipping dock to requesting unit was 3.7 days, a significant improvement from previous wars. Information systems allowed us to track delivery of all parts from origin to destination.

    We haven't had the same success with other segments of the pipeline. Repair times have seen little improvement because we failed to make repair parts available to our field and depot repair shops. The result, we reduced our requirements for spare parts because we anticipated repair pipeline improvements but we failed to deliver the improvements. Air Force and DLA have made significant investments in repair part inventory this year to help correct that problem.
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    Third, a need for better management. Working capital funds have proven to be a powerful tool. Unfortunately, we were slow to learn how to use them. For several years, we did not fully understand our costs or how those costs should drive prices. The result was underpriced depot level records. Our combat units had the money they needed to pay for spares at our inappropriately low prices. But the spares managers in my command were not earning enough to cover new buys and repair necessary for future readiness. We have seen the error in our ways. We have corrected many of our management problems and the Air Force invested this year $500 million in new inventory to correct the previous shortfalls.

    Fourth, management of repair parts. Lack of repair parts to support our maintenance shop has been as big a problem as lack of spare parts on the flight line. We have begun to fix this problem. Let me tell you about two areas where we have seen real progress. DLA, like the Air Force, felt the pressure to reduce inventory but inventory investment shortfalls hit aviation systems particularly hard. As a result, DLA support for aviation systems has been only half of what it is for other systems. DLA recognized the problem and took action with the DOD support to right size their inventory and improve their performance. This will in turn significantly improve the performance of our depot repair shops.

    We also found that even when we have the necessary funds it takes a long time to buy parts from manufacturers. In the case of engine parts, a major obstacle was our policy. In the 80's, Air Force was criticized for letting engine manufacturers have access to parts to mandate it. The assertion was that manufacturers would be motivated to recommend purchases that maximized their sales rather than to minimize our costs. We issued policy to limit their access. Without information on our demand patterns, manufacturers held back on production of new inventory until we actually placed an order. Lead times of 24 months were not uncommon. We have now invited our engine manufacturers to again participate with us in our demand forecasting reviews. With this knowledge they now start production in anticipation of our order. Lead times have been cut to 90 days. We are expanding this type of contracting to other areas.
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    Let me summarize what I believe the future holds. We haven't always managed spare parts as well as we should but we have made significant improvements. We haven't always provided our spares managers with the resources they need to do their jobs, but we invested $500 million this year to correct for past sins. We need to review our requirements for readiness spares kits in light of changing needs of an expeditionary Air Force. Any new funding will be included in future Air Force budget submissions. We believe we have halted the decline in spare support in fiscal year '99 and we will see an upturn this year. Total recovery will take several years.

    Spare support is a significant part of our current readiness problem but not the only problem. Recruiting and retention problems drive unit manning down and training requirements up, and we thank the Congress for what it did this year to correct inequities in pay and benefits. We believe your actions will be a great help in fixing our manning problems.

    We will soon implement our aerospace expeditionary force concept, which we believe will help us better manage the impact of high OPTEMPO on Air Force people and their families.

    Finally, let me mention that aging fleets of aircraft and other systems will continue to drive up inspection and maintenance requirements. Costs will rise and down time will increase. Investments in spare parts will not correct this problem.

    Mr. Chairman, thank you again for your support for military readiness and I would be happy to answer your questions.
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    [The prepared statement of Gen. Babbitt can be found in the Appendix.]

    Mr. BATEMAN. Thank you, General Babbitt. And now we are pleased to hear from Vice Admiral James Amerault, Deputy Chief of Naval Operations for Logistics.


    Admiral AMERAULT. Thank you, Mr. Chairman, members of the committee. I am very thankful for this opportunity to appear before you today to discuss spares and repair parts support in the Navy. Let me begin by first thanking you for your past support, but in particular your support over the past two years for helping us in the readiness area and particularly in the area of spare parts.

    We have analyzed our readiness trend information as measured by our mission capable rates, percentage of time free of casualty reports, cannibalization rates per flying hour, cross deck trends, deployment spares availability, the data that supports that availability, and spares funding shortfalls in order to give you the most accurate picture of where we are today. I must say the results are mixed. As Mr. Lynn said, our deployed readiness is being maintained at acceptable levels. However, we still have a significant challenge in readiness of non-deployed units, especially aviation commands.

    Overall, the actions we are and have been taking to remedy the existing and emergent spares problem I believe are focused in the right areas. The FY 2000 budget starts at 1.1 billion program of investment in Aircraft Procurement Navy (APN) six spares. We do need your support to continue on that well intentioned and well thought out plan to bring our spares problem into line. We will continue to need that support as our upcoming budget request comes up to the Hill and as we address our remaining spares challenges.
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    Thank you for your support, sir.

    [The prepared statement of Adm. Amerault can be found in the Appendix.]

    Mr. BATEMAN. Thank you, Admiral. Now we are pleased to hear from Major General Gary S. McKissock, the Deputy Chief of Staff, Installations and Logistics, United States Marine Corps.


    General MCKISSOCK. Thank you for the opportunity, Mr. Chairman. I would like to make a couple of brief comments. One is we have maintained in the United States Marine Corps what we believe is an exceptional readiness standard over the last four or five years considering the aging fleet of equipment that we have. This has been done because our operational commanders have had the opportunity and the flexibility to fund first spares but the facts are that this was done on the backs of Marines. Long hours when they have returned from deployments have been spent maintaining aged equipment. And those are the facts. We have not—I would like to make a comment about reducing inventories. We have in fact reduced inventories and with our spares throughout the corporation but it has been an operational decision, not a dollar decision or manpower decision. Let me take a minute to explain that.

    In today's modern battlefield, we are trying to reduce our footprint of logistic support. One way you do that is reduce the logistic structure or tail that would follow behind operating forces. So when you see a reduction in spare parts or logistic support in the United States Marine Corps, it is an operational decision and we have been very successful.
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    One last point. I would like to thank you for the enhancement dollars we expect to receive this year. I think that it will support our aging fleet and the good news is that General Krulak's strategy of reinvestment and recapitalization in the Marine Corps is starting to take shape. We see in the mid-term the fielding of a five-ton—eight-ton truck fleet, excuse me, the HMMWV, the rebuild of the Light Armored Vehicle (LAV) and our amphibious tractor is having a significant impact on our spares and maintenance issues over the next five or six years and certainly we believe that it will be a quality of life issue for our Marines to see this new equipment. Thank you for the opportunity to make my comments this morning. I look forward to your questions.

    [The prepared statement of Gen. McKissock can be found in the Appendix.]

    Mr. BATEMAN. Thank you very much, General. And now we are pleased to hear from Rear Admiral Daniel H. Stone, Commander of the Defense Logistics Support Command, Defense Logistics Agency.

    Admiral Stone.


    Admiral STONE. Thank you, Mr. Chairman, Members of the subcommittee. I am the Commander of the Defense Logistics Support Command, the Defense Logistics Agency's major subordinate command concerned with spare parts support. I have submitted my written statement that addresses the four questions from the chairman's letter. I would like to summarize those answers by focusing my comments today on three areas: The DLA's use of the funds that has been provided to procure spare parts, what challenges DLA faced in providing these parts to the services, and what we are doing to meet these challenges.
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    Concerning the use of funds, I would like to first point out we are largely funded by the revolving funds under budget authority established by the DOD Comptroller and OMB. The services used these appropriated funds from Congress to buy parts from DLA. The revenue from the sale of these parts is used to pay for material procured with our budget authority.

    For the fiscal years '95 through '99, we obligated over 99 percent of the budget authority received in the President's budget. This allowed us to reduce the amount of backlog orders or DLA items 14 percent.

    On the second issue, what challenges has DLA faced in providing parts support to the services? As stated in the statements by the services, aging weapons systems, changing OPTEMPOs and the resulting unpredicted equipment failures present a high degree of variability and demand patterns for many of the four million spare parts managed by DLA. This unpredicted demand leads to parts shortages and back orders. In the case of many of our high-tech weapons systems such as aircraft engines, the time to buy unpredicted parts is many months. Through our benchmarking with the airline industry, we have found that they face similar difficulties in this area.

    Addressing what DLA is doing to meet these challenges, starting about two years ago, my command began a major change in how we do business. DLA took the BRAC closure of two of our inventory control points, the activities that manage and buy our spare parts, to realign our items at the remaining centers and a weapon system alignment. Defense Supply Center Columbus now manages land and sea based weapons system items. Defense Supply Center of Richmond has aviation items. And Defense Supply Center of Philadelphia has troop support and general items.
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    This alignment has enabled us to focus our support by weapon system community for each service. This refocusing has allowed us to better assist the users and maintainers of today's weapon systems in forecasting their needs and working support issues.

    A good example is aviation support that has been mentioned as a critical concern. The DLA support of aviation, when measured in fill rate, looks good in the aggregate and achieves the overall goal of 85 percent. This aggregate goal masks, however, the impact of when critical items do not meet the 85 percent. Working with the services, our center in Richmond has identified a systematic problem in our inventory model that prevents high cost, low demand items from being adequately stocked. These items often experience a fill rate half the 85 percent goal. Working with the services, Richmond, as the aviation center, has identified those high costs but equally high readiness items and has requested additional funding to bring them into stock. Along with the focusing on weapons systems, we are also teaming with the services in order to receive better information to buy material. A good example is our work with the Air Force on aging parts forecasting.

    Another area we are concentrating on is leveraging commercial practices. Again, this involves teaming with the services and our suppliers. We have teamed with the Air Force and the Navy in a corporate contract with GE for the family of parts for the F–110 engine that is in the F–14, the F–15 the F–16 and the B–1 aircraft. This is a 10-year corporate contract with multiple buying options that will reduce order time and inventory.

    In conclusion, DLA believes that the initiatives we are working and the partnering we are doing with the services and our suppliers will improve our ability to make the best use of our funds and meet the spare parts needs of the war fighter.
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    Mr. Chairman, I believe I have addressed the questions you have asked. I would be pleased to respond to any further questions.

    [The prepared statement of Adm. Stone can be found in the Appendix.]

    Mr. BATEMAN. Thank you, Admiral Stone. I thank all of you. Listening to you and having reviewed the statements, part of the problem with spare parts and availability and its effect upon operability of equipment appears to have been the manner in which the expected and necessary reduction in inventory was managed. Hopefully those problems are behind us. Would you all say that that is the case?

    [Panel nods.]

    Mr. BATEMAN. The other thing that seems to be a common thread that goes through the statement or statements is the impact on aging equipment and the operational tempo that that equipment has been dedicated to or experienced. This subcommittee, while it is the Readiness Subcommittee, has long recognized and I hope it is going to be more fully recognized in the budgets that we get to react to that readiness. Problems of today, while they are there and they are serious and have to be addressed, are just a blip if you look at what is going to happen if we don't modernize and recapitalize our equipment. You cannot solve readiness problems today with the same equipment that you were using 30 years ago and that you have used more intensely than it was ever expected it would be used.

    So I hope that the budgets that are submitted to us and what we are able to do, while it is not normally thought of in the context of the jurisdiction of this Readiness Subcommittee, is going to reflect that something is going to be happening much more dramatically than in the past on this recapitalization modernization issue.
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    Secretary Lynn, one of the things that I am having difficulty with is the supplemental appropriation and the inclusion in it—I think the figure is 1.1 billion—for spare parts. The latest information I have is that of the 1.1 billion that was appropriated and which was signed into law, only 300 some million have been authorized to be used by the Department of Defense. What is wrong with the process so long after the supplemental was enacted and signed into law or so much of it has been not authorized to be expended?

    Mr. LYNN. Mr. Chairman, your numbers are correct. 1.1 billion was appropriated in the supplemental for spares as part of a larger general provision addition of about 2.35 billion in the overall operations and maintenance area. There is, however, nothing wrong with the process. The committees that drew that up and the Congress that approved it intended that money to go for two years. O&M money as you know is normally one-year money. In this case it was made to be two-year money. The life of the money would go for two years and the reports explicitly directed that we split that money over two years. The portion that has been released, and I think you have the number right, is about 346 million, was the '99 portion of the spares add in that supplemental. The remaining money, the $779 million, that is intended for fiscal 2000 which just started, that money will be released as soon as we have the final action by the Appropriations Committee that would confirm that would be there.

    Mr. BATEMAN. So while it was an FY '99 supplemental, it was intended to be expended not just in '99 but to spill over into 2000?

    Mr. LYNN. That is correct, Mr. Chairman.

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    Mr. BATEMAN. Mrs. Fowler has a follow-up question.

    Mrs. FOWLER. I understand that but as you and I both know, when they see it sitting there, as they have been looking trying to work out this Defense Approps bill and they say well, they are not already obligating it for something then maybe we can use it for something else, which I am concerned about. Once we are now into whatever we are, the seventh day of the fiscal year, I don't know why on the very first day at least part of this one obligated because that money has been signed into law. I don't care what the Defense Approps is doing. If you had obligated it, they couldn't be taking it to be used for something else. I am deeply concerned that some of this is going to be used for some other purposes in that Defense Approps bill.

    Mr. BATEMAN. The point is well made but another aspect of the funding that I would like to delve into though is not a specific part of today's agenda, is we are reading accounts of the shaping of the 2001 budget that is in the process of being put together and we are reading and, in fact, hearing from some authoritative sources in the Defense Department that the services are being told that they are going to have to take a decrement in their budget to make up for the fact that the savings in fuel costs have not been realized, that Congress in its wisdom chose to give military personnel a 4.8 percent pay raise instead of 4.4 so you are going to have to take from operational accounts. You are going to take out of hide the differential between the President's budget request for personnel and what Congress in its wisdom decided to give.

    Am I correct that this is a phenomena that is occurring or the instructions that are being given to the services by the Department of Defense? Mr. Lynn, can you help us with that?
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    Mr. LYNN. Yes, I can, Mr. Chairman. As you know, every time we build a budget, we have to take account of what has changed. In this case there has been a change in fuel prices. There has been a change in the pay raise, which the administration supports by the way; but the pay raise has increased costs in the out years. Everyone testified to that when the pay raise was being reviewed in Congress and if you add money in one place, you are going to have to shift the funds from some other place.

    Mr. BATEMAN. No, Mr. Secretary, that part I don't accept. If you know that the pay raise is 4.8 instead of 4.4 and you are putting together a budget for a future year, you can darn well budget the sum necessary to fully meet the pay raise instead of taking it out of the hide of the services. We are not talking about something you have got to absorb after a fiscal year began and something happened. We are talking about a budget you are just beginning to put together. Why should that budget require the services to take out of their hide the difference between 4.4 and a 4.8 percent pay raise?

    Mr. LYNN. Mr. Chairman, you are absolutely right, it is future year budgets. However, the Congress and the Administration have agreed on caps to those budgets. So unless you raise the caps, which would be a possibility, you have to—if you raise in one area, you have to reduce in another.

    Mr. BATEMAN. Have I heard anyone in the Department of Defense suggest that we should raise the caps, so that the caps ought to be raised because we are going to be doing very negative and unsupportable things to our national security if we don't?

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    Mr. LYNN. Mr. Chairman, the last year the Chiefs and the Secretary of Defense went directly to the President and said that they thought we needed additional funding in defense. Through a long series of consultations in the fall, the President agreed to add $112 billion over six years to meet exactly the kinds of needs that you are talking about. So the answer is yes, we have gone to the White House and to this Congress and argued for increased funding for defense.

    Mr. BATEMAN. I hope you will do it again, because, number one, I am aware of the rhetorical statements about adding 112 billion over six years to the defense budget, but when you—when we ultimately got a defense budget, $11 billion of the so-called increase was more hypothetical than real. It was based upon estimates of fuel costs, foreign currency exchanges, a method of funding military construction that was virtually known in advance would be unacceptable to the Congress and so what was supposed to be a 11 billion increase was a much smaller increase. The 112 billion is not a real figure. It is just a rhetorical figure.

    I think we have got to face up to the fact that we are underfunding defense programs. That is why you've got the problem with the lack of modernization and recapitalization. It isn't going to happen until we provide real dollars to the defense budget and I hope the people sitting at the table are going to be pressing the case that you cannot solve this problem with rhetoric. You have got to solve it, much of it, simply by the infusion of more assets, more resources.

    Mr. Ortiz.

    Mr. ORTIZ. Thank you, Mr. Chairman. This is a problem that we have been dealing with for the past four, five years and then we still need, we are told, 18 to 24 months to really get into the rhythm of getting the parts. It takes so long and I am just confused as to why this is happening now. In my opening remarks, I presented a number of questions that I would like for each service representative to address and I would like for—and I know that some of you have already touched on some of the questions I asked, but do we really have a money shortfall for spare parts and repair parts? Is it a lack of money even though the chairman just mentioned we put in one-point-something billion and then before that we put almost $400 million? But is money still a problem why we can't get those parts?
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    General BABBITT. I will start out, sir. There is a money problem. It is a problem that we think we have addressed appropriately in fiscal year '99 by the addition of $500 million of contracts to both buy repair parts—buy parts and increase repair. We did that within the program that we already had in the Air Force. We got into that position because, as I explained in my comments, we had inappropriately sold those parts for too little money and because our prices were lower, the people in the field who paid us for those parts, the money that you provided to them as spare parts money, usually had enough money. The trouble is we earned too little revenue from the sale of those parts and, therefore, since it is a revolving fund, we should have used that money to reinvest in inventory and repair to make the next round of sales and we fell short and as a result, we had supply managers within my command who were trying to spread too little money to too many needs and they made the best decisions they could and some of those have come back to haunt us.

    So we have to reinvest in that inventory to bring those inventory levels back up, and we have made a substantial investment in that now. There also in the future is a potential requirement, although I think we still have some debating to do within the Air Force before we finally agree on how big it is; but as we have changed from a Cold War force where we tended to deploy in squadron sized elements to an expeditionary force where we deploy in much smaller elements into many more locations, the need for readiness spares packages, that deployment package that goes with the units, has changed in nature. Many things that are in a 24 aircraft package are one deep spare parts. They can't split that very well to go three different directions. And so we have got to wrestle with what is the best risk-to-benefit ratio here, and do we need additional readiness levels, and we will come forward in future budgets with the answer to that.
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    Mr. ORTIZ. What about the other services?

    General COBURN. Let me take that, Congressman Ortiz. My answer is a four-part answer and I think we need to understand where our funding goes at what levels to really address your question. Let's start with the field. At the field level what we have are authorized stockage lists in our division. There is a shortage of repair parts. There is a difference between what is authorized and what is on hand. That difference, though, will be covered by the supplemental. So that is the field piece.

    Now, if you go to what we call the wholesale piece, our supply availability at the wholesale level is consistently high, around 85 percent, which is really a measure of the effectiveness of your system except for aviation. In 1997, we underfunded aviation because of the inventory problem that we have been talking about. The underfunding was about $187 million. In 1998, it was $32 million. This year we are fully funded. So that piece is okay. The piece that the Army has not done well, this is in the war reserve area. Now, we have a shortfall there, but again we are putting for the first time in several years dollars into war reserves. OSD has put in—we have got $373 million in now and OSD is working that issue even further. So the bottom line is there is—for the Army there is a spare parts problem, much of which has been funded due in large part to the supplemental and to the efforts of the Congress.

    Mr. ORTIZ. But it will still take 18 to 24 months?

    General COBURN. The answer is yes and no. If you look at the wholesale level, we are not—we are 82 percent supply availability in aviation right now. However, if you go to the depot, you will find some parts that because of the inventory phenomena we talked about, high dollar value items, that will take some time. I don't know—in some cases it will be 18 to 24 months. In other cases it will be much shorter but the real problem that we have in the Army other than the war reserves and the aviation area, again caused by the reduction—pressure to reduce inventory.
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    Mr. ORTIZ. What about the Navy?

    Admiral AMERAULT. Let me tackle this question of whether money is the answer. Money is obviously the answer to every problem but when you look at how we budget and spend our money, I think therein lies the answer. What we try to do is develop a balance. The operation and maintenance account, which is our flying hour account, funds the fill, the parts, and the inventory and operation (I&O) maintenance for the aircraft. It basically funds the number of flying hours you intend to fly in a given year. The dollars in that account will buy those spare parts that support that flying. That has to be balanced on a procurement side with funds in the APN six account that buy in those parts that are on the shelf.

    When everything is in balance, it works great. But it is not an exact science. That is where things like difficulty in forecasting the amount of operations tempo in a given year comes in. If we can't forecast that right and you don't buy in the right number of parts, we don't put enough money in the O&M account. So the thing is out of balance if we don't estimate properly the failure rates of some of these parts, if we don't have good configuration control.

    In our service at least and I imagine it is like this for the other services when aircraft go out to deploy, quite often everybody wants the new advances to be the most effective against the enemy or whatever else comes up. Sometimes as we field those, we aren't quite right getting the parts in the inventory that go with the carrot to match the new equipment that is on the ship. If we don't get that right, things get out of balance. And then the aging aircraft, retired iron problem that everybody has brought up today, also affects it.
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    So from my standpoint, to me it is a very difficult balancing act. It is not an exact science and I think we get it more right than wrong. Someone said this morning within an accepted norm. When it is within an accepted norm we usually can rely on the working capital funds to work it out. We raise the prices a little bit the next year and we make dollars to get it back in balance, keep the fund in balance; but a lot of these things I mentioned, aging aircraft, configuration control, the cost of material in the aviation industry, are going up and it's very difficult to get that science anywhere near exact any more.

    So I think those are the problems we are dealing with. Right now for the year 2000 we are—we would be in balance if we achieved the supplemental dollars that we are expecting. That is why that is very important to us and also the support of the 1.1 billion program that we have to get APN right. I think we would then be within that acceptable norm. It is never an exact science, as I said.

    Mr. ORTIZ. The Marines okay?

    General MCKISSOCK. Yes, sir. A couple of things have been happening in the Marine Corps. We talked about spares and funding for spares over the last three or four years. One of them is that we have made a conscious decision to recapitalize so we have been right on the edge when we talk about dollars provided to our operational forces for maintenance repair. Earlier it was mentioned that there is a reduction of inventory taking place within DOD in secondary repairables (SECREPS) and in Class nine repair parts; and I made the comment that this operational decision to reduce the size of our inventories because we were trying to reduce our footprint, but the facts are when you get inside the processes of supply and maintenance and understand them like we have never understood them before, frankly, dollars fall out of the bottom of that, that process equipment. Those dollars which have fallen out of our process equipment within the Marine Corps have allowed us to maintain about a 92 percent ground equipment readiness on frankly reduced dollars. At the same time, it has allowed us to go forward with our strategy of recapitalization.
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    So if you look at the numbers, it appears that our numbers have gone down and it appears since they have. But while this was happening, we were reengineering the way we placed repair parts at the disposal of our operational forces. We have, in fact, reduced inventories and two things have happened. One is our footprint is smaller when we are in an operational situation, which is a wonderful, wonderful result for operational commanders. The other thing is we have run out some dollars that we wouldn't otherwise have done. So a complex issue.

    We have maintained very close contact with our operational commanders. As a matter of fact, up until six weeks ago, that is exactly where I was. Headquarters Marine Corps paid attention to what was going on out there. O&M dollars for repair parts and maintenance has always been the number one priority of the Marine Corps. In the supplemental it was the number one priority.

    So a rather long answer to the question, but what has happened is I think we have been able to do more with less dollars over the last three or four years because of, frankly, an operational initiative that took place trying to figure out how we would reduce footprint. So I think it has been a win-win situation. The facts are, though, that this cannot go on for very long because of this aging fleet. When we take a piece of equipment into repair cycle now, bigger things are breaking, engines, transmissions, rather than small things. We are spending more time in corrective maintenance than preventive maintenance. You have heard that from my colleagues on the board. We think that is true across the ground suite of equipment in DOD but this reengineering of our logistics processes is a story I don't think is told enough, and there has been a significant savings in inventories in the Marine Corps.
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    Mr. ORTIZ. I just have one more question and that is it, and I am going to yield to my good friend here, the Chairman. You need to give me some input because I have no knowledge as to how this works. When a new weapon or new plane is built by industry, do you place or anybody place a requirement as to how many parts should be stored? I think General Babbitt touched on that. Are they required to produce parts? Because it looks like the industrial people are not providing the parts. Is there any requirement when a new weapon, a new plane, a new helicopter is built that somebody places a demand that so many parts should be built?

    General BABBITT. Yes, sir, we include that in the purchase of the weapon system. I think all the services do. Most people refer to that as initial spares and it is purchased as part of the fly-away kit of the airplane if you will. That is an estimate because before the airplane is flown operationally; it is not clear how often the parts that make it up will fail, but everybody does their best to make those estimates and those costs are reported to the Congress and budgeted by the Congress through the procurement accounts. And that becomes the initial lay-in. Our job as the service logisticians is to take that initial lay-in and to continue either through repair or replenishing ways to keep it adequate to meet the readiness levels of the weapons systems.

    Mr. ORTIZ. General Coburn.

    General COBURN. We do the same thing. The program managers make sure they have the initial spares package. It is all part of the program called Integrated Logistics Support. My experience has been we actually end up with more spares rather than less as part of that initial package and over time, based on demand data, you refine that package so the short answer to your question is yes, we do that.
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    Mr. ORTIZ. Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Ortiz. Mr. Sisisky.

    Mr. SISISKY. The initial thing in that is the word initial parts. I think that is the—how much involved is the working capital fund in all of this? General Babbitt, you made a statement. What is AFMC is that Air Force Management?

    General BABBITT. Materiel Command.

    Mr. SISISKY. You didn't understand the working capital fund. Mr. Lynn, do you understand the working capital fund?

    Mr. LYNN. I hope so, Mr. Sisisky.

    Mr. SISISKY. The reason I ask, I will never forget when I put in an amendment to do away with DBOF, all they did was change the words. I asked somebody from the Appropriations Committee, I said, you know, everybody has clammed up. I can't get the information. And my friend Mr. Murtha says we have somebody in the Appropriation Committee that understands DBOF. I said great. He comes back to the floor about two hours later. He says, you know, he retired. Nobody understands DBOF.

    I ask that. Do you get your parts through DBOF?

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    General BABBITT. No, sir.

    Mr. SISISKY. I mean working capital, excuse me.

    General BABBITT. First, I want to correct if I gave the impression I don't understand it. I believe I do understand DBOF. What I said we are a little slow in the Air Force in learning about it. I consider it to be a very powerful tool and it is a very important management tool.

    Mr. SISISKY. Is it a profit center?

    General BABBITT. It is in a sense a profit center with a goal of zero profit, but zero percent is a percent just like ten percent.

    Mr. SISISKY. Is anything else coming out of there other than parts? We traced it back to BRAC and other things.

    General BABBITT. I have within the working capital fund three businesses with separate reports of financial solvency. One of them produces spare parts. One of them does depot maintenance and one of them provides software for management information systems. And each one of those is operated as a separate business with a balance sheet and income statement and cash flow statement.

    Mr. SISISKY. You would not like to control that yourself?

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    General BABBITT. I do control that myself.

    Mr. SISISKY. Do you control the rates that they give you?

    General BABBITT. That is right, I do.

    Mr. SISISKY. You control that?

    General BABBITT. Yes. I am the one that makes up those budgets, submits them to the Air Force and—.

    Mr. SISISKY. I don't understand what you said about selling it too cheap. You sell a part for $1,000 and—it is cheaper than $1200. I don't understand why they would buy in the field; that caused part of your problem, I don't understand that.

    General BABBITT. Part of the money we need to collect when we sell parts to the field; this is parts that are repaired, not new parts, is not only the cost of the repair and the transportation and handling but we also have to recover the cost of occasionally replacing some of those parts once they wear out. We call that a condemnation. We have undervalued in some years the amount that we needed to replace that inventory and; as a result, we never collected it in the rates that we charged our customers. Now, because we charged lower rates, the customer said I have got enough money. I can pay for all of my flying hours at those prices, but at one time I increasingly had a deficit in the revenue that I earned within the Air Force Materiel Command; and as a result, the people who were supposed to make those further investments for future readiness didn't have enough and they had to make tough decisions on what to defer and they deferred buy, which eventually became a backlog that hurt readiness.
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    Mr. SISISKY. I am glad you understand the working capital fund because when I put in an amendment to do away with it next time, I am going to come to you for information. Somebody made the statement, I forgot who, I wrote it down, that it would take from one to two years sometimes to get parts.

    General BABBITT. I mentioned that. The reason that it did in the case of our engine manufacturers is because we weren't involving them in the actual demand patterns at our Air Force bases. We collected up the demand data. We calculated an annual buy requirement and then eventually we sent them a requirement on a contract. They, not knowing what our demands in the future were going to be, were very uncomfortable as a business entity to put that work into production before we had placed an order. So when we finally placed the order, it took from the time they bought the raw material until they finally produced the parts. That was the 24 months. We already got contracts with General Electric, Pratt & Whitney, and Allison that have now—given them information so that they know we are eventually going to make this demand.

    Mr. SISISKY. How about other parts of the aircraft other than engines? You have long waits for that?

    General BABBITT. We have got things in the works that will hopefully get those kind of contracts in place but we spend about two-thirds of our spares money each year—.

    Mr. SISISKY. The reason I said it, I know you have an assortment of aircraft and different size engines. I know that is a problem but let me just tell you a personal experience I had. I have a rare car. You have seen my car. It is rare. And it was made overseas. And I had a part; the guy said he has never seen that thing happen before, and he called Germany and in three days I had a part and the car is five years old. Now, strangely enough, it happens in that business but let me tell you what—the spare parts business is the greatest business in the world. I bet you every part of a Ford is five times more than the car that you buy and there is one way to break that cycle and I have always said it. We have depots that have the greatest machine shops in the world with great practitioners doing it. I'm talking about the Air Force has them. Of course, the Navy has them, too. If you want to break the cycle of getting it faster, you just say we are going to manufacture our own little widgets and they can do it in a machine shop too. You may not want original equipment; but they may hold you to that, but there is one way to do it. I would suggest that is what we do.
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    But let me just get back to one other thing. That has to do with trucks. Army has been complaining that they have a truck. Has anybody done a study to—the Marine Corps has got a problem too—to take a 15-year-old truck and the amount of money that we are spending fixing that thing every year, has anybody made a study of what it would cost a new truck versus fixing a truck? Because when I was in business we recycled trucks every five years. It didn't pay to keep the trucks because of the repair. Has anybody looked at that and done that study?

    General COBURN. We have had several studies on trucks. In fact, time after time we have studied our trucks. Your thesis is absolutely right. Some of our trucks, the two and a half ton for example, was born in the 50s. We continue to fix them. The O&S costs, the operator support costs continue to increase. So is it cheaper to buy new trucks? I would suggest to you it is. We either got to buy new or fix the old ones. That is what I was talking about earlier when I was talking about recapitalization of this whole equipment. We have just got to fix it or buy new.

    Mr. SISISKY. I have one more thing. I noticed there is nobody from the Guard and Reserves at that table. Do you buy for the Guard and Reserves?

    General BABBITT. Yes, sir.

    Mr. SISISKY. Because they are short of parts and I am talking about the Air Guard. That seems like the last bashing of—we have got helicopters we can't even fly with passengers in it because of training time and some part problems.
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    General BABBITT. They are not short of money that you have provided them to buy parts. When they order the parts from me, sometimes they go back order because I don't have the inventory flowing to respond to their demand. That is what they mean when they say they can't get the parts, but they do have the money. They are not short in ordering the parts, the money that they need to order the parts from me. The problems are problems that I have to fix.

    Mr. BATEMAN. Which hopefully you are going to fix. The chair has not invoked the five-minute rule because of its appreciation for those who have got here earlier but as we are more numerous now, under the five-minute rule I recognize Mrs. Fowler.

    Mrs. FOWLER. You might know, you hit it just with me after my colleague. That is okay. I will speed up. This is a hearing of great importance to me. Back last spring I was down in Naval Air Stations (NAS) Jacksonville with the Secretary of the Navy and out on the tarmac with 21 P–3s. We went on the one with all the new avionics and stuff and found out only three planes sitting on that tarmac could fly. The rest of them they couldn't get the spare parts to fix the engines. We met with S–3 pilots middle of that day. I sat across the table from one. He said I just gave $50,000 back to the government because it was money that was supposed to be spent on my training last month for me to fly but because only one of our planes would fly, I got to fly five hours instead of the 25 I was supposed to be flying for training.

    This has absolutely been a critical situation. That is why some of these people are leaving. It isn't about money. It is about if they can't fly, if they can't be trained because we can't get the spare parts and fix the engines so they can, then what is it all about? So I am deeply concerned and hopefully—here are these good scenarios, but in reality we go out in the field and still extrapolating out there. So I have got three questions I would like the service witnesses to—those who would like to comment on do.
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    One, and this has sort of been touched on already, there has been a real strong impetus within the Department in recent years on this just-in-time delivery of parts; and I for one have been a little skeptical because it might work great for a lot of commercial applications, but when you are talking about military unique systems, and I think this has been a readiness degrader, and I want to know your thoughts on this just-in-time approach to supporting military operations especially during contingencies.

    Second, it seems to me that a large part of the problem does lie in forecasting the system's inability to predict parts requirements when your utilization rates really vary so widely as they did recently during operations from Kosovo. It is my understanding we have aviation units that consume 78 percent of their annual flying hours program during just that 78 days air war over Kosovo. So how are the services going to be predicting their spare parts and replacements? What can be done to better predict these requirements? Are we going to be forever subject to these uncertainties? Can we better plan and prepare for them? Is it just a money question? I think we already heard it isn't.

    Third, I am deeply concerned because those of us who go to fight for you to get more money for defense, when the DOD IG comes out and says the Department is being overcharged for spare parts again, it really causes us a problem. Because in many instances the IG now appears is linking these overcharging cases to acquisition reforms, which have loosened the DOD contracting rules in the name of adopting commercial practices. The DOD IG has found instances in which the Department has paid more for the same parts under the new rules than under the old rules. Could you please comment on this, in particular our contractors withholding cost information from the Department more and more by declaring that their prices are commercial. And are contracting officers being discouraged from challenging these contractor prices when the contractors state these prices are commercial?
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    If any of the military people could comment on this, I would appreciate it.

    General COBURN. First as to your question about just-in-time inventory, I think we need to distinguish between just-in-time inventory and direct vendor delivery because there is often confusion there. I am in favor of direct vendor delivery for some commodities like batteries and tires and that sort of thing. It doesn't work in every case. I am not a big believer in just-in-time inventory. Let me explain that just a little bit.

    I think there is too much risk in our business to rely totally on just-in-time inventory. On the other hand, we can't afford large mountains of supplies, equipment, maybe more aptly referred to as just-in-case inventory so what we have to strive for is to have the right stuff. So bottom line I guess as far as I—the way I feel on it is I am not a big believer in just in time. I do support direct vendor delivery.

    I think that we are making great progress in that area, as appropriate, because again I don't think direct vendor delivery even applies to everything. Forecasting is very tough. The way the system works is we feed all of our demand data into a model and then based on demands, we go out and buy what we should buy or what we think we should buy. The problem is that you get into contentions like Kosovo and you have different kinds of demands. Things break that you didn't anticipate, you didn't predict. Now, when those exercises are over, that data is captured and fed back into the system but—and I am not sure we can do much better than that except add a combat factor to it, which we routinely do as well. So the forecasting piece of it you are quite right. It is very, very difficult and really is the key to what we do.
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    The business of overcharging by contractors, I just don't know enough to give you a good answer on that. We have a group in my legal shop that looks at that kind of thing all the time but I am not aware of any specific cases. There may be. There may be. It is certainly something as we go more and more into acquisition reform that we need to be concerned about. There may be some cases you know about that I don't.

    Mrs. FOWLER. Have you read the IG report?

    General COBURN. I have not.

    Mrs. FOWLER. Those who haven't, it might be good to read it.

    General COBURN. I will take a look.

    Mrs. FOWLER. Anybody else want to comment?

    General MCKISSOCK. The Marine Corps is not in the just-in-time business. Having said that, there is in fact a revolution going on in the logistics business worldwide. The L.L. Beans of the world have understood and have put into place processes that allow us to move things around very quickly with good information. If we don't take advantage of these new processes, then we are not doing the job for the American taxpayers. Over the years, we have had and everybody has heard of iron mountains of equipment, iron mountains of supply. We had these iron mountains because we had no other tools to use as managers and leaders to figure out exactly what we would need when we would need it, so we took it with us. The facts are that today we can, in fact, figure out pretty much what we need at reduced rates of inventory. We don't need as much in layers but that doesn't mean that we would expect the last corporal to reach back and get his next round or his next meal or his next repair part. We cannot do that because we are in the insurance business of logistics. Logisticians in the military is the insurance business, and we have to make sure that we have an insurance policy out there for our operators that they will never be in a situation where they are out of stock. So, on one hand, we are fixing our processors. On the other hand, I don't think anybody on this panel would endorse just-in-time operations to the United States military.
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    Your question about predicting failures and trying to forecast, I am only speaking for the Marine Corps; but up until three or four years ago, the way we forecasted was fill rate. We tried—we had this iron mountain and we thought if you had 84 percent fill rate, you would across the board take care of everybody. We have become much more sophisticated in the last three or fours years and when we talk about forecasting what we need in our inventories, we are focusing in on specific supply support required for readiness. That is how we are spending our dollars. So we are much more interested in gaskets to put an engine back together than maybe a mud flap that looks good on a vehicle. We are not much better at forecasting what is going to—as equipment becomes more sophisticated, it breaks much more randomly so it is very difficult; and even so in the civilian world where they have a difficult time in the forecasting business. But our management emphasis, at least in my service, is on what we can do for the readiness folks and that is where we are spending our time.

    The last point I don't know where—I don't have enough information on whether we are—.

    Mrs. FOWLER. Read the report.

    General MCKISSOCK. I will.

    Admiral AMERAULT. I have to keep going around the Navy service and saying that there is no such thing as just-in-time supply in the Navy. We don't believe in just-in-time anything in regard to logistics. However, there are some things that make some sense to do to achieve efficiencies where we can do them. We do the best job there is in the world with logistics. But we don't do it as cheaply often as other people can do it in specific, specialized cases where it makes sense to do. So if we want to take advantage of those opportunities to do it more efficiently and cheaper, we have some concepts that we call direct vendor delivery which brings something directly to the—particularly on the shore side to the place where it is needed, much more quickly and efficiently. We get it directly from the vendor. Those kind of things do make sense for us.
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    Sometimes we use premium transportation to get things faster to a place. Right now we have parts; in fact; for the P–3, for the Anti-Surface Warfare Improvement Program (AIP), the Anti-Submarine Warfare (ASW) Improvement Program because as you know, the readiness in that program is very low. We think that is an anomaly. Got a lot of fixes in place to get that back under control; but one of them is to put some of these very critical repair parts at Memphis where the Fed Ex center is so as soon as a requisition is delivered, it can be on a Fed Ex airplane within hours if possible. But these only make sense, first of all, where it is ashore pretty much and when it can be done in an efficient manner. We don't yet have flight decks so we can't have that Fed Ex 747 landing out at sea and delivering the part to the person. We still rely on that inventory that we have in our carrier ships to bring the part and have it right there for the repair person on time.

    With regard to being able to predict failure rates and things that occur with regard to increased contingencies, the difficulty is that for years and years, we had a fairly predictable operations cycle in the Cold War. Most of our models are—all still have the basic data for that kind of an operational experience. As we are now getting more and more contingencies, more and more of that kind of OPTEMPO that is not as predictable, I think we are starting to improve the models. I said earlier, this is not an exact science. You add to that the tired iron or the older aircraft problems and material costs increasing, and it does make predictability difficult. We are all trying to get a handle on it, but it is not an exact science yet. I have not read the report but I will go right out and get a copy.

    Mrs. FOWLER. It is a series of reports. I hope we update the model since seven years now we have been having more contingencies.
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    I, for the record, would have some other questions, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mrs. Fowler. You have cast a magic spell with the timing device. It refuses to function. Mr. Pickett.

    Mr. PICKETT. Admiral Amerault, I understand that in the AOE (fast combat support) class of ships we have had some unique problems. You want to tell us something about what's happening there and what your plans might be for that class of ships.

    Admiral AMERAULT. There are a couple of problems with the AOE class. We are putting dollars in place to fix those problems. The most pressing one is the USS Detroit, which had a pretty significantly negative in-serv inspection. We have her going in for a very substantial overhaul. We have had 16 assist visits on the ship since the in serve. We have had about 1.5 million preoverhaul repair availability that has just been completed in Norfolk to help bring her up to speed. But with that class of ship, we are looking at a lot of alternatives to how we manage that class.

    Right now they are homeported in New Jersey at the weapon station. Sometimes it's difficult to do work there because of the explosive art and safety requirements at that weapon station, so we are looking at various alternatives in terms of homeporting and other things that might give us a better opportunity to run those ships better, more efficiently.

    Mr. PICKETT. Is it unusual for a ship like the Detroit to get in that bad a shape if there were some corrective action that had been taken?
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    Admiral AMERAULT. I think it is unusual. I think she is an anomaly. But as I said, we are working as quickly as we can to get her back under control.

    Mr. PICKETT. I heard the comment mentioned a couple times at the table there that there has been pressure to reduce inventory. Where does this pressure come from, what kind of pressure is it? One kind of pressure would be to reduce the amount of monies that is available in the capital fund to carry the inventories which would prohibit you from going above a certain level financially. What's been happening here to cause the services to feel like they have been pressured to reduce their inventories?

    General BABBITT. I can start out on that one. This goes back to probably 1990. As we were drawing down forces, there was—it was logical that we should try to draw down our inventory at the same time. We measured that drawdown by looking at inventory value; and so, therefore, it became almost immediately a financial issue because it was measured in financial terms. And the pressure was just as you say to draw down the value of inventory held in the working capital fund. There are some problems with how we value that inventory; and so, therefore, even though parts were leaving the inventory, the value, the dollar value was not coming down and that led people to get a lot of pressure all the way from the Congress.

    This was a big issue in the Congress in the early 90's and that is where most of the pressure came from; and then as those inventory values did not come down, there were punitive strikes, I guess, placed against the budget for procurement of new inventory, and so if we didn't meet our targets then we had our budgets reduced in order to provide an incentive to further reduce the inventories.
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    Now, I think a lot of that has gone away but along the way we probably did some inappropriate things in reducing inventory.

    Mr. PICKETT. Punitive sorts of things, was that imposed through the administration or imposed by Congress?

    General BABBITT. Both.

    Mr. PICKETT. By both. So Congress is partly responsible for this problem by putting punitive provisions?

    General BABBITT. Except that I would say that there was logical reason to reduce inventory and so I don't know that anybody did this with sinister intent. I think there was good reason to reduce inventory. The measure of that inventory reduction didn't turn out to be a very good measure. It appeared that we weren't listening and paying attention; and so, therefore, the Congress tried to appropriate us to take further action.

    Mr. PICKETT. Has that type of pressure been removed now?

    General BABBITT. Yes.

    Mr. PICKETT. Any of the other services want to comment on this?

    General COBURN. If I could just comment, Mr. Congressman. After the Cold War when we came out of Europe, we initiated a massive program called Retrograde Out of Europe. We used it really in the National Guard. We set up guard facilities throughout our country that processed repair parts and what we found is we did have excess. We had a tremendous amount of excess, and I think that because of that the Congress recognized that we needed to do something, the Department recognized we needed to do something. In fact, if you go back and look at the old GAO reports, the last one that was done on the Army was 1997. They indicated we had a real excess problem. So I think, as General Babbitt said, all good intentions to get the inventory down to where it ought to be but along the way we made some mistakes.
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    Mr. PICKETT. When you sell off the excess inventory just to get rid of it, where does that money go? Does it go back into your accounts or some other account?

    General BABBITT. It is used by—to the extent that it can be sold, it is used by DLA to pay for the costs, which are extensive, of demilitarizing much of this property. Much of it has to be demilitarized, in fact, destroyed before it can be disposed of. Therefore, a lot of it incurs a cost which has been significant. The money that is recovered from that sale can be used to offset those costs, but I think any surplus above and beyond that goes back to the Treasury.

    General COBURN. That is correct, it goes back to the Treasury, Mr. Congressman.

    Mr. PICKETT. Not available to replace your inventory.

    General BABBITT. No.

    Mr. PICKETT. Thank you. Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Pickett.

    Mr. Rodriguez.

    Mr. RODRIGUEZ. I know in the last few years there has been a great deal of transition and I know you mentioned, General Babbitt, and specifically in terms of the Air Force, I know—I just want to get a better, clearer picture in terms of as a closure for example of Kelly, I know the last closure—the last 4,000 people in Bandera County we are told were given notice on the engine and a lot of that is going to be transferred to Tinker. I know that that creates a great deal of difficulty as you move into that transition as well as what has gone to Ogden and Warner Robbins. And I am trying to get a picture because I know I am told that at Warner Robbins we have 16 C–5s sitting out there and they are not being worked on or they still are behind and I am told, well, it is part of the fact that they still have 3200 people that they haven't hired to meet the demand and the fact that they need parts.
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    So at what point is it your fault in terms of not producing the parts or their fault in terms of not making it happen? I just want to get a better picture in terms of where the blame or the responsibility needs to lie as to whether those individuals are ordering the stuff appropriately at the appropriate time or if the demand is too much. That is the first question.

    The second one, I just wanted to get some kind of feedback. I know there has been some comments in terms of the Y2K thing and making sure, and I know that that has created some difficulty in terms of providing parts, and that kind of thing and that aspect and I know we have been assured that everything is okay in terms of Y2K. I just—that goes for everybody in terms of making some comments to make sure maybe what precautions we have taken, although despite the fact we are told that everything is going to be okay I want to see if you could make some comments as it relates to that.

    General BABBITT. First of all, the C–5 workload at Warner Robbins and the spares managers all work for me so I guess I can't point the fingers at them if they can't point the fingers at me. We are all the same organization. I think the C–5 workload, the program depot maintenance workload that was won through private-public competition and moved to Warner Robbins has been accomplished very effectively. The transition was complete basically at the end of 1998, and they have continued to produce airplanes more or less according to schedule. However, this year as you probably know, we discovered a structural problem on the C–5. It has to do with a horizontal stabulator bracket, and that is having to be replaced on every airplane that comes through. It is a rather extensive structure repair, and it has disrupted the flow of the program depot maintenance effort. It is an absolutely necessary repair. We have to do it. You are right from the normal plan of about 11 airplanes at Warner Robbins; we have now got 16 airplanes on the ground there and this is stressing our customers' air mobility command who needs those airplanes, and it has caused an increase in workload above and beyond what was contracted for.
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    But I think we are going to work our way through it. We do have a plan that by the middle or summer of next year, we should be back down on the ramp with about the same number of airplanes as before. I really think that the depot maintenance folks at Warner Robbins have done a good job of managing this program. There are some difficult challenges.

    As far as spare parts support, we have trouble particularly with landing gear on the C–5 and that is—but it is as much a technical problem as anything else. It is currently not a funding problem, and we have to work our way through that. With regard to Y2K, I don't believe—to the best of my knowledge, we have not had any spare parts problems that are results of Y2K and we don't expect any. We have taken each of our logistics and financial systems of the Air Force and gone back through a thorough review and certified we have taken all the actions to correct any Y2K deficiencies. There were some. They were found and they were corrected.

    Furthermore, we participated with the other Services under DOD's leadership several months ago to do what was called an end-to-end check to make sure that as one system passes information to another system, that in that handoff there isn't a problem created by Y2K. All of our systems passed and then just recently, we participated with the other services under the leadership of the Joint Chiefs of Staff in a contingency test where we in effect said even though we have certified these systems, let's turn them off anyway and see if our people know how to go through the manual procedures to support a wartime effort in some prioritized way, at least to give us some time to fix those systems and all of the services successfully passed that.

    I don't think we are going to have Y2K problems, but swearing to that might be a little difficult. There is always some unknown unknown out there.
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    Mr. RODRIGUEZ. In January we can come back.

    General BABBITT. I am pretty confident we have done what we need to do to make sure we don't have Y2K problems.

    Mr. RODRIGUEZ. Yes, sir.

    General COBURN. Mr. Congressman, I agree with what General Babbitt said. Dr. Hamre has led a personal effort in this Y2K area. All the services had to submit their plans. We have done the end-to-end testing. In my command, we had 149 systems that we had to test. We did that. We are going to go a step further. We have been out to our contractors as well to see how they are doing in terms of Y2K and whether or not we can expect spares problems there and don't think we will have. And again as has been said we have done the contingency plan as well and participated in a contingency testing. I think overall we have done about as much as can be done in this Y2K area. Again, I wouldn't bet my life that we wouldn't have any problems either but I think we have done about all we can do. I feel pretty confident about it.

    Mr. RODRIGUEZ. We are not getting this last effort to say, well, we need a little more money to make sure, okay.

    Admiral AMERAULT. We are not asking for money on it, sir, but we have 500 what we call mission critical logistic systems which we have tested and we have come up with the fixes for and fixes are in place with the exception of five. Actually the systems are all in place. Five units, and those are five ships and aircraft squadrons that have been deployed. When they return, they will get that computer upgrade or software upgrade before the end of the year. That will bring us up to snuff on the system. We have worked with suppliers of parts to be sure that those suppliers continue to manufacture parts and they don't have a Y2K problem that allows or does not allow them to continue the manufacturing of the parts that we need. We have also worked with manufacturers to look at parts themselves that contain Y2K critical items in them so that they can bring those up to snuff.
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    So we feel we have pretty much got it across the board, and we have looked with our allies at the interoperability and Y2K problems with regard to that, and several of our allies do rely on our logistic system; we are working with them to make sure everything is going to work copacetically at the turn of the year and also, if it doesn't, we have a failsafe. We can do fax, phone, whatever and get the parts out.

    Admiral STONE. We took a similar strategy as the Navy, three parts to it. First, we looked at 87 of our logistics systems and verified through the end-to-end tests they were Y2K compliant. Also with our very large supplier base, we went to each of our suppliers and had them verify that their processes were Y2K compliant. The last step was to take a look at the individual items that we managed. Of course, we started with about four million items. We narrowed it down to about 800,000 items that we thought had a potential to have something embedded in the part that could be a Y2K problem.

    Mr. RODRIGUEZ. How many items? 800,000?

    Admiral STONE. Yes, sir, about 800,000. We narrowed that down now to—actually all of them have been verified that there should not be a Y2K problem there. We took one last step, though. We took a look at the items that we thought would have the highest readiness impact, and we went and looked at what our supply posture was. We were specially concerned also with the prime vendor items where we did not hold inventory and the vendors would hold the inventory, and we got another verification that the systems were compliant. On the items that we have in inventory, we have narrowed it down to about 40 items where we felt we may not have adequate stocks in inventory right now. If there was a Y2K problem, we have worked with the suppliers and we have work-arounds that we should be able to meet any kind of contingency if one should pop up with those 40 items.
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    Mr. RODRIGUEZ. I am sure that no matter what, the Marines are ready one way or another, right?

    General MCKISSOCK. I cannot recall an issue that has inflicted more pain on more people. I think we are ready.

    Mr. RODRIGUEZ. Let me follow up just on one—.

    Mr. BATEMAN. If you could do that quickly.

    Mr. RODRIGUEZ. Just follow up on the—you mentioned a difficulty that you encountered on the C–5. Is that on the engine? Was that just something that came up recently or what?

    General BABBITT. The problem that had affected the flow of airplanes through Warner Robbins wasn't the engine. It was landing gear. And it came up about—well, in fact, it may have come up before the transfer of the aircraft but it is pretty much resolved now.

    Mr. RODRIGUEZ. But you mentioned that there was a defect on an item?

    General BABBITT. That is on the horizontal stabulator bracket. It is a structural problem and it has to be replaced.
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    Mr. RODRIGUEZ. When was that realized or recognized?

    General BABBITT. I think it was last fall.

    Mr. RODRIGUEZ. How long has this been in operation, the C–5?

    General BABBITT. Since 1968 or '9.

    Mr. RODRIGUEZ. This is when we found out about it?

    General BABBITT. This is a structural fatigue problem, the kind of thing you find on old airplanes.

    Mr. BATEMAN. Mr. Jones.

    Mr. JONES. Mr. Chairman, thank you very much. I will have questions for General McKissock and General Babbitt and I have got to tell a very quick story because we are short on time; but you will understand the reason for this because at Seymour Johnson Air Force Base in December of 1998, I was coming out of headquarters and I had a young airman who happened to be going in and I stopped and introduced myself, and I thanked him for his service to our Nation and I also shared with my colleagues who had voted to give the military a raise I think of 4.1 or 3-point-something at the time. I will never forget what he said. He said, Congressman, I want to thank you and your colleagues for giving us this raise but he said I would rather have the money to have parts for the F–15 that my crew and myself are supposed to keep in the air.
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    Also, General McKissock, in the year before, a good friend of mine was an F–4 pilot in Vietnam named Jack Trabuca, who was a colonel in the Air Force. Jack runs a lower flying service and he had been telling me for a year, he said, Walter, I have so many of the pilots at Cherry Point coming over here and flying on the weekend because they can't get enough time in the air. And so he said, would you meet with two of these pilots? One was a captain. One was a major I met at the airport. Both told me that within a year they would be out of the Marine Corps when they had planned to make a full career out of the Marine Corps because they were getting such—time was being cut almost in half as far as time in the air. And in addition, there was problems with parts.

    So my question to you two gentlemen is this and you might have already spoken to this. It might be in your testimony, but the morale of the men and women at the bases who are responsible for keeping those planes in the air as well as those pilots who fly the planes and I wish you would say to me that you believe that the system is better, that you are getting the parts they need down to them sooner than maybe a year or two ago or that you still have this problem because of supply and orders. I wish you both would speak to that, please.

    General MCKISSOCK. Sir, that issue was not addressed in my testimony. I have talked to General Nyland as recently as last week about these issues. I would prefer to give you a written statement later for the record on those issues to give you specific details.

    [The information referred to can be found in the Appendix.]

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    Mr. JONES. I would appreciate that.

    General MCKISSOCK. I would say one thing. Last week we had a general officer symposium within the Marine Corps in Washington where we brought all the flag officers that were available into town. One of the issues that we talked about was aviation officers retention and the issue you raised about aviation maintenance. I would prefer if—prefer to give you a written statement, sir.

    Mr. JONES. Mr. Chairman, I would very much like the committee to have access to that.

    Mr. BATEMAN. The committee would be very happy to have that and it would be very useful.

    [The information referred to can be found in the Appendix.]

    Mr. JONES. General Babbitt, if you could very quickly speak to that also, please.

    General BABBITT. Our readiness indicators, major aggregate indicators, have declined since 1991; and a significant portion of that, I said in my earlier statement, half of that can be attributed to the reduction in spare parts support. That was a pretty steady decline from '91 until '99; and I am afraid the only answer that I can give is that in '99, we were able to turn around the decline and make a very, very small improvement in spare parts support. And so that is not much of consolation to the same people I hear say exactly the same things. The one thing that is encouraging to me and therefore a reason I am optimistic with you is that this year the Air Force invested $500 million that as we were doing business before we would not have invested. But having recognized it, we have internal problems in our process and allowed our inventory to get low, we invested $500 million. One hundred and fifty of that was invested in additional repair assets we already owned that were sitting unserviceable, and 350 million of it was invested in new material that we have to order. We have contracts in place where it won't take two years for most of that material to be delivered. Some will. As I said in my statement, the largest month of delivery from that 350 million buy is December of this year. It is spread over many months but the peak month for delivery of those parts is in December. I would expect that by the spring, we will start to hear some people at least at those Air Force bases like Seymour Johnson begin to say, well, it is starting to get a little bit better.
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    Mr. JONES. I am delighted to hear that.

    Mr. BATEMAN. Thank you, Mr. Jones. I suspect the committee will need to recess because of the ongoing vote and the time is winding down for that. We will get back as soon as we can and then we will have Mr. Spratt—.

    Mr. SPRATT. Mr. Chairman, I don't want to be able to come back. I don't want to retain the witnesses.

    Mr. JONES. Mr. Chairman, I have one more question when we come back.

    Mr. BATEMAN. We will return as soon as we can. Whoever has questions will come back with us.


    Mr. BATEMAN. Mr. Jones had a further question. We will recognize him.

    Mr. JONES. Thank you, Mr. Chairman. I would like to ask the Navy, Admiral Amerault, I guess, or Admiral Stone. I am still perplexed and disappointed that two years ago a decision was made to take the V–22 engine, which I had the thrill to fly in about a month ago, and what a machine it is and delighted that we have made a commitment to expand the fleet of V–22s because it is the fighting machine for the services, in particular the Marine Corps, in the years ahead. And a year or two ago I was quite upfront on the fact that the Navy—well, actually Colonel Schmidt, made a decision to designate the engine as commercial when I will believe to the day I die that any fighting machine that is needed by our services should not be commercialized. It should be such that the depot which it would be under the orders of the services as to say to the private work force you have got to take care of this engine. But that is neither here nor there. I didn't win that one.
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    But my question to you is that as we go forward with the V–22, can you give this committee or maybe just myself, I might be the only one interested, can you give me an idea of how we are going to work with the contractor to ensure that the parts that will be needed for the V–22, that the system will be a system that is efficient and a system where we can expedite the needs of the parts for the V–22. Either Admiral, I would appreciate it.

    Admiral AMERAULT. Mr. Jones, I think a detailed answer to your question, we could probably better do with a briefing or with a statement for the record but let me just say I think our hopes are that because this is an Allison engine, it is an engine we can possibly find in the commercial sector in great numbers and so forth that the risk of trying this kind of a new development in terms of logistically supporting this aircraft is a risk that may be worth taking for the efficiencies and savings; and it may even prove to have better readiness, but that is all, as you say, unproven.

    So I think we do need to get back to you on what we think is necessary in terms of guarantees to minimize that risk and so forth and what we are thinking with that regard. The contract has not been signed, I don't believe.

    I am not—this not my whole area of expertise so I would like to get back to you on that. If Admiral Stone has more than I do, I will let him take it .

    Admiral STONE. The only thing I could add is if the decision would be to go back to an organic, then DLA would be involved with providing the repair parts for that engine. I know that we have been working with the Navy program office to see how this is going to turn out; but at this point if it stays commercial, then we would have very little involvement in it.
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    Mr. JONES. Mr. Chairman, I will close but if I could, Admiral, if you would put me on your list, I would appreciate having that briefing sometime in the near future. Thank you.

    Thank you, Mr. Chairman.

    Mr. BATEMAN. Thank you, Mr. Jones. Mr. Chambliss.

    Mr. CHAMBLISS. Thank you, Mr. Chairman. General McKissock, General Babbitt, as you two folks know, I take great pride in the two facilities we have in our district. Those folks are doing a great job under your leadership. We appreciate that good, strong, positive leadership you are providing at our depots.

    I am a little bit concerned about the fact that we have thought that we were addressing the spare parts problem, particularly not just in the authorization bills but in the—more particularly, in the supplemental that we had back in the spring, Kosovo supplemental; and it looks like after what we did it still is on the decline. And as I recall, last year we reduced the depot outsourcing status to 50/50. I don't know whether there is some correlation, and going from 60/40 to 50/50 that has not necessitated buying more parts or what it is. Some of us have had a conversation about changing that back to 60/40 or possibly going to 65/35 and I just wonder and I address anybody that wants to comment on it, is there any correlation between going from 60/40 to 50/50 with our depots and the failure on the part of DOD to spend this money, to spend specifically-allocated spare parts? Anybody that wants to comment?

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    Mr. LYNN. Let me, Mr. Chambliss, comment on one part of your question and let the others talk about the 60/40, 50/50 issue. But we talked with the chairman before you were able to arrive about the supplemental funding. That supplemental funding for spare parts was actually divided into two pieces. There was a fiscal '99 piece which has been released and obligated by the materiel departments and there is a fiscal 2000 piece which as soon as we have—we are just in fiscal 2000 now; and as soon as the Appropriations conference is completed, we would move forward on that funding as well. In other words, the point being this was two-year money. No money was held. The fiscal '99 was released in fiscal '99. Fiscal 2000 money would be released in fiscal 2000.

    Mr. CHAMBLISS. Well, I think, as I recall, we addressed an issue that you all had brought to us with respect to how much money you needed. I didn't remember it was done that way but if that is the case, perhaps we should have allocated that money a little bit differently, put more of it in '99; but I understand what you are saying.

    Mr. BATEMAN. Could I follow up on that? The spare parts piece was 1.1 billion. Three hundred something million have been released and obligated. Did the supplemental delineate how much was '99 money and how much was 2000 money or is it just one pot of money but understood that it would be spread over two years?

    Mr. LYNN. The latter, Mr. Chairman.

    Mr. BATEMAN. So they didn't designate X percent in '99, Y percent in 2000. It is just one pot of money to be spent over two fiscal years.

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    Mr. LYNN. They built the supplemental in discussions with the Department and the Department identified the '99 piece and 2000 piece.

    Mr. BATEMAN. Thank you. Mr. Chambliss, anything further?

    Mr. CHAMBLISS. The question about the 60/40, 50/50, is there any correlation there? I assume you answered that but anybody else have a comment on that?

    General BABBITT. There is none in the Air Force, sir. The only change in our general plan for where work is done, whether it is done on contract or whether it is done in our organic depots, is the changes that we are implementing now is the result of the public-private competitions for the workloads at San Antonio and Sacramento.

    Mr. CHAMBLISS. I was going to comment, but my friend from Texas is not here, that C–5 work being done anywhere other than Warner Robbins we would never have discovered that bracket problem as soon as we did. Our folks take great pride in that.

    Mr. BATEMAN. It is nice to discover those problems in time. Anything further, Mr. Chambliss?

    Mr. CHAMBLISS. No, sir.

    Mr. BATEMAN. Mr. Hunter.

    Mr. HUNTER. Thank you, Mr. Chairman. I apologize for not making the first portion of this hearing. One thing that occurs to me is that one thing we sell with this reduced force is being able to get there firstest with the mostest. That is, having the ability to be wherever the conflict is around the world or potential conflict and move our troops and to project American power fairly quickly. The interesting thing is that we seem to project spare parts very slowly and if we had to—if we took the same goal that we have with moving American platforms and personnel into conflicts, which is to get there very quickly with lots of force, if that—if we applied that same goal to moving spare parts to the platforms that need them and getting those platforms up, we would lose every war because it takes us a long time to get them up. And it looks to me like because we have put some money in and the chairman has done a great job as other members of the committee and full committee have in moving money, it looks to me like this problem is to some degree a system problem, not just a money problem.
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    And I just had one idea. I have been talking to Mr. Sisisky. He pointed out—I understand that he pointed out how fast he could get parts for his car that was broken down, and I understand we have saddled you guys with lots of regulations and requirements that make it a little different from getting a part for your automobile. But I just wondered, Mr. Chairman, what the chances would be of maybe getting somebody from the auto industry or some other large supplier industry where getting spare parts to the units quickly is obviously a major part of their survival and maybe having a blue ribbon panel look at this thing and try to figure out how to move parts, how to get parts either made or procured as quickly as possible. Because I think one place where we lose the war, absolutely are a dead failure, at least it appears to me and, Mr. Chairman, I remember being with you out at Nellis Air Base there in Nevada and listening to the Top Gun school people tell us how many engines—how many of their aircraft were missing engines and it was pretty dismal.

    I have looked at the mission capable rates for every force that has come down—if I am not mistaken the Air Force is down to 74 percent mission capability. We had the Marines as low as 61 percent, Navy as low as 62 percent, which was dramatic to me. But that shows me a real failure in moving spares and moving parts. That has got to be more than money, isn't it?

    General BABBITT. Yes, sir, it is. That was part of my opening statement.

    Mr. HUNTER. What do you think—I apologize for missing the first part of this, but what do you think about having—the idea of having perhaps a blue ribbon panel that comes from part of the industry, of commercial industry where your survival depends on getting parts in very quickly and having them look at the system and maybe coming up with some recommendations? I know it is always easy to appoint panels to look—.
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    General BABBITT. I think there is hundreds of panels, to be honest with you, sir, right now.

    Mr. BATEMAN. Excuse me, General, I didn't understand your comment.

    General BABBITT. There really are a lot of panels already.

    Mr. HUNTER. Are there a lot of panels looking at the overall system, the big picture?

    General BABBITT. Looking at how industry solves this problem compared to the way we solve the problem, yes, sir.

    Mr. HUNTER. What is the biggest hangup in terms of moving from A to B; that is, moving at least to the speed with which industry moves its parts?

    General BABBITT. You will recall that in previous wartime engagements, it has taken us a long time to get parts to combat units. I also said in my opening statement that in the air war over Serbia with over 400, almost 500 airplanes engaged in combat and also with NORTHERN WATCH and SOUTHERN WATCH going on simultaneously, that we were able to supply all the parts for all of those engagements at a very high rate. There really were no real serious spare parts shortages for any of those engaged units; and we were able to track the movement of those parts, every one of them, and the average time from the time a part was shipped until it was received by the combat unit was 3.7 days.
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    Mr. HUNTER. But in doing that you moved down—the Air Force moved down in the last five years from an 83 percent mission capable rate to I believe it was 74 percent. Had a nine point drop.

    General BABBITT. Right.

    Mr. HUNTER. We understand you move the tip of the spear into that air operation but if you had a bigger operation and you needed those other 30 aircraft out of a hundred, they wouldn't have been able to get off the ground, would they?

    General BABBITT. The point I wanted to make with that, though, is that it is an issue of pipeline times and what industry has been able to do is look at their own unique pipelines and manage those to a much shorter, more responsive timeline and we are trying to do that too. I only mention the transportation portion of it because there is a case where I think we have had real success; but there are other parts, especially for reparable items, where we haven't made the same progress with the repair process itself and so in the Air Force, what most often happens is the parts are not available because it takes a long time to ship them anymore. They are not available because we don't have—.

    Mr. HUNTER. They can move with the speed of an airplane if you have them.

    General BABBITT. That is true. It is the ground handling that probably moves them as fast as anything, but it moves very quickly now and what we don't have is the parts to ship them. And my personal analysis of that is right now the biggest obstacle is not the availability of the reparable part but the availability of the repair parts; so whether it is a contractor repair facility or an organic repair facility, that we can keep those repair processes flowing and we have recognized that we have got a problem in the Air Force and invested this year a considerable amount of money to help overcome that.
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    Mr. HUNTER. Chairman, if I could ask one more question on that line because it is something we have been working on. I was in one of these companies the other day that has the computer, it changes basically paper drawings into—stuffs them into a computer in intelligent format; and you can take that computer, you can plug that into a machine tool and build a part. And they were making, I think, with this place they were making some old U–2 parts, although there are still some hand time on that. We have been involved in this committee in doing this computer conversion, the Automatic Document Conversion System (ADCS) stuff over the last couple of years and funding that partly here and partly in the procurement. Is that a promising way to get some of these parts that aren't—that—what we know, the vendor, and I understand the problem, you have got to build a unit, platform; that platform stays in service for 30 years and after a couple of years, the suppliers are no longer in business. So it takes—it is hard to build a part. I guess you have got to custom make it at a depot. You are going to have to custom make it somewhere unless you are just lucky enough it is one of the parts where the vendors still have a warm line.

    Is that a promising way and an inexpensive way to get these parts? Because I am really interested in how that is working.

    General BABBITT. Each of our organic depots and many companies around the country have those capabilities, rapid manufacturing from automated drawings.

    Mr. HUNTER. Is that technology advancing rapidly?

    General BABBITT. Mm-hmm.
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    Mr. HUNTER. Is it still pretty difficult to do?

    General BABBITT. I will give you a specific example. We have an overhaul facility at Ogden where we overhaul heavy landing gear for big airplanes like C–5s. The principal job that we do when the landing gear come in is disassemble them, measure all of the bearing surfaces which are usually oversized and elongated from wear, mill them out and then put inserts in and bring the tolerances back in line. That was a terrible supply problem to come up with the inserts. We have found a company, I think it is in North Carolina, now that we have set up a contract with so that we bring the landing gear and disassemble it and do the measurements, fax the information to them or send it to them electronically overnight; and the next day they manufacture all of those inserts to fit that assembly and mail it to them by overnight express. And it saves a tremendous inventory problem because now we don't hold the inventory and that materiel, and it shortened the flow time of the landing gear in through the overhaul process.

    So, yes, I think there are many cases where that is a very practical and cost effective way to do business. The cost of the inserts is certainly a lot more than they used to be when we bought them as raw stock, but we had to do a lot of machining to finish the product. We don't have to do that anymore. DLA has been given the task by OSD to bring all that capability together that we have organically in all the services and there is a catalogue of what capabilities we have so that we can—I can also find out, my people can, what the Army's capabilities are and sometimes we send our requirements to them.

    Admiral STONE. Yes, sir, we are working at DLA as part of the Rapid Access of Machine Parts (RAMP) program. Many of our items are probably better suited for this type of support. I believe at this point in time it has probably showed best application though for obsolete items and we are on a select basis trying to fill an urgent requirement. As the General said, when you look at the cost, the cost if you are trying to do this in mass production, the cost is probably not the best way to go but we are looking at it to see if there are other applications to that.
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    Mr. HUNTER. Thank you. Thank you, gentlemen. Mr. Chairman, just reflecting on that 60 percent mission capable rate for the Navy, for example, to me that is where we are losing the war and that is going to be a contributing factor in problems we are going to have in the future. So I hope that we have—this problem can be fixed and maybe not just with money but from real system changes.

    Mr. BATEMAN. Let me comment as we bring the hearing to a close because I know some of you have obligations that you are being pressed to be able to leave. I am encouraged by much of what I have heard today. We have problems. You admit there have been problems and you are working on those problems. I certainly hope that is going to bear fruit and that when we go to the field and we talk to the people who operate this equipment and who perform so well for the country, that we will not hear the kind of complaints that we historically over the past four, five years have been hearing; and that indeed the pipeline is going to deliver measurable quantifiable results in terms of the effectiveness and mission capability and readiness of the equipment that the people that we depend upon and are so very proud of, we will have the benefit of, and it may even have something to do with their morale and their willingness to stay in the uniform that they have been proud of and we want them to remain proud of.

    I thank you all. We may have some questions that we will submit for the record, but you have the thanks of the chairman and all the members of the committee for your testimony and your appearance today. We look forward to seeing you soon. Call upon us if we can help.

    Thank you all.
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    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]


October 7, 1999
[This information is pending.]