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DoD News Briefing: Dr. John White, Deputy Secretary of Defense

Presenters: Dr. John White, Deputy Secretary of Defense
November 04, 1995 5:00 PM EDT
(NOTE: Participating in this briefing were Dr. White; Dr. Paul Kaminski, Under Secretary of Defense for Acquisition; Gen. Ronald R. Fogleman, Chief of Staff , U.S. Air Force; and Capt. Mike Doubleday, DATSD/ PA.)

Captain Doubleday: Good afternoon.

Let me give you the sequence of events here. Dr. John White, who is the Deputy Secretary of Defense, will lead off the press conference this afternoon. He will be followed by Dr. Paul Kaminski, who is the Under Secretary of Defense for Acquisition. And Dr. Kaminski will be followed by General Ronald Fogleman who is the Chief of Staff of the Air Force.

Dr. White: Thank you, Mike. Good afternoon.

I'm pleased today to announce the decision on the nation's future airlift force structure. The decision was reached after a thorough review of the available airlift options by the Defense Acquisition Board that was convened earlier this week on October 31 and November 1 of this year.

After receiving the recommendations of the Acquisition Board, Paul Kaminski brought the decision he proposed to make forward to the Secretary -- to Secretary Perry and to me. And we have approved that decision.

Our decision is to plan, program, and budget for procurement of 120 C-17s from McDonnell Douglas. The production contract is valued at approximately $18 billion. We have also decided to defer further effort on a modified Boeing 747-400 Non-Development Airlift Aircraft -- the NDAA -- until completion of a Civil Reserve Air Fleet enhancement study that will be due in June of 1996.

This is a good news story. The C-17 program was in deep trouble three years ago, and I would like to commend the Air Force, particularly the acquisition staff and field acquisition personnel, for creating strong airlift options for the Department -- options which we did not have two years ago.

Our Acquisition Board process has operated just as it was designed to do, with very effective and timely action by an integrated set of product teams.

I also want to commend the contractor -- McDonnell Douglas -- for its responsiveness. They got the cost down and the quality up.

Now I'd like to turn it over to Dr. Kaminski.

Dr. Kaminski: Thank you.

As Secretary White said, this really is a good news story. The story involves three systems that we ended up looking at in combination. We started years ago with the C-17 as our foundation program. This was the planned program from day one, but we ran into serious problems with the program in terms of delivery and performance. So, in parallel with moving to get the program on a sound foundation, we looked at alternative activities.

We looked at reopening a line for the C-5 and supplementing that line with a C-33 aircraft or a commercial 747-400. The C-33 stands for an Air Force-operated, modified 747-400.

The good news piece of this story is that with the restructuring and the improved performance of the C-17, we now have some real options to select from among.

We used the following in the DAB decision process that we have just completed. We looked first at the performance of the C-17: the cost of the program; the history of that cost; the schedule of delivery; and the performance. In this case, it's not paper performance, it's the real performance of the aircraft as we've tested it in our operational test program, and in a stressing reliability and maintainability analysis program.

We looked at a variety of Non-Developmental Aircraft and the necking down in that process came down to two alternatives to be looked at: a 747-400F which has widened doors and strengthened floor to be able to carry heavier cargo; and the C-5D. These were both characterized by performance predictions that were used in the analysis as opposed to hard performance derived from the C-17.

And then we looked fundamentally at requirements. We have conducted, for more than a year, a very serious and in-depth mobility requirement study and updated that with a Bottom-Up Review update, the so-called "MRS-BURU" -- the Mobility Requirement Study, Bottom-Up Review Update. This established the fundamental airlift -- strategic airlift needs that we have.

We, then, using the performance data and these requirements, conducted two analyses. The first, the Strategic Airlift Force Mix Analysis, looking at the overall strategic airlift needs; and then a second, a Tactical Utility Analysis, looking at the special features associated with short fields -- the flexibility associated with intra-theater kinds of operations and unit operations.

That led to a DAB decision on an integrated airlift force posture. That DAB procedure was our usual DAB procedure in which we had participation by myself as Chairman; by Admiral Owens, the Vice Chairman; by our Program Analysis and Evaluation and Comptroller staffs; our Test and Evaluation organizations; and the services also participating in the DAB. We went through all the issues collectively, and we used, as a basis for our decision, negotiated contracts that are available to proceed on the C-17, and an independent cost analysis and an operator assessment of the program.

Next chart please.

As I said to start with, this is a good news story. What I've plotted here is the cost history of the C-17 program. At the beginning of the program you see we had a situation that was not under control. The bars show the target cost for each lot that was produced at the beginning of the program. The blue shows the target ceiling -- that is, the price above which we were not expecting to go. The dot shows our estimate at completion; that is, what we think the actual cost will be. As you can see, there were big differences in the early lot in the programs.

As we moved, now, through our various production lots, and moving to completing those lots, what you can see is that our estimated cost at completion -- and here we said with 97 percent, 79 percent completion -- lines up, not with the ceiling price, but with the target price. So we have a consistent and a predictable cost base now to move with, with the program.

Next chart, please.

This is a look at the schedule of the program. In 1993, we were operating close to six months late on the deliveries of the aircraft. Over the past two years, this performance has now been improved to the point where we're seeing deliveries made either on time or as early as a month early. The last ten deliveries in the program have been made ahead of schedule.

Next chart, please.

This is the key bottom line -- and that's the performance. This chart explains three different parameters. The threshold is the minimum characteristic we're looking for in our acquisition programs. That's the minimum performance we've signed up to achieve in our contract with the user. The objective is the other end -- the performance we'd very much like to see. And so we're satisfied, generally, with performance that's ranging somewhere between the threshold and the objective. The bottom line here is that the C-17 works.

I've had the opportunity to fly in the aircraft myself. We've rung it out, and through ringing it out what we see are the checkmarks. We are exceeding the threshold in all cases. In most cases, we're up to the objective value of the performance that we're looking for in the aircraft.

So at this point, our assessment was that we had a real alternative to look at in terms of having the C-17 be a viable option in the force mixes that we considered.

Next chart, please.

This chart now comes back to look at the fundamental requirements. From our MRS-BURU, we determined that we needed a minimum of 49.4 million ton miles per day of delivery. What I wanted to show is how this has built up. Nearly a third of that is provided by our CRAF fleet. This is provided to us at very attractive terms. This CRAF program is very high leverage for the Department, and it's something we want to work to maintain. I'll show you that leverage in a minute.

The next piece is provided by slightly over 100 C-5 aircraft; KC-10s; and, then in our current fleet, about 240 C-141s. The C-141s are aging. We expect them to go out of the inventory as indicated here. We will be making up for those C-141s by this force of C-17s. This plot shows the contribution of 120 C-17s.

Next chart, please.

To look at the leverage that I spoke earlier about with CRAF: at a cost of just slightly over $200 million per year, we are able to draw upon a CRAF fleet that can deliver 17 million ton miles per day -- about a third of that overall requirement that I spoke to earlier.

For a comparison purpose, if we looked at putting into the Air Force inventory the modified 747, 18 of those would deliver about 3.7 million ton miles a day -- about a fifth of what we get from the CRAF force. But the annual operating cost would be comparable, or, in fact, slightly more. So it illustrates about the five-to-one leverage we can get with CRAF and why CRAF is desirable for our operations.

Next chart.

As we were doing this analysis, we came to find that one parameter here is really very key. It's something called "MOG," or Maximum Aircraft on the Ground. What this parameter has to do with is our ability to on-load, off-load, refuel, operate on the ground. When we see ourselves in contingency situations, here is what we find -- to give you some feelings for the importance of this parameter.

During DESERT STORM, for example, this is what Torrejon Air Base looked like in Spain. We have incidents of people trying to operate in crowded conditions, such as this, where we actually had to off-load aircraft on active runways. So the ability to get in, and move in confined spaces, and quickly on- and off-load an aircraft is very key.

I would note for you that there was a recently completed Congressional Budget Office study on this issue. In most areas our conclusions would agree with the conclusions of the CBO study, but it's interesting to note that one of the key assumptions made in the CBO study was that MOG would not be a major issue. And, of course, as we've looked at this, this turns out to be a major issue. It was ignored in the CBO studies. It was a key factor in our studies as we looked through the result.

The next chart shows an illustration of this concept of MOG. It illustrates how throughput -- that is, the ability to deliver cargo -- varies in a small space based on the payload of the aircraft involved; the maximum aircraft we can operate here on the ground in a constrained area; and the cycles per day, representing the on-load and off-load capability as to how many aircraft can be moved through a given position per day. This comparison here illustrates a key point.

In the same operating area, one can fit -- and on-load and off-load -- eight C-17s in an area that only three C-5s or 747s could fit in. This is the result of a number of factors. One, the fact that the C-17 takes up the sort of space that a narrow body takes up as opposed to a wide body; and that it has the ability for cargo to be driven directly on or off as opposed to being lifted 18 feet in the air -- for example, on a 747 aircraft -- for loading through a side door.

The overall comparison here -- multiplying the payload times the number of aircraft times the cycles per day shows about a two-to-one -- in fact, slightly more than two-to-one advantage -- under these constrained conditions for the C-17 type of aircraft.

Next chart, please.

This was the type of complex analysis that went into our decision. I will not attempt to explain today all the entries on the charts. What I want to do is give you a feeling for the fact that there were forces looked at -- and we've seen some discussion of a force of 72 C-17s and 30 of the Non-Developmental Aircraft. What you see is this force doesn't end up meeting the principal requirements. The boxes are all red.

A key element that was missing here was dealing with this MOG factor; that is, the inability of that fleet with the wide bodies to be able to do the off-load that was needed.

The forces that we looked at really very seriously were forces below this box. The two most in contention were the force of 100 C-17s and 18 NDAA aircraft, and a force of 120 and zero.

What you can see here is that there is a discriminant in the performance of this 120-force; that is, more greens across the board. And there is not much of a discriminant in the cost. There's about a one percent "most probable" life cycle cost difference between these two forces as we looked at the cost of acquiring and the cost of operating these forces.

There is a big difference associated with this MOG parameter that I spoke of earlier. We did excursions, assuming we might lose some fields -- for example -- or some capability to off-load. What we found was that the force of 120/0 was a more resilient force.

So the bottom line here of a very complex analysis conducted by many people is that the two forces that come down in contention showed very little difference -- less than a percent difference in cost through their life cycle -- but the force of 120/0 showed far greater flexibility and tolerance to this key MOG parameter that I illustrated.

Next chart.

That assessment and meeting by our Defense Acquisition Board led to the following decision: to plan, program, and budget for 120 C-17s.

Q: For how long?

A: The period of time to buy will vary. We have several different options available to us. We will be looking at three different types of options. The Air Force Program Office has negotiated a program initially on a fixed-price basis -- and then on a convertible fixed-price basis -- to buy lots between 8 and 12 per year. I will also be asking to look at two multiyear programs: one, buying all 20 in one multiyear lot -- doing that at the maximum affordable rate; and the second, buying in a lot of 86 at the rate of eight per year, taking us through the FYDP.

Q: The 120 is in addition to the 40 we now have?

A: No, we would be talking about 120 total, or we would be talking about 80 more, in this case, and 46 more would go in this lot. The issue here is buying them in one lot at a time; that is, not year-by-year, but committing to a total lot of aircraft, as indicated. The reason for looking at the multiyear is the fact that we know this is a key program that we're going to want to proceed with, and this is a good program in which to establish a base of stability in which we agree in advance. We will look at these multiyear proposals that come back. We would expect substantial savings as a result of this long-term commitment. What we will do, then, is compare the results of the multiyear with the year-by-year negotiation that we've already done to decide whether the commitment to the multiyear will produce sufficient savings to warrant that long-term commitment.

Q: When you say 120... If the cost is $18 billion, is that for the 120? Or is that for the next 80?

A: The $18 billion cost is for the next 80, which will lead to a total of 120.

Q: Is 86 and /8 a year going to be a possible extension of the program, or is that just an alternative?

A: This 86 involves a buy of an additional 46 in one lot. We would continue to buy additional aircraft after that lot.

Q: 120 plus 46, perhaps? You have 40 now, right?

A: We will, this year, complete 40. We were talking about an additional 80 in this option for a total force of 120. We would be talking about a multiyear program -- a lot buy -- of an additional 46 in this option in one fell swoop through the FYDP; and then, of course, we'd have a complementary buy to follow.

Q: You're talking about 120 plus 46, or 46 out of 120?

A: We're talking about buying 120 in both cases -- total.

Q: Is one option to proceed year by year, or are these the only two options?

A: One option is to proceed year by year. That option has already been negotiated. We have that option in place. We used the year by year negotiated option when we computed the costs. Our opinion is that we're likely to get more attractive costs by looking at these multiyear commitments. If we do not get sufficiently more attractive costs, we won't exercise those options.

Q: When do you decide that?

A: In June of next year.

Q: All of this will be decided...

A: The particular lot strategy will be decided in June of next year.

Q: The $18 billion, is that figured on the 120 in one fell swoop, or is that in a multiyear...

A: The $18 billion was figured on the basis of a year-by-year buy. A total of 120, but making commitments year by year.

Q: So it could be conceivably less than $18 billion?

A: It could be less than $18 billion with a multiyear.

Q: What percentage less? How much less?

A: That's to be determined. We don't have the multiyear proposals in hand.

Q: A ball park estimate that you've looked at? You say you expect savings. Can you quantify what kind of savings you're talking about?

A: We might expect savings in the range of three to five percent, something on that order.

Q: Dr. White, if I heard him correctly, talked about also postponing the 747 decision until June of '96, and yet you've drawn up a pretty solid case here for not considering the 747s at all. Are we getting a wrong message here or a disconnect?

A: Let me get to that issue. I've given approval, now, to go ahead and proceed with the next lot of eight C-17s -- that will be before we can get to a multiyear. And I talked earlier about the attractiveness of CRAF. We at this point do not believe, as I showed you, it made sense to procure the C-33 for the Air Force inventory. But we do want to look at the following.

It will be important for us to incentivize and enhance CRAF. And something we will want to look at is to see whetherhat the severest critic would be interested in. I think the results of that test have really shown that the C-17 exceeded every key performance parameter. If you remember what we did, is we took 12 aircraft and for 30 days, we operated out of seven bases. We flew 513 missions -- 2259 hours. We had an overall launch reliability of 99.2 percent. We had a goal of 85.7 in terms of probability of successful mission completion -- we achieved 98 percent. We looked at a fully Mission Capable Rate for the ai example.

We're not convinced we can do this, but we think this is worth a serious look.

Q: There's no consideration of buying/lease-back -- we buy and lease to the operators?

A: I would not say we would rule that out as a consideration. What we're looking at here is a fundamental look at how we might incentivize CRAF to do this. So various options are open. As I said, it is not clear that this wide-body approach is going to work in CRAF.

Let's see if I can finish here.

Captain Doubleday: If you can just let Dr. Kaminski finish with his portion of this, then we'll do General Fogleman, and then we'll be glad to stick around long enough to answer all the questions.

Q: We'll have forgotten all the briefing charts by then, that's the problem. [Laughter]

Dr. Kaminski: We will need to do one other thing as well. This force of 120 will not be sufficient for some of our cargo drop missions, so we will undertake a plan to look at certification; and if certification of successful, consider modifying some portion of the C-5 fleet for the heavy airdrops as well.

That concludes my briefing. I'd like to introduce General Fogleman.

I'd like to say just one more word, though, about the team. In our Defense Acquisition Board process, I've spoken to some of you before about our interest in getting our cycle time down. As I indicated in the past, in 1994 it's been on average 23 days from when we had a Defense Acquisition Board until we signed an Acquisition Decision Memorandum. This year, in 1995, with the streamlined processes we've put into place, it's averaged 2.5 days. This is another one that's on the 2.5-day track. We wrapped up our second DAB meeting on Wednesday of this week.

I've seen just superb performance from the whole team who have worked on this effort -- from the Defense Science Board, from Secretary Deutch who was my predecessor who was involved in the restructuring of this program with the DSB. The program manager, General Kadish, has done just a superb job in bringing this forward, as well as our program executive officer, General Childress. We've had wonderful support from our Air Force Acting Acquisition Executive, Darlene Druyan. A sound base of support looking at the requirements from our JROC and from each of our service participants, and in all the people who have done this extensive analysis. This has been the most comprehensive airlift analysis I believe that has ever been done. The OIPT -- the Overarching Integrated Product Team -- has really worked in a constructive way. So I want to thank all those people who worked so hard in this process.

Q: If you've done this all so quickly -- and I don't doubt that you have why is it taking seven months to come up with the next decision, which happens to be right in the middle of a Presidential election year?

A: The process that led to the DAB has been going on for months. These teams have been working to go through the various development of the options to bring them to the DAB. But the reason time will be required to do the multiyear is that to get real leverage in the multiyear, McDonnell Douglas will need to work with each of its suppliers -- looking at this firm commitment year by year to be able to extract the best terms and conditions. We made a very quick pass on that on the basis of two months, and it was not sufficient. So the recommendation brought forward to me was to take some time to do this well.

I would point out here that there isn't any deferral of decision. I've given approval to go ahead in the next lot. Our only issue here in this decision is in what size lots do we want to buy this aircraft? Do we want to buy it a year at a time, or are we willing to commit to two different types of multiyear programs -- buying a smaller or a bigger lot?

Q: Can you tell us why you ruled out the C-5? You didn't mention that in your briefing. That was an option going in, you didn't say why it was dropped out.

A: It didn't end up being a cost effective option in the analysis -- to reopen the line.

Q: Is the option alive to go to 140?

A: We can always add to a multiyear or continue to buy year-by-year. The option is alive, and in fact that is an option when we come to it that we may wish to exercise. We haven't made that decision at this point. It's an out-year decision.

Q: The modification for the C-5A. Does that eliminate the idea of a stretch C-17 to replace the C-5A?

A: That modification to the C-5A... First of all, we have to certify -- to make sense -- to be sure that it's sensible to do, but it would be needed to supplement the current C-17 fleet. If it isn't sensible to do or if it isn't the most cost-effective thing to do, we would have to look at some other alternatives.

Let me ask you to stop now and introduce General Fogleman. Otherwise we'll be here...

Q: Just like to ask one production rate question. Will the production rate at Long Beach be affected? You've gone ahead with the next lot of eight aircraft. When would the production rate ramp up to 10 or 12 a year? Is that affected by your decision on the multiyear procurement? Or is that still on a schedule?

A: Not necessarily, because we have already negotiated options to be able to go between 8 and 12 per year with some limitations as to how fast you can go up, and imitations in going back down. So the issue that's open to us here really is a procurement lot strategy -- as I said, year-by-year, or do we want to buy in bundles as a result of getting more favorable prices.

General Fogleman: Obviously this is a tough crowd because you don't want to hear what I have to say. You want to grill the Secretary, so I'll try to make my remarks very short.

Last February when the Chairman testified before the Committee on National Security, he said -- and I quote -- "I can think of no programs more vital than those that are designed to enhance the strategic deployment of our forces." I think that's really what we're talking about here.

The single biggest defficiency in the Department of Defense is in the strategic lift area -- both in sealift and in airlift. And with the decision that is made here today, I think we've gone a long ways towards addressing that deficiency.

I'm very pleased to be able to join the distinguished folks that we have here to include Secretary Widnall, Dr. Kaminski. I'm particularly pleased that General Reimer, the Chief of Staff of the Army is here; and General Rutherford, the Commander-in-Chief of the Transportation Command. Because, while the C-17 is an Air Force acquisition program, it's a joint warfighting weapon system. It will be operated by General Rutherford and his people; and the chief customer is going to be General Reimer and General Krulak but certainly the United States Army is our big customer.

This will become the core airlifter for the United States of America. This nation has a unique capability to project force and power. No other nation in the face of the earth can do what we can do, and it's because we have had this combination of airlift and tankers put together. Our core airlifter is just tired. It's time to get rid of it, so this is the replacement for the old C-141.

It's demonstrated tremendous versatility. You're heard some of the kinds of tests it's been through. It's got militarily unique characteristics that will make it extremely valuable to us in a whole host of scenarios.

The test community did a tremendous job, in my view, of ringing out this aircraft. And in the end, I think it passed what I could only call the severest critic's test. Some of you have followed my involvement with this aircraft for some time. Last year when I went to the Hill to testify, I told everybody up there that the reliability, maintainability, and availability test that was going to be done in the summer of 1995 was the most stringent test that any strategic airlift aircraft had ever been put through. And I issued then an invitation to anybody in the Congressional Budget Office, anybody from DoD IG, OT&E -- whoever wanted to come down -- they should come down and be part of that test. We wanted them to take a look at how we laid that test out ahead of time; because, when it was over, I did not want to have us criticized for not testing the kinds of things that the severest critic would be interested in.

I think the results of that test have really shown that the C-17 exceeded every key performance parameter. If you remember what we did, is we took 12 aircraft and for 30 days, we operated out of seven bases. We flew 513 missions -- 2259 hours. We had an overall launch reliability of 99.2 percent. We had a goal of 85.7 in terms of probability of successful mission completion -- we achieved 98 percent. We looked at a fully Mission Capable Rate for the aircraft -- an objective of 72.5. In fact, 85 percent was achieved. We had a 91 percent Mission Capable Rate versus an 80.7 objective. We flew a Peacetime Utilization Rate of 4.3 hours per day versus an award requirement of 3.2. We flew a 12.7 versus a 10 wartime-sustained UTE rate during this test. And when we surged for 48 hours, we flew 17 hours a day, and this was against a 12.5 requirement.

What's really amazing about this is those numbers that were put in that RM&A were supposed to be for a mature weapon system, so these were raw figures that we achieved during this thing.

So the bottom line, from my viewpoint, is the C-17 performed as it was expected to -- exceeded our expectations, as a matter of fact. We welcome this acquisition decision because we think it's going to allow us to require what we clearly believe is the world's most capable, flexible, and versatile airlifter; and we're going to get it in the kinds of numbers that we need to be militarily effective.

With that I'll close, and let you get back to the...

Q: General, can you say how many of the C-17s will end up based at Charleston Air Force Base?

General Fogleman: Right now we're developing the plans, but ultimately I believe that we have planned 48 of them down there. The rest of the beddown we're still in the process of developing and unfolding. But what this decision does mean from the beddown perspective, is that we made a commitment that once we went beyond 40 aircraft, that we would then go open a dedicated schoolhouse out at Altus Air Force Base. So with this decision we will now start that dedicated school.

Q: General, Congressman Dicks' office, obviously, from Washington State, follows this very closely. They say they've been told that you plan to base two squadrons of these at McChord. Is that true?

General Fogleman: I do not know that Congressman Dicks has been told that. [Laughter] I mean, I don't know that. Like I say, as we go out there and look at the beddown options, the big driver has always been what the ultimate number of aircraft will be as we go down the road.

Q: What are the chances?

General Fogleman: McChord Air Force Base is a pretty key base for us out there. It's located next to an Army installation. I think it would make sense to put C-17s in there eventually, but I would like to not commit to total numbers at this time if I could avoid it. On the other hand, I'm not sure who it is that's supposedly told Congressman Dicks what it is that has occurred. So I'd just as soon leave it at that.

Q: General, what's the size of the crew for this plane? Will you have any trouble getting enough pilots and crew for 120 planes?

General Fogleman: Absolutely not. The size of this crew is three versus what we are currently carrying which is normally six or seven on a 141. This is one of the great savings in the life cycle cost of this airplane. We only have one loadmaster. We have no navigator, and we have no flight engineer. So that's a great savings for us, and that's what comes with modern avionics and systems.

Q: General, other than the numbers of C-17s ordered for Charleston, what are the other effects that are going to be on that base, since that's where they're going to be housed. Is there going to be expansion, economic opportunity, jobs, other such things?

General Fogleman: No, in fact, I think, because we are phasing the 141s out as we bring the C-17s in, I don't see that there will be any big peak or valley as we go through that. I don't see any big surge in that.

Q: What do you see as the likelihood of going beyond 120? What will determine that? We've already seen some preliminary studies or some other studies talking about that under certain scenarios you'd need 150, 160 C-17s. What...

General Fogleman: I think, as Dr. Kaminski says, this is going to be an out- year decision, and it's going to be made based on what's going on in the world. That's one of the advantages of either one of the options that he has asked us to go examine. We do not come to the end of production on this aircraft until after the turn of the century, so we will be five years on down the road. We'll have a little better visibility out there. Lots of variables in this.

For instance, we're taking steps to try and keep the C-5 fleet as viable as long as we can. But if we were to have some kind of catastrophic problem with the C-5s, that might be a decision. It may be driven by world events. It's any number of things. But we think that we've got a win/win situation here because it gives us the opportunity to make this decision in the out-years, and we're not forced to make it right now.

Q: Sir, if the U.S. was going to Bosnia two weeks from now to implement the peace force. Is the C-17 ready to do a direct delivery flight from Charleston to Dover to Tuzla?

General Fogleman: Yes.

Q: Bringing in one of your tanker airlift teams...

General Fogleman: Yes. I can tell you the C-17 MOG at Tuzla is three aircraft -- to give you a feel for the fact that we've been seriously looking at this.

Q: Is it very likely that we'll get involved in Bosnia... [Laughter]

General Fogleman: Skip Rutherford's the guy that you ought to ask that question to, but I will tell you as the Chief of Staff of the United States Air Force --who is responsible for organizing, training, and equipping forces to turn over to that CINC... I would tell him that the C-17 force -- that achieved initial operational capability, flew the RM&A -- is ready to go to Bosnia. Depending on how these peace negotiations come out and depending on the time lines that General Joulwan is faced with over there, this may become, just as it did during the recent hurricane operations down in the Virgin Islands, it may become the weapon system of choice. As we found out down there when we were operating a very small runway, your option was to take the old C-130 in there -- that can take 10 to 15 tons at a time -- or take the C-17 in with a much greater payload, get things on the ground faster, bring relief to those people.

In addition, of course, the C-130 doesn't have the outsize capability. One of the things that we're going to probably want to do in Bosnia is get real fire power on the ground rapidly and this would give us some advantage to do that. But General Rutherford is the operator. I equip him and I think we've done a good job here.

Q: Dr. Kaminski indicated that the MRS-BURU -- as he called it-- airlift requirements, have brought the total requirement down to 49.4 million ton miles a day. The canonical one was 60 million ton miles a day.

General Fogleman: That was 66.

Q: That was to be one giant major contingency with huge pre-positioning. Now with two almost simultaneous regional MRCs where it was acknowledged, from the start, that airlift capacity from one [place] to the other was critical, you managed to reduce this by 17 percent. How come?

General Fogleman: We've spent an awful lot of money on pre-positioning in the mean time. If you remember, MRS-BURU looked at the total equation of the defense transportation system. I happen to know a little bit about this, having done this before. But we've put an awful lot more Army heavy equipment on board pre-positioning ships; we've done an awful lot of pre-positioning of equipment on land -- both in the Middle East, and we still have residual stuff in Europe -- and we're in the process of building a pre-positioning stockpile in Korea. So it's a combination of those kinds of things that have allowed us to reduce this overall requirement. Plus the scenarios are just different. As you pointed out, 66 million ton miles was predicated to ten divisions to Europe in ten days; and now we have a different requirement.

Q: General, what impact did the heavy lobbying by members of Congress representing Boeing and McDonnell Douglas have on the decision, if any?

General Fogleman: They were not lobbying me, so... I hate to defer this to...

Q: Dr. Kaminski, you're going to have to answer to Congressman Dixon and the others who are going to be a little upset about this decision. What are you going to tell them? And would you say that the MOG was the defining factor in your decision?

Dr. Kaminski: The MOG was certainly a critical factor in the decision, and what we're going to tell them is the truth. We'll sit down and go through this analysis we have in exquisite detail -- it can be looked at.

Q: Does the $18 billion for the next 80 includes the cost of the engines and other government-furnished equipment?

Dr. Kaminski: Yes, it does.

Q: The [inaudible] director, Dan McNichol [ph], in his report to you, talked about the threat of competition as needed to keep the price down, and that McDonnell Douglas faces a substantial challenge to achieve its forecast performance. How did you accommodate his concerns in this strategy?

Dr. Kaminski: We have those concerns accommodated in the sense that we have options year by year. If we go down that path, we have the option not to buy in a given year, for example. We also have the ability to adjust incentives in the program. For example, profit based on performance.

Q: You mentioned in your briefing -- you showed a chart which showed that McDonnell Douglas was now meeting the target price.

Dr. Kaminski: Yes.

Q: But I notice that the lot price is actually going up from Lot II. That's rather unusual. Usually, with an 80 percent...

Dr. Kaminski: The early lot prices were going up because of our recognizing the problems in the program. If you look at the most recent lot prices, they're going down; in fact, they're going down significantly.

Q: Well, I didn't notice that on your chart...

Dr. Kaminski: Let's put the chart back up. These are the lots that were operating, this is the last lot authorized. I was now authorizing Lot VIII which is a lower price than this lot. What you were talking about was this behavior. This was while the program was in trouble. These are annual lots. This is the 1995 buy, '94, '93, '92. So what we saw was a price increase from '91 to '92.

Q: Do you have a target price in mind for Lot VIII which will ensure that that comes down?

Dr. Kaminski: Yes, we do. We have a target price for Lot VIII. I can't quote it to you without getting my figures, but we have established a target price for each of those lots, year by year through the program.

Q: Is Lot VIII in FY97, or is it FY96?

Dr. Kaminski: Lot VIII is in FY96.

Q: That budget already went up with a request for C-17s?

Dr. Kaminski: Yes, it did. The issue was authorizing the building of the last -- to spend the money. Yes?

Q: On the performance charts, it looks like the airdrop performance isn't quite meeting the objective yet. I'm wondering if you're going to be satisfied with what you've got right now, or if you're going to push it to meet the objective request.

Dr. Kaminski: The brigade airdrop?

Q: Yes, 40 CDS bundles.

Dr. Kaminski: The 30 CDS bundles is meeting the threshold. We believe we'll get very close to or, in fact, meet the objective. We have a little work to do there, but...

Q: What are you shooting for time-wise on that?

Dr. Kaminski: I can't answer that.

Voice: It would be within the next year. We have a solution to that.

Dr. Kaminski: My requirement was that we met the threshold in each case.

Q: [Inaudible] of the cost of this $18 billion figure compare to the cost of the other option packages you were looking at?

Dr. Kaminski: I had on the chart the life-cycle cost comparisons, not the acquisition cost comparisons. I don't have with me the investment -- only components. We can get those. I have them, I don't have a chart for them.

Q: [Inaudible] were they lower, and the choice was to go for the higher capability?

Dr. Kaminski: The comment I'd make on cost is that, when we looked at the life-cycle cost share for the options that were at all close, the difference in the price between the two options was within our ability to estimate. It was less than a percent.

Q: Is a fair way to summarize this: that Boeing was touting its 72/30 cut it's 98 percent solution, $29 billion?

Dr. Kaminski: Yes.

Q: Your solution is $38 billion. Is it a fair way to summarize this that the Pentagon determined to pay this $11 billion premium to get the advantage the C-17 would bring it?

Dr. Kaminski: Basically, the Boeing 72/30 option didn't meet the requirement. I don't think of it so much as a premium. What I looked at it, was the lowest cost option to meet the requirement. The cost to meet that requirement in life-cycle cost was $38 billion.

Q: Because they're saying it's a negative two percent for that [inaudible]. Dr. Kaminski: Our estimate for the 72/30 option was, in life-cycle costs, was $29.6 billion. There are lower life-cycle costs for even smaller forces, but none of those meet the requirement.

Q: One of the criteria lines in the chart -- the matrix that [inaudible] has been referring to -- was the impact on CRAF, and you have big red no's....

Dr. Kaminski: Yes.

Q: What is CRAF impact and why do the Boeing options have such big CRAF...

Dr. Kaminski: The impact on CRAF is, we put into the Air Force inventory and begin to operate wide-body transport aircraft that carry cargo similar to CRAF aircraft. We, in a sense, start to go into competition -- public versus private with CRAF. That's the issue reflected there. The more we do that, the more we are in the public/private competition with CRAF. To the extent we can do that, we'd rather do that through CRAF. That's why we're going back to do the study that I spoke about -- to get that leverage of aircraft in the CRAF.

Q: A couple of months ago General Rutherford said that the 747 would only be operated about 600 hours per year, just enough to keep the crews trained and that wouldn't impact on CRAF. How has that picture changed between then and now?

Dr. Kaminski: We'll let General Rutherford comment himself. My sense is that we're operating training only to minimize the impact on CRAF, but there will not be a zero impact. Let me invite General Rutherford to comment.

General Rutherford: The way I see the issue on CRAF is: number one, there are a number of CRAF carriers out there that perceive a commercial derivative airplane as being a threat to the business base which we offer them to get them to commit to the CRAF program. Real or not, they perceive that. That concerns me because, as we pointed out up here, CRAF represents about a third of our total capability. So I don't believe that we can operate an airplane at its full potential that would in some way threaten that CRAF commitment by the commercial carriers out there.

Consequently, we have decided to operate... If we had an airplane like that, we would operate at a lower level so there was not this perception of losing some of the business base.

Q: Do the commercial airlines threaten to pull out of CRAF if you do buy the Boeing...

General Rutherford: We received a number of letters expressing concern about it.

Dr. Kaminski: It was a factor to the extent that it was one of the red boxes in about seven.

Q: General Rutherford -- while you're there -- is the C-17 ready for Bosnia? Are you planning it in your "what- if" scenarios at this time? Is it going to be considered just like another...

General Rutherford: I would not hesitate to use the C-17 in Bosnia if we were required to.

Q: Is there a requirement for it, in your view?

General Rutherford: We're still in the process of doing the planning for a potential Bosnian operation. We are not at that level of detail, but if the question is the C-17 ready to go to war? Yes, it is.

Q: Dr. Kaminski, do you have some idea as to how you're going to convince the CRAF companies to buy 747s?

Dr. Kaminski: We're not sure we can convince them. The issue of the study is to see whether it is a productive path. I have no indication that's going to be a likely outcome, as I said earlier. We thought really what was worthwhile to do is to look broadly at enhancing CRAF and introducing the wide bodies would be only one of the things we would consider.

Q: How do you ensure you don't lose those aircraft like you did with PanAm? With PanAm, you modified a number of aircraft. PanAm went bankrupt, sold all the aircraft that had been modified for CRAF. How do you avoid that happening again?

Dr. Kaminski: You cannot ensure that. It's a year-by-year negotiation to keep the CRAF force.

Q: I wanted to ask a question about the stretch C-17 one more time. Is that, or is that not, the primary aircraft to replace the C-5A?

Dr. Kaminski: We really haven't decided yet about a stretch C-17. I haven't looked at it. Perhaps someone else has, I have not.

Q: This program started out rather disastrous. Is there any lesson learned by the Pentagon in terms of its procurement practices in the handling of this matter?

Dr. Kaminski: Yes. I think the lesson learned is the one we've all experienced in terms of seeing the convergence of our expectations and our realities -- management by integrated product teams in the way that has been done. There have been numerous management changes -- all really very impressive -- that have been undertaken within the structure of McDonnell Douglas. Substantial changes made in our oversight of the program -- our defense representative at the facility and our staff and the way they've operated. There have been good communication back and forth between the contractor and the government in the program and among the various government entities. Superb cooperation by the test force. It's really been a team effort -- working together on a common set of principles.

Q: I understand the 72/30 mix is a 98 percent solution. No military man or woman in their right mind is going to go for that because that two percent is scary to them. But the 86/30 did meet the outsize requirement. Besides MOG, what other influences told you that the 86/30 shouldn't be considered? That you would move right up to 118 and 120/0?

Dr. Kaminski: We are unable to complete the brigade airdrop with that mix. And the one issue I would come back and question is how one determines the 98 percent of the requirement; that is, the issue that I talked about that concerned me in this situation is this reduction of MOG. Simply losing a major base will have a big impact. As we do our MOG analysis, we try to take account of all the factors in operating at a base. There's some we can analyze, and there's some we can't analyze. As I've looked at that list of analyzable and not analyzable and had other experts in the field talk to me about it, their assessment and my assessment is that of the list of non-analyzable things, far more of them put you in the category of being worse off than being better off. It is when things start to happen to impact MOG, most of them are bad. That's why we did the excursion of 15 percent down to see what the impact would be. You can see that you don't even quite fully recover, you come very close with a force of 120; but with a 15 percent reduction in the MOG we anticipate, we're not even quite back. We're very close to being back with 120, but not quite.

Q: And the sensitive theater today is Korea, which is...

Dr. Kaminski: Northeast Asia is the sensitive theater.

Q: What impact does the NDAA program have on whipping the C-17 program into shape, and pushing down costs?

Dr. Kaminski: One of the things I try to do as an acquisition executive is have alternatives. Alternatives always help the process. A little competition goes a long way. More competition goes even further, so it was constructive. And it was an option that we were prepared to depend on. We weren't sure at the time we started this, that we would have a viable C-17 program.

Q: Was it a last-minute decision here? A call made at the 11th hour to go the 120, or was it you walked in on Monday morning or Tuesday morning...

Dr. Kaminski: It was a DAB decision together as we looked at all of this data.

Q: I may be far too young to be this cynical, but let me run this by you. [Laughter] Because of the disaster that I think we can all agree that the C-17 program was a couple of years ago, and the major bailout that DoD conducted, wouldn't it be a huge public relations problem if you didn't go for the 120 C-17s? Because that would be like admitting, well, our requirement isn't that stringent. Therefore, looking back, we probably shouldn't have stuck our necks out for these guys.

Dr. Kaminski: Not at all. I was prepared to erase the whole past, and I had to look at this decision not looking back, but looking forward. And that's what we did. We looked forward as to what was the best path ahead. We constructed what I believe were real alternatives, and picked from the best among them.

Captain Doubleday: Before we close, General Fogleman has just one final word he would like to add.

General Fogleman: The question was asked earlier about beddown of C-17s out at McChord, and I have had a note passed to me that says, in fact, there has been Congressional notification given that we will be bedding down up to 48 aircraft at McChord. So I can confirm that now. I could not confirm that earlier.

Captain Doubleday: Thank you all.

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