F-35 Aircraft Sustainment: DOD Needs to Address Substantial Supply Chain Challenges

DOD's F-35 fighter jet provides key aviation capabilities to support the U.S. National Defense Strategy. The F-35 is also DOD's most costly weapon system, with sustainment costs estimated at more than $1 trillion over a 60-year life cycle. The F-35's supply chain has a unique design. Rather than owning the spare parts for their aircraft, the Air Force, Navy, and Marine Corps—along with eight international partners and other foreign military sales customers—share a common, global pool of F-35 parts that are managed by the prime contractor.

You asked us to review the F-35 supply chain. This report assesses, among other things, the extent to which (1) F-35 performance is meeting warfighter requirements and any challenges related to the availability of spare parts; (2) DOD can effectively manage and move F-35 spare parts to support aircraft around the world; and (3) DOD can account for F-35 spare parts and their costs within the supply chain. GAO reviewed DOD and contractor documentation, analyzed performance data, and interviewed relevant officials.

F-35 aircraft performance is falling short of warfighter requirements—that is, aircraft cannot perform as many missions or fly as often as required.

Figure: F-35 Fleet Aircraft Performance, May 2018 — November 2018

This lower-than-desired aircraft performance is due largely to F-35 spare parts shortages and difficulty in managing and moving parts around the world:

Spare parts shortages and limited repair capabilities. F-35 aircraft were unable to fly nearly 30 percent of the May—November 2018 time period due to spare parts shortages. Also, the Department of Defense (DOD) had a repair backlog of about 4,300 F-35 parts. DOD is taking steps to fix these issues, such as improving the reliability of parts. However, it has not fully determined actions needed to close the gap between warfighter requirements and the performance the F-35 supply chain can deliver.

Mismatched parts for deploying aircraft. DOD purchases certain sets of F-35 parts years ahead of time to support aircraft on deployments, including on ships. But the parts do not fully match the military services' needs because F-35 aircraft have been modified over time. For example, 44 percent of purchased parts were incompatible with aircraft the Marine Corps took on a recent deployment. Without a process to modify the sets of parts for deployments, DOD may be unable to meet the services' operational needs.

An immature global network to move F-35 parts. DOD's networks for moving F-35 parts around the world are immature, and overseas F-35 customers have experienced long wait times for parts needed to repair aircraft. Without a detailed plan for the network, DOD may not be ready to support an expanding fleet.

In addressing these challenges, DOD must grapple with affordability. The Air Force and Marine Corps recently identified the need to reduce their sustainment costs per aircraft per year by 43 and 24 percent, respectively. DOD has spent billions of dollars on F-35 spare parts but does not have records for all the parts it has purchased, where they are, or how much they cost. For example, DOD is not maintaining a database with information on F-35 parts the U.S. owns, and it lacks the necessary data to be able to do so. Without a policy that clearly defines how it will keep track of purchased F-35 parts, DOD will continue to operate with a limited understanding of the F-35 spare parts it owns and how they are being managed. If left unaddressed, these accountability issues will impede DOD's ability to obtain sufficient readiness within affordability constraints.

GAO is making eight recommendations, including that DOD determine actions to close the gap between warfighter requirements and F-35 supply chain performance; and address challenges with deployments, global parts movement, and spare parts accountability. DOD concurred with all of GAO's recommendations.

The F-35 Lightning II aircraft provides key aviation capabilities to support  the U.S. National Defense Strategy. It is also the Department of  Defense’s (DOD) most costly weapon system, with sustainment costs for  the U.S. alone estimated at $1.12 trillion. The F-35 program is a highly  concurrent acquisition program, meaning that aircraft are simultaneously  being developed, tested, and fielded. As of February 2019, there were  more than 350 U.S. and international F-35 aircraft in operation at 16 sites,  with more than 3,300 aircraft expected to be fielded throughout the 60- year life cycle of the program. The F-35’s unique supply chain is central to  DOD’s strategy to sustain this growing fleet. Rather than owning the  spare parts for their aircraft, the program is designed so that the Air  Force, Navy, and Marine Corps, along with eight international partners  and other foreign military sales customers, share a common, global pool  of parts (hereinafter referred to as the global spares pool) that is  managed by the prime contractor, Lockheed Martin. Citing less than  desirable aircraft performance, in September 2018, the Secretary of  Defense directed the military services to achieve and maintain 80 percent  mission capability rates for their critical aviation platforms, including the  F-35 fleet, by the end of fiscal year 2019.

While the construct for the F-35 supply chain was intended to ease the  logistical burden on and provide economies of scale for the military  services and international partners, we have previously reported that the  F-35 program faces affordability, reliability, and sustainment challenges.  For instance, in 2014, we reported that annual F-35 operating and  support costs were estimated to be considerably higher than the  combined annual costs of several legacy aircraft, and that while DOD had  begun some cost-savings efforts and had established sustainment  affordability targets, DOD did not use the military services’ budgets to set  these targets. In 2016, we found that DOD faced risks that could affect  the F-35’s Autonomic Logistics Information System (ALIS)—a complex  system supporting operations, mission planning, supply-chain  management, maintenance, and other processes. In 2017, we reported  that DOD was experiencing sustainment challenges that were reducing  warfighter readiness, including delays of 6 years in standing up repair  capabilities for F-35 parts at its depots and significant spare parts  shortages that were preventing the F-35 fleet from flying about 20 percent  of the time. We recommended that DOD develop affordability constraints  linked to the military services’ budgets, develop a plan to address ALIS  risks, and revise its sustainment plans, among other things. The  department generally concurred with our recommendations, and has  taken some actions in response. In particular, in 2018, DOD established  affordability constraints based on the military services’ future budget  projections. These new affordability constraints will require DOD to  reduce F-35 sustainment costs per aircraft per year by 43 percent for the  Air Force, 24 percent for the Marine Corps, and 5 percent for the Navy.  See the Related GAO Products page at the end of this report for a list of  previous F-35 products.

You asked us to review DOD’s efforts to establish an effective and  accountable F-35 supply chain, to include the F-35’s global spares pool.  This report assesses the extent to which (1) F-35 performance is meeting  warfighter requirements and any challenges related to the availability of  spare parts; (2) DOD can effectively manage and move F-35 spare parts  to support aircraft around the world; (3) DOD can account for F-35 spare  parts within the supply chain and their associated costs; and (4) actions  DOD is taking to address supply chain challenges are consistent with the  established F-35 program sustainment strategy.

For each of our objectives, we reviewed relevant F-35 sustainment and  supply chain data, plans, program briefs, guidance, and other  documentation and collected information by interviewing officials from the  Office of the Secretary of Defense for Acquisition and Sustainment, the F- 35 Joint Program Office, the U.S. Air Force, the U.S. Navy, the U.S.  Marine Corps, and the prime contractor, Lockheed Martin. To interview  officials and observe F-35 supply and maintenance operations, we  conducted site visits to two F-35 operational locations—Hill Air Force  Base, Utah, and Marine Corps Air Station Yuma, Arizona; and one  training location—Luke Air Force Base, Arizona. We selected these  locations to obtain perspectives from both operational and training units  from multiple U.S. military services using different variants of the aircraft,  and to gather insights of international partners co-located at these bases,  among other factors. Additionally, we interviewed officials from the only  overseas-based U.S. F-35 operational squadron—at Marine Corps Air  Station Iwakuni, Japan. We used criteria from DOD and service guidance  and Standards for Internal Control in the Federal Government as bases  against which to assess DOD’s actions for each of these objectives.

In support of these objectives, we gathered various data related to the F- 35 supply chain, such as parts availability, repair, aircraft performance,  and customer wait time data. We gathered data for fiscal year 2018  (October 2017—September 2018) and available data from the F-35  program’s 2018 sustainment contract period (May—November 2018), in  order to provide the most recent information available for F-35 fleet  performance and overall supply chain management during our audit  timeframes. To determine the reliability of these data, we collected  information on how the data were collected, managed, and used through  a questionnaire and interviews with relevant DOD officials and the prime  contractor. Although we identified some limitations in the way that certain  data—such as data related to aircraft performance, to aircraft that are not  mission-capable due to a lack of parts, and to parts cannibalization—were  being collected and reported that could potentially result in inaccuracies,  we determined that they are sufficiently reliable for our purposes of  providing information on the progress and challenges within the  program. For a detailed description of our scope and methodology, see  appendix I.

We conducted this performance audit from January 2018 to April 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

The F-35 Lighting II program is a joint, multinational acquisition program  intended to develop and field a family of next-generation strike fighter  aircraft for the U.S. Air Force, Navy, and Marine Corps (hereinafter  referred to as the services), eight international partners, and foreign  military sales customers (collectively hereinafter referred to as program  participants). There are three F-35 variants, and each will be a multi-role,  stealthy strike aircraft replacement for or complement to the services’  legacy fighter aircraft.

DOD initiated the F-35 program in October 2001, and began operational  testing of the aircraft in December 2018. DOD has also, concurrently,  been fielding and operating a growing fleet of aircraft as part of low-rate  initial production. As of February 2019, more than 350 aircraft had been  fielded and were operating from 16 bases worldwide. By 2023, the global  F-35 fleet is expected to expand to more than 1,100 aircraft across 43  operational sites. In total, the program participants plan to purchase more  than 3,300 F-35 aircraft, with the U.S. services planning to purchase  nearly 2,500 of those aircraft. See figure 1 for a timeline of anticipated  worldwide fleet growth and site activations in the F-35 program.

Sustainment for the growing fleet of F-35 aircraft is a large and complex  undertaking with several key stakeholders. The F-35 Joint Program  Office, through its Product Support Manager, is responsible for managing  and overseeing the support functions required to field and maintain the  readiness and operational capability of the F-35 aircraft across the  enterprise. As such, it establishes sustainment requirements, manages  funding, develops contracts, and provides direction for and oversees the  execution of F-35 sustainment strategy and policy.

Additionally, in 2016, DOD established a Hybrid Product Support  Integrator organization within the Joint Program Office, and it expects to  fully implement this organization by the end of 2019. Once fully  implemented, DOD intends for the Hybrid Product Support Integrator to  bring together all government and commercial capabilities necessary to  execute the F-35 sustainment strategy. The organization is led by a  general officer, who is responsible for providing government oversight of  all support providers to ensure that they deliver the required levels of  performance. In particular, the F-35 program relies heavily on contractors  to provide support for its F-35 aircraft. DOD has two primary contractors  for the F-35 program: Lockheed Martin for the overall aircraft system and  Pratt & Whitney for the engine. As the prime contractor for the overall  aircraft system, Lockheed Martin (hereinafter referred to as the prime  contractor) is responsible for managing the F-35 supply chain, depot  maintenance, and pilot and maintainer training, as well as for providing  engineering and technical support. Currently, DOD is contracting for this  support with the prime contractor largely through annual contracts, and it  plans to transition to multiple-year, fixed-price, performance-based  sustainment contracts when the program achieves certain condition- based criteria, including the establishment of critical sustainment  capabilities and the government’s ability to collect and more fully assess  performance and cost data. In addition, the U.S. Air Force, Navy, and  Marine Corps have each established an F-35 integration office or similar  construct focused on how the services will operate and afford the F-35,  among other things. Figure 2 below depicts how these key stakeholders  provide support to the F-35 program participants across the three aircraft  variants.

The F-35 Global Support Solution and Supply Chain

DOD is planning to meet the sustainment requirements of its F-35  customers by providing a common, global support solution. As part of this  common solution, participants share most sources of support, such as  spare parts, depot maintenance, and training. At the core of the F-35  global support solution is the F-35 supply chain. At maturity, the F-35  supply chain is intended to be a network of manufacturers, commercial  and government part repair depots, and base and regional part  warehouses that will be located around the world to provide parts to  support the operational and training requirements of all F-35 program  participants.

As a part of the F-35 supply chain, all F-35 program participants— including the U.S. military services, international partners, and foreign  military sales customers—share a global pool of F-35 spare parts  (formally called the Joint Spares Pool), which we refer to in this report as  the F-35 global spares pool. These pooled assets comprise only parts  used for F-35 aircraft, such as consumable and repairable spare parts for  the airframe, engine system, support equipment, pilot flight equipment,  and training devices. The F-35 global spares pool consists of four  different packages of parts—the base spares package, the global spares  package, the deployment spares package, and the afloat spares  package—as described below and in figure 3.

Base spares package: A base spares package is a retail-level supply  of parts inventory that is positioned at each F-35 main operating base  to support the F-35 aircraft operating from that location. Each base  spares package is intended to have a sufficient amount of parts to  support the number of aircraft and planned flying hours at the base.  While inventory within each base spares package is sized to meet the  projected needs of the aircraft at that particular location, parts within  the base spare packages are intended to be available for sharing  among all global participants, as needed.

Global spares package: A global spares package is a wholesale- level supply of parts inventory that is positioned at regional  warehouses, original equipment manufacturers, and depot repair  facilities. The prime contractor manages this inventory to replenish the  stocks of parts in base spares packages and the other packages  below, and to meet participants’ requirements for parts that are not in  their base inventories. If a part is needed for the repair of an aircraft,  and the unit does not have the part in its base inventory, the prime  contractor sends a part from the global spares package to meet the  unit’s requirement. Parts within the global spares package are  intended to be available for sharing among all global participants.

Deployment spares package: A deployment spares package is a  retail-level supply of parts inventory that is purchased by a program  participant to support its wartime or contingency operations. This  package is intended to have a sufficient amount of parts to support a  program participant’s contracted operational requirements for a  defined period of time, until the F-35 supply chain is able to ship  replenishment parts to the participant’s deployed location. For  example, a deployment spares package could be sized to provide  parts for 12 aircraft to fly a specified number of flight hours over a 20- day period and be fully mission capable 70 percent of the time. The  parts in this package are generally reserved for use only by the  participant who purchased the package.

Afloat spares package: An afloat spares package is a retail-level  supply of parts inventory that is purchased by a program participant to  support its F-35 operations aboard a naval vessel. This package is  intended to have a sufficient amount of parts to support a program  participant’s contracted operational requirements for a defined period  of time until the F-35 supply chain is able to ship replenishment parts  to the participant aboard the ship. For example, an afloat spares  package could be sized to provide parts for six aircraft stationed on a  ship to fly a specified number of flight hours over a 20-day period, and  be fully mission capable 70 percent of the time. The parts in this  package are generally reserved for use only by the participant who  purchased the package.

All of the parts within the global spares pool are owned by the U.S.  government when not installed on a participant’s aircraft. The U.S. military  services and international participants do not purchase parts directly, but  rather purchase access to parts in the shared pool based on how many F- 35 aircraft they own and the number of flight hours they plan to fly, among  other factors. Accordingly, the F-35 program has developed a series of  business rules that are intended to govern how parts within the F-35  global spares pool will be managed and shared, and how the costs of the  parts will be allocated across participants. The prime contractor manages  the F-35 supply chain and is responsible for allocating parts to F-35 sites  and participants based on contracted requirements, such as numbers of  aircraft and planned flying hours, and program business rules.

The effective management of the F-35 supply chain requires significant  technical data about the F-35 aircraft and parts, such as engineering  data, maintenance instructions, and information related to how often the  aircraft experiences failures and how much time it takes to repair those  failures. Technical data constitute an important part of a weapon system  program, such as the F-35. We have previously reported that identifying  technical data needs, costs, and ownership are essential for DOD to  effectively consider and maximize competition for future product support  of F-35 sustainment, including supply chain management.

F-35 Performance Will Likely Continue to Fall Short of Warfighter Requirements, and DOD Faces Challenges Related to the Availability of Spare Parts

F-35 aircraft performance is not meeting warfighter requirements. While  DOD is taking various actions to improve F-35 spare parts availability so  that aircraft can fly and perform their missions, it will likely continue to  struggle to meet warfighter requirements—due to how it is planning for  and allocating spare parts.

F-35 Aircraft Performance Is Not Meeting Requirements Due to Spare Parts Shortages and Limited Repair Capabilities

The performance of the F-35 fleet is hindered by lower-than-required  aircraft availability and capability rates. Air vehicle availability, or the  percentage of total time during which the aircraft can fly and perform at  least one mission, was 45.8 percent across the F-35 fleet from May through November 2018, as compared with the warfighter minimum target  of 65 percent. Full mission capability, or the percentage of time during  which the aircraft can perform all of its tasked missions, was 26.8 percent  from May through November 2018, as compared with the warfighter  minimum target of 60 percent. However, parts availability and aircraft  performance varied by aircraft variant and the age of the aircraft. For  instance, fleet-wide rates of full mission capability for the F-35A aircraft  were higher than those for the F-35B. Figure 4 below shows aircraft  performance data by variant across key program metrics relative to stated  U.S. warfighter requirements, referred to within the F-35 program as  objective and minimum performance targets. From May through  November 2018, fleet-wide F-35 aircraft performance did not meet any of  the U.S. warfighter’s requirements.

Lower-than-required F-35 aircraft performance is attributable in part to  spare parts shortages. Specifically, the F-35 supply chain does not have  enough spare parts available to keep aircraft flying enough of the time  necessary to meet warfighter requirements. According to prime contractor  data, from May through November 2018, F-35 aircraft across the fleet  were unable to fly 29.7 percent of the time due to spare parts shortages  (this metric is hereinafter referred to as the S-rate). Figure 5 below  shows the percentage of aircraft that were unable to fly from May through  November 2018 due to shortages of parts relative to the program’s  target.

According to prime contractor data, to keep aircraft flying despite parts  shortages, from May through November 2018 F-35 squadrons  cannibalized (that is, took) parts from other aircraft at rates that were  more than six times greater than the services’ objective. These high  rates of cannibalization mask even greater parts shortages, because  personnel at F-35 squadrons are pulling parts off of other aircraft that are  already unable to fly instead of waiting for new parts to be delivered  through the supply chain.

The F-35 program is taking a number of actions to try to increase the  availability of spare parts, including steps to increase the capacity of  suppliers to produce parts to meet sustainment requirements, improve the  timing of spare parts deliveries, and address the reliability of certain parts  that are failing more frequently than expected. DOD has identified specific  parts shortages that are causing the greatest aircraft capability  degradation, and it is developing short-term and long-term mitigation  strategies to increase the quantity and reliability of these parts. For  instance, DOD found that the special coating on the F-35 canopy that  enables the aircraft to maintain its stealth failed more frequently than  expected, and that the manufacturer could not produce enough canopies  to meet demands. To address these challenges, the program is looking  for additional manufacturing sources for the canopy and is considering  design changes.

Limited Spare Part Repair Capabilities and DOD Actions for Improvement

A key contributor to spare parts shortages is the F-35 program’s limited  capacity to repair broken parts. The average time to repair an F-35 part  was more than 6 months, or about 188 days for repairs completed  between September and November 2018—more than twice that of the  program’s objective of 60—90 days. Also, there was a backlog of about  4,300 spare parts awaiting repair at depots or manufacturers (see figure  6).

This backlog of parts awaiting repair is largely attributable to delays in the  establishment of part repair capabilities at the military depots. The  capabilities to repair all parts at the military depots were originally  intended to be in place by 2016, but the F-35 program’s current plan now  projects that the military depots will not have the capability to repair all  parts at the expected repair demand rates until 2024. According to  program officials and documentation, the plan includes the required  material and technical instructions to repair parts, and DOD has allocated  funding for these efforts in its budget planning. However, as of February  2019, funding decisions had not been finalized.

In the meantime, to address the gap in part repair capabilities at the  military depots, the prime contractor has begun incentivizing  manufacturers to increase their capacity to repair spare parts by  establishing performance-based repair agreements. As of October 2018,  according to program documentation, the prime contractor had  established seven such agreements, with six more planned by May 2019.

In October 2017, we reported that DOD was experiencing supply chain  challenges, largely as the result of sustainment plans that did not fully  include key requirements or aligned funding. DOD concurred with our  recommendation that it revise its sustainment plans to ensure that they  include the key requirements and funding needed to fully implement its  sustainment strategy. In January 2019, DOD issued an updated Life- Cycle Sustainment Plan for the F-35. The plan includes eight elements  that DOD has identified as critical to enabling the program to achieve its  aircraft capability and affordability targets by fiscal year 2024, including  accelerating supply chain and depot repair capabilities.

Challenges for Early Production Aircraft

The F-35 program is a highly concurrent program wherein aircraft, spare  parts, and mission software continue to be developed and redesigned  while fielded aircraft must be sustained. As a result, there are at least 39  different part combinations across the fleet. Additionally, DOD’s training  and operational squadrons are flying F-35 aircraft with three different  blocks of mission software—2B, 3i, and 3F—with Block 3F software  having the full warfighting capability. According to the program office,  DOD spent more than $15 billion to purchase F-35 aircraft from the  earliest lots of production, specifically lots 2 through 5 (hereinafter  referred to as “early production aircraft”), but it faces challenges in  providing enough spare parts for these aircraft. Early production F-35  aircraft have parts configurations and software that differ from those of  later production aircraft, and they have faced more parts reliability issues  and parts shortages than later-production aircraft. Figure 7 shows the  differences in aircraft performance between early production aircraft and  aircraft produced in production lot 6 or later (hereinafter referred to as  “later production aircraft”).

According to program documentation, DOD plans to upgrade all of its  early production aircraft to Block 3F software capability. These  upgrades were initially scheduled to be completed by the end of 2021, but  DOD is taking actions to accelerate these modifications with the plan to  complete the upgrades in September 2020. That upgrade is expected to  address some of the reliability challenges the older aircraft have  experienced. However, program and contractor officials said that these  upgrades are not a comprehensive solution, as there will still be many  parts that are used on these early production aircraft that are not reliable  and are in short supply. Accordingly, DOD is taking action to retrofit some  other parts that are not addressed by the modifications. These challenges  disproportionately affect the U.S. services’ training fleets, as the majority  of U.S. early production aircraft are currently being used for that mission.  For example, the training units at Eglin Air Force Base were unable to fly  due to parts shortages about 56 percent of the time from May 2018  through November 2018.

The Autonomic Logistics Information System is an information technology  system that is central to the F-35 sustainment strategy. It is intended to  provide the necessary logistics tools to F-35 program participants as they  operate and sustain the F-35 aircraft. ALIS consists of multiple software  applications designed to support different squadron activities, including  supply chain management, maintenance, training management, and  mission planning. Specifically, for supply chain management, ALIS was  intended to automate a range of supply functions—including updating the  status of parts, generating supply work orders, and communicating critical  data about parts. However, these capabilities are immature, resulting in  numerous challenges and the need for maintainers and supply personnel  at military installations to perform time-consuming, manual workarounds  in order to manage and track parts. One Air Force unit estimated that it is  spending the equivalent of more than 45,000 hours per year performing  additional tasks and manual workarounds, including for supply-related  functions, because ALIS is not functioning as intended. Supply and  maintenance personnel we spoke with at various military installations  cited challenges associated with ALIS, including the following: missing or corrupted electronic spare parts data that are required to  install a part on an aircraft, necessitating extensive research and  troubleshooting to resolve; maintenance and supply systems within ALIS not communicating with  each other, resulting in difficulty in electronically tracking aircraft parts  as they are physically moved between maintenance and supply  locations at the same base; and  limited automated capabilities, requiring manual and sometimes  duplicative steps for receiving, tracking, and managing parts.

We have previously reported on challenges related to ALIS. In April 2016,  we reported that DOD did not have a plan to ensure that ALIS was fully  functional as key program milestones approached. In October 2017, we  reported that DOD faced delays in the development of required ALIS  sustainment capabilities and uncertain funding for this development. We  are currently conducting a separate review of ALIS, assessing how DOD  is managing current and future issues related to the system. We plan to  complete this review by the end of 2019.

DOD Will Likely Continue to Face Challenges in Achieving F-35 Performance Requirements with its Current Approach to Planning for and Allocating Spare Parts

In September 2018, the Secretary of Defense directed the services to  achieve and maintain 80 percent mission capability for the F-35 fleet by  the end of fiscal year 2019, which program and Office of the Secretary  of Defense officials have told us will be difficult to accomplish, given the  supply and maintenance challenges facing the fleet. DOD is pursuing a  phased approach to achieving this requirement for the F-35 aircraft.  DOD’s first priority is to increase the capability of its operational fleet to  achieve the 80 percent mission capability target by the end of fiscal year  2019, with the intent to increase the capabilities of its entire F-35 fleet to  achieve the target by the end of fiscal year 2020. While DOD has ongoing  efforts to increase the availability of spare parts as described above, it is  likely to face additional challenges in meeting this requirement as well as  the other warfighter aircraft performance requirements, because of the  ways in which the program is planning for and allocating parts.

DOD Is Not Planning for Enough Parts in Its Spare Parts Projections to Meet Warfighters’ Performance Requirements

The F-35 program is not planning for the quantity of parts necessary in its  spare parts projections to meet warfighter performance requirements. The  program’s S-rate requirement is used along with a number of other  factors in an analytical model to determine the quantity of spare parts to  be purchased. Based on this model, DOD is planning to purchase the  quantity of parts necessary to achieve a fleet-wide S-rate of 20 percent— meaning the program is buying only enough parts to enable about 80  percent of its aircraft to be mission-capable based on the availability of  parts. According to program documentation, the maximum fleet-wide  mission capability rates that can be consistently expected when modeling  for a 20 percent S-rate is about 70 percent—far lower than the  warfighter’s requirements. This is the case because the time during which  aircraft are unable to fly due to maintenance is also a factor, which the  program projects will be about 10 percent. Figure 8 shows the difficulty  that DOD will face in meeting the Secretary of Defense’s 80 percent  mission capability target when planning for an S-rate of 20 percent given  the time that is also required for maintenance.

According to program and prime contractor documentation, DOD would  need to model and fund the spare parts pool to achieve an S-rate of no  higher than 10 percent in order to achieve requirements for aircraft  performance, such as the mission capability target set by the Secretary of  Defense and the services’ goals for air vehicle availability. Doing so would  significantly increase the costs for spare parts. According to the prime  contractor, in order to achieve a fleet-wide S-rate of 10 percent, the U.S.  government would need to initially pay hundreds of millions of dollars to  buy more parts for already-fielded aircraft. Costs would also increase on  an annual basis—above the nearly $1 billion the U.S. services collectively  paid in fiscal year 2018—to buy more parts each year. The current  projected costs of F-35 sustainment are not affordable for the services. In  2018, DOD established constraints based on the military services’ future  budget projections that indicate that DOD needs to reduce F-35  sustainment costs per aircraft per year by 43 percent for the F-35A, 24  percent for the F-35B, and 5 percent for the F-35C in order for the aircraft  to be affordable for the services. DOD will be challenged to support this  increase in annual costs for spare parts given its need to make significant  cost reductions.

Furthermore, as part of DOD’s fiscal year 2020 program budget review,  DOD conducted modeling and analysis to project how various courses of  action—such as increasing purchases of spare parts to compensate for  how long it actually takes to repair parts or reducing aircraft production– would affect F-35 fleet performance. DOD’s analysis projected that if no  additional actions were taken beyond what the U.S. services had already  planned for and funded, F-35 aircraft performance would increase for a  period of time. However, it would then worsen significantly with the growth  of the fleet. Officials from the Office of the Secretary of Defense said that,  as a result of this analysis, DOD is considering some additional  investments to increase the availability of parts that would result in  increased funding requirements for the U.S. services, but that as of  January 2019, decisions were not finalized. They further said that their  recent modeling and analysis efforts for the fiscal year 2020 program  budget review did not formally consider additional investments to lower  the planned S-rate to 10 percent as a course of action, but that this  misalignment between the quantity of parts that DOD is planning to  purchase and what is needed will hinder DOD’s ability to meet warfighter  performance requirements.

DOD May Have Limited Options to Increase F-35 Spare Parts Availability for Its Operational Fleet

Supporting Recent F-35 Shipboard  Deployments  The F-35 program was not able to fill the  Marine Corps’ afloat spares packages  (packages of spare parts designed for aircraft  stationed on ships) for the first F-35  deployments aboard the U.S.S. Essex and  U.S.S. Wasp in 2018 in time to support those  deployments. As a result, the F-35 program  pulled spare parts from inventories at Marine  Corps Stations Yuma, Arizona, and Iwakuni,  Japan. Marine Corps officials stated that  these actions reduced F-35 readiness in  Iwakuni.

Moreover, DOD may have limited options to increase spare parts  availability for its operational fleet because of the way in which the  program is currently structured to allocate parts. Within the F-35 program,  the U.S. services do not have control over how F-35 parts are allocated,  but rather share access to the parts along with the rest of the global fleet.  The prime contractor is responsible for allocating parts to meet the  requirements of all participants who share in the global spares pool. In  response to parts shortages to date, Air Force and Marine Corps officials  have said that the program has generally supported big events, such as  the 2018 operational deployments of the U.S. services, by shifting parts to  those units from the broader global spares pool (see sidebar). According  to service officials, decisions to shift parts to different locations to support  operational priorities could potentially be made by either a military service  that owns those parts or DOD leadership within a legacy program.  However, Office of the Secretary of Defense and program officials said  that there is no mechanism within the current construct of the F-35’s  global support strategy for program participants to optimize readiness for  certain units by increasing the allocation of parts to those locations, short  of deviating from existing program rules or contractual arrangements. As  the size of the fleet and number of operational squadrons grow, the F-35  program will face increasing demands on its supply chain and competing  operational priorities across participants that will likely make it more  difficult for the program and the U.S. services to mitigate fleet-wide  shortages of F-35 parts.

GAO’s Standards for Internal Control in the Federal Government states  that agencies should define objectives clearly to identify risk, including  considering external requirements and internal expectations, and to  design and implement activities to respond to those risks. DOD  guidance on performance-based arrangements also states that  performance-based logistics arrangements should be structured to deliver  outcomes that are tied to warfighter requirements.

Taken together, the current supply chain challenges and the issues  related to how the program is planning for and allocating parts expose a significant gap between the F-35 aircraft performance targets the U.S.  services need to achieve and what the F-35 supply chain is positioned to  deliver within affordability constraints. DOD’s updated F-35 Life-Cycle  Sustainment Plan identifies a number of actions needed to improve  aircraft performance, such as those related to spare parts availability and  repair capability. While the identification of such actions is a positive step,  the plan also states that those actions do not take into account policy,  program structure, or resource constraints, which could make them  difficult to implement. Furthermore, DOD’s recent modeling efforts have  already identified the need for some initial additional investments that  could further strain the services’ budgets. Without a comprehensive  review to determine what additional actions are needed to close the gap  between warfighter requirements for aircraft performance and what the F- 35 supply chain is capable of delivering, taking into account also the need  to reduce the sustainment costs of the F-35, DOD risks that its F-35 fleet  may fall short of the capability needed to support its critical national  defense missions in the future.

DOD Has Supported Initial U.S. Deployments, but Faces Challenges in Managing and Moving Spare Parts to F-35 Aircraft around the World

DOD’s F-35 Supply Chain Has Supported Initial Deployments and U.S. and International F-35 Bases Overseas

DOD’s F-35 supply chain has provided spare parts to support the few F- 35 deployments that have occurred to date, including the following:

U.S. Air Force deployment of 12 F-35A aircraft to Japan, November

U.S. Marine Corps deployment of six F-35B aircraft aboard the U.S.S.

Wasp, March—April 2018 (see figure 9); and

These units deployed with packages of parts to support the first 20 days  of their deployment (that is, deployment and afloat spares packages), and  then received replenishment parts from the broader global spares pool  once their packages of parts were depleted. DOD officials generally  characterized these deployments as operational successes and  significant milestones for the F-35 program. In addition to these early  deployments, the F-35 supply chain is also providing parts to activated  U.S. and international F-35 bases in six different countries outside of the  United States.

DOD Faces Challenges in Managing and Moving Spare Parts to an Expanding F-35 Global Fleet

DOD faces challenges in managing and moving parts to support a  deploying and expanding global F-35 fleet. While the initial operational  deployments have been successful and the program has established  overseas F-35 bases in six different countries, these events have also  highlighted several key risks that could hinder future F-35 fleet readiness.  These risks are related to (1) the make-up of the afloat and deployment  F-35 parts packages, (2) the prioritization process for distributing scarce  parts among global F-35 participants, and (3) the F-35 program’s global  networks for moving parts.

Spare Parts for Deploying Aircraft Do Not Always Match Military Service Needs

DOD faces challenges in ensuring that the parts in its purchased afloat  and deployment spares packages match the needs of deploying  operational aircraft. According to Air Force and Marine Corps officials,  ensuring that these parts packages are appropriately configured is of  significant operational concern because units may be completely reliant  on them while deployed to locations that the F-35 supply chain cannot yet  readily support.

The afloat and deployment spare parts packages are purchased  according to a list of parts planned and paid for by an F-35 program  participant at least 2 to 3 years in advance, aligning with the aircraft being  purchased at that time and the best projections of what the demand for  the parts will be. However, given the immaturity of the F-35 program,  continued modifications to parts and aircraft can make such packages  out-of-date by the time F-35 units are preparing to deploy. For example,  Air Force officials told us that the spare parts packages for its November  2017—May 2018 operational F-35 deployment in Japan included parts  that were not compatible with the aircraft with which they intended to  deploy. Thus, the Air Force had to change its plans and deploy with older  aircraft with less advanced capabilities that matched the parts in the  package instead of the aircraft that best met their operational  requirements. The Marine Corps faced similar challenges with its first  shipboard deployments in 2018. Table 1 shows the number of parts and  examples of parts in the Marine Corps’ afloat spares packages for the  U.S.S. Wasp and U.S.S. Essex deployments that were not initially  configured to be compatible with the Marine Corps’ deploying aircraft.

Air Force and Marine Corps officials also said the quantity of parts within  their parts packages were not fully reflective of the actual demands for  certain parts, based on updated information about the reliability of certain  parts and how frequently they needed to be replaced. In other words, the  initially built packages did not have enough of the right parts to meet  mission requirements. For example, Marine Corps officials said they were  able to identify more than a dozen different parts in one of their afloat  spares packages prior to deploying that were not provided in sufficient  quantities because the program did not account for the actual fleet  demand for these parts in its modeling for the afloat spares package. Air  Force officials expressed similar concerns and said that they have had  difficulty in getting information from the program that would enable the Air  Force to assess whether there are enough of the right parts in its  deployment spares packages relative to the actual demands for these  parts. This is a concern for the Air Force as it prepares for its next F-35  deployment, because officials said that they cannot be sure that the  package of parts with which they will deploy will have sufficient parts to  support the deployment.

The F-35 program does not have a process in place for changing out the  parts within the afloat and deployment spares packages that are put on  contract years before a deployment. Such a process is needed to ensure  that the packages reflect the actual configurations of the deploying aircraft  or updated demand projections for parts. Service and program officials  said that such a process would need to include a review of the parts  within the packages to ensure that they match deploying aircraft and  aligning the funds to pay for any necessary updates or modifications to  the parts, which could potentially cost tens of millions of dollars. F-35  program policy recognizes that the program may need to adjust the  configurations or quantity of parts in the packages based on updated  information, noting that such actions may necessitate contractual  changes, but it does not specify the process for these adjustments. In our  discussions with the prime contractor, program office, and military  services, officials have lacked clarity regarding who is responsible for  reviewing the parts in the package to ensure that they are appropriately  configured and for determining whether additional contract actions or  funding are needed to update the packages.

In lieu of an established process to refresh these parts, service and  contractor officials described an ad hoc and manual effort to review the  packages prior to deployment. To address non-matching parts, contractor  officials said that the program had to pull parts from the global and base  spares packages to make exchanges. Officials said that this cuts into the  parts that are available for the other F-35 units that rely on those  packages, because the global and base packages are not stocked with  the parts to support the deployments. For example, the program used 187  parts from the inventory at Marine Corps Air Station Iwakuni to backfill  parts for the U.S.S. Wasp. The Marine Corps’ squadron in Iwakuni stated  that this had a measurable effect on the squadron’s readiness to support  its operational requirements, as reflected by lower availability of parts  within their inventory to support broken aircraft. Specifically, during the  time of the U.S.S. Wasp deployment, only about 46 percent of the critical  parts (that is, parts needed to fix aircraft that cannot fly) that the squadron  at Iwakuni needed were available in its inventory, and the squadron had  to wait an average of about 12 days to receive these parts from off-base.  As the F-35 fleet continues to expand and the number of operational  deployments increases, military service officials said that these manual  workarounds and the singular focus on ensuring that one unit has the  appropriate parts to deploy will not be tenable. Program officials said that  they have started a working group to look at options for addressing this  issue, but they could not provide a timeframe or details about this effort.

DOD guidance for risk management in acquisition programs states that  defense programs must anticipate and address risks on a continuing  basis, and suggests that programs implement processes that include risk  identification, analysis, mitigation, monitoring, and planning. Further, the  services have recognized that, to meet operational readiness objectives  in a deployed environment, it is critical to have mechanisms ensuring that  spare parts packages with which units plan to deploy are built to support  the configurations and expected missions of the deploying aircraft, and  have established guidance and processes to that effect. DOD also has  a separate, ongoing initiative to determine whether using risk-based  assumptions can produce a more efficient and effective mix of parts  within deployment parts packages across a range of weapon systems,  including the F-35. While this effort is nascent, it could potentially offer  insights for the F-35 program to consider when reviewing the make-up of  the F-35 deployment and afloat spares packages. Without a process for  DOD to modify the F-35 afloat and deployment spares packages, to  include reviewing the parts within the packages to ensure that they match  deploying aircraft and accounting for updated parts demand, and without  aligning any necessary funding for needed updates, the military services  face risk that the parts that they have specifically purchased to meet their  operational requirements will not be sufficient to do so.

Uncertainty Exists about How Scarce Spare Parts Will Be Prioritized among All F-35 Customers

Uncertainty exists about how the program will prioritize scarce F-35 spare  parts among global participants. The program has developed a set of  business rules to govern the prioritization of scarce F-35 parts. The  business rules are to differentiate between the relative significance of  competing needs and create a structure to be responsive to customer  requirements during both peacetime and war. These rules are critical to  ensuring fair and transparent allocation of parts to all program  participants, particularly given the significant shortages of spare parts  throughout the F-35 program. Under these rules, F-35 units are assigned  numerical designations based on the importance of their mission (that is,  force activity designators), and their part requests are similarly assigned  designations based on how important the part is to aircraft functionality  (that is, urgency of need). Under these rules, the force activity  designators of each unit and the urgency of need for each part request  are combined to create an analysis that is applied to requests for scarce  parts to determine which unit should receive the part. For example,  according to such an analysis, a deployed F-35 unit that orders a part for  an aircraft that cannot fly without that part would have priority over all  other units. Conversely, an F-35 training unit that needs a part to  replenish the inventory of parts on its shelves would have very low priority  for the part relative to that of other units. See figure 10 for a general  depiction of the prioritization scheme for F-35 parts.

According to program and contractor officials, the prime contractor has  been allocating parts according to these business rules, but these rules  are not comprehensive. Officials from the Joint Staff, Office of the  Secretary of Defense, program office, and military services cited a  number of areas where the rules lack clarity and detail. For example,  there is a lack of clarity around how force activity designations will be  assigned and by whom. The business rules state that each unit’s force  activity designation will be assigned by the participant’s national  command authority, but they do not specify the process for doing so;  provide for a clear role for the U.S. combatant commanders in the  process; or specify the level of U.S. and international leadership required  in order to make changes to this designation. In addition, stakeholders  with whom we spoke said that the existing force activity designations do  not provide for enough differentiation between types of activities or  account for the unit’s unique mission requirements when determining how  important a part is to aircraft functionality. For example, military units that  are engaged in combat operations are assigned the same force activity  designations as units that are forward-based to react to potential threats.  These officials expressed concern that as the global fleet expands and  more units are engaged in operations, this practice could lead to a  situation in which too many units are a “priority” at any one time.  Stakeholders have also raised questions about whether and how F-35  participants should be charged for increases in their force activity  designations, as this matter is not addressed within the current business  rules.

Furthermore, the F-35 Product Support Manager has at times waived  these business rules to support deployments and other activities, such as  aircraft operational tests. For example, the Air Force unit that deployed to  Japan in 2017 experienced significant readiness challenges because the  business rules had established the replenishment of its spare parts  package as a low priority relative to other competing demands for scarce  parts. Air Force officials said that this contributed to its aircraft being  unable to fly due to shortages of parts more than 30 percent of the time  (cumulative over a month). According to Air Force and contractor officials,  Air Force leadership then made a number of calls to the program office to  request that its replenishment requirements be given higher priority.  Subsequently, the F-35 Product Support Manager directed that the  contractor deviate from the business rules to place a higher priority on the  replenishment of the deployed unit’s parts package so that it could get  parts faster. Service and program officials said that such deviations may  be necessary to meet operational requirements, and that program  leadership needs some flexibility in the business rules to make those  decisions. According to program officials, the F-35 Product Support  Manager has the authority to issue waivers to the business rules, but the  business rules do not clearly grant this waiver authority to the Product  Support Manager, or address how and when such waivers should occur.

Stakeholders have been raising some of these concerns for several  years. For example, the Office of the Secretary Defense and the Joint  Staff developed related position papers that identified gaps in the  business rules. Officials from these offices said that the papers were sent  to the program office in 2014 and early 2017, respectively. In response,  the F-35 program established a working group in May 2018 to begin  revising the business rules. As of January 2019, program officials said  that the revised business rules were undergoing internal review, but the  date for completion was not yet determined due to potentially lengthy  timeframes associated with obtaining formal approval through the F-35  governance process. This ongoing effort is promising, but the specific  action items that the working group was tasked with incorporating into the  business rules do not clearly address some of the areas of concern raised  by stakeholders. For example, these action items do not include the issue  of deviations from the business rules.

DOD directs its components to comply with DOD’s established materiel  management guidance, which outlines DOD policy, assigns  responsibilities and specifically provides procedures for how parts and  materiel should be prioritized for responding to customer supply chain  demands for all DOD components, including outlining the application of  force activity designators and the role of the combatant commanders.  The F-35 program’s existing business rules incorporate many aspects of  this standard DOD prioritization guidance, but they are not fully aligned  with this guidance. For example, DOD’s standard process outlines the  use of five potential force activity designators, while the F-35 program  provides for only three different designations. Additionally, Standards for  Internal Control in the Federal Government states that agencies should  design control activities to achieve objectives and respond to risks,  including implementing control activities through policies. U.S. service  and international officials said that, as the fleet and competition for spare  parts increases, they are concerned that participants may try to  manipulate the system due to the lack of clarity within the existing rules.  Without ensuring that the revisions to its business rules for the  prioritization of scarce F-35 parts across all program participants define  stakeholder roles and responsibilities, the process for assigning and  arbitrating force activity designations, and the manner in which deviations  from the business rules will be conducted, the F-35 program may face  challenges allocating parts to support competing U.S. and international  warfighter requirements. Further, F-35 program participants may lack  confidence in the equity of decisions regarding scarce parts that affect  their operational requirements.

DOD’s Networks to Move F-35 Parts around the World Are Immature

DOD is now moving F-35 parts around the world, but its global networks  for doing so are immature and there is risk that they will not be fully  capable to support an expanding fleet. The F-35 program has a growing  number of U.S. and international participant bases outside of the United  States and is providing supply support from its global spares pool for an  increasing number of operational deployments. For its supply chain  construct to work as intended, F-35 parts must be able to move freely and  efficiently among U.S. and international program participants, suppliers,  and repair facilities, regardless of the country or company of origin. The  program has projected that F-35 parts could potentially be moved on 132  different paths between participating countries (for example, Italy to  United Kingdom, Italy to Norway) and 2,162 paths between F-35 sites (for  example, a warehouse in the Netherlands to a base in Norway). This will  require the program to establish strategically located warehouses,  synchronize global distribution networks, and navigate a complex web of  import and export activities and international weapon control laws.

However, the envisioned global network is not yet in place. For instance,  regional warehouses planned for the Netherlands and Australia are not  expected to reach initial operational capability until, at the earliest, late  2019 and 2020, respectively. Furthermore, the program is still working to  establish functional shipping networks and locations at which to receive  parts. It also does not have mechanisms in place to support the range of  required import and export activities. Spare parts are instead being  moved under a less efficient system, with the parts originating from and  returning to the United States before being delivered to an international  program participant. Figure 11 compares a depiction of the program’s  intent for the future global network for moving F-35 parts with the existing  “hub-and-spoke” network.

The immaturity of the global network has contributed to long wait times for  parts for the U.S. and international F-35 squadrons that are deployed or  permanently based overseas. The 2018 F-35 sustainment contract  establishes minimum and objective targets for customer wait times across  the F-35 fleet. The targets are the same regardless of whether the aircraft  are located inside or outside of the United States, thus reflecting the  intended global nature of the network. However, customer wait times for  parts for units located outside of the continental United States have been  significantly higher than those for units located inside of the continental  United States, as shown in figure 12. Unless otherwise noted, the data  are inclusive of customer wait times for both U.S. and international  participants.

Officials from Marine Corps, Air Force, and international F-35 squadrons  that were based or deployed overseas in Japan and the United Kingdom  described long wait times of up to 17 days—well outside of the 6-and 10- day customer wait-time metric ranges for critical parts—to receive  available parts overseas that have degraded their readiness. They cited  several reasons for these delays, such as export and import licenses not  being in place, delays in customs, inefficient routing or processing of  parts, and ineffective commercial freight forwarders. For example, Air  Force and contractor officials said that it was initially taking parts up to 14  to 16 days to reach the deployed Air Force unit in Japan using a  commercial shipper, which was hurting the unit’s readiness. According to  DOD and contractor officials, these concerns drove the prime contractor  to start shipping parts via military air, which subsequently decreased  customer wait times significantly. However, these officials said that the  program did not have the appropriate contracting and funding  mechanisms in place to utilize military air and had to return to using a  different commercial shipper.

The F-35 program’s plan for full establishment of the global networks for  moving parts is not complete. Program officials and contractor officials  told us that planning for this network is 3 to 4 years behind the need  because the program was more focused on producing the aircraft than on  sustainment. Prime contractor officials also said that they did not realize  the complexity of setting up the network, which will require them to  establish export and import authorizations in every country and to work  through the Department of State to establish export licenses. In addition,  the construct necessitates that each of the international participants takes  actions within its own government to ensure that the appropriate  arrangements are in place, such as obtaining waivers for taxes, tariffs,  and duties, or pursuing any necessary changes to its own government’s  laws. The F-35 program initiated its focused planning for this network in  2018, with the establishment of a working group tasked to develop plans  for implementing the network. In January 2019, the F-35 program issued  a high-level strategy that provided some limited information on the  program’s objective and key principles for the network. It also indicated  that a forthcoming F-35 program instruction would provide a framework  for executing the strategy, but it did not have a timeline or details for the  completion of this instruction.

Also in January 2019, DOD selected the U.S. Transportation Command  and the Defense Logistics Agency as the entities responsible for the  global transportation and distribution networks for F-35 parts—a transition  that is expected to occur over the next 12 to 24 months. According to  Department of Defense documentation, existing U.S. Transportation  Command and Defense Logistics Agency networks are already in place  to support much of the required F-35 global parts movements, particularly  for U.S. units and foreign military sales customers. However, these  organizations will still be reliant on the F-35 program to establish the  necessary licenses and legal frameworks for the movement of parts  between partner countries.

The program has established a target date of September 1, 2021 for full  operational capability of the network, at which point spare parts are  intended to be able to be moved freely throughout the F-35 enterprise.  However, the program does not yet have a detailed plan with clear  requirements and milestones or an integrated schedule to move the  network from initial operational capability to full operational capability.

Program officials stated that they believe this date is achievable, due to  the increased emphasis on developing the network among all program  participants. However, there are risks to the program’s planning effort.  Beyond the complexity of the network, the F-35 program office and  contractors do not control all elements needed to support the successful  implementation of the network. Specifically, each international partner is  responsible for establishing the necessary legal framework in its own  country to support the network, which can be a lengthy process. Program  officials further noted that other international participants have national  laws or have made decisions that are not conducive to the free flow of  parts throughout the global network. F-35 program policy provides some  provisions to address non-conformance by partners—for example, stating  that partners will be responsible for any taxes or tariffs charged to the  program by their own countries. However, program officials said that the  mechanisms to manage any such deviations will be complex to  implement and are still being developed.

Our prior work on acquisition management has identified a number of key  program management practices that can improve program outcomes if  implemented, such as clearly establishing well-defined requirements and  developing realistic schedules that include risk analysis. DOD guidance  related to managing risk in acquisition programs also states the  importance of program managers taking actions to identify, manage, and  mitigate programmatic risk, which can either be intrinsic to the program or  arise from inadequate planning.

The F-35 program’s recent focused efforts in this area are positive steps,  but its planning efforts still lack detail about how the network will be fully  implemented. Furthermore, the schedule, planning, and risks associated  with this delayed global network are not addressed in DOD’s recently  updated F-35 Life Cycle Sustainment Plan. Without completing a detailed  plan for the establishment of the F-35 program’s global network for  moving parts that outlines clear requirements and milestones to get the  network to full operational capability, and includes mechanisms to identify  and mitigate risks of delays or gaps in the global network, the program  cannot ensure that its supply chain will support U.S. and international  program participants as intended. Furthermore, delays or gaps in in the  establishment of the envisioned global network will likely result in  increased costs associated with additional travel segments and delays to  the warfighter in receiving spare parts that could hurt the operational  readiness of the global F-35 fleet.

DOD Cannot Fully Account for F-35 Spare Parts within the Supply Chain and Their Associated Costs

DOD cannot fully account for F-35 spare parts within the supply chain and  their associated costs. Specifically, the department does not have records  indicating how many F-35 spare parts it has purchased, or where they are  all located. In addition, DOD does not have comprehensive cost  information for individual F-35 spare parts, and the military services  cannot track the funds that they have spent on F-35 spare parts to the  actual parts purchased by the program office on their financial statements  and supporting documentation.

Accountability of government property, such as F-35 spare parts,  facilitates financial audits by providing the necessary documentation to  ensure the accuracy of transactions for government property and  contracted services. Congress required the Secretary of Defense to  ensure that an external audit be performed on DOD’s financial statements  for fiscal year 2018, and to submit such audit to Congress no later than  March 31, 2019. Congress directed this audit, in part, to help improve the  accuracy and reliability of management information on DOD’s mission- critical assets—such as F-35 spare parts—and services for which they  contract. Subsequently, DOD completed its first consolidated,  department-wide, full financial statement audit in November 2018. The  DOD Office of the Inspector General reviewed the department-wide  financial statements and identified 20 material weaknesses—that is,  serious problems with DOD’s internal processes that hamper its ability to  reasonably assure that its financial reporting is reliable—including  processes related to accountability for government property in the  possession of contractors and the accuracy and completeness of financial  statements.

DOD Does Not Know How Many F-35 Spare Parts It Has Purchased or Where All of Them Are Located

DOD cannot fully account for its spare parts within the F-35 supply chain,  including the quantity of all the spare parts it owns and where they are  located. The prime contractor manages the F-35 supply chain and the  movement of all F-35 parts across the F-35 enterprise to meet warfighter  needs. DOD initially did not intend to own the F-35 parts, but in 2012 the  F-35 program’s executive steering board issued a decision memorandum  declaring the F-35 parts in the global spares pool to be titled to the U.S.  government when they are not installed on an aircraft. However, program  officials told us that DOD did not develop a corresponding plan to  maintain accountability over the parts that it already owned or would  purchase in the future. According to program officials, this is due in part to  property accountability not being a priority for the program in its effort to  field aircraft. This is evidenced by the number of staff within the program  office dedicated to this mission; program officials said that until recently  there was only one government official at the program office overseeing  property accountability for the F-35 system.

In order to maintain accountability for government property, such as the  spare parts within the F-35 supply chain, DOD guidance requires that  DOD components establish and maintain a physical inventory control  program for assets within the DOD supply chain to serve as a key internal  control for providing information to inform inventory financial statements.  Defense Contract Management Agency officials also told us that in order  to improve F-35 readiness and decrease costs, DOD must have an  understanding of the F-35 spare parts it owns, where those parts are  located, and how those parts are being used to support the weapon  system. However, the F-35 program has not consistently followed DOD  guidance for property accountability. For example:

As of December 2018, the program office had not populated an  accountable property system of record with data for its F-35 parts.  DOD components are required to establish and maintain accountable  property systems of record for property that DOD components own  and manage. An accountable property system of record is required to  contain information such as cost, location, and custodial ownership  data for property, including individual parts, that meet certain criteria,  and to provide a comprehensive log of transactions that can be  audited. Such a system would allow the F-35 program office to have  asset visibility for spare parts within the F-35 supply chain. The  program office has identified a database to use as its accountable  property system of record, but DOD officials stated that the program  office does not have the data necessary to populate it. According to  program officials, the prime contractor keeps some of the required  data in proprietary databases to which the program office does not  have access. In addition, DOD officials told us that the program office  is working through some limitations that need to be addressed with  the system the program office has chosen to be its accountable  property system of record in order to properly maintain data records.

The program office has not fully identified which spare parts the prime  contractor is required to enter into DOD’s Item Unique Identification  registry (hereinafter referred to as DOD’s central registry for  government property). In addition to component-specific accountable  property systems of record, DOD’s central registry for government  property is DOD’s primary data source for government furnished  property, and it is intended to provide department-wide asset visibility  for all government property and links with financial and accountability  systems in order to maintain accountability over the assets DOD  owns. DOD guidance states that agencies are to require contractors  to report government furnished property in DOD’s central registry for  government property. DOD guidance also states that DOD agencies  are to identify which assets require unique item-level traceability.  However, the program office has not clearly defined for the prime  contractor all F-35 spare parts that should be entered into DOD’s  central registry. As a result, DOD officials said the prime contractor is  not entering in information about all required parts. Moreover, a  property accountability official said that the prime contractor is not  consistently entering F-35 parts into DOD’s central registry when the  parts are delivered, because the prime contractor may delay entering  information into DOD’s central registry until all items associated with a specific contract line item have been delivered to DOD. This official  also said that there are some contract line items dating back to the  first production lot, which delivered aircraft in 2011, that remain open,  and thus there are potentially thousands of F-35 parts that are being  used within the global spares pool that have not been entered into the  registry, thereby impeding DOD’s visibility over these parts.

DOD has not established a program policy that explicitly defines how it  will maintain accountability of F-35 spare parts in accordance with DOD  guidance. According to program officials, DOD has made some recent  progress to address accountability issues, such as taking steps to bring  contracts into compliance with property accountability regulations and  increasing the number of staff focused on property accountability within  the F-35 program office. However, DOD faces continued challenges in  accounting for F-35 assets. In the absence of a program policy, the  program lacks clarity on how to categorize assets and which property  data the contractor is required to provide for those assets, how to  implement policies and regulations, and how to define prime contractor  roles and responsibilities. For example, F-35 contracts contain Federal  Acquisition Regulation clauses that convey requirements for the prime  contractor related to the accountability of government furnished property,  including specifying the data that the contractor must maintain and  provide to DOD. However, DOD officials said that the F-35 program office  has not contractually established which items—including spare parts—are  government furnished property, which has made it difficult for the program  office to hold the contractor accountable for those required functions. As a  result, the contractor has disputed which items should be considered as  government furnished property, which has implications for how the prime  contractor maintains accountability and provides data for F-35 spare parts  it manages.

Property accountability officials at the F-35 program office have  developed a draft directive that seeks to address the factors currently  impeding the program from being compliant with property accountability  guidance by clarifying roles and responsibilities within the program office  for maintaining accountability of all government furnished property and  pooled assets, including the F-35 spare parts in the supply chain, and  defining prime contractor responsibilities for managing these items and  providing data to the program office for them. Officials told us, however,  that the draft directive is undergoing internal review, and that its timeline  for approval and implementation has not been established. Program  officials said they are also in the process of developing a program  instruction that may provide general procedures for implementing the  policies that will be established in the directive.

Furthermore, while the draft program directive defines property  accountability goals for the F-35 program, it does not detail the actions  the program office will take to achieve these goals. The program office  will face challenges that may impede its ability to achieve the goals of the  draft directive, both retroactively and prospectively, for the billions of  dollars in F-35 spare parts for which it currently cannot fully account. For  example, DOD officials said that the costs for the prime contractor to  obtain the data required to meet DOD’s requirements for property  accountability will likely be high, as the prime contractor does not centrally  maintain all the data, nor do they maintain the data in a readily usable  format for property accountability purposes. The contractor has estimated  that more than 450,000 hours of labor could be necessary to provide the  data. Program officials also acknowledged that the successful  implementation of the draft directive is dependent upon support from  program office leadership to ensure that its guidance is followed by both  program officials and the prime contractor. However, according to these  officials, the program has not historically prioritized property accountability  in negotiations with the prime contractor because the program office has  been focused on the production and fielding of aircraft and developing  contracts to which the prime contractor will agree.

Standards for Internal Control in the Federal Government states that  agencies should define objectives to identify risk, and to design and  implement control activities to respond to those risks. These standards  also state that without a strong tone at the top to support an internal  control system, the entity’s risk identification may be incomplete, risk  responses may be inappropriate, control activities may not be  appropriately designed or implemented, information and communication  may falter, and results of monitoring may not be understood or acted  upon to remediate deficiencies. DOD’s recent efforts related to property  accountability are positive, but DOD stakeholders have raised concerns  about issues related to property accountability within the F-35 program  dating back to 2012 that have not been resolved, such as the program’s  lack of a populated property system of record.

As the fleet expands and the number of spare parts in the supply chain  continues to grow, the program office will only continue to face increasing  difficulty  in  obtaining  accountability  over  its  F-35  assets  if  it  does  not  address  these  challenges.  To  address  the  scope  of  these  challenges,  DOD will need to establish a unified approach that provides clarity on how  to  categorize  these  assets,  implement  policies  and  regulations,  and  define  prime  contractor  roles  and  responsibilities.  Without  developing  a  policy  that  clearly  resolves  these  issues  and  defines  how  the  F-35  program  will  maintain  accountability  for  spare  parts  within  the  supply  chain  that  is  consistent  with  DOD  guidance—and  identifying  the  steps  that it will take to implement it retrospectively and prospectively, such as  how  the  program  will  obtain  the  necessary  data  from  the  contractor— DOD  cannot  ensure  that  it  will  be  able  to  obtain  and  maintain  comprehensive accountability and visibility over spare parts within the F- 35  supply  chain.  Moreover,  without  an  understanding  of  the  assets  it  owns and how those assets are being managed by the prime contractor,  DOD  cannot  ensure  that  the  prime  contractor  is  providing  sufficient  readiness for its most expensive weapon system at a reasonable cost.

DOD Cannot Identify Costs nor Can the Military Services Track the Funds Spent on F-35 Spare Parts

DOD cannot identify individual costs for each F-35 spare part, nor can the  military services track the funds that they have spent for the use of F-35  spare parts to the actual parts purchased on their financial statements  and related documentation. According to contract administration officials,  the ability to track costs and assets is also critical to understanding and  improving F-35 fleet performance.

DOD Does Not Have Comprehensive Cost Information for Individual F-35 Spare Parts

DOD does not have comprehensive cost information for individual F-35  spare parts. DOD purchases a high volume of spare parts across several  contracts each year. According to program documentation, DOD was  appropriated more than $960 million for F-35 spare parts in fiscal year  2018 alone (see sidebar). DOD does not have a consistent, methodical  process to identify and track the costs of individual F-35 spare parts,  which would typically be done through the purchase contracts for the  parts. However, the F-35 contracts do not identify the individual parts or  their costs. Instead, these costs are aggregated under broad contract line  items, such that individual pricing for spare parts cannot be determined.  For example, the annual sustainment contract for fiscal year 2018   aggregates the costs to repair and replace spare parts for F-35A aircraft  under one contract line item totaling $276 million. The contracts and  related documentation do not specify how the money will be distributed  among costs for repair or replacement, nor do they specify how many  spare parts the contractor will purchase and at what cost.

Program officials said that their system for contract management has  limitations that make it difficult to separate individual F-35 parts into their  own line items. Since those costs are not being specifically provided in  the contracts, program officials said that DOD has relied upon several ad  hoc, manual workarounds in an attempt to obtain such data for the  thousands of F-35 spare parts it owns, but these efforts are not  comprehensive. For example, a program official said that they are  obtaining cost information from the inspection and receiving forms  accompanying deliveries of F-35 spare parts and then manually entering  these cost data into attachments to the sustainment contracts. However,  DOD officials said that the inspection and receiving forms for deliveries of  F-35 spare parts are often not being entered into the registry until years  after the parts are delivered, because such forms are not required until  the delivery of all parts purchased under the same contract line item are  complete. Furthermore, DOD officials said that this process is not an  effective long-term solution for maintaining cost data of the billions of  dollars in F-35 spare parts that DOD owns, because data entered in the  program’s contract management system through manual workarounds do  not automatically link to the program office’s other data systems. Program  officials said that such linkages are necessary to maintain proper  accounting of F-35 spare parts, as cost data constitute one of the  required data elements for an accountable property system of record.

Similar to the challenges that DOD faces with property accountability,  program officials said that DOD faces significant hurdles in obtaining cost  data from the prime contractor for individual F-35 spare parts because the  contracts have not been written to require those data from the outset of  the program. According to program officials, the program office has  attempted to negotiate for cost data for F-35 spare parts, but the attempts  have not been successful because of the high price the prime contractor  would have charged the government for these data.

DOD guidance states that understanding program costs, such as those  for F-35 spare parts, is critical to both achieving desired performance and  supporting financial audits. Specifically, DOD guidance states that the  government should clearly understand program costs in order to have  effective performance-based arrangements. Along these lines, we have  previously reported that DOD’s limited understanding of the actual  sustainment costs of the F-35 system will hinder its ability to accurately  determine how much fleet performance should cost under performance- based contracts, thus putting DOD at risk of overpaying the prime  contractor while not receiving the expected level of sustainment support.  Additionally, DOD guidance requires that DOD agencies assign dollar  values for spare parts in financial accounting systems.

Without a methodical process for consistently obtaining comprehensive  cost information from the prime contractor for individual F-35 spare parts,  the program office will not be able to maintain financial or property  accountability over these parts in accordance with DOD guidance.  Furthermore, DOD will continue to face challenges in developing a  complete understanding of the costs for the F-35 system, which will  impede its ability to effectively negotiate with the prime contractor for  sustainment support and to improve readiness of the expanding F-35  fleet.

Military Services Cannot Track the Funds Spent on F-35 Parts

The military services cannot track the funds that they have spent for the  purchase of F-35 spare parts to the actual parts on their financial  statements and related documentation due to the lack of an established  accounting methodology for the parts within the global spares pool. Under  this global spares pool construct, the military services and international  partners each pay for access to the common pool of spare parts instead  of owning the physical parts themselves. However, there is no  established accounting methodology for defining how to track funding to  the spare parts such that the military services can properly report assets  on financial statements. DOD’s Financial Management Regulation  requires that DOD agencies—such as the military services—account for  all spare parts they purchase for accountability and financial reporting  purposes. According to DOD officials, the F-35 program and the DOD  Comptroller have been working to develop a policy that provides such  guidance since 2015, but it has not yet been finalized and the timeline for  completion is unclear.

Specifically, program officials said that they are waiting for the DOD  Comptroller to finalize a memorandum that would identify the DOD  component responsible for maintaining financial accountability of the F-35  spare parts in the global spares pool. According to DOD officials, the  memorandum would include an attachment that defines a methodology  for tracking funding contributed by the military services and international  partners to F-35 spare parts. A draft of this memorandum has laid out a  possible methodology to maintain financial accountability for the spare  parts within the global spares pool that includes identifying the program  office as the DOD component responsible for financial reporting for F-35  parts, but a program official said that the DOD Comptroller has not yet  completed this memorandum because the DOD Comptroller is  reconsidering the proposed approach. DOD Comptroller officials said that  they are reconsidering the proposed approach based on input received  from independent public accountants who performed the services’  financial statement audits, to consider having the Department of the Navy  or the Air Force, rather than the program office, be the reporting entity for  F-35 parts.

Without a DOD Comptroller-approved methodology for the services to  account for the funds they have spent on F-35 parts within the global  spares pool on their financial statements, DOD will be hindered in its  efforts to comply with financial improvement and audit readiness  requirements, provide supporting details for its financial statement  transactions, and render accurate cost information for DOD management,  Congress, and others stakeholders to use in assessing and managing  program costs and other financial activities associated with the F-35  program. We previously reported that F-35 sustainment costs are not fully  transparent to the military services and recommended that DOD should  take steps to improve communication with the military services about how  the F-35 sustainment costs they are being charged relate to the  capabilities received. Furthermore, discrete cost information and an  ability to account for funds spent would help DOD in its efforts to  decrease costs and make one of its most expensive weapon systems  more affordable.

DOD Actions to Address Supply Chain Management Challenges Are Not Consistent with the Established F-35 Sustainment Strategy

DOD Actions Related to Supply Chain Management Diverge from the Established F-35 Sustainment Strategy

Challenges related to readiness and costs—including those we have  discussed in this report—are driving the Office of the Secretary of  Defense and the services to take actions that diverge from the  established F-35 sustainment strategy. These actions indicate a potential  shift in DOD’s intent for F-35 supply chain management and a growing  desire for more direct involvement by the military services and access to  program information from the prime contractor. reliant on the program office for information about system performance  and costs. Furthermore, according to Office of the Secretary of Defense  and service officials, many of the military services’ sustainment  organizations that provide supply and maintenance support to other  platforms have had almost no role in the planning for and establishment  of sustainment capabilities or ongoing sustainment support for the F-35.

Of these common items, more than 6,000  100,000 demands for these common  items, 435 of which had impacts on fleet  readiness.

In April 2018, in a departure from the strategy and structure of the  program and at the direction of the Assistant Secretary of Defense  (Logistics and Materiel Readiness), the Defense Logistics Agency and the  military services’ supply and sustainment organizations initiated planning  efforts to develop an option for organic—that is, DOD-managed—supply  chain management support that would include increased roles for the  services’ supply organizations and the Defense Logistics Agency in  assuming responsibility for F-35 supply chain management. In support  of this effort, these organizations have begun to develop notional plans to  provision an organic supply chain for F-35 aircraft, which includes  determining how many parts are required to support the system and how  they can be procured. In addition, the Defense Logistics Agency has  begun to catalogue a limited portion of F-35 consumable parts from  production lots 6 and 7 into DOD’s supply system (see sidebar).

However, officials from the Office of the Secretary of Defense and the  Defense Logistics Agency said that this initial cataloguing effort only  includes the level of detail necessary to support disposal of the parts, and  that more comprehensive cataloguing would require DOD to have access  to significantly more technical data than are currently available. Prior to  this effort, parts used on F-35 aircraft were not tracked by DOD in its  logistics information systems.

Officials from the Office of the Secretary of Defense said that there are  multiple reasons behind DOD’s recent effort to develop an option for  DOD-led, organic supply chain management, including DOD’s need to  significantly reduce sustainment costs and improve readiness. For  example, according to DOD officials, DOD’s early cataloguing efforts  have identified more than 7,300 F-35 consumable items that are common  to other DOD platforms. Defense Logistics Agency officials said that they  are actively working with the program office and prime contractor to  identify opportunities for the program to leverage the parts that are  already on DOD’s shelves. In the longer term, identifying common parts  could potentially allow DOD to directly procure them at a lower cost rather  than through the prime contractor, and thereby provide economies of  scale across other aviation platforms. Furthermore, the prime contractor  and F-35 Joint Program Office have not been able to deliver the supply  chain performance that the services need under the current sustainment  strategy and structure, as discussed earlier in this report. According to an  official from the Office of the Secretary of Defense, DOD is supposed to  have a viable back-up plan for contractor logistics support under  performance-based logistics contracts, in case the contractor cannot  meet the government’s performance requirements. Prior to the ongoing  effort, DOD did not have such a plan. Similarly, DOD guidance on  performance-based agreements states that robust performance-based  logistics solutions include appropriate criteria to cease the arrangement if  necessary in order to manage risk.

DOD officials involved in the cataloguing and provisioning efforts  described a long-term (5 to 10 years) and phased approach to the  potential development of DOD-led supply chain management capabilities  for the F-35 that would require major changes to the F-35 program  structure and contracts. It would also require DOD to obtain significant  amounts of technical data on F-35 parts from the manufacturers of those  parts (see sidebar). DOD has submitted a request to the prime contractor  for a proposal regarding supplying the data necessary to provision an  organic supply chain and to catalogue all F-35 parts into DOD’s supply  inventory, but as of October 2018, DOD officials said that the prime  contractor had not yet provided the costs of these data.

Officials from the Office of the Secretary of Defense told us that DOD had  initially planned to negotiate for these data as part of the annual  sustainment contract for fiscal year 2019, but that the prime contractor  had cautioned that this could delay the awarding of the sustainment  contract because of the complexity around the data negotiations. Officials  said that there were also questions about the type of funds that should be  used for the acquisition of these data (that is, procurement or operations  and maintenance), and whether some data would need to be directly  procured by DOD from the original equipment manufacturers. The lack of  data from the contractor to support competition in the F-35 supply chain  and DOD’s understanding of the costs and performance of the system  has long been a challenge, as we have previously reported. In September  2014, we recommended that DOD develop an Intellectual Property  Strategy, to include identification of all critical technical data needs and  associated costs. Further, in October 2017, we recommended that prior  to entering into multi-year, fixed-price, performance-based contracts,  DOD should ensure that it has sufficient knowledge of the actual costs of  sustainment and technical characteristics of the aircraft after baseline  development is complete and the system reaches maturity. DOD  concurred with both recommendations but has not yet implemented  them.

In addition, ongoing dialogue among stakeholders within the Department  of Defense demonstrates a growing desire for more direct military service  influence and access to information within the F-35 program. In 2018, the  Secretary of Defense directed the U.S. military service chiefs to correct  the F-35 parts shortages and to be agents of change in pursuing 80  percent mission capability for the F-35 aircraft. In a September 2018  memorandum responding to the Secretary of Defense’s direction to  address F-35 parts shortages, the Air Force Chief of Staff, the Chief of  Naval Operations, and the Commandant of the Marine Corps raised  concerns about the program’s inadequate supply chain and repair  networks and reported on the funding that the services, as customers,  provided to the Joint Program office to improve delivery of spare parts  and accelerate depot maintenance capability. Furthermore, officials  whom we interviewed from each of the military service headquarters  expressed frustration with the current sustainment construct of the F-35  program in which they pay large sums of money for less-than-required  readiness outcomes but have minimal influence on actions being taken to  improve readiness and limited visibility into supply chain modeling and  data to support their operational decisions.

DOD Has Not Determined the Actions and Investments Needed to Support Its Future Strategy for F-35 Supply Chain Management

DOD has not yet determined the actions and investments needed to  support the F-35 supply chain in the future, because the department has  not charted a clear strategy for F-35 supply chain management. There is  a tension between two distinct sustainment concepts—the official  contractor logistics support construct and DOD’s current effort to have  greater involvement in supply chain management—and F-35 program  officials said that the program is caught between the two. In October 2018  DOD issued an updated F-35 Acquisition Strategy, but it did not clearly  outline a shift in supply chain management. The new strategy includes  references to the potential for increased organic support of the supply  chain in the future—but does not provide details about the actions or  timelines necessary to support this—while also reaffirming the current  sustainment strategy of contractor logistics support for supply chain  management. In addition, while the new strategy states the intent to  support supply chain cataloguing and provisioning efforts, it does not  provide detailed information regarding the investments in technical data  necessary to support these efforts. In January 2019, DOD issued an  updated F-35 Life-Cycle Sustainment Plan, which highlighted the  absence of the technical data to support provisioning and cataloguing as  a gap. The plan stated the intent to have all cataloguing and provisioning  data available to the services by the end of fiscal year 2024. However, the  plan did not provide details regarding how the data were to be procured  or address DOD’s future strategy for supply chain management.

According to F-35 program, Office of the Secretary of Defense, and Air  Force officials, DOD has to provide clear and consistent direction  regarding its intent for F-35 supply chain management in order to guide  investments in technical data, negotiations with industry, and program  actions. In particular, F-35 program officials said that DOD’s mixed  messages about supply chain management have led to inefficiency as the  F-35 program tries to support both the formal, current strategy and  initiatives driven by the informal shift toward more DOD involvement in F- 35 supply chain management. According to program officials, the Product  Support Manager organization at the F-35 Joint Program Office was  structured for management of a program in which the primary contractors  would be providing comprehensive contractor logistics support for the life  of the program, and it has not grown in size as the fleet has grown.  Furthermore, many of the positions at the program office that are critical  to establishing and managing sustainment and supply chain capabilities  are unfilled, even as the program office is taking on new responsibilities  as Hybrid Product Support Integrator. For example, as of September  2018,

Of the 16 positions on the product support maintenance team, which  includes depot planning, three were vacant.

Of the seven positions on the product support supply chain  management team, two were vacant. As of January 2019 program  officials said that the number of vacancies had grown to four of seven  positions.

Of the 42 positions in the directorate of sustainment strategy, 11 were  vacant, including the lead roles for strategic planning and risk  management and scheduling for the global support solution.

In other cases, the numbers of staff dedicated to complex planning efforts  are limited or have experienced frequent turnover. For example, officials  said that there are only two officials within the program office dedicated to  planning for the establishment of the program’s delayed global networks  for moving parts, and the lead role had changed four times in a year.

Moreover, program officials said that they are inundated with requests for  data and information from the Office of the Secretary of Defense and the  U.S. military services, which they partially attributed to the informal shift in  the program’s strategic intent for sustainment, and to scrutiny related to  sustainment performance failures. Officials said that the time spent in  responding to requests for data is hindering their ability to focus on long- term actions to improve sustainment performance.

The lack of clarity about the future F-35 sustainment strategy could also  increase the risk perceived by industry, thus driving up tensions and  potential costs in contract negotiations. Program officials said that the  increasing technical data requests sent to the prime contractors to  support DOD’s provisioning and cataloguing efforts signal to industry a  potential change from the acquisition strategy of contractor logistics  support for supply chain management. According to Hybrid Product  Support Integrator officials, mixed messages about the F-35 program’s  future supply chain strategy could make manufacturers reluctant to invest  in increasing their capacity to produce new parts and to repair parts, if  they do not have confidence in the scope of future business to warrant  such investments.

Many options for F-35 supply chain management are available to DOD on  a spectrum ranging from full contractor logistics support to DOD-led  supply chain management or a blend thereof, depending on the aircraft  system or subsystem. DOD guidance for program managers states that a  sound program strategy requires understanding and clarity of the  program’s desired outcomes, and the plans and resources necessary to  achieve those outcomes. Furthermore, federal internal control standards  demonstrate the necessity of programs defining a clear strategy in order  to support program actions. Specifically, the standards state that  management should define objectives clearly so that they are understood  at all levels of the organization, to include defining what is to be achieved,  who is to achieve it, how it will be achieved, and timeframes for  achievement.

Without clearly defining its strategy for how it will manage the F-35 supply  chain in the future and updating key strategy documents accordingly,  DOD will continue to face uncertainty about how F-35 sustainment  support will be provided over the system’s life cycle and the actions and  investments needed to ensure that support. Such uncertainty could  further hinder the program’s efforts to improve supply chain performance  and reduce costs.

The F-35 aircraft, with its advanced warfighting capabilities, is a critical  component of the National Defense Strategy. However, DOD will need to  overcome substantial supply chain challenges for the aircraft to perform  its expected role. Current F-35 performance continues to fall short of  warfighter requirements, largely due to spare parts shortages and delays  in the development of key repair capabilities. Simply purchasing more F- 35 parts without other trade-offs may not be a viable long-term solution  for DOD, given the steep reductions in sustainment costs that the military  services have recognized are needed to make the aircraft affordable.  These complex problems necessitate a comprehensive review by DOD to  determine what actions should be taken to close the gap between  warfighter requirements and the capabilities that the F-35 supply chain  can deliver. Absent such actions, DOD risks that the F-35 will not be able  to conduct the full range of intended missions.

The military services are integrating the F-35 into their operations with  recent deployments and the establishment of F-35 bases overseas, but  these events have also highlighted key risks for DOD in how it is  managing and moving aircraft parts around the world. If not addressed,  these risks could hinder the readiness of the global fleet. To date, DOD  has been able to mitigate some of these risks by placing singular focus on  ensuring the success of early F-35 deployments, but this will not be  possible with the rapid expansion of the fleet in the next few years.  Specifically, without a process and funding to make changes to the spare  parts within their afloat and deployment spares packages to ensure that  these match their needs, the military services risk not meeting operational  requirements during future deployments. Fleet-wide spare parts  shortages are also putting the F-35 program’s process for prioritizing  scarce F-35 parts to the test. Absent comprehensive business rules, the  F-35 program could face challenges in transparently allocating parts to  support competing U.S. and international requirements. Further, because  the F-35 program did not fully recognize the complexity of establishing a  global network for moving F-35 parts, this network is now several years  behind schedule. Without a detailed plan that includes clear requirements  and milestones to fully establish the network, as well as mechanisms to  identify and mitigate the risk posed by any gaps or delays, DOD cannot  ensure that it will be able to take the network from concept to reality so  that F-35 participants do not experience long wait-times for parts in order  to fly their aircraft.

Moreover, in its rush to field aircraft and its heavy reliance on the prime  contractor, DOD has not focused on property and financial accountability  of F-35 spare parts. Simply put, DOD does not have records of all the F- 35 spare parts it has purchased; where those parts are located; and how  much the military services paid for them. Until DOD establishes a policy  that clearly defines how the F-35 program will maintain accountability for  spare parts within the supply chain and lays out the steps that it will take  to implement that policy, DOD will continue to lack critical visibility of F-35  assets, which is necessary to hold the prime contractor accountable for  providing sufficient readiness at a reasonable cost. Additionally, without a  process to consistently obtain comprehensive cost information from the  prime contractor for F-35 spare parts, DOD will not have a full picture of  F-35 costs, which could impede its ability to effectively negotiate with the  prime contractor for sustainment support and to improve readiness of the  expanding F-35 fleet. Further, absent a DOD Comptroller-approved  methodology for the military services to record on their financial  statements the funds spent on F-35 parts, DOD will be hindered in its  efforts to comply with financial improvement and audit readiness  requirements. As a result, DOD will not be able to assure the taxpayer  that it fully understands how funds have been spent on this costly weapon  system.

Finally, from the start of the F-35 program, the U.S. military services have  been largely reliant on the prime contractor to manage the F-35 supply  chain and to support their operations, with oversight from the program  office. However, the Office of the Secretary of Defense and the services  have grown dissatisfied with the program’s inability to meet their  readiness requirements and reduce costs, and they have begun to take  actions that indicate the potential for a significant shift in DOD’s F-35  sustainment strategy that would have far-reaching implications for the  program. This shift, if fully implemented, would give more control of the  supply chain to the federal government, but it also would run counter to  the way in which agreements with industry and international participants  have been constructed. Until DOD clearly defines its strategy for  managing the F-35 supply chain in the future—to include any additional  actions and investments necessary to support that strategy—the F-35  program will lack the certainty and unity of effort necessary to  meaningfully improve supply chain performance and reduce costs.

We are making the following eight recommendations to DOD.

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, the Secretaries of the Air Force and Navy, and the  Commandant of the Marine Corps, conducts a comprehensive review of  the F-35 supply chain to determine what additional actions are needed to  close the gap between warfighter requirements for aircraft performance  and the capabilities that the F-35 supply chain can deliver, in light of the  U.S. services’ affordability constraints. Potential actions could include  adjustments to the quantities of parts DOD is planning to procure, or  developing a mechanism for providing increased availability of parts to  operational units, as a means to mitigate fleet-wide shortages.  (Recommendation 1)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, the Secretaries of the Air Force and Navy, and the  Commandant of the Marine Corps, develops a process to modify the  afloat and deployment spares packages, to include reviewing the parts  within the packages to ensure that they match deploying aircraft and  account for updated parts demand, and aligning any necessary funding  needed for the parts updates. (Recommendation 2)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, the Secretaries of the Air Force and Navy, and the  Commandant of the Marine Corps, revises the business rules for the  prioritization of scarce F-35 parts across all program participants so as to  clearly define the roles and responsibilities of all stakeholders, the  process for assigning force activity designations, and the way in which  deviations from the business rules will be conducted. (Recommendation  3)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, completes a detailed plan for the establishment of the  global network for moving F-35 parts that outlines clear requirements and  milestones to reach full operational capability, and that includes  mechanisms to identify and mitigate risks to the F-35 global spares pool.  (Recommendation 4)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, issues a policy consistent with DOD guidance that  clearly establishes how DOD will maintain accountability for F-35 parts  within the supply chain, and identify the steps needed to implement the  policy retrospectively and prospectively—for example, how DOD will  obtain the necessary data from the contractor. This policy should provide  clarity on how F-35 parts will be categorized, specify how the program will  implement DOD regulations, and define prime contractor roles and  responsibilities. (Recommendation 5)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, develops a methodical approach to consistently obtain  comprehensive cost information from the prime contractor for F-35 spare  parts within the supply chain. (Recommendation 6)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the Department of  Defense Comptroller, the Secretaries of the Air Force and Navy, and the  F-35 Program Executive Officer, completes and formalizes a  methodology for the U.S. services to use in recording on their financial  statements the funds spent on F-35 parts within the global spares pool.  (Recommendation 7)

The Secretary of Defense should ensure that the Under Secretary of  Defense for Acquisition and Sustainment, together with the F-35 Program  Executive Officer, the Secretaries of the Air Force and Navy, and the  Commandant of the Marine Corps, clearly defines the strategy by which  DOD will manage the F-35 supply chain in the future and update key  strategy documents accordingly, to include any additional actions and  investments necessary to support that strategy. (Recommendation 8)

We provided a draft of this report to DOD for review and comment. In its  written comments, reproduced in appendix II, DOD concurred with our  recommendations and identified actions that it was taking or planned in  response.

We are providing copies of this report to appropriate congressional  defense committees; the Acting Secretary of Defense; the Under  Secretary of Defense for Acquisition and Sustainment; the F-35 Program  Executive Officer; the Secretaries of the Air Force and Navy; and the  Commandant of the Marine Corps. In addition, the report is available at  no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-9627 or maurerd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. Staff members making key contributions to  this report are listed in appendix III.

For each of our objectives, we reviewed relevant F-35 sustainment and  supply chain plans, program briefs, guidance, and other documentation  and collected information by interviewing officials from the Office of the  Secretary of Defense for Acquisition and Sustainment, the F-35 Joint  Program Office, the U.S. Air Force, the U.S. Navy, the U.S. Marine Corps,  and the prime contractor, Lockheed Martin. To interview officials and  observe F-35 supply and maintenance operations, we conducted site  visits to two F-35 operational locations—Hill Air Force Base, Utah, and  Marine Corps Air Station Yuma, Arizona; and one training location—Luke  Air Force Base, Arizona. We selected these locations to obtain  perspectives from both operational and training units from multiple U.S.  military services using different variants of the aircraft, and to gather  insights of international partners co-located at these bases, among other  factors. Additionally, we interviewed officials from the only overseas- based U.S. F-35 operational squadron at Marine Corps Air Station  Iwakuni, Japan, by phone. A complete listing of organizations we  contacted for this review is provided later in this appendix.

In support of our objectives, we gathered various data related to the F-35  supply chain, such as parts availability, repair, aircraft performance, and  customer wait time data. We gathered data for fiscal year 2018 (October  2017 – September 2018) and available data from the F-35 program’s  2018 sustainment contract period (May – November 2018) in order to  provide the most recent information for F-35 fleet performance and overall  supply chain management available during our audit timeframes. To  determine the reliability of these data, we collected information on how  the data were collected, managed, and used through a questionnaire and  interviews with relevant DOD officials and the prime contractor. Although  we identified some limitations in the way that certain data are being  collected and reported— such as data related to aircraft performance,  aircraft that are not mission capable due to a lack of parts, and parts  cannibalization that could potentially result in inaccuracies—we  determined that they are sufficiently reliable for the way in which we  reported them and our purposes of providing information on the progress  and challenges within the program. Specifically, the parts cannibalization  rates that we discuss are sufficiently reliable to discuss generally in  comparison to program objectives. All other supply chain and  performance data presented in our report are sufficiently reliable to  present as specific data points.

To assess the extent to which F-35 performance is meeting warfighter  requirements and any challenges with spare parts availability, we  reviewed DOD and contractor sustainment and supply chain plans,  briefings, and reports, and interviewed Office of the Secretary of Defense,  U.S. service, program office, and prime contractor officials to determine  the degree to which the supply chain is currently able to provide parts to  meet the U.S. services’ requirements. In addition, we obtained data  related to F-35 parts availability and aircraft performance data for May  through November 2018 and compared these to the program’s target and  the U.S. services’ requirements for these metrics to identify any gaps  between requirements and actual performance. We also obtained data  related to 3-month average part repair times and part repair backlogs as  of November 2018—the most currently available data at the time of our  review. In order to assess the extent to which the supply chain is  positioned to meet future warfighter requirements, we examined program  plans, briefs, and other related documentation, and we interviewed Office  of the Secretary of Defense, U.S. service, program office, and prime  contractor officials to identify the actions that DOD is taking to increase  the availability of F-35 spare parts, DOD’s projections for when these  actions will result in improvements in F-35 aircraft performance, and  ongoing areas of challenge that could create risk for the program in  meeting future warfighter requirements. Finally, we used principles from  the Standards for Internal Control in the Federal Government and DOD  guidance for performance-based arrangements related to how programs  should be structured to meet requirements and respond to risk as a basis  to determine whether DOD needs to take further actions to ensure that  the F-35 supply chain is positioned to meet future warfighter  requirements.

To assess the extent to which DOD can effectively manage and move F- 35 parts to support aircraft around the world, we reviewed military service  and program briefings and data related to DOD’s fiscal year 2018 F-35  operational deployments, and we interviewed service, program office, and contractor officials about how the F-35 supply chain and its global spares  pool were able to support these deployments, including the extent to  which the packages of parts that the military services purchased to  support these deployments were built to meet their requirements. We  reviewed DOD guidance related to managing risk in acquisition  programs and the Navy’s process and guidance for ensuring that the  packages of parts for legacy aircraft are built to meet the requirements of  deploying aircraft, and we assessed the F-35 program’s processes for  identifying and addressing risks related to the sufficiency of its  deployment parts packages against these criteria.

We also reviewed the F-35 program’s business rules for allocating and  prioritizing scarce F-35 assets and related documentation, and we  interviewed officials from the Joint Staff, Office of the Secretary of  Defense, the services, the program office, and the prime contractor to  understand how the business rules are being applied and to identify any  related F-35 program participant perspectives about or gaps in the rules.  We also reviewed DOD guidance related to prioritizing materiel and parts  to identify standard DOD policies for legacy aircraft, and Standards for  Internal Control in the Federal Government, and we used these as a  basis to assess whether the F-35 program’s business rules for allocating  scarce F-35 parts are sufficiently clear and comprehensive.

In addition, we reviewed available plans, briefs, and other documentation  to understand the F-35 program’s envisioned global network for moving  F-35 parts, the current state of the network, and the program’s projections  for full implementation of the network. Further, we obtained data from  December 2017 through November 2018 related to customer wait times  for parts to determine whether program participants located outside of the  continental United States are waiting longer for parts than those located  inside of the continental United States. We also interviewed officials from  the program office, prime contractor, Office of the Secretary of Defense,  the services, and U.S. Transportation Command to discuss the progress  being made and challenges the program faces in developing the global  network to move F-35 spare parts. Finally, we assessed DOD’s plans for  establishing its global network for moving parts against key acquisition  program management practices that can improve program outcomes if  implemented and DOD guidance related to managing risk in acquisition  programs.

To assess the extent to which DOD can account for F-35 spare parts  within the supply chain and their associated costs, we reviewed program  briefs, DOD guidance and the Federal Acquisition Regulation, and  sustainment contracts and related documentation, and we interviewed  program and contractor officials to determine how the program office is  maintaining accountability for F-35 spare parts, to include roles and  responsibilities for property accountability and any associated challenges.  In addition, we reviewed draft guidance and program briefs and  documentation, as well as interviewed officials from the program office, to  identify the actions the program is taking to improve its ability to maintain  accountability of parts in the F-35 program. We compared these efforts  against criteria in DOD guidance for property accountability and  Standards for Internal Control in the Federal Government to assess  whether the program’s current efforts to obtain and maintain  accountability for F-35 spare parts are sufficient to bring the program into  alignment with DOD guidance, and whether any additional actions are  needed.

To assess the extent to which DOD is maintaining accountability over  costs associated with F-35 spare parts, we reviewed program plans and  documentation related to the construct of the global spares pool. We also  reviewed sustainment contracts and supplemental contract  documentation, and we interviewed officials from the program office,  Office of the Secretary of Defense, and Defense Contract Management  Agency to determine what information DOD has been able to obtain  about the quantity and cost of F-35 spare parts and the approaches that  DOD uses to collect such information. Additionally, we identified criteria  within DOD guidance for performance-based arrangements and the  DOD Financial Management Regulation to serve as a basis to assess  whether the program office’s approach for obtaining cost information is  sufficient to support program and financial management requirements.  We also reviewed DOD and program office documentation and spoke  with officials from the program office and the Office of the Under  Secretary of Defense (Comptroller) to determine the extent to which the  program office has developed a methodology to track the funds paid by  the U.S. military services for F-35 parts to the actual parts within the  global spares pool. Finally, we used the DOD Financial Management  Regulation as a basis to assess whether the program has the ability to  adequately track funds paid by the U.S. military services for F-35 spare  parts to the actual parts within the global pool to support financial audits.

To assess the extent to which actions DOD is taking to address supply  chain challenges are consistent with the established F-35 program  sustainment strategy, we reviewed key F-35 program strategy, planning,  and structure documents—such as the 2016 and 2018 F-35 Acquisition  Strategies, the Life-Cycle Sustainment Plan, and program office  organizational structures—and F-35 sustainment contracts to determine  the program’s formal strategy and structure for F-35 supply chain management. We also reviewed documentation related to DOD’s efforts  to develop an option for DOD-management of the F-35 supply chain,  such as data requests and a memorandum, and we interviewed officials  from the Office of the Secretary of Defense for Acquisition and  Sustainment, Defense Logistics Agency, military service sustainment  commands, the program office, and the prime contractor to understand  the extent to which DOD is pursuing a DOD-managed F-35 supply chain,  whether these efforts are aligned with the established F-35 program  strategy, and the effects of such actions on the program office’s ability to  execute F-35 sustainment with the prime contractor, Lockheed Martin. In  addition, we assessed DOD’s efforts to establish a DOD-managed option  for supply chain management against principles from DOD planning  guidance and Standards for Internal Control in the Federal Government  for defining objectives and clearly aligning actions and resources to meet  those objectives.

Department of Defense and Other Organizations with Whom GAO Conducted Interviews

In support of our work, we interviewed officials from the following DOD  organizations and other organizations during our review. We selected  these organizations based on their oversight, planning, and execution  roles related to F-35 sustainment, supply chain management, and  operations.

United Kingdom Ministry of Defence  We conducted this performance audit from January 2018 to April 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Alissa Czyz (Assistant Director),  Vincent Buquicchio, Kasea Hamar, Amie Lesser, Sean Manzano, Michael  Silver, Tristan T. To, and Cheryl Weissman made key contributions to this  report.

F-35 Joint Strike Fighter: Development Is Nearly Complete, but  Deficiencies Found in Testing Need to Be Resolved. GAO-18-321.  Washington, D.C.: June 5, 2018.

Warfighter Support: DOD Needs to Share F-35 Operational Lessons  Across the Military Services. GAO-18-464R. Washington, D.C.: April 25,  2018.

Military Aircraft: F-35 Brings Increased Capabilities, but the Marine Corps  Needs to Assess Challenges Associated with Operating in the Pacific.  GAO-18-79C. Washington, D.C.: March 28, 2018.

F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting  Readiness and Cost Transparency. GAO-18-75. Washington, D.C.:  October 26, 2017.

F-35 Joint Strike Fighter: DOD’s Proposed Follow-on Modernization  Acquisition Strategy Reflects an Incremental Approach Although Plans  Are Not Yet Finalized. GAO-17-690R. Washington, D.C.: August 8, 2017.

F-35 Joint Strike Fighter: DOD Needs to Complete Developmental  Testing Before Making Significant New Investments. GAO-17-351.  Washington, D.C.: April 24, 2017.

F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans  to Begin Development of New Capabilities. GAO-16-390. Washington,  D.C.: April 14, 2016.

F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its  Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016.

F-35 Joint Strike Fighter: Preliminary Observations on Program Progress.  GAO-16-489T. Washington, D.C.: March 23, 2016.

F-35 Joint Strike Fighter: Assessment Needed to Address Affordability  Challenges. GAO-15-364. Washington, D.C.: April 14, 2015.

F-35 Sustainment: Need for Affordable Strategy, Greater Attention to  Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.:  September 23, 2014.

F-35 Joint Strike Fighter: Slower Than Expected Progress in Software  Testing May Limit Initial Warfighting Capabilities. GAO-14-468T.  Washington, D.C.: March 26, 2014.

F-35 Joint Strike Fighter: Problems Completing Software Testing May  Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322.  Washington, D.C.: March 24, 2014.

F-35 Joint Strike Fighter: Restructuring Has Improved the Program, but  Affordability Challenges and Other Risks Remain. GAO-13-690T.  Washington, D.C.: June 19, 2013.

F-35 Joint Strike Fighter: Program Has Improved in Some Areas, but  Affordability Challenges and Other Risks Remain. GAO-13-500T.  Washington, D.C.: April 17, 2013.

F-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term  Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March  11, 2013.

Joint Strike Fighter: DOD Actions Needed to Further Enhance  Restructuring and Address Affordability Risks. GAO-12-437. Washington,  D.C.: June 14, 2012.

Joint Strike Fighter: Restructuring Added Resources and Reduced Risk,  but Concurrency Is Still a Major Concern. GAO-12-525T. Washington,  D.C.: March 20, 2012.

Joint Strike Fighter: Implications of Program Restructuring and Other  Recent Developments on Key Aspects of DOD’s Prior Alternate Engine  Analyses. GAO-11-903R. Washington, D.C.: September 14, 2011.

Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but  Progress Is Still Lagging. GAO-11-677T. Washington, D.C.: May 19,  2011.

Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but  Progress Still Lags. GAO-11-325. Washington, D.C.: April 7, 2011.

Joint Strike Fighter: Restructuring Should Improve Outcomes, but  Progress Is Still Lagging Overall. GAO-11-450T. Washington, D.C.:  March 15, 2011.

DOD needs to address supply chain issues with the F-35 advanced fighter jet, the country's most expensive weapons system with projected operating costs of more than $1 trillion.

The U.S. Air Force, Marine Corps, and Navy share a pool of spare parts with partners around the world. But shortages, repair backlogs, and mismatched parts are keeping F-35s on the ground. For example, F-35 aircraft were unable to fly nearly 30% of the time from May through November 2018 because they didn't have the parts they needed.

While DOD has taken steps to address these challenges and others, we’ve made 8 recommendations that address these specific issues.