C-17 Cost Up as Delivery Schedule Slips, Panel Told : Aerospace: Air Force officials say the cargo jet program has turned the corner on past problems.

The future cost of McDonnell Douglas C-17 cargo jets is continuing to grow even after a $1.2-billion cost overrun since 1985, and the deliveries are continuing to slip further than the four years they are now behind schedule, according to testimony given to Congress on Wednesday.

The Air Force, however, brought out five generals to assure the House Armed Services Committee that the high-priority program had turned the corner on past problems. Still, irked committee members said such repeated assurances in the past proved unfounded.

Technical problems, cost growth and shortfalls in the aircraft’s performance have put at risk the future viability of the program, prompting committee Chairman Rep. Ronald V. Dellums (D-Berkeley) to ask whether the McDonnell effort “is in a self-perpetuating death spiral.”

Since the development portion of the contract is about 96% complete and production is already underway, Lt. Gen. John E. Jaquish said he is confident that McDonnell will meet future schedules and that there is little risk of serious new technical problems coming to light.

What appeared less clear from the hearing was whether future cost growth will eventually make the plane unaffordable. The Air Force plans to buy 120 of the planes for $42 billion, or about $350 million each, an already high price by historical standards for a transport.

By several key measures of factory efficiency cited by the General Accounting Office and the Air Force on Wednesday, McDonnell appears to be still struggling to right its longstanding manufacturing problems at its Long Beach airplane plant.

While productivity is improving, it is not improving at the rate that was expected, leading to continuing cost increases, witnesses said. In January, for example, the firm produced work worth only 37 cents for every dollar of federal funding, according to Frank Conahan, a senior GAO official.

Air Force officials said January was a particularly bad month, and that on average McDonnell had produced work worth 67 cents on the dollar. Until recently, that average was 68 cents, and the fact that it was going down was a concern, said Col. Eugene Kluter, the Pentagon’s independent representative at the Long Beach plant.

As a result of such declining efficiency, Kluter said he planned to raise by at least $60 million his cost estimates for the first six C-17s and by an additional $20 million for the contract covering the next six aircraft.

Another major concern cited by Conahan was that the Air Force has obligated more than $1 billion on 18 future C-17 purchases that are not even covered by final contracts, representing a significant loss of government bargaining power in setting the final price of the planes.

Jaquish said longstanding deficiencies in the C-17’s ability to meet its range and payload requirements appear to be improving. The plane is now about 6% short of the requirement to carry 160,000 pounds of cargo over 2,400 miles.

McDonnell is improving the airplane’s drag, reducing its weight, and the engine’s fuel consumption is being improved--all of which would cut the shortfall to 1.3%. Failing further improvement, McDonnell would have to make monetary concessions, he said.

Even while the C-17 cost is increasing, McDonnell Douglas is preparing to file a $1.3-billion claim, asserting that the Air Force is to blame for the delay and disruption to the program that caused much of the cost growth.

So far, the Air Force has declined to pay prior claims, and it could take years for the service to evaluate a $1.3-billion claim.

Brig. Gen. Robert Drews, deputy assistant for contracting, told the committee that the service would not lower its standards in examining the big claim, saying to do so “would amount to a bailout and we are not going to do that.”

But Conahan noted that the service, in a recent negotiation for the fourth production lot contract on the C-17, specifically withdrew a provision that prohibited McDonnell from filing such claims.

A McDonnell spokesman said the company is not aware of any provisions that would bar it from filing its expected claim.