Navy claims that costs of its aircraft have been decreasing during the Reagan administration are largely "embellished simplifications," according to a Defense Department analysis.
The report is a second attack by the Defense Department on its "good news" memos. It illustrates a continuing rift between Navy Secretary John F. Lehman Jr. and Pentagon cost analysis executives.
Milton A. Margolis, a career cost analyst in the Pentagon's office of Program Analysis and Evaluation, said the method used by the Navy to calculate the price of its aircraft "detracts immediately from their credibility and destroys the purpose of their release to the press." He referred to charts the Navy sent to Congress and made public in October tracing the downward trend in airplane prices between fiscal 1982 and 1985.
Margolis termed the Navy straightline charts "simplistically stylized" and noted that they only went through fiscal 1985, stopping just before Navy aircraft prices jumped up. His memorandum was written on Nov. 7, 1985, but came to light only yesterday in the wake of a controversy generated by the Pentagon inspector general's finding that Navy claims of aircraft savings had not passed muster.
Lehman rebutted the inspector general's finding at a news conference on July 17. Lehman said the Navy had "underestimated our savings by $60 million."
Lehman could not be reached for comment yesterday on the Margolis report, but his spokesman, Capt. Michael T. Sherman, said, "The bottom line is that the Navy is saving money because airplane costs are coming down and savings are being returned to Congress for reprogramming. If the budgeteers want to go through other drills, so be it."
Margolis said in his memo that his analysts could not determine how the Grumman Corp. could lower the price on individual Navy aircraft at the same time it was losing the savings of quantity production because of reduced orders.
"I have a bit of circumstantial evidence that indicates that Grumman's price reductions after 1982 may not have been so magical," Margolis wrote. He said that the Navy charts that showed reductions in the price of the Grumman A6 bomber and the F14 fighter may have come about because the company was financing activities from the Navy's research account rather than the procurement account.
The pricetag for research and development on government aircraft built for the Navy increased from $54 million in 1982 to $710 million in 1986, Margolis said, enabling Grumman to shift its work force from production to development work, causing the pricetag for production aircraft to drop, but not necessarily the ultimate bill to the taxpayers for these planes.
The Navy, in what it called "good news" charts issued last October, showed decreases between fiscal 1982 and 1985 in its E2C command and control aircraft, F14 fighter, P3C antisubmarine plane, EA6B electronic jamming aircraft and A6E bomber.
Margolis said "there is a small kernel of truth in the chart but most of the results are embellished simplifications." He said that, under his office's calculations, the cost of the F14 and E2C dropped between 1982 and 1985 and then headed up. He added that "our results show that A6E costs were relatively steady . . . . General trends are not as suggested by the Navy for pre- and post-fiscal year 1982."
The Pentagon on Sept. 26 issued a news release headlined: "Navy Aircraft Price Trends Down." The release credited the claim reductions to "vigorous cost management programs" begun in 1981. The Navy at that time also sent a "good news notification" to Congress.
Lehman and Deputy Inspector General Derek J. Vander Schaaf remain at odds over what individual Navy aircraft cost between fiscal 1976 and 1985. Lehman, in response to the inspector general's report, has issued a new set of charts, which are now being analyzed by Vander Schaaf and his deputies.