DEPARTMENT OF THE NAVY FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES

Transcription

1 DEPARTMENT OF THE NAVY FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES JUSTIFICATION OF ESTIMATES FEBRUARY 2007 NAVY WORKING CAPITAL FUND

2 DoN NWCF Summary, FY 2008 President s Budget

3 NAVY WORKING CAPITAL FUND (NWCF) NWCF activities provide a wide range of goods and services to support the Department s ongoing operations to maintain overall military readiness and in support of the Global War on Terrorism. There are five NWCF activity groups: Supply Management, Depot Maintenance, Research and Development, Base Support, and Transportation. The Department of the Navy (DON) is the only Service that includes Research and Development and Base Support in the working capital fund. The total annual cost of goods and services to be delivered by NWCF activity groups to their customers in FY 2008 and FY 2009 is projected to exceed $24 billion. Supply Management performs inventory management functions that result in the sale of aviation and shipboard components, ship s store stock, and consumables to a wide variety of customers. Costs related to supplying this material to the customer are recouped through stabilized rates that include recovery elements such as inventory management, contract management, receipt and issue of Navy managed material, and the depreciation of capital assets. Ensuring the right material is provided at the proper place, time, and cost is vital to equipping and sustaining our warfighting units. To this end, the Department continues to pursue initiatives to control costs and improve readiness. FY 2007 will be the first full execution year of the Fleet and Industrial Support Center managing and owning Naval Aviation Depot inventory. The transfer facilitates increased inventory management oversight and business process improvements and reflects a significant increase in obligation authority along with a commensurate sales increase. The reduced obligations in FY 2008 are due to decreased demand and customer funding in aviation consumables and repairables. The increased obligation requirement for FY 2009 is a result of outfitting requirements for new aircraft, primarily the H-1 and H-60, as well as an increase in reimbursable partnership agreements. The Navy Enterprise Resource Planning initiative, scheduled to roll-out in FY 2009 for supply, will provide better tools to assess program costs and implement cost reducing procedures. These efforts, along with reducing weapon systems average age, will stem spare parts demand growth and allow the Navy to provide improved logistics support at lower cost. Depot Maintenance provides maintenance, engineering, and logistics support to ensure a core industrial resource base essential for mobilization and includes naval

4 aviation depots, Marine Corps depots for ground combat support equipment, and naval shipyards prior to FY The Naval Aviation Depots (NADEPs) are continuing their vital support for the GWOT including efforts such as repair of crash damaged aircraft and the reactivation of "mothballed" helicopters to replace others lost in Southwest Asia. The NADEPs are also working to shape their workforce to better match the expected workload during the budget years and are beginning the process of merging into the overall Fleet Readiness Center (FRC) organization. Under the FRC concept, some of the component repair that has traditionally been performed at the three NADEP locations will instead be done at the naval air stations where intermediate level maintenance is currently performed. Some NADEP artisans will be relocated to the air stations but no change in their status under the NWCF organizational and financial structures is currently anticipated. The Marine Corps Depots experienced a large influx of unplanned workload for performance in FY 2006 and FY This was largely due to repair of combatdamaged equipment and weapons systems, and the installation of armor plating on combat vehicles. While the workload is projected to level off by FY 2008, operational contingencies could further extend this period of increased effort. In accordance with the FY 2007 President s Budget, the current NWCF estimates reflect the realignment of the Norfolk and Portsmouth public naval shipyards to mission funding beginning in FY 2007 to complete implementation of the Regional Maintenance Plan. A key element of this concept is the consolidation of separate ship maintenance (intermediate and depot maintenance facilities) within a region that results in the ability to best use the total maintenance resources available in the region, share resources between regions, and provide rapid surge capability to respond to Fleet priorities. Mission funding provides the best mechanism by which the Navy can match workforce skills with workload priorities and still meet fiduciary responsibilities. The Puget Sound Naval Shipyard had already transitioned to appropriated funding in FY 2004 under a pilot prototype concept. Research and Development includes the Warfare Centers (Air, Sea, Undersea, and Space applications) and the Naval Research Laboratory. All of these activities provide research and development for warfare systems, engineering support for major weapons systems acquisition programs, or provide scientific research for improving materials, facilities, and services to the DON. Space and Naval Warfare System Centers provide fleet support for command, control, and communication systems, and ocean surveillance, and the integration of those systems that overarch platforms.

5 Naval Air Warfare Centers provide fleet support for naval aircraft engines, avionics, aircraft support systems and ship/shore/air operations. Naval Surface Warfare Centers provide fleet support for hull, mechanical, and electrical systems, surface combat systems, coastal warfare systems, and other offensive and defensive systems associated with surface warfare. Naval Undersea Warfare Centers provide fleet support for submarines, autonomous underwater systems, and offensive and defensive systems associated with undersea warfare. Naval Research Laboratory operates as the DoN s full spectrum corporate laboratory, conducting a broadly based multidisciplinary program of scientific research and advanced technological development directed toward maritime applications of new and improved materials, techniques, equipment, systems, and ocean, atmospheric, and space sciences and related technologies Two of the Warfare Centers will be among the first sites within the Navy where Navy Enterprise Resource Planning will be implemented. Scheduled for roll-out to the Naval Air Warfare Center at the end of FY 2007 and to the Space and Naval Warfare Systems Centers in FY 2008, Navy ERP is the DoN s business initiative to standardize business processes, integrate operations, and optimize management of resources. In the Base Support business area, the Naval Facilities Engineering Command continues with the transformation of its worldwide organization which began in FY By integrating all Public Works Departments (PWDs) into Facilities Engineering Commands (FECs), there will now be one public works delivery model that will be a single touch point for all FEC products and services. The consolidation of these organizations as PWC detachments is expected to help reduce operating costs and standardize delivery of the various utility commodities and other products. Following the integration of 11 PWDs in FY 2007, 5 PWDs in Europe will be added to the NAVFECs in FY Transportation is comprised of the Military Sealift Command (MSC) which supports the Pacific and Atlantic Fleets, Naval Sea Systems Command, Space and Naval Warfare Systems Command, Strategic Systems Programs, and the Air Force with unique vessels and programs. The three programs budgeted by MSC through the Navy Working Capital Fund (NWCF) are: 1) Naval Fleet Auxiliary Force (NFAF) which provides support utilizing civilian mariner manned non-combatant ships for material support and ocean going tugs and salvage ships; 2) Special Mission Ships (SMS) which provide unique seagoing platforms, operation of Navy Command Ships, and contracted Harbor Tugs; and 3)Afloat Prepositioning Force Navy (APF- N) which deploys advance material for strategic lifts for the Marine Expeditionary Forces. Transportation rates within the Military Sealift Command (MSC) reflect the full implementation of peacetime force protection costs and cost containment

6 measures to ensure more efficient operations. Activation changes include delivery of two additional T-AKE Class Dry Cargo/Ammunition ships in FY 2008 and three T-AKEs in FY Additionally, deactivations include two T-AFS Class Rescue and Salvage vessels in FY 2008 and three T-AFS and one T-AE in FY Finally, the DoN projects the NWCF cash balance to be within the seven-day cash level minimum prescribed in the DoD Financial Management Regulation.

7 (Dollars in millions) Revenue FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy 5, , , ,947.5 Supply - Marine Corps Depot Maintenance - Ships 1, Depot Maintenance - Aircraft 1, , , ,748.8 Depot Maintenance - Marine Corps R&D - Air Warfare Center 2, , , ,911.2 R&D - Surface Warfare Center 3, , , ,558.6 R&D - Undersea Warfare Center 1, , , ,095.8 R&D - SPAWAR Systems Center 2, , , ,260.2 R&D - Naval Research Laboratory Transportation - MSC 2, , , ,392.5 Base Support - FECs 1, , , ,598.9 Base Support - NFESC Totals 24, , , ,701.6 Cost of Goods Sold: (Operating) Total obligations for supply functions and cost of good and services sold for industrial functions are as follows: (Dollars in millions) Operating Costs FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy 5, , , ,737.5 Supply - Marine Corps Depot Maintenance - Ships 1, Depot Maintenance - Aircraft 1, , , ,748.8 Depot Maintenance - Marine Corps R&D - Air Warfare Center 2, , , ,911.2 R&D - Surface Warfare Center 3, , , ,558.6 R&D - Undersea Warfare Center 1, , , ,095.8 R&D - SPAWAR Systems Center 2, , , ,260.2 R&D - Naval Research Laboratory Transportation - MSC 2, , , ,416.3 Base Support - FECs 2, , , ,598.9 Base Support - NFESC Totals 24, , , ,519.4

8 Net Operating Results: Revenue, excluding surcharge collections and extraordinary expenses, less the cost of goods and services sold to customers is as follows: (Dollars in millions) Net Operating Results FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy Supply - Marine Corps Depot Maintenance - Ships Depot Maintenance - Aircraft Depot Maintenance - Marine Corps R&D - Air Warfare Center R&D - Surface Warfare Center R&D - Undersea Warfare Center R&D - SPAWAR Systems Center R&D - Naval Research Laboratory Transportation - MSC Base Support - FECs Base Support - NFESC Totals Accumulated Operating Results (recoverable): (Dollars in millions) Accumulated Operating Results FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy Supply - Marine Corps Depot Maintenance - Ships na na na Depot Maintenance - Aircraft Depot Maintenance - Marine Corps R&D - Air Warfare Center R&D - Surface Warfare Center R&D - Undersea Warfare Center R&D - SPAWAR Systems Center R&D - Naval Research Laboratory Transportation - MSC Base Support - FECs Base Support - NFESC Totals

9 Workload: Workload projections for NWCF activities are consistent with Navy force structure and attendant support levels as well as those factors unique to each group. The table below displays year-to-year percentage changes in transportation ship days for MSC, changes in program costs for Base Support PWC, and change in direct labor hours for all other industrial activity groups. For supply business areas, workload changes are indicated by gross sales: (Percent Change) Workload FY 2007 FY 2008 FY 2009 Supply - Navy 10.2% -0.5% 1.5% Supply - Marine Corps -2.9% -2.6% -0.3% Depot Maintenance - Ships % na na Depot Maintenance - Aircraft -3.6% -6.6% -6.7% Depot Maintenance - Marine Corps 9.4% -34.6% -21.4% R&D Air Warfare Center 0.7% -1.5% -2.3% R&D - Surface Warfare Center -6.1% 1.1% -2.8% R&D - Undersea Warfare Center -3.3% -1.9% -2.3% R&D - SPAWAR Systems Center 0.8% -0.3% -3.0% R&D - Naval Research Laboratory 1.6% 0.9% -0.4% Transportation - MSC 3.1% 3.6% -2.5% Base Support - FECs 18.2% 6.3% 2.8% Base Support - NFESC -4.8% -0.3% -0.5%

10 Treasury Cash Balance: (Dollars in millions) Treasury Cash FY 2006 FY 2007 FY 2008 FY 2009 Beginning Cash Balance , , Collections 23, , , ,631.7 Disbursements 23, , , ,659.1 Supplemental Appropriations Hurricane Fuel MSC Capital Hire Purchases Inventory Augmentation (NAVSUP) Congressional Adjustments Ending Cash Balance 1, ,

11 Customer Rate Changes: Approved composite rate changes from FY 2006 to FY 2007 and proposed composite rate changes from FY 2007 to FY 2008 and FY 2008 to FY 2009 (designed to achieve an accumulated operating result of zero) are as follows: (Percent Change) Customer Rate Change FY 2007 FY 2008 FY 2009 Supply: Navy - Aviation Consumables 1.2% 6.3% 2.1% Navy - Shipboard Consumables 3.8% 4.2% 2.1% Navy - Aviation Repairables 2.2% 1.9% 1.9% Navy - Shipboard Repairables 3.8% 4.2% 2.1% MARCORPS Repairables -13.0% 18.7% 2.2% Depot Maintenance - Ships na na na Depot Maintenance - Aircraft 4.8% 2.5% 2.3% Depot Maintenance - Marine Corps -3.3% 3.1% 13.2% R&D - Air Warfare Center 3.4% 1.4% 4.9% R&D - Surface Warfare Center 3.5% 1.8% 3.3% R&D - Undersea Warfare Center 3.5% 2.2% 3.1% R&D - SPAWAR Systems Center 3.5% 2.7% 4.1% R&D - Naval Research Laboratory 4.1% 2.3% 4.9% Transportation - MSC Fleet Auxiliary 2.7% 8.7% -4.3% Special Mission Ships 13.6% -3.4% 7.6% Afloat Prepositioning Ships -29.5% 42.9% 8.2% Base Support - FECs East Coast Utilities 15.4% 6.0% 4.5% East Coast - Other 3.6% 5.2% 2.2% West Coast Utilities 3.2% 8.5% 2.0% West Coast - Other 1.7% 4.2% 2.3% Base Support - NFESC -0.6% 6.8% 2.6%

12 Unit Costs: Unit Cost is the method established to authorize and control costs. Unit cost goals allow activities to respond to workload changes in execution by encouraging reduced costs when workload declines and allowing appropriate increases in costs when their customers request additional services. Unit Cost FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy (cost per unit of sales 1 ): Wholesale Retail Supply - Marine Corps (cost per unit of sales 1 ): Wholesale Retail Depot Maintenance - Ships ($/Direct Labor Hour 2 ) na na na Depot Maintenance - Aircraft ($/Direct Labor Hour) Depot Maintenance - Marine Corps ($/Direct Labor Hour) R&D - Air Warfare Center ($/Direct Labor Hour 2 ) R&D - Surface Warfare Center ($/Direct Labor Hour 2 ) R&D - Undersea Warfare Center ($/Direct Labor Hour 2 ) R&D - SPAWAR Systems Center ($/Direct Labor Hour 2 ) R&D - Naval Research Laboratory ($/Direct Labor Hour 2 ) Transportation MSC Fleet Auxiliary ($/day) ($000) Special Mission Ships ($/day) ($000) Afloat Prepositioning Ships ($/day) ($000) Base Support - FECs Cost of Services various various various various Base Support - NFESC ($/direct Labor Hour 2 ) excludes inventory augmentation and war reserve material obligations 2 includes direct labor plus overhead costs

13 Staffing: Total civilian and military personnel employed at NWCF activities are displayed in the following tables. (Strength in Whole Numbers) Civilian End Strength FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy 7,676 7,755 7,671 7,658 Supply - Marine Corps Depot Maintenance - Ships 11, Depot Maintenance - Aircraft 9,804 9,569 9,010 8,482 Depot Maintenance - Marine Corps 2,118 2,180 2,098 1,557 R&D - Air Warfare Center 9,805 10,011 9,838 9,660 R&D - Surface Warfare Center 14,198 13,665 13,733 13,336 R&D - Undersea Warfare Center 4,059 3,861 3,795 3,708 R&D - SPAWAR Systems Center 6,073 6,116 6,104 5,960 R&D - Naval Research Laboratory 2,447 2,513 2,513 2,513 Transportation - MSC 5,507 6,064 6,449 6,080 Base Support FECs 8,164 8,348 8,912 8,754 Base Support - NFESC Totals 81,915 70,486 70,523 68,108 (Workyears in Whole Numbers) Civilian Workyears FY 2006 FY 2007 FY 2008 FY 2009 Supply Navy 7,315 7,755 7,671 7,658 Supply - Marine Corps Depot Maintenance - Ships 11, Depot Maintenance - Aircraft 9,872 9,670 9,070 8,579 Depot Maintenance - Marine Corps 2,161 2,192 2,113 1,673 R&D - Air Warfare Center 9,813 9,904 9,749 9,570 R&D - Surface Warfare Center 14,247 13,713 13,840 13,539 R&D - Undersea Warfare Center 4,026 3,875 3,792 3,717 R&D - SPAWAR Systems Center 5,949 6,052 6,041 5,897 R&D - Naval Research Laboratory 2,375 2,412 2,412 2,412 Transportation - MSC 7,399 8,207 8,369 8,190 Base Support FECs 7,728 8,193 8,757 8,578 Base Support - NFESC Totals 82,841 72,372 72,208 70,207

14 (Strength in Whole Numbers) Military End Strength FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy Supply - Marine Corps Depot Maintenance - Ships Depot Maintenance - Aircraft Depot Maintenance - Marine Corps R&D - Air Warfare Center R&D - Surface Warfare Center R&D - Undersea Warfare Center R&D - SPAWAR Systems Center R&D - Naval Research Laboratory Transportation - MSC Base Support - FECs Base Support - NFESC Totals 1,776 1,878 1,827 1,749 (Workyears in Whole Numbers) Military Workyears FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy Supply - Marine Corps Depot Maintenance - Ships Depot Maintenance - Aircraft Depot Maintenance - Marine Corps R&D - Air Warfare Center R&D - Surface Warfare Center R&D - Undersea Warfare Center R&D - SPAWAR Systems Center R&D - Naval Research Laboratory Transportation - MSC Base Support - FECs Base Support - NFESC Totals 1,711 1,754 1,700 1,623

15 Performance Budgeting. The NWCF utilizes a wide range of cascading performance information in support of a broad spectrum of financial and program performance metrics employed in the Department of Defense. By its very nature as a revolving fund, the NWCF budget can be viewed as a performance budget that routinely identifies the full cost of specific business activity (such as Naval Aviation Depots or Supply Management) including identification of all financing sources to meet customer driven workload. As such, performance indicators (financial and programmatic) listed throughout the NWCF justification book, as well as the myriad of performance information contained in the various appropriation justification books, support the hierarchical composition starting with the Department of the Navy Balanced Scorecard, and merging with the DoD Balanced Scorecard, the OMB Program Assessment Rating Tool (PART), and culminating with the President s Management Agenda. Key financial/program indicators include: Net Operating Result (NOR), Accumulated Operating Result (AOR), Sources of Revenue, NWCF Cash, Manpower Staffing, Unit Cost, Cost of Goods Sold, and Capital Investment Program. Key NWCF Performance Integration: DON DoD OMB President s Scorecard Scorecard PART Mgmt Agenda Naval Aviation Depots: Combat Capability Operational Risk Aircraft Maintenance Budget Integration Marine Corps Depots: Combat Capability Operational Risk Depot Maintenance Budget Integration R&D Warfare Centers: Tech Insertion Future Challenges Multiple R&D Budget Integration Military Sealift: Combat Capability Operational Risk Ship Operations Budget Integration Facilities Engineering: Improved Business Institutional Risk Base Support Budget Integration Supply Management: Combat Capability Operational Risk Spares & Repair Parts Budget Integration In accordance with the President s Management Agenda, Budget and Performance Integration initiative, these programs will be assessed using the Program Assessment Rating Tool (PART). Remarks regarding program performance improvement can be located at the Expectmore.gov website.

16 (Dollars in Millions) Capital Purchase Program FY 2006 FY 2007 FY 2008 FY 2009 Supply - Navy Supply - Marine Corps Depot Maintenance - Ships 22.7 na na na Depot Maintenance - Aircraft Depot Maintenance - Marine Corps R&D - Air Warfare Center R&D - Surface Warfare Center R&D - Undersea Warfare Center R&D - SPAWAR Systems Center R&D - Naval Research Laboratory Transportation - MSC Base Support - FECs Base Support - NFESC Totals Equipment (Non-ADPE/Telecom) ADPE and Telecommunications Equip Software Development Minor Construction Totals

17 Depot Maintenance Six Percent Capital Investment Plan Component: Department of the Navy Navy Working Capital Fund (NWCF) Depot Maintenance Six Percent Capital Investment Plan Dollars in Millions Revenue 3-Year Average Budgeted Capital Percent of Revenue FY FY FY 2007 FY 2008 FY 2007 FY 2008 Revenue 4% 5% Working Capital Fund 2, , Appropriations Total Revenue 2, , Working Capital Fund Depot Maintenance Investment WCF Capital Investment Program Sustainment, Restoration and Modernization Lean Equipment Depot Maintenance Transformation Total WCF Investment Appropriated Funding None Budget Minus Percent Difference Component Total NWCF budgeted amounts reflect data for the Naval Aviation Depots and for the Marine Corps Depots.

18 INSERT TAB Naval Shipyards

19

20 Naval Shipyards

21 FISCAL YEAR (FY) 2008/2009 BUDGT ESTIMATES DEPARTMENT OF THE NAVY NAVY WORKING CAPITAL FUND DEPOT MAINTENANCE - NAVAL SHIPYARDS ACTIVITY GROUP FUNCTION: Naval Shipyards provide logistics support for assigned ships and service craft; perform authorized work in connection with construction, overhaul, repair, alteration, drydocking and outfitting of ships and craft as assigned; perform design, manufacturing, refit and restoration, research, development and test work, and provide services and material to other activities and units as directed by competent authority. ACTIVITY GROUP COMPOSITION: This budget reflects two naval shipyards operating under the Navy Working Capital Fund (NWCF) in FY These activities and their locations are: Portsmouth Naval Shipyard Norfolk Naval Shipyard Kittery, ME Portsmouth, VA On 1 October 2006, Portsmouth and Norfolk Naval Shipyards transferred to mission funding as Atlantic Fleet activities. In addition, the Puget Sound Naval Shipyard, which had been involved in a pilot effort to validate the mission funding of regional ship maintenance facilities, was permanently designated as a direct funded activity. OVERVIEW FOR NAVAL SHIPYARDS: The naval shipyards demonstrate a strong commitment to productivity improvement and cost. Revenue, costs, and operating results are: Financial Profile: Revenue/Expense/Operating Results ($M) FY 2006 FY 2007 FY 2008 FY 2009 Revenue $1,732.0 $347.3 $10.8 $0.8 Cost of Goods and Services $1,778.7 $349.4 $10.8 $0.8 Operating Results -$46.7 -$2.1 $0.0 $0.0 Other Changes Affecting AOR -$1.0 +$96.4 $0.0 $0.0 Accumulated Operating Results (AOR) -$94.3 $0.0 $0.0 $0.0 Revenue/Expense/Operating Results The changes in revenue, expense, and net operating results reflect the impact of updated workload estimates and pricing adjustments as well as the impact of effecting the transition from the NWCF to mission-funding. FY 2006 actual and FY 2007 budget estimates include residual NWCF costs of $59.9 million and $0.3 million, respectively for work that was funded and inducted at Puget Sound Naval Shipyard (PSNSY) prior to FY FY 2007 through FY 2009 budget estimates include

22 residual costs for work funded and inducted at Portsmouth and Norfolk Naval Shipyards prior to FY Cash Collections, Disbursements, and Net Outlays: Collections/Disbursements/ Outlays ($M) FY 2006 FY 2007 FY 2008 FY 2009 Collections $1,640.8 $482.5 $0.5 $0.0 Disbursements $1,705.8 $582.6 $24.6 $5.2 Net Outlays $65.0 $100.1 $24.1 $5.2 The Department of the Navy is committed to ensuring NWCF cash solvency. The FY 2007 outlay estimate noted above includes receipt of $120.0 million from the Operation and Maintenance, Navy appropriation to satisfy a portion of the projected NWCF buyout costs, currently estimated at approximately $282.7 million. In accordance with OMB policy, the shipyard submission also assumes a FY 2007 nonexpenditure NWCF transfer to Treasury of $91.1 million to satisfy the outstanding balance of shipyard civilian leave liability. However, since the overall NWCF cash balance is expected to meet requirements set by OUSD(C), no additional transfer of appropriated funds (beyond the $120 million already funded) is necessary. Workload Direct Labor Hours (000) FY 2006 FY 2007 FY 2008 FY 2009 FY 2006 Actual 16, Performance Indicators: Stabilized / Composite Rate Changes FY 2006 FY 2007 FY 2008 FY 2009 Stabilized Rate $ Change from Prior Year +7.15% Composite Rate Change +5.71% Unit Cost FY 2006 FY 2007 FY 2008 FY 2009 Total Stabilized Cost ($M) $1, Workload (DLHs) (000) 16, Unit Cost (per DLH) $ Staffing Civilian/Military ES/Work Years FY 2006 FY 2007 FY 2008 FY 2009 Civilian End Strength 11, Civilian Work Years 11,

23 Military End Strength 69 Military Work Years Civilian end strength and workyear estimates are matched to workload and reflect continued streamlining of shipyard processes and increased productivity. Capital Investment Program (CIP) Budget Authority: Capital Investment Program ($M) FY 2006 FY 2007 FY 2008 FY 2009 Equipment, Non-ADP / Telecommunications $ Equipment, ADPE / Telecommunications $ Software Development $ Minor Construction $ Total $ The capital investment program reflects the financing of essential fleet support equipment and other capital improvements critical to sustaining shipyard operations, improving productivity, meeting health, safety and environmental requirements and lowering production costs. Carryover Compliance Carryover ($M) FY 2006 FY 2007 FY 2008 FY 2009 New Orders $1, Less Exclusions: Foreign Military Sales $ Base Realignment and Closure $0.5 - Other Federal Departments/ Agencies $ Non-Federal Agencies & others $ Major Range & Test Facility Base $ Orders for Carryover Calculation $1, Composite Outlay Rate Year #1 65.2% Composite Outlay Rate Year #2 78.6% Carryover Ceiling Rate Year #1 34.8% - Carryover Ceiling Rate Year #2 21.5% Carryover Ceiling $ Balance of Customer Orders at Yr End $ Less Work-in-Process $ Less Exclusions Foreign Military Sales $ Base Realignment and Closure $ Other Federal Departments/ Agencies $

24 Non-Federal Agencies & Others $ Major Range & Test Facility Base $ Carryover Budget $ Budgeted carryover in FY 2006 is for Norfolk and Portsmouth Naval Shipyards. Amounts are within the ceiling allowed by outlay rates.

25 FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES DEPARTMENT OF THE NAVY / NAVY WORKING CAPITAL FUND DEPOT MAINTENANCE SHIPYARDS REVENUE AND EXPENSES FEBRUARY 2007 AMOUNT IN MILLIONS FY 2006 FY 2007 FY 2008 FY 2009 CON CON CON CON Revenue: Gross Sales Operations 1, Surcharges Depreciation excluding Major Constructio Other Income Total Income 1, Expenses Cost of Materiel Sold from Inventory Salaries and Wages: Military Personnel Civilian Personnel Travel and Transportation of Personnel Material & Supplies (Internal Operations Equipment Other Purchases from NWCF Transportation of Things Depreciation - Capital Printing and Reproduction Advisory and Assistance Services Rent, Communication & Utilities Other Purchased Services Total Expenses 1, Work in Process Adjustment Comp Work for Activity Reten Adjustment Cost of Goods Sold 1, Operating Result Less Surcharges Plus Appropriations Affecting NOR/AOR Other Changes Affecting NOR/AOR Extraordinary Expenses Unmatched Net Operating Result Other Changes Affecting AOR Accumulated Operating Result Exhibit Fund-14 Revenue and Expenses

26 FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES DEPARTMENT OF THE NAVY / NAVY WORKING CAPITAL FUND DEPOT MAINTENANCE SHIPYARDS SOURCES OF REVENUE FEBRUARY 2007 AMOUNT IN MILLIONS FY 2006 FY 2007 FY 2008 FY 2009 CON CON CON CON New Orders 1,512 na na na a. Orders from DoD Components 1,454 na na na Department of the Navy 1,440 na na na O & M, Navy 1,096 na na na O & M, Marine Corps 0 na na na O & M, Navy Reserve 0 na na na O & M, Marine Corp Reserve 0 na na na Aircraft Procurement, Navy 0 na na na Weapons Procurement, Navy 2 na na na Ammunition Procurement, Navy/MC 0 na na na Shipbuilding & Conversion, Navy 130 na na na Other Procurement, Navy 206 na na na Procurement, Marine Corps 0 na na na Family Housing, Navy/MC 0 na na na Research, Dev., Test, & Evaluation, Navy 6 na na na Military Construction, Navy 0 na na na National Defense Sealift Fund 0 na na na Other Navy Appropriations 0 na na na Other Marine Corps Appropriations 0 na na na Department of the Army 3 na na na Army Operation & Maintenance 0 na na na Army Res, Dev, Test, Evaluation 0 na na na Army Procurement 0 na na na Army Other 3 na na na Department of the Air Force 3 na na na Air Force Operation & Maintenance 1 na na na Air Force Res, Dev, Test, Evaluation 0 na na na Air Force Procurement 1 na na na Air Force Other 0 na na na DOD Appropriation Accounts 9 na na na Base Closure & Realignment 1 na na na Operation & Maintenance Accounts 11 na na na Res, Dev, Test & Evaluation Accounts 1 na na na Procurement Accounts -4 na na na Defense Emergency Relief Fund 0 na na na DOD Other 0 na na na b. Orders from other WCF Activity Groups 45 na na na c. Total DoD 1,498 na na na d. Other Orders 14 na na na Other Federal Agencies 5 na na na Foreign Military Sales 0 na na na Non Federal Agencies 9 na na na 2. Carry-In Orders 689 na na na 3. Total Gross Orders 2,201 na na na a. Funded Carry-Over before Exclusions 469 na na na b. Total Gross Sales 1,732 na na na 4. End of Year Work-In-Process (-) -36 na na na 5. Non-DoD, BRAC, FMS, Inst. MRTFB (-) -39 na na na 6. Net Funded Carryover 388 na na na Note #1: Line 4 (End of Year Work-In-Process) is adjusted for Non-DoD, BRAC & FMS and Institutional MRTFB. Note #2: FY 2006 data include all transaction at Norfolk and Portsmouth Naval Shipyards and residual transactions (for NWCF workload inducted prior to FY 2004) at Puget Sound Naval Shipyard. Note #3: Budget estimates reflect permanent mission-funding for Norfolk, Portsmouth, and Puget Sound Naval Shipyards effective FY Exhibit Fund-11

27 Department of the Navy Depot Maintenance - Naval Shipyards Changes in the Cost of Operations Fiscal Year (FY) 2008/2009 Budget Estimates February 2007 ( Dollars in Millions ) Expenses FY 2006 Actual Execution $1,746 FY 2007 Estimate in the FY 2007 President's Budget $250 Price Changes $0 Productivity Initiatives and Other Efficiencies $0 Program Changes $0 Other Changes $74 Increased Residual Navy Working Capital Fund Workload 74 FY 2007 Current Estimate $324 Price Changes $8 Productivity Initiatives and Other Efficiencies $0 Program Changes $0 Other Changes ($330) a. Drawdown Residual NWCF Workload (330) FY 2008 Current Estimate $2 Price Changes $0 Productivity Initiatives and Other Efficiencies $0 Program Changes $0 Other Changes ($1) a. Drawdown Residual NWCF Workload (1) FY 2009 Current Estimate $1 Exhibit Fund-2 Changes in Cost of Operations

28 Navy Working Capital Fund Investment Summary Department of the Navy DEPOT MAINTENANCE / SHIPYARDS Fiscal Year (FY) 2008/2009 Budget Estimates February 2007 $ in Millions FY 2006 FY 2007 FY 2008 FY 2009 Line # Description Quantity Total Cost Quantity Total Cost Quantity Total Cost Quantity Total Cost 1 Non-ADPE and Telecom Equipment $ Replacement Capability 7 $ Productivity Capability 2 $ New Mission Capability 0 $ Environmental Capability 0 $ ADPE and Telecom Equipment $ Computer Hardware (Production) 2 $ Computer Software (Operating) 0 $ Telecommunications 0 $ Oth Computer & Telecom Spt Equip 0 $ Software Development $ Projects = or > $1M (List Separately) Navy Maintenance Suite Upgrade 1 $2.051 Software NSY Ship Maintenance Corporate SW Dev 1 $1.699 Supervisor's Desk (SUPDESK) 1 $ Projects < $1M 2 $ Minor Construction $ Replacement Capability 0 $ Productivity Capability 1 $ New Mission Capability 0 $ Environmental Capability 0 $0.000 Grand Total 17 $ $ $ $0.000 Total Capital Outlays $ $ $ $5.226 Total Depreciation Expense $ Exhibit Fund-9A Capital Investment Summary

29

30 INSERT TAB Naval Aviation Depots

31

32 Naval Aviation Depots

33 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 ACTIVITY GROUP FUNCTION To provide responsive worldwide maintenance, engineering, and logistics support to the Naval Aviation Enterprise (NAE). The NAVAIRDEPOTS ensure a core industrial resource base essential for mobilization; repair aircraft, engines, and components, and manufacture parts and assemblies; provide engineering services in the development of hardware design changes, and furnish technical and other professional services on maintenance and logistics problems. ACTIVITY GROUP COMPOSITION Activities NAVAIRDEPOT, Cherry Point NAVAIRDEPOT, Jacksonville NAVAIRDEPOT, North Island Location Cherry Point, NC Jacksonville, FL San Diego, CA BUDGET HIGHLIGHTS General The NAVAIRDEPOTS provide significant support to Fleet operations by overhauling and repairing a wide range of equipment and components. Their efforts include important workload related to the Global War on Terrorism (GWOT) such as the repair of crash damaged AV-8B aircraft and a CH-53E helicopter as well as the restoration of mothballed CH-53 helicopters to operational status (to replace CH-53 helicopters that were damaged beyond repair). LEAN/SIX SIGMA and Theory of Constraints have been implemented at the NAVAIRDEPOTS in order to increase throughput and improve efficiency. In FY 2006, the NAVAIRDEPOTS billed $74.2M in surcharges to its aviation maintenance customers in order to offset unplanned losses it was experiencing. FY 2006 Net Operating Results (NOR) were $-7.6M, which was consistent with the estimate in the FY 2007 President s Budget. In FY 2007, the NAVAIRDEPOTS are projected to have a positive NOR of $4.5M and Accumulated Operating Results (AOR) are projected to be -$1.2M by year end. The NAVAIRDEPOTS have been budgeted to a zero AOR in FY 2008 and FY 2009.

34 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 Implementation of the Fleet Readiness Centers (FRCs) concept, as part of the Department s Base Realignment And Closure (BRAC) effort, will result in the disestablishment of the NAVAIRDEPOTS and the Aircraft Intermediate Maintenance Departments (AIMDS) and the establishment of six FRCs. This results in reduced workload and personnel at the former NAVAIRDEPOTS from FY 2007 through FY In addition, some artisans will transfer to the former AIMDS locations in order to perform component repairs that have been historically been performed at the NAVAIRDEPOTS as a means of improving efficiency and reducing maintenance costs. Summary of Operations ($ in Millions) FY 2006 FY 2007 FY 2008 FY 2009 Orders 1, , , ,765.5 Revenue 1, , , ,748.8 Cost of Goods and Services 1, , , ,748.8 Revenue less Costs Transfers Net Operating Results (NOR) Accumulated Operating Results (AOR) Orders. FY 2006 New Orders include the receipt of Supplemental funding in the Airframes and Engines programs and $74.2M to fund a rate surcharge to aviation maintenance customers. Orders for FY reflect funded customer requirements. Revenue. Revenue includes the receipt of $74.2M via a FY 2006 rate surcharge implemented to offset unplanned losses. Costs. Costs declined by >$100M over the submission as a result of reduced workload. Revenue less cost. Revenue less cost for FY 2006, FY 2007, FY 2008, and FY 2009 is -$7.6M, $4.5M, $1.2M and $0.0M, respectively. Net Cash Outlays. ($ in Millions) FY 2006 FY 2007 FY 2008 FY 2009 Disbursements 1, , , ,742.4 Collections 1, , , ,744.5 Net Outlays

35 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 Stabilized Customer Rates. FY 2006 FY 2007 FY 2008 FY 2009 Composite Hourly Rate $ $ $ $ Percent Year to Year Change.54% 4.8% 2.5% 2.3% The composite rate change reflects both the impact of workload mix changes and pricing changes. Unit Cost Goals. The budget reflects the following FY unit cost goals: ($ and DLHs in Millions) FY 2006 FY 2007 FY 2008 FY 2009 Total Operating Cost $1, $1, $1, $1, Direct Labor Hours (DLH) Unit Cost $ $ $ $ % Change Workload/DLHs % -6.6% -6.7% % Change Unit Cost - 3.3% 5.4% 2.3% DLH includes direct labor hours worked by civilians, contractors and military personnel. SUMMARY OF PERSONNEL RESOURCES. FY 2006 FY 2007 FY 2008 FY 2009 Civilian Personnel: End Strength 9,804 9,569 9,010 8,482 FTE Workyears 9,872 9,670 9,070 8,579 Military Personnel: End Strength Workyears Contractor Personnel: Workyears ,039 The FY 2008/2009 Biennial Budget for the NAVAIRDEPOTS reflects civilian workforce levels necessary to accommodate firm workload without the use of excessive overtime. Personnel reductions associated with BRAC for FRC have also been incorporated. Contract personnel are used by the NAVAIRDEPOTS to address perturbations in workload.

36 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 SUMMARY OF WORKLOAD INDICATORS. (Inducted Units) FY 2006 FY 2007 FY 2008 FY 2009 AIRFRAMES O&M,N O&M,NR RDT&E Other ENGINES 1,133 1,198 1,088 1,389 O&M,N 982 1, ,266 O&M,NR RDT&E Other PERFORMANCE INDICATORS. Goal FY 2006 (UNITS) FY 2007 FY 2008 FY 2009 Aircraft Scheduled Aircraft Completed on Time % Scheduled Work Completed on Time 90% Components Scheduled 83,533 64,032 45,457 29,455 Components Completed on Time 79,356 60,830 43,184 27,982 % Scheduled Work Completed on Time 95% Engines Scheduled 985 1,208 1,107 1,363 Engines Completed on Time 906 1,111 1,018 1,254 % Scheduled Work Completed on Time 92%

37 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 PERFORMANCE BUDGETING. In accordance with the President s Management Agenda, Budget and Performance Integration initiative, this program has been assessed using the Program Assessment Rating Tool (PART). Remarks regarding program performance and plans for performance improvement can be located at the Expectmore.gov website. SUMMARY OF CAPITAL INVESTMENT PROGRAM (CIP). ($ in Millions) FY 2006 FY 2007 FY 2008 FY 2009 Equipment-non ADPE &TELECOM Minor Construction Equipment-ADPE &TELECOM Software Development Total $ $ $ $40.835

38 FISCAL YEAR (FY) 2008/FY 2009 BUDGET ESTIMATES Navy Working Capital Fund Narrative Summary of Operation Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 CARRYOVER. The NAVAIRDEPOTS are budgeted within the prescribed outlay-based carryover ceiling for FY 2007 through FY In FY 2006 additional GWOT related workload required a small amount of additional carryover (Dollars in Millions) Depot Maintenance - Aircraft FY 2006 FY 2007 FY 2008 FY 2009 $1, $1, $1, $1, New Orders Less Exclusions: Foreign Military Sales $35.6 $22.3 $22.7 $23.6 Base Realignment & Closure $0.0 $0.0 $0.0 $0.0 Other Federal Depts & Agencies $5.2 $3.2 $1.3 $1.4 Non-Federal & Others $50.2 $67.1 $73.2 $76.9 Major Range & Test Facility Base $0.0 $0.0 $0.0 $0.0 Orders for Carryover Calculation $1, $1, $1, $1, Composite Outlay Rate 68.9% 68.7% 68.5% 68.3% Carryover Ceiling Rate 31.1% 31.3% 31.5% 31.7% Carryover Ceiling $575.0 $539.7 $533.4 $527.4 Balance of Customer Orders at Yr End $684.5 $635.1 $594.7 $611.4 Less WIP $41.2 $39.5 $41.2 $37.8 Less Exclusions: Foreign Military Sales $24.3 $22.0 $21.0 $20.6 Base Realignment & Closure $0.0 $0.0 $0.0 $0.0 Other Federal Depts & Agencies $14.9 $11.9 $10.7 $10.3 Non-Federal & Others $13.0 $22.1 $27.3 $32.2 Major Range & Test Facility Base $0.0 $0.0 $0.0 $0.0 Carryover Actual/Budget $591.1 $539.6 $494.5 $510.5

39 Fiscal Year (FY) 2008/2009 Budget Estimates Navy Working Capital Fund Revenue and Expenses Activity: Naval Aviation Depots (NADEPS) February 2007 ($ in Millions) FY 2006 FY 2007 FY 2008 FY 2009 CON CON CON CON Revenue: Gross Sales Operations 1, , , ,707.8 Surcharges Depreciation excluding Major Constructio Other Income Total Income 1, , , ,748.8 Expenses Cost of Materiel Sold from Inventory Salaries and Wages: Military Personnel Civilian Personnel Travel and Transportation of Personnel Material & Supplies (Internal Operations Equipment Other Purchases from NWCF Transportation of Things Depreciation - Capital Printing and Reproduction Advisory and Assistance Services Rent, Communication & Utilities Other Purchased Services Total Expenses 1, , , ,745.5 Work in Process Adjustment Comp Work for Activity Reten Adjustment Cost of Goods Sold 1, , , ,748.8 Operating Result Less Surcharges Plus Appropriations Affecting NOR/AOR Other Changes Affecting NOR/AOR Extraordinary Expenses Unmatched Net Operating Result Other Changes Affecting AOR Accumulated Operating Result Exhibit Fund-14 Revenue and Expenses

40 Fiscal Year (FY) 2008/2009 Budget Estimates Navy Working Capital Fund Source of Revenue Activity: Naval Aviation Depots (NADEPS) February 2007 ($ in Millions) FY 2006 FY 2007 FY 2008 FY 2009 CON CON CON CON New Orders 1,942 1,816 1,789 1,766 a. Orders from DoD Components 1,214 1,084 1,152 1,187 Department of the Navy 1,177 1,041 1,108 1,144 O & M, Navy O & M, Marine Corps O & M, Navy Reserve O & M, Marine Corp Reserve Aircraft Procurement, Navy Weapons Procurement, Navy Ammunition Procurement, Navy/MC Shipbuilding & Conversion, Navy Other Procurement, Navy Procurement, Marine Corps Family Housing, Navy/MC Research, Dev., Test, & Eval., Navy Military Construction, Navy National Defense Sealift Fund Other Navy Appropriations Other Marine Corps Appropriations Department of the Army Army Operation & Maintenance Army Res, Dev, Test, Eval Army Procurement Army Other Department of the Air Force Air Force Operation & Maintenance Air Force Res, Dev, Test, Eval Air Force Procurement Air Force Other DOD Appropriation Accounts Base Closure & Realignment Operation & Maintenance Accounts Res, Dev, Test & Eval Accounts Procurement Accounts Defense Emergency Relief Fund DOD Other b. Orders from other WCF Activity Groups c. Total DoD 1,851 1,723 1,692 1,664 d. Other Orders Other Federal Agencies Foreign Military Sales Non Federal Agencies Carry-In Orders Total Gross Orders 2,522 2,500 2,424 2,360 a. Funded Carry-Over before Exclusions b. Total Gross Sales 1,837 1,865 1,829 1, End of Year Work-In-Process (-) Non-DoD, BRAC, FMS, Inst. MRTFB (-) Net Funded Carryover Note: Line 4 (End of Year Work-In-Process) is adjusted for Non-DoD, BRAC & FMS and Institutional MRTFB Exhibit Fund-11 Source of Revenue

41 FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES Navy Working Capital Fund Changes in the Costs of Operations Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 ($ in Millions) Total Costs FY 2006 Actuals 1,868.2 FY 2007 President's Budget 1,973.3 Pricing Adjustments: 2.0 Annualization of Pay Raises 0.0 Civilian Personnel 0.0 Military Personnel 0.0 Pay Raise 0.0 Civilian Personnel 0.0 Military Personnel 0.0 Fuel Changes 1.0 Material/Supplies/Equipment 0.3 Intrafund 0.0 Travel/Transportation 0.0 Other Purchases 0.7 Productivity Initiatives 0.0 Program Changes: Airframes work Engines work Components work 1.1 Other Support work 0.1 Modification work 0.4 Logistics/Engineering work Other Changes (incl Depreciation): Depreciation -0.6 DFAS -1.0 DISA -0.1 Defense Printing Service -0.3 Printing and Reproduction -0.1 Purchased Utilities -0.7 Travel -0.7 Transportation -1.9 Training -1.3 Equipment Maintenance -0.7 BRAC - FRC FY 2007 Current Estimate: 1,859.2 Exhibit Fund-2 Changes in the Costs of Operations

42 FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES Navy Working Capital Fund Changes in the Costs of Operations Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 ($ in Millions) Total Costs FY 2007 Estimate: 1,859.2 Pricing Adjustments: 48.6 Annualization of Pay Raises 4.6 Civilian Personnel 4.5 Military Personnel 0.1 Pay Raise 17.0 Civilian Personnel 16.8 Military Personnel 0.2 Fuel Changes -0.4 Material/Supplies/Equipment 19.0 Intrafund 2.4 Travel/Transportation 0.1 Other Purchases 5.9 Productivity Initiatives 0.0 Program Changes: -8.7 Airframes work 5.4 Engines work Components work 15.1 Other Support work -4.1 Modification work -6.8 Logistics/Engineering work -6.6 Other Changes (incl Depreciation): Depreciation 1.3 IT Costs -4.9 BRAC - FRC FY 2008 Estimate: 1,829.7 Exhibit Fund-2 Changes in the Costs of Operations

43 FISCAL YEAR (FY) 2008/2009 BUDGET ESTIMATES Navy Working Capital Fund Changes in the Costs of Operations Activity Group: Depot Maintenance/NAVAIRDEPOTS February 2007 ($ in Millions) Total Costs FY 2008 Estimate: 1,829.7 Pricing Adjustments: 38.9 Annualization of Pay Raises 6.2 Civilian Personnel 6.1 Military Personnel 0.1 Pay Raise 12.8 Civilian Personnel 12.6 Military Personnel 0.2 Fuel Changes 0.0 Material/Supplies/Equipment 13.8 Intrafund 0.9 Travel/Transportation 0.1 Other Purchases 5.1 Productivity Initiatives 0.0 Program Changes: Airframes work Engines work 21.6 Components work -6.5 Other Support work -0.7 Modification work -5.0 Logistics/Engineering work Other Changes (incl Depreciation): Depreciation -1.8 Travel -1.2 Transportation -0.7 Training -0.5 Purchased Utilities and Other Services -2.1 Purchased Communications -0.2 Printing and Reproduction -0.2 ADP Services / Support -2.4 Goods / Svcs from Other Agencies -1.4 Equipment Maintenance by Contract -3.1 BRAC - FRC FY 2009 Estimate: 1,745.5 Exhibit Fund-2 Changes in the Costs of Operations