Squadron members and onlookers congratulate around the squadron flagship (s/n 76-0111) after the final 318th air to air victory on the Green Dragons last sortie.  

Since the mid 1980's, an effort to balance the Nations budget continued to take a larger effect on the force structure of the U.S. Air Force, in 1989 the 318th FIS could not escape the budget axe. On January 9, 1989, the Department of Defense announced that the 318th FIS would inactivate by the end of 1989, canceling the squadrons conversion into the F-16 ADF. All plans to transfer 318th F-15s to the Oregon Air National Guard would continue, later the 123rd FIS “Redhawks” would assume all air defense responsibilities formerly performed by Green Dragons in the Northwest.  

Throughout 1989, Green Dragon maintenance crews assist the "Redhawks" through the unit’s conversion, teaching the maintenance crews some of the finer points of their “new” aircraft while completing final checks and inspections on every system of the units F-15s before their transfer to the 142nd FIG. On May 24, 1989 after many months of preparation, the first F-15 to leave McChord for the 123d, a "B" model, s/n 76-0139, landed at Portland International Airport to begin the unit's new assignment in the Eagle. From that day forward , two or three aircraft a month would leave the 318th with the last aircraft arriving on station in December 1989.

On a sunny day in California, F-15 s/n 76-0105 is pictured during  a quiet moment in one of the Castle AFB alert barns.

In preparation for the 318th Fighter-Interceptor Squadrons deactivation in late 1989, Detachment 1, 318th Fighter-Interceptor Squadron was deactivated on June 30, 1989 after protecting the people of Central California for 8 years after the deactivation of the 84th Fighter-Interceptor Squadron in 1981. Since it was established on July 1 1968, Det. 1 - 318th FIS has maintained a geographically separated alert detachment at Walla Walla WA, Kinsley Field, OR, and Castle AFB, CA. 

What was to be the 318ths last deployment before deactivation, the squadron traveled to Marine Corps Air Station Kaneohe Bay, HI to fight McDonnell Douglas F/A-18s Hornets of the USMC. The two-week deployment in August of 1989 was the first overseas mission for a 1st Air Force squadron since its 1985 reactivation. After the squadrons return from their stay in Hawaii, the Air Force Fighter Weapons School's F-16 Division sought out the Green Dragons to fill a need for a highly skilled squadron to perform adversarial support for an upcoming training air-to-air exercise. Because of their pending closure, the 318th lacked the funding they needed to attend, but F-16 unit, needing a highly effective group of adversaries, offered to pay the squadron's two-week deployment.

Lt Col Chuck Colgrove, 318th FIS Director of Operations and Lt Col John Kugler, 318th FIS Commander, celebrate the squadrons last sortie on November 17, 1989. The Green Dragons would officially inactivate less than three weeks later. 

On November 17, 1989, two 318th FIS F-15 Eagles rolled out of the McChord AFB Alert facility and flew east to engage in the Squadrons last battle, aerial combat with two F-16's from Montana ANG. This battle with the F-16's ended as most did for all who flew against the 318th, a Green Dragon victory. The F-15's were flown home and, after dismounting their fighters, Squadron Commander Lt. Col. John Kugler, and the Squadrons Director of Operations Lt. Col Chuck Colgrove, were given the traditional wetting down by their squadron mates. The Colonels each opened a bottle of champagne proposed a toast to all present and former "Green Dragons". 

On 7 December 1989, the hangars that housed fighter-interceptor aircraft at McChord for almost 40 years held the deactivation of McChord's last assigned air defense fighter squadron. With many present and former members of the 318th Fighter-Interceptor Squadron in attendance, the 318th flag was presented to Major General Richard Pierson, 25th Air Division Commander by Lt. Col Kugler, a symbolic end to of one of the Air Forces most accomplished Squadrons.