Shortly after the induction of Taylor as elected president of Liberia in August 1997, the Ministry of National Defense determined that the strength of the AFL had risen during the war from 6,500 to 14,981 service members. To begin demobilization, the AFL Chief of Staff published Special Orders No. 1 on January 1, 1998, demobilizing and retiring 2,250 personnel. The demobilization process was delayed and badly managed, and only on April 22, 1998 did payments began to be issued to the demobilizing personnel, without prior explanation of what exactly the payments represented. Demonstrations and protests by the demobilized personnel eventually led to a riot in which three died on May 5, 1998. As a result, Taylor authorised the formation of a commission to submit recommendations on how the AFL should be reorganized. The commission, led by Blamoh Nelson, Director of the Cabinet, submitted its report on December 17, 1998, recommending a 6,000-strong armed forces (5,160 Army, 600 Navy, and 240 Air Force) but the proposal was never implemented.
Instead Taylor ran down the Armed Forces, letting go 2,400–2,600 former personnel, many of whom were Krahn brought in by former President Doe, in December 1997 – January 1998, and building up instead the Anti-Terrorist Unit (ATU), the Special Operations Division of the Liberian National Police, and the Special Security Service. On November 19, 1999, Taylor named General Kpenkpah Konah as the new Chief of Staff of the AFL (where he would stay until 2006) and John Tarnue as head of the army. Tarnue was later implicated in a land dispute in 1999, while acting as AFL commander. The International Crisis Group writes that the AFL was reduced practically to the point of non-existence by Fall 2001, by which time a total of 4,000 personnel had been retired. The Second Liberian Civil War, originated in clashes in April 1999 but was not a major threat to Taylor until 2000–01. However on the government side the AFL played only a minor role; irregular ex National Patriotic Front of Liberia militias backed by more privileged Taylor partisans such as the Anti-Terrorist Unit saw most of the fighting.
As a result of the Civil War, all aircraft, equipment, materiel, and facilities belonging to the Liberian Air Force were badly damaged, rendering the force inoperable. During the Civil War the Taylor government made a variety of different air support arrangements; a seemingly inoperable Mil Mi-2 and Mil Mi-8, one in Anti-Terrorist Unit markings, could be seen at Spriggs Payne Airport in central Monrovia in mid 2005, apparently a hangover from the war. Meanwhile during the Taylor era, the Navy consisted of a couple of small patrol craft. However, on shore, both late 1990s and 2005 sources indicate the Navy included the 2nd Naval District, Buchanan, the 3rd Naval District, Greenville, and the 4th Naval District, Harper.
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