An Economic Framework for Evaluating Military Aircraft Replacement
Abstract
Faced with concerns about aging aircraft, burdensome operation and support (O&S) costs, and maintenance uncertainties, the U.S. Air Force (USAF) is asking when and how to replace its fleets. Ultimately, the USAF must confront a broad range of economic and noneconomic considerations, including changes in technology and requirements. We focus primarily on economic considerations. Specifically, we develop an economic framework or model for identifying least cost aircraft replacement strategies that recognizes tradeoffs among different kinds of costs and explicitly incorporates the effects of age and uncertainty. Our approach draws from studies of renewable resources, equipment replacement, industrial capacity expansion, and financial markets. For generality, we use the framework to conduct a parametric analysis. We begin by developing a simple deterministic model that minimizes the life- cycle costs-acquisition and O&S an infinite series of replacements for a generic fleet of aircraft. In the deterministic model, O&S costs rise systematically with aircraft age. (Age is defined broadly to include other related factors, such as flying hours, sorties, and engine cycles.) The USAF repeats the replacement decision over and over again; each generation of the fleet becomes costlier to maintain as it ages, so that eventually it is retired and replaced. Holding technology, requirements, and other environmental factors constant, we can say that the replacement age or interval that is optimal for the first generation is optimal for all future generations. For illustrative purposes, we adopt a specific functional form-an exponential O&S cost growth process-and solve over a wide range of parameter values for the cost-minimizing replacement age. As the growth rate of O&S costs decreases, the optimal replacement interval lengthens, and the range of replacement intervals that provide close-to-optimal outcomes widens.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 2002
- Accession Number
- ADA404447
Entities
People
- David M. Persselin
- Victoria A. Greenfield
Organizations
- RAND Corporation