It is very easy to question a nation for its decision to retire seemingly useful aircraft, but there are many economic factors that need to be taken into account. We often hear about how much it costs to buy any particular model of plane, but people often underestimate just how expensive it is to operate and maintain aircraft. Not only do you have to consider the direct costs of flying the plane (pilot pay, fuel, and other consumables), but also the costs of pilot training, the costs of parts and labor to perform routine maintenance, the costs of training ground crew to perform that maintenance, the costs of obtaining and maintaining support equipment needed to service the planes, and the costs of the facilities needed to perform this service and maintenance. We often lump all these factors together into the “life-cycle cost” of an airplane.
Life Cycle Cost is extremely important when determining whether to retain or replace aircraft, acquire new or used aircraft, and in evaluating the total economics of competing aircraft whether purchasing, financing, or leasing. With this program you can predict Cash Flows and Net Present Values and compare different forms of ownership.
As aircraft have become increasingly complex, the life-cycle costs associated with maintaining sophisticated equipment and training crew to operate and service that equipment have grown substantially. For this reason, we see a trend in militaries around the world to standardize on as few types of aircraft as possible. By operating only a couple types of planes, a military can consolidate its training and servicing activities thereby minimizing the amount of money needed for aircraft operations and maintenance.
This motivation is likely a major factor in the business decision to eliminate their old aircraft. The business can instead focus its maintenance and training budgets on a few designs, which tend to share much in common, as opposed to siphoning off a large chuck of that money to support a completely different design. Understanding and modeling factors related to learning, economics, marketing, risks, and uncertainty can enable designers to design more cost-effective systems. The importance of developing comprehensive life cycle cost models cannot be over emphasized with reference to affordable systems. Particular areas of concern include production cost, estimating, organizational learning, pricing and marketing, sub-contracting production, and predicting competitors’ cost.
In addition to the component of the cost estimation, usually the focal point of most cost models, accurate modeling of all factors related to the production, operations, and support is necessary to generate calibrated life cycle cost profiles. Basic engineering economics can be used for determining price once the cost has been estimated. Interest formulas are available for predicting rates of return and other indicators of profitability. However the complex models used for life cycle cost prediction must utilize algorithm for stimulating additional factors as organizational learning and manufacturing processes.
The three primary component f the system life cycle are non recurring costs, recurring costs, and operations and support costs. According to Apgar, H. (1993) there are two principal objectives for an life cycle cost trade study as the identification of the design and production process alternatives which meet minimum performance requirements; both at the lowest average unit production cost, and at the lowest operation and support cost per operating hour.
A full range of cost models exists today, from detailed part-level models, based on direct engineering and manufacturing standard factors, to conceptual design level life cycle models. While most of the conceptual design level models are parametric and weight/complexity-based, much research is being conducted to develop feature-, activity-, and/or process-based models. Many of the detailed models use measured data from the shop floor for the regression analysis and algorithm development. At the other end of the spectrum are the top-level, parametric cost estimating models for life cycle estimates. Few models exist between the two ends of the modeling spectrum; no suitable methods have been demonstrated for a model that accepts multifidelity data from multiple levels of product analysis within an integrated design environment.
Detailed estimates of direct materials and hours used for fabrication and assembly of the aircraft major structural components (accommodating the many and varied material types; product forms such as sheets, extrusions, fabrics, etc.; and construction types utilized in advanced technology aircraft structures) will replace the weight/complexity-based algorithm for estimating the aircraft cost in the top-level, parametric life cycle cost model. These differentials in the aircraft cost estimates due to fabrication and assembly alternatives will propagate via the system roll up cost through the life cycle for production, operation, and support for the entire system.
With such a tool/model, the designer will be able to determine sensitivities in the top-down life cycle cost model to changes or alternatives evaluated in the bottom-up cost model. It will be possible to calculate sensitivities and design for robustness with the life cycle cost model due to perturbations of some factors such as entities external to the manufacturer; functions internal to the manufacturer, but external to manufacturing; and processes internal to the manufacturer.
The manufacturer cannot control certain factors external to the enterprise. For instance, the number of aircraft ordered, the times of the orders and the corresponding payment schedule, interest rates, and projected inflation rates are not variables over which the manufacturer has complete control. The monthly or annual production rates; sub-contracting decisions; learning curve effects; and manufacturing, and sustaining costs are factors that are internal to the enterprise, but can be categorized in a higher level than the actual material purchasing, processing, fabrication, and assembly. The sequences of activities and processes used for fabrication and assembly are assumed to be internally controlled by the manufacturer.
The lowest level of the life cycle cost model consists of the cost estimation for the aircraft, based upon the direct engineering and manufacturing estimates for its major structural components. The highest level includes determination and distribution of the non-recurring and recurring production costs, as well as the operations and support costs over the entire life cycle of the aircraft.
According to Febrycky, W.J., and Blanchard, B.S. (1991) that a through understanding of certain economic theories must be achieved before any reasonable life cycle cost analysis can be undertaken. Alternative instruments can be compared against each other or a fair basis only if their respective benefits and costs are converted to an equivalent economic base, with appropriate consideration for the time value of money. Three factors are involved when determining the economic equivalence of sums of money. They are the amounts of the sums, the times of occurrence of the sums, and the interest rate. Interest formulas are functions of all three. These functions are used for calculating the amounts occurring at different periods of time.
The life cycle cost analysis of aircraft comprises the following capabilities. The unit production costs are estimated with a series of experimental equations for generating airframe component manufacturing costs for specific classes of aircraft. According to Lee, P. (1994) that a theoretical First Unit Cost is generated by summing the respective component costs of the airframe, propulsion, avionics and instrumentation, and final assembly. Most of the structural component cost equations are weight-based. Engine costs are based on the thrust, the quantity produced, and the cruise Mach number.
Alternatively, the actual price/cost of the engine can be specified as input parameters. Another series of exponential equations is used to calculate the production costs based upon the total number of vehicles produced. The average unit airplane costs, either including or excluding airframe and engine spares, are also calculated. A comparison of the average aircraft manufacturing costs versus the quantity of aircraft produced is provided. The elements of the total vehicle cost can be reduced with user-specified learning curves for the airframe, avionics, propulsion, assembly, and fixed equipment. For a specified production rate, ship set, and average aircraft selling prices, the manufacturer’s cumulative and annual cash flows are calculated.
The annual and cumulative aircraft deliveries are calculated first, based upon an input production rate schedule. The manufacturing cost is the sum of the production costs of all operational vehicles produced each year. The cost to manufacture one vehicle includes airframe cost, propulsion cost, avionics and instrumentation cost, and the cost of final assembly. The manufacturer’s sustaining costs are the total production costs minus the cost of the operational vehicles and the manufacturer’s profit fee. Ten elements constitute the total sustaining costs: airframe and engine spares, facilities, sustaining engineering, sustaining tooling, ground support equipment, training equipment, initial training, and initial equipment. The sustaining costs are distributed equally for each aircraft over the same months in which each aircrafts manufacturing costs are distributed.
There is normally a conflict between cost-effective choices and affordable choices for alternative designs. Today, the desire for cost-effectiveness is often sacrificed to the practical considerations of the available funding with the development of more complexes and comprehensive life cycle cost modes that can accept and process multifidelity data within an integrated design environment, it will be possible to better calculate the cost-effectiveness and affordability of future systems. Then it may be possible to have a system that is ultimately cost-effective, yet still affordable.
Apgar, H. (1993). Design-to-Life-Cycle-Cost in Aerospace, Aerospace Design Conference, Irvine CA.
Febrycky, W.J., and Blanchard, B.S. (1991). Life-Cycle Cost and Economic Analysis, Prentice Hall, Englewood Cliffs, New Jersey.
Lee, P. (1994). A Process Oriented Parametric Cost Model, Aerospace Design Conference, Irvine CA.