Chapter 6
Analyzing Operations
and Support Costs
Competition during EMD and production can result in beneficial effects
during operation and support of the system. History suggests that competition can lead to a better design and to increased quality control during production, both of which should lead to higher reliability during
field operations. A frequently referenced example is the great engine
war, which pitted General Electric’s F-110 engine against Pratt & Whitney’s F-100 engine to induce Pratt & Whitney to produce a more reliable version of the F-100 engine. Higher reliability should lead to some
reduction in O&S costs. We therefore need to examine the extent of
possible competition-induced reductions in O&S costs and see if such
reductions might be large enough to affect our estimates of the likelihood of breaking even by introducing a second-source producer.1
Analytic Approach
Our analysis followed four steps:
• We identified the elements of O&S costs that are likely to be affected by contractor actions during EMD and production in a
typical military aircraft program. This was done by reviewing the
categories by which O&S costs are typically reported and judging which of those would be likely to change as a result of
changes in system reliability.
1 Competition in production might also lead to lower cost for replacement parts. However, analysis of
lower spare parts costs requires a level of detail in O&S cost estimates that was not available at the time
of this study.
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ASSESSING COMPETITIVE STRATEGIES FOR THE JOINT STRIKE FIGHTER
• We determined the magnitudes of those competition-sensitive
O&S costs in the JSF, as currently estimated for its projected operational life. The JSF Program Office provided those data.
• We calculated the sensitivity of those competition-sensitive O&S
costs to changes in reliability. Those estimates, made by the
Naval Air Systems Command (NAVAIR) using the JSF O&S
cost estimation model, yielded a range of possible savings resulting from competition during production, expressed as a percentage change in certain JSF O&S costs.
• We used those savings to adjust the break-even calculations reported in Chapter Five to determine whether the projected O&S
cost savings led to a significant change in the overall likelihood of
breaking even.
Step 1: Identify Elements Most Affected by Contractor Action
Table 6.1 presents our assessment of the extent of contractor influence
on the major categories of O&S cost in a typical fighter aircraft program, designated as high, medium, and low. The assessment reflects the
judgment of personnel experienced in how the maintenance organization and process works. We judged only a few categories to be highly
sensitive to changes in system reliability and, therefore, likely to be sensitive to the actions taken by the system producers.
We concluded that contractors have the highest level of potential influence over O&S costs in five areas—unit-level consumable supplies,
depot-level reparables, airframe overhauls, engine overhauls, and support equipment repair. Our estimates of the percentages of the current
O&S cost projections for the JSF that those elements represent are included in brackets in the table.
Before we go on to the second step, let us define what activities are
included in each of these areas and their connection with reliability.
Unit-level consumption consists of fuel and energy resources; operations, maintenance, and support materials consumed below the depot
organizational level; reimbursement of stock fund for depot-level
reparables (spare parts); operational munitions expended in training;
transportation of materials, repair parts, and reparables between the
supply or repair point and the unit; and other unit-level consumption
costs, such as purchased services for equipment lease and service con-
ANALYZING OPERATIONS AND SUPPORT COSTS
67
Table 6.1
Degree of Contractor Influence over O&S Costs
Contractor influence
O&S cost category
High
Medium
Low
Percentage of
JSF O&S cost
Mission personnel
Officers
Enlisted
Civilians
23
Unit-level consumption
Petroleum, oil, and lubricants
Consumable supplies
Depot-level reparables
Training munitions
45
[9]
[21]
Intermediate maintenance
Officers
Enlisted
Civilian
Contractor
Consumable material/repair parts
3
Depot maintenance
Aircraft overhaul
Airframe
Engine
Support equipment repair
8
[5]
Sustaining support
Support equipment replacement
Modifications
Sustaining engineering services
Software maintenance
Simulator operations
Technical publications
10
Indirect support
Specialty training
Permanent Change of Station
Military medical care
Installation support
12
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NOTE: Numbers in brackets are included in the total for the main category.
tracts. Consumable supplies are those items purchased for one-time use,
such as filters and oil, and then discarded when they must be replaced
on an aircraft. Depot-level reparables are spare parts that, when re-
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ASSESSING COMPETITIVE STRATEGIES FOR THE JOINT STRIKE FIGHTER
moved from an aircraft, are tracked individually by an item number and
returned to a central maintenance facility for repair and reuse. Depot
maintenance is defined as personnel, material, overhead support, and
depot-purchased maintenance required to perform a major aircraft or
engine overhaul, and maintenance of a weapon system, its components, and support equipment at DoD centralized repair depots, contractor repair facilities, or on-site by depot teams.
Step 2: Determine the Magnitude of Competition-Sensitive
O&S Costs in JSF
Many O&S costs depend on reliability. Reliability is significantly influenced by the contractor. Therefore, costs that depend on reliability are
deemed to be highly influenced by the contractor. Aircraft that are required to be flown frequently, with little or no opportunity for maintenance between flights, should be designed to require fewer consumable
supplies and repair parts. We did not include service maintenance personnel in the “high” category of contractor-influenced O&S costs, because maintenance manning at operational units is not strictly a function of aircraft repair frequency; rather, it is set by individual services on
the basis of a host of factors. Theoretically, high-reliability weapon systems should reduce the need for maintenance personnel. Depot maintenance is also driven by the contractor-controlled airframe design and
the need for periodic overhaul at centralized maintenance facilities. To
the extent that the basic airframe design either obviates or reduces
overhaul and major periodic maintenance, O&S costs can be reduced
over those of historical systems. The design of an aircraft can reduce the
amount of support equipment required to operate and maintain the aircraft, and higher reliability built into the support equipment itself can
reduce the need to repair these items. Finally, the weapon system contractor, if given responsibility for centralized repair of the aircraft and
support equipment, can reduce the cost of recurring repairs, even on
highly reliable equipment.
The value for depot maintenance typically includes the engine. Because our study excluded the engine for which competition is already
planned, we adjusted the value to reflect only the airframe, mission system, and support equipment repair. Table 6.2 shows the percentages of
O&S costs for consumables, depot-level reparables, and depot overhaul
ANALYZING OPERATIONS AND SUPPORT COSTS
69
Table 6.2
Percentage of Airframe and Mission Equipment Operations and Support Costs
Represented by Consumables, Depot-Level Reparables, and Overhaul
Percentage of O&S costs
Airframe
Mission equipment
Consumables
~7%
~1%
Depot-level reparables
~6%
~7%
Overhaul
~5%
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for just the airframe, mission system components, and support equipment repairs. The cost of depot overhaul for mission system and support equipment is small compared to the costs for the airframe and engine (in the range of 5 percent or less of the airframe estimated cost).
Note that these values are for the total airframe and the complete
mission system. Data were not available to do this analysis at the
same level of detail as the production-cost RCR analysis in Chapter
Five.
Step 3: Calculate the Sensitivity of Those Competition-Sensitive
O&S Costs to Changes in Reliability
Figures 6.1 through 6.4 show the sensitivity to reliability changes of
the largest cost elements from Table 6.1. These sensitivities were derived
from data and JSF O&S cost model outputs provided by NAVAIR.
Step 4: Use Savings to Adjust Break-even Calculations
of Chapter Five
Using the values from Figures 6.1 through 6.4, we determined the
O&S dollar savings over the operational life of the JSF fleet, assuming
a 30-year aircraft life. We then calculated the amount that the
production-cost RCRs for the total airframe and the complete mission
system package would be reduced if the reliability-driven O&S cost
savings were realized. The results are shown in Table 6.3. The values in
this table, as with all savings values shown previously, are undis-
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ASSESSING COMPETITIVE STRATEGIES FOR THE JOINT STRIKE FIGHTER
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Percent change in JSF airframe
consumable materials cost
30
20
10
0
–10
–20
–30
–30
–20
–10
0
10
20
30
Percent change in reliability
Figure 6.1—Sensitivity of Airframe Consumables to Reliability Changes
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Percent change in JSF airframe
depot-level reparables cost
30
20
10
0
–10
–20
–30
–30
–20
–10
0
10
Percent change in reliability
Figure 6.2—Sensitivity of Airframe Depot-Level Reparables to
Reliability Changes
20
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ANALYZING OPERATIONS AND SUPPORT COSTS
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Percent change in JSF airframe
overhaul/rework cost
30
20
10
0
–10
–20
–30
–30
–20
–10
0
10
20
30
Percent change in reliability
Figure 6.3—Sensitivity of Airframe Overhaul/Rework to Reliability Changes
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Percent change in JSF mission system
equipment depot-level reparables cost
30
20
10
0
–10
–20
–30
–30
–20
–10
0
10
20
Percent change in reliability
Figure 6.4—Sensitivity of Mission System Depot-Level Reparables
to Reliability Changes
30
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ASSESSING COMPETITIVE STRATEGIES FOR THE JOINT STRIKE FIGHTER
counted to enable comparison with the historical evidence. Because the
O&S savings would be achieved several years further in the future than
would savings in production cost, it is worth noting that corresponding discounted values are about 40 percent of the values shown in
Table 6.3. For example, the –5.6-percent value for mission equipment
with a 20-percent reliability improvement becomes –2.2 percent when
discounted at 4.2 percent.
We conclude that competition-induced improvements in system reliability are likely to yield reductions in O&S costs, but that such reductions are not large enough to overcome the cost penalties of introducing competition.
Table 6.3
Effect of Reliability Improvements on JSF O&S Break-even Percentages
Reliability
improvement
(percent)
Delta from break-even baseline (percent)
Airframe
Mission equipment
5
–1.7
–1.6
10
–2.6
–2.9
15
–3.9
–4.3
20
–4.9
–5.6
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