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An Examination of the Relationship Between Usage and Operating-and-Support Costs of U.S. Air Force Aircraft

Abstract : This research examines the relationship between operating and support (O&S) costs and usage of Air Force aircraft to improve resource allocation. Currently the Air Force uses an average cost metric to forecast costs related to flying hours. Problems arise with the accuracy of the cost per flying hour (CPFH) factors when the relationship between cost and usage is either nonlinear or includes nontrivial fixed costs. Superficially, it may seem reasonable that if the Air Force flies an aircraft twice as many hours, O&S costs should double. However, empirical evidence shows that the doubling of flying hours actually increases non-fuel operating and support costs by less than that amount. This finding is consistent with nontrivial fixed costs, challenging the validity of the current proportional budgeting metric. Another aspect to forecasting Air Force budgets is whether O&S costs vary with flying hours or with the number of aircraft. The Air Force currently groups O&S budget components into three cost categories: variable with flying hours, variable with the number of aircraft, and fixed costs. The authors find that the high correlation between flying hours and the number of aircraft prevents one variable from outperforming the other in predictive models. Fuel cost is the only category with clear statistical evidence to support the use of flying hours over aircraft inventory in predictive models. The Air Force can improve its allocation of O&S resources by altering the current proportional CPFH metrics to better accommodate fixed costs. When the authors apply the findings of this research to budget projections, they see substantial differences to forecasts created with the status quo metrics. This is an important difference for Air Force budget planning, particularly during the transition periods that precede and follow major contingency operations.