By Michael Biorn
Today I’m pleased to discuss Lockheed Martin’s perspective on lifetime sustenance for military aircraft. I will primarily discuss two key aspects: Life Cycle Costs (LCC) and Performance Based Logistics (PBL).
Life Cycle Cost (LCC)
In order to attempt to accurately capture the cost of military aircraft, all costs from project inception through demilitarization and disposal must be included. Although individual countries use different terminology to describe the phases military aircraft experience during through life sustenance, Figure 1 shows the United States Department of Defense (U.S. DoD) phases for capturing those same life cycle costs.
Unfortunately, due to the difficulty of estimating, imperfect assumptions and the lack of actual costs initially, there is universal acceptance that generating a highly accurate life cycle cost estimate is difficult. As a system progresses through the phases below, LCC estimating accuracy increases, but that higher fidelity often occurs after a procurement decision is made, which can be suboptimal.
Figure 1: Life Cycle Costs. Total LCC includes all costs incurred from the very beginning of the project until the aircraft and related systems are properly disposed of.
As can be seen above, the activities in each phase of the lifecycle overlap as one winds down and the next begins. A basic overview of the primary activities for each phase is provided below.
Research & Development
During this phase, the originating government defense service (hereafter referred to as “Service”) develops requirements and gathers information from Original Equipment Manufacturers (OEMs), to determine which prospective OEMs may provide viable solutions. After evaluating weapon system performance and estimated life cycle costs, the service selects the best solution to progress into Low-Rate Initial Production (LRIP). Once the service is satisfied that all requirements are met, the OEM is then authorized by the service to go from LRIP into full rate production.
Investment
Services fund full rate production and deliveries of the aircraft weapon system.
Operations & Support (O&S)
Nearly every country, and even different military services within the same country, calculate O&S costs differently. Costs during this phase should include all costs incurred to operate, manage, support, and maintain the aircraft such as those shown in Figure 2 below. Services must also include the O&S costs of any missionized systems such as EW pods, targeting pods, etc.
Figure 2: Operations and Support Costs. O&S costs should include total sustenance costs for the entire weapon system.
Disposal
Includes costs incurred to demilitarize and dispose of the weapon system.
Performance Based Logistics (PBL)
PBL is a strategy for weapon system product support that employs the purchase of support as an integrated, affordable, performance package designed to optimize system readiness. It establishes performance goals for a weapon system through a support structure based on long-term performance agreements with clear lines of responsibility to continuously meet the service’s needs. Long-term contracts (5 years or more) are needed by Product Support Providers (PSPs), in order to recoup investments made to improve performance and/or reduce overall costs.
Under a traditional transactional product support model, the service purchases parts or sustainment services from a commercial PSP when repairs are needed. Thus, the PSP is not incentivized to reduce the need for repairs and repair parts. When equipment fails or is overhauled, the PSP charges the service for repair or replacement on a transaction-by-transaction basis and the PSP’s revenue and workload increases as equipment failures increase. This model creates a fundamental product support misalignment.
PBL arrangements address this misalignment. When PSPs are paid for performance, not transactions, their profits are negatively impacted by additional costs incurred in delivering contractual performance requirements. Thus, PSPs are incentivized to reduce both the number of repairs and the cost of the parts and labor used in the repair process.
Successful PBL arrangements require sound management and well-defined roles and responsibilities in accordance with the service’s specific requirements. Regardless of the level of PBL arrangement chosen, services retain full control and management of their weapon systems. PBL arrangements delegate only the commensurate authority and autonomy required by PSPs to provide the level of product support required by the respective service.
As confirmed by independent government-commissioned studies, when properly constructed and managed, PBL arrangements increase weapon system performance while simultaneously reducing cost as compared to traditional product support strategies. The Indian Air Force C-130 product support structure is one example of a successful outcome-based through life sustenance approach. It provides a Demand Satisfaction Rate type of contract which focuses on providing C-130 users with the right part, at the right place, at the right time to support operational requirements.
Conclusion
Given the costs and extended operating life cycle of military weapons systems, services must diligently evaluate offers provided by each OEM while realizing the lack of fidelity often available to validate LCC estimates. A Lowest Price Technically Acceptable (LPTA) offer, which cannot be precisely vetted, may not include true life cycle product support capable of providing high levels of mission capability within the available budget.
In contrast, a PBL is a proven product support strategy that provides service-defined performance requirements for a known price over the entire period of performance of the contract. PBL arrangements provide a win-win opportunity for both the services and industry PSP partners which also allow for a more beneficial comparison than pure LCC estimates.
Michael Biorn, Business Development Director – Sustainment, Lockheed Martin
