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1

Analysis of Operations and Support

Cost TrendsorWhy do Aging Aircraft Cost so Much

Briefing for Ageing Aircraft Forum

October 6-8, 2004

Dr. Laurence W. Stoll

NAVAIR Cost Department/Aging Aircraft IPT


2/51

AgingACForum.PPT 10/042

CONTENTS

Issue of Aircraft Aging

Flying Hour Program (FHP) CostIncreases

AVDLR Root Cause Analysis

New Item Impacts on AVDLR Cost

Consumable Cost Increase Analysis

Consumable Generational Cost Growth

Conclusion and Observations


3/51


A/C Aging Across Almost 100 Years

Aged Old Aircraft

A-4 Skyhawk

First Flight 1954

26+ Production Years with Many Variants

Last Year in Active Fleet 1993

Really Old Aircraft but not Aging

Trajan Vuia Design first full size monoplane

First Flight 1906

Common Materials and Parts

Aging Middle Aged Aircraft

AV-8B Harrier

First Flight 1978

Avionics and Systems Upgrades

Currently in Active Fleet

Aging New Aircraft

F/A-18E/F

First Flight 1995

In Production with RoadMap Systems Planned

Issue ofAircraft Aging


4/51


Age of Operational AF AircraftOld to NewCurrent Fleet



5/51


Age of Operational Naval AircraftOld to NewCurrent Fleet

Selected Naval Aircraft (Min, Avg, Max) Age

0

5

10

15

20

25

30

35

40

CH-46E

UH-1N

S-3B

P-3C

EA-6

B

F-14

B

C-2A

CH-53E

AH-1W

SH-60F

F/A-

18C

F/A-

18D

E-2C

AV-8B

T-45

C

AircraftA

ge

1964

19671970

1973

1976

1979

19821985

1988

1991

1994

19972000

2003

2006



6/51


SELECTED AGE EFFECTS

STRUCTURALDEGRADATION/CORROSION

EXPIRING WIRING

DYNAMIC COMPONENTWEAR OUT

OUTDATED ELECTRONICS

OVERALL AGING INCLUDINGPROPULSION SYSTEMS



7/51


Phase 1

New Aircraft

Corrosion/inspection are minor issuesLimited depot workComponent AVDLR increases driven by increasing failuresLimited APN-5 funded modsManpower increases absorbed in overall manning structure

Phase 3

Late Mature Stage

Corrosion/inspection are major labor cost driversPeriodic depot visits with increasingly severe emergent repairs

Increasing mods due to addl reqmts/svc life extension issuesIncreasing number of hangar queensStrong pressures on manning due to increased workload

Corrosion/inspection increasingAircraft in full cycle -- periodic depot visits

Component AVDLR increases at higher level than Stage 1Mods still small but increasing due to safety/requirementsManpower implications still hidden within overall manning structureSome aircraft becoming hangar queens due to recurring problems

Phase 2

Early Mature Stage

Depots deal with major structural issues

Major SLAP/SLEP reqd to fly due to structural fatigue issuesObsolescence becoming major cost driver -- Major mod costsProblems fielding deployable units due to smaller population ofavailable airframes and engines

Phase 4

Final Life Stage

Aircraft Stages of AgingAircraft Stages of AgingLust

Dust

Mods

SDLM

AVDLR

Corrosion/Inspection



8/51


Significant Aging Issues

Need for Increasing Mods to Meet EvolvingThreat and Address Safety/RAM Issues

Fatigue Life RestrictionsReduced Quantities of Aircraft Attrition

Inability to Meet Some Requirements

Requirements for Additional Depot ReworkIncreased Burden on Fleet Personnel

Impacts on Fleet Flying Hour Program

Items in Blue Show Greatest O&S Budget Impacts



9/51


Naval Aviation O&S Costs

Flying Hour Program AVDLR and Consumables Increasing 6-8% Per Year

Including Contribution of Increased Documented CLS Costs



10/51


Age Linked to Cost

Because Aircraft/Equipment Age and Cost of Operations are Trending in Same

Directions It Easy to Speculate that This Represents Cause and Effect

The Relationships are Actually More Complex Which Has Led to Much of theDebate on Aging Impacts

Remainder of Briefing Examines Dynamics of Flying Hour Program Cost Growthand Identifies Significant Age and Non-Age Root Causes



11/51


Flying Hour Program AVDLRCost Increase Big Picture

AVDLR COST GROWTH OVER TIMETotal Force Average Cost Per Hour (FY04 Constant Dollars)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

FY1990

FY1991

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

CostP

erFlightHour

Average Annual Rate of Increase (FY90-FY2003) = $108Pattern Consistent from FY1990 thru FY2004

FY96 and FY97 Had Low Cost Recovery Rates

$1600

Flying HourProgram (FHP)Cost Increases


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Flying Hour Program Material+ Contracts Cost Increase Big Picture

MAINT MTL+CONTRACTS COST GROWTH OVER TIMETotal Force Average Cost Per Hour (FY04 Constant Dollars)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

FY1990

FY1991

FY1992

FY1993

FY1994

FY1995

FY1996

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

CostPerFlightHour

Average Annual Rate of Increase(FY90-FY2003) = $52

Note Higher Increases FY1999 thru FY2004Increase Approaching AVDLR Growth Rate

$780

$250

FY1990-FY1998

FY1998-FY2004



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Age May Not the Only Reason for Flying HourProgram (FHP) Cost Increase

Average Age of T/M/S Fleet Compared to theEstimated Percentage Growth of AVDLR and AFM Per Year

0

5

10

15

20

25

30

35

40

45

KC-130F

CH-46E

UH-1N

S-3B

P-3C

F-14A

EA-6B

FA-18A

F-14B

C-2A

F-14D

CH-53E

SH-60B

AH-1W

MH-53E

E-2C

SH-60F

FA-18C

FA-18D

HH-60H

AV-8B

AverageAgeof

Type/Model/S

eries

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

AnnualPerc

entageGrowth

Little Apparent Correlation with Average Age of Specific T/M/S and PercentageIncreases Over Time (FY90-FY2002) From CAVTS Expenditure Data


St di T A R t C


14/51


Studies To Assess Root Causesfor AVDLR Price Increases

Initial Study on Top 25 Items for Selected Naval T/Msand Engine TECs Completed Supporting FHP CEBs

Study Expanded with Air Force Participation in FY2003as Part of ALB Tasking to Assess Impacts of AgingFleets on Budgets

NAVAIR Received Demand and Price Data for AVDLRsfrom NAVICP for All Items for FY1997-FY2003

Root Cause Analysis Results Have been Presented to

Aviation Logistics Board and JACG Causal Factors Include Aging But Also Other Non-AgeRelated Factors

NAVAIR Independently Examining Impact of New Itemson Current and Future AVDLR costs

AVDLR RootCause Analysis


15/51


AVDLR Cost GrowthBased on NAVICP Price/Demand History FY04$

Breakout of Top AVDLR FSC Classifications for Total Demand in TY$Total Cost Increased 92% in Period FY1997 though FY2003

Top 7 FSCs Accounted for 53% of Total AVDLR in FY2003Rate of Growth Reasonably Consistent by FSC

$1,2

63MIncrease



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0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FY96 FY97 FY98 FY99 FY00 FY01

Millions

0

5

10

15

20

25

30

35

40

Demand andCost Trends

DLR Root Cause

Part % Increase WhyLRU-1 100% Description of root

cause for LRU-1

LRU-2 80% Description of root

cause for LRU-2


cause for LRU-3


cause for LRU-4

Part % Increase WhyLRU-1 100% Description of root

cause for LRU-1


cause for LRU-2

LRU-3 300% Description of rootcause for LRU-3


cause for LRU-4

Component Factor AgeObsVndrLogLECPMPOtherActioLRU-1 Vndr 1

LRU-2 Age/Obs 0.5 0.5

LRU-3 Maint Pln 1

LRU-4

LRU-5LRU-6

LRU-7

LRU-8

LRU-9

Component Factor AgeObsVndrLogLECPMPOtherActioLRU-1 Vndr 1

LRU-2 Age/Obs 0.5 0.5

LRU-3 Maint Pln 1

LRU-4

LRU-5LRU-6

LRU-7

LRU-8

LRU-9

DLR Allocation

Root CauseAnalysis

Assign rootcause andallocation

Top-25 DLRcost drivers

by WeaponSystem

Top-25 DLRcost drivers

by WeaponSystem

DLR Drivers

Common Analysis ApproachUsed in Joint Study with Air Force

Root CausesAging Maint

Obs Log

Parts DesignVender Other

Aging Maint

Obs Log

Parts DesignVender Other

Study Process



17/51


ROOT CAUSE DEFINITIONS

1. Aging System (Physical aging of equipment)

Reaching life limits

Increased corrosion

Replacement factor for repair parts Beyond economic repair items

2. Obsolescence/Vendor Base/DMS (Causesdue to aging of component as type)

Reduced sources/competition

Rework vice replacement of items

Premium prices and Cannibalization

3. New/Replacement parts (Costs attributedto introduction of new parts)

Attrition changes with higher cost materials

4. Vendor Base Changes (costs associatedwith supplier change)

Changes in vendor sources

5. Maintenance Plan Changes (causes dueto maintenance changes) 3-level to 2-level maintenance

Discard vice repair

Increased depth of maintenance

Reduction in life limits/increasedfrequency

6. Logistics Shortfalls (costs due to lack oflogistics plan) Support equipment/test equipment

Repair parts

Manpower

Pub updates

7. Design Influences (costs due to designchanges) Capability growth

Design mistakes

Inherent design limitations on R&M

8. Other (not repair process related)Budgetary complications, usage issues,mission changes, threat changes,surcharges & taxes, data problems, etc.

Consensus on Root Causes for DLR cost growth

DLRAnalysisApproach


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All Navy and Air Force Components Studied Categorizedinto Following Areas

Avionics ----> Radars, Radios, etcDynamic Components ----> Propellers, Gear Boxes, etc

Electrical/Power ----> Generators, Starter Engines, etc

Structures ----> Supports, Doors, Stabs, etc

Subsystems ----> Landing Gear, Hydraulics, etc

Engine Hot Section ----> Turbine Section

Engine Cold Section ----> Compressor Section

Engine Other ----> Other Engine Components

Component Classification

Ai F T d S Additi l


19/51


Air Force Trend Summary131 Components Analyzed

All AF Components Cost Ov er Time by Category

-

100

200

300

400

500

600

700

800

900

1,000

FY98 FY99 FY00 FY01 FY02

Millions

Reporting Ye ar

FY98-FY02

Dollars

Structures

Sub Systems

Engine Other

Engine Cold

Engine Hot

Electr ical/Power

Dynamic Component

Avionics

Primary Area for Air Force

Cost Growth is Engine

Component Related

No Helos or Prop Aircraft in AF

DB Minimizes DynamicComponent Area

Age, New Items and

Maintenance Plan Changes All

Have Significant AF Impacts

Vendor Issues Do not Appear to

be Significant Root Cause For AF

Root Cause Analysis Age Obs Vndr Dsgn Log New Item Maint Plan

Avionics 20.5% 17.7% 5.1% 6.3% 7.5% 22.0% 20.9%Dynamic Component 10.0% 38.0% 0.0% 14.0% 32.0% 0.0% 6.0%

Electrical/Power 0.0% 0.0% 0.0% 0.0% 10.8% 72.0% 17.2%

Engine Cold 32.2% 0.0% 0.0% 13.4% 3.4% 8.7% 42.3%Engine Hot 48.9% 2.8% 0.0% 12.8% 0.3% 14.5% 20.6%

Engine Other 25.0% 0.0% 0.0% 27.5% 0.0% 47.5% 0.0%

Structures 66.2% 0.0% 0.0% 0.0% 22.1% 0.0% 11.8%Sub Systems 26.5% 15.9% 5.9% 7.1% 14.7% 24.1% 5.9%

AdditionalDLR Analysis

N T d S Additi l


20/51


Navy Trend Summary313 Components Analyzed

Primary Area for Navy CostGrowth is Dynamic Component

and Sub System

Only Four Engines Studied

Reduces Engine ImpactsAge Appears As Primary

Contributor to ALL DLR

Categories

Obsolescence a Key Factor forAvionics Cost Growth

Maintenance Plan Changes and

Vendor Not Primary Causes

All Navy Components Over Time By Category

0

100

200

300

400

500

600

700

800

1997 1998 1999 2000 2001 2002

Millions

Reporting Year

FY98-FY02Dollars

Sub Systems

StructuresEngine Other

Engine Hot

Engine Cold

Electrical/Power

Dynamic Component

Avionics

Root Cause Analysis Age Obs Vndr Dsgn Log New Item Maint PlanAvionics 27.5% 45.0% 1.3% 8.1% 8.1% 9.4% 0.6%

Dynamic Component 61.0% 0.0% 7.3% 3.7% 11.0% 12.2% 4.9%

Electrical/Power 40.6% 4.7% 6.3% 37.5% 3.1% 3.1% 4.7%

Engine Cold 64.2% 0.0% 0.0% 0.0% 7.7% 28.2% 0.0%

Engine Hot 86.2% 0.0% 0.0% 0.0% 0.0% 10.3% 3.4%

Engine Other 46.7% 8.3% 0.0% 23.3% 20.0% 1.7% 0.0%Structures 76.7% 3.3% 0.0% 13.3% 0.0% 3.3% 3.3%

Sub Systems 52.9% 5.9% 4.4% 10.3% 14.7% 10.3% 1.5%


Additi l


21/51


Surveillance AircraftNavy P-3, E-2C/C2, S-3

Most Significant Area of

Growth is in Avionics

Associated with Mission

Systems

Despite Advanced Age ofNavy Surveillance Aircraft

DLR Cost Growth of Other

Top Components Limited

Structural DLR

Components Insignificant

Age, Obsolescence and

Design Issues Are Primary

Root Causes for

Surveillance Aircraft

Costs Trends for Surveillance Aircraft

-

20

40

60

80

100

120

140

160

180

200

1998 1999 2000 2001 2002

Millions

Reporting Years

Dollars

Sub Systems

Structures

Electrical/Power

Dynamic Component

Avionics

Age Obs Vendor Design Logistics New Item Maint Plan

Navy Only 32.2% 23.0% 1.1% 23.6% 9.8% 8.6% 1.7%

Root Cause Analysis:


Additi l


22/51


Strike AircraftNavy F/A-18, F-14, EA-6B, AV-8, Air Force F-15, F-16, B-52

Strike Aircraft Exhibit

Significant DLR Increases

in All Major Component

Areas One of Two Types

With Significant Structural

DLRs

Air Force Has Significant

Number of New Items --

Reflect Ongoing

Modernization

One Engine Component in

F-15 Data Data Responsible

for Identified Hot Section

Navy Age andObsolescence Root Causes

Dominate Strike

Community

Costs Trends for Strike Aircraft

-

50

100

150

200

250

300

350

400

450

1998 1999 2000 2001 2002

Millions

Reporting Years

Dollars

Sub Systems

Structures

Engine Hot

Electrical/Power

Dynamic Component

Avionics


Air Force 22.0% 9.9% 2.2% 4.8% 17.4% 30.2% 13.4%Navy 53.9% 21.4% 3.9% 5.2% 10.4% 4.5% 0.6%



Additi l


23/51


HelicoptersNavy H-1, H-46, H-53

Dynamic Component Area

Is THE Cost Driver for

Navy Helicopter DLR Cost

Growth

Age is Primary Root Causefor Dynamic Component

(and Helo) Cost Growth

Electrical/Power

Subsystems also Exhibit

Significant Rates of Increase

Navy Helicopters Studied

Have Relatively Limited

Avionics Which Is Reflected

in Repair Cost Data

Costs Trends for Helicopters

-

50

100

150

200

250

1998 1999 2000 2001 2002

Millions

Reporting Years

Dollars

Sub Systems

Electrical/Power

Dynamic Component

Avionics


Navy Only 52.1% 7.7% 7.0% 6.3% 7.7% 14.1% 4.9%



Additional


24/51


Airlift/Tanker AircraftAir Force C-5, C-130

Root Causes for Cost

Increases Closely Grouped

Between Design, Age,

Obsolescence and Changed

Maintenance Plan Issues

Air Force Data Had

Significant Number of

Engine Components in Top

25 DLRs for C-5 and C-130

Structure, Dynamic and

Engine Components

Responsible for Most of

Airlift/Tanker Cost

Changes

Costs Trends for Airlift/Tanker Aircraft

-

50

100

150

200

250

1998 1999 2000 2001 2002

Million

Reporting Years

Dollars

Sub Systems

Structures

Engine Other

Engine Cold

Engine Hot

Electrical/Power

Dynamic Component

Avionics


Air Force Only 21.6% 17.6% 4.3% 25.2% 4.0% 11.0% 16.3%



Ai f E i Additional


25/51


Aircraft EnginesNavy T700,T56, F402, F404 Air Force F100, F110

Age is Primary Cost

Growth Driver for Both Air

Force and Navy Engines

Engine Hot Section

Components ContributeMost of Total Cost

Difference in Maintenance

Practices and More Recent

Investments Lead to

Increased Significance for

New Items and Maintenance

Plan Changes for Air Force

Given Stability of Engine

Firms Vendor IssuesMinimal

Costs Trends for Aircraft Engines

-

100

200

300

400

500

600

700

800

1998 1999 2000 2001 2002

Millions

Reporting Years

Dollars Engine Other

Engine Cold

Engine Hot


Air Force 50.5% 0.5% 0.0% 2.5% 0.0% 18.6% 27.9%Navy 66.2% 3.4% 0.0% 9.6% 9.6% 9.8% 1.4%



Observations From AVDLR R t


26/51


Observations FromAVDLR Data Analysis

Simplistic Explanations that Aging Drives Flying

Hour Program DLR Cost Increases Ignore Very Real

Differences between Services and Types of Aircraft

Success Oriented Approaches to Reduce Cost MUSTConsider Both Types of Components and Root Causes

by Platform Type

Both Air Force and Navy Datasets Identify Engine

Components as the Area Most Directly Tied to Age

Given Ongoing Modifications to Meet Threats for

Combat Aircraft New Items Will Be A Major Cost

Increase Area Regardless of Airframe Age

Although Not Noted in Presented Data Top 25

Components Represent a Significant Portion of Total

DLR Costs for Studied Platforms

ALB Data Analysis Set Provides Many Additional

Insights that Briefing Format Precludes Addressing


Study To Assess Impact Of New New Item


27/51


Study To Assess Impact Of NewAVDLR Items Entering the Inventory

NAVSUP Provided Databases With Demand,Price, and Date of Entry Into Supply System for

About 25,000 Different DLR Items Data Extracted and Analyzed by Date of Entry to

Observe Trends Based on Both Demand(Function of Reliability and Usage) and UnitRepair Price (Function of Complexity, Vendors,Obsolescence)

Result Charts Represent Summary of MuchMore Detailed Analysis

New ItemImpacts onAVLDR Cost

A N R i C b NIIN E Y New Item


28/51


Average Net Repair Cost by NIIN Entry YearThis is a Weighted Average Using FY2002 Net Repair Cost and Demand

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Average Net Repair Price

Linear (Average Net Repair Price)

NAVICP Demand DataFY2002 Data

NIIN Entry Year

More Recent NIINs CostMore to Repair

Data Represents Demandsfrom FY2002, So There Is NoEffect Related to Inflation

Individual Net Repair Costs

Range from $100 to Over$500,000 Per Repair

Includes Over 12,000Different NIINs with Demand

in FY2002

Black Line Represents the Linear RegressionEstimation of the Observed Data


S f R i bl D d f NIIN ith S ifi New Item


29/51


Sum of Repairable Demands for NIINs with SpecificEntry Years: Over 300,000 Demands from Over 12,000 NIINs


NIIN Entry Year

Demands for Repairable NIINsAre Driven by both Failure

Rate and Quantity of Systemsin Operation

New NIINs Required SeveralYears to Be Fully Deployed

Some Peaks and Valleys AreRelated to Major WeaponsSystem Acquisitions

Single Year Analyses Tend toHave Spikes in Demand fromYear to Year

Black Line Is Only a Visual Trace of the Approximate Trend

Data Spike Off the Scale Is for Turbine Rotor Blades

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Sum of Entry Year Demands


FY2002 C t f DLR b E t Y New Item


30/51


FY2002 Cost of DLRs by Entry YearTotal Demand: $2.2Billion


NIIN Entry Year

Newer NIINs Represent theLargest Portion of the Cost of

RepairablesEven the Newest NIINs Impactthe Overall Cost of DepotLevel Repair

Demand and Cost Trail-Off AsSystems Retire

It Is Likely Some New NIINs Will Not Have Any Demand for the InitialYears of Deployment.

Black Line Is Only a Visual Trace of the Approximate Trend

0

50

100

150

200

250

300

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Millions

Net Price * Demand


New Item


31/51


Number of Failures per NIIN Does Not Appear toChange Significantly Between New and Old NIINs

NAVICP Demand DataFY1997-2001 Data

This Chart Uses Five

Years of Data toReduce Some of theIndividual Year Spikes

NIIN Entry Year

0

10

20

30

40

50

60

70

80

90

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

0

100

200

300

400

500

600

700

D

emandsperNIIN

N

IINsperEntryY

ear

The Blue Line Shows the Average Number of Demands per NIIN by EntryYear. It Tends to Be Around 25 Demands per NIIN

The Yellow Bars Show the Number of NIINs from Each Entry Year


New Item


32/51


1992 Compared to 2001Using Center for NavalAnalysis Aging Aircraft Study Data

NIIN Entry Year NIIN Entry Year

Demand Net Repair Price * Demand

1992 - 209,000 Demands

2001 - 216,000 Demands

Approximately Equal Demand

Does Not Include All TMS

1992 - $916 Million

2001 - $1,772 Million

Cost of Repair Is Almost Doubled

CNA DataNo New Aircraft Types Have Significantly Influenced the Total Inventory

0

2

4

6

8

10

12

14

16

18

1952

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

Thousands

FY2001

FY1992

0

20

40

60

80

100

120

1952

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

Millions

FY2001

FY1992


New Item


33/51


New Repairable NIINs Have a Quantifiable Impacton Depot Level Repair (DLR) Cost Growth

Data Indicate Generational Growth or NewNIINs Entering the Inventory May Account for asMuch as Half of the Annual Depot Level Repair

Cost Growth Not Included in Normal InflationIndices

Repair Cost for New NIINs Entering the Inventory

Has Shown a Continuous Increase Compared toLegacy NIINs in Inventory

New NIINs Enter the Inventory for Many Reasons: Replace Obsolete NIINs

Technology Growth

New Mission Requirement

New Items Entering the Inventory Today Will Have

Their Most Significant Impact on Fleet OperationsCost in 8-12 Years


Study To Assess Impact of Changes Consumable


34/51


Study To Assess Impact of Changeson DLA Managed Consumable Items

DLA Funding and NAVAIR Aging Aircraft IPT Directinga Study on Consumable Cost Changes

Considered as Companion to AVDLR Study DLA Database Provided Covering Over 1 million

aviation consumables for FY1994 thru FY2003

Detailed Analysis Conducted Linked to WeaponSystems and Federal Supply Classifications to IdentifyFocus Areas

Ongoing Analysis to Investigate Root Causes forSelected NSNs

NAVAIR Independently Examining Impact of New Items

ConsumableCost IncreaseAnalysis

Consumable


35/51

All Aviation Consumable ItemsDollar Demand Chart

Dollars Spent based on Standard Prices

(Adjusted for Inflation, In Millions)

$0

$1,000

$2,000

$3,000

$4,000

FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02

$2,000MIn

crease


DLA Managed Consumable Items Have Experienced SignificantIncreases in Acquisition Costs Over Ten Year Period

Consumable


36/51


Demands by Most Significant FSCsRepresent Demand Quantity Times Prices

Seven Federal Supply Classes Account for 1/3 of FY03 DLA Aviation-Item Dollar Demand

($1.1B out of $3.3B)

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000


Fiscal Year

Ac

quisitionPrice*DemandQuantity(2003Dolla

rs)

2915

4730

3110

16501680

1560

2840

GAS TURBINES & JET ENGINES AIRCRAFT

AIRFRAME STRUCTURAL COMPONENTS

MISCL AIRCRAFT ACCESSORIES COMPS

AIRCRAFT HYDRAULIC VACUUM DE-ICING

BEARINGS, ANTIFRICTION, UNMOUNTED

FITTINGS - HOSE PIPE & TUBE

ENGINE FUEL SYSTEM COMPONENTS AIR

$0.85MInc

rease


Consumable High Cost Categories Consistent with AVDLR Findings

Consumable


37/51


Gas Turbine and Jet Engines Aircraft ChangesFSC 2840 Demands and NSN Count

The Count of Engine Items (FSC 2840) Managed by DLA Has Grown Considerably

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000


Fiscal Year

A

cquisitionPrice*Dolla

rDemand(2003Dollars

)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Dollar Demand Count of Priced Items


Significant Increase in FSC2840 Demand Culminating in FY1997

f S C CConsumable


38/51


Airframe Structural Components ChangesFSC 1560 Demands and NSN Count

The Count of Airframe Structural Items (FSC 1560) Managed by DLA Has Grown Slightly

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000


Fiscal Year

Acq

uisitionPrice*DollarDemand(2003Dollars)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Dollar Demand Count of Priced Items


FSC 1560 Demand Mostly Steady with Dramatic Increase in Cost

Cost and/or Demand Observed Growth Consumable


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Cost and/or Demand Observed GrowthFurther Investigation Ongoing on Items FromGrowth Group

Cost IncreaseAnalysis

Regression Analysis Trending Applied to DLA Managed Items

Approximately 100,000 Items Have Clear Demand and/or Cost Trends

Applying DLR Generational Growth Study Consumable


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Applying DLR Generational Growth StudyApproach to Investigate DLA Consumable Data

Entry Year Analyses of NIIN Distribution, Demand, AverageAcquisition Price and Total Dollar Demand for Consumables AreSimilar to Results from the DLR Study

Data Indicate Consumables Have Considerable Uniform CostGrowth Over Time for All Entry Years Greater than Inflation

General Observations:

DLA consumable acquisition costs are growing at 8-10% per year

Normal inflation can account for about 1.3% of the growth

New items entering each year can account for perhaps 1%

New items in general cost more than older items in the inventory

and new items have a ramp up in demand over the first 10-15 yearsof service. This cost and demand growth result in 3-4% growthannually even with constant overall demand.

There is a general trend across all consumables to increase inacquisition cost 3% per year above inflation.

GenerationalCost Growth

Distribution of NSN Demands Consumable


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Distribution of NSN DemandsBased on Entry Year Into System


Both NSN Count by Entry Year and Total Demands by

Year Comparable between FY1994and FY2003

Demand Changes ARE NOT Primary Cost Driver


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Weighted Average Acquisition Cost by Entry Year Consumable


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The 1994 and 2003 Acquisition Costs Are ObservedThe Analysis Cost Lines Are Used for Modeling Cost Growth

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

T-39

T-37

T-35

T-33

T-31

T-29

T-27

T-25

T-23

T-21

T-19

T-17

T-15

T-13

T-11

T-9

T-7

T-5

T-3

T-1

T+1

T+3

1994 Average Acquisition Cost

2003 Average Acquisition Cost

Analysis Cost

Analysis Cost with 2.8% Uniform Cost

Growth


Consumable Items Show Consistent Pattern of Cost GrowthRegardless of Entry Age Into the System but New Items Cost More

Cost Growth T-0 to T+3, Assuming Constant Demand Consumable


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New Items Drive Leading Edge GrowthUniform Cost Growth Drives Up the Entire Curve

0

20

40

60

80

100

120

140

160

180

T-39

T-37

T-35

T-33

T-31

T-29

T-27

T-25

T-23

T-21

T-19

T-17

T-15

T-13

T-11

T-9

T-7

T-5

T-3

T-1

T+1

T+3

Millions

T-0 Value of Demand

T+3 Value of Demand

FY2000 Observed Value of Demand

FY2003 Observed Value of Demand

T+3 Generational Growth Only


Generational Cost Growth Shifts Value of Demand Curve Higherwith Both Demand and Higher Cost as Contributing Factors

ConsumableBoth Old and New Consumable Items Experiencing


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Sum of Acquisition Cost by Entry Year, FY1994 and FY2003

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

EY19

65

EY19

67

EY19

69

EY1971

EY1973

EY1975

EY1977

EY1979

EY1981

EY1983

EY1985

EY1987

EY1989

EY1991

EY1993

EY1995

EY1997

EY1999

EY20

01

EY20

03

Entry Year

ValueofAcqusitions

FY2003

FY1994


Both Old and New Consumable Items ExperiencingSignificant Cost Increase from FY1994 to FY2003

Cost Increases Occurring Across Full Spectrum of Entry Ages

FY1994

FY2003

C bl C l iConsumable


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Consumable Conclusions

Types of Consumable Material Will Have UniqueCost Growth Curves

Fasteners Doubled Over the Past Ten Years

Gas Turbine Engine Parts Increase by Order of Magnitude

Although Total Demand for Circuit Boards Declined the

Acquisition Cost Resulted in an Overall Increase in TotalValue of Demand

Consumable Material Makes Up a Significant % ofthe Cost of Depot Level Repair and May be aSignificant Factor in DLR Cost Growth


Conclusion andNew Parts on Aging Aircraft Significantly


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Engine?

Control Surfaces

Radar?

Advanced Sensors?

C4ISR Equipment?

Human Factors Engineering

Canopy Structural Modifications?

Weaponeering?Air Frame and Landing Gear?Engine?

Control Surfaces

Radar?

Advanced Sensors?

C4ISR Equipment?

Human Factors Engineering

Canopy Structural Modifications?

Weaponeering?Air Frame and Landing Gear?

Observations

Flying Hour Program Supports Complex Assemblages ofRepairable and Consumable Parts Flying in Close FormationChanging Composition of Those Parts Directly Correlates to

Changing/Increasing Costs for AVDLR and AFM Accounts

New Parts on Aging Aircraft SignificantlyImpact Future Costs of Operation

Low Volume Repairs Tied to Lack of Conclusion and


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Low Volume Repairs Tied to Lack ofConfiguration Commonality Drive Costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58

BCM Actions per Year

%o

fN

IINsRepaired

25% of the Items Repaired ShowUp only Once per Year

75% of Items Repaired Show UpLess Than 12 Times per Year(


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gAging Aircraft O&S Cost Growth

Benign Neglect of Key Logistics and DepotRequirements

Changes Impacting Supplier Base Inventory Management Policies Including

Uneconomic Order Quantities

Changing Usage Requirements Budgetary Processes

Inadequate/Misunderstood Maintenance Data

Lack of Focused Approach to Address ControllableAge Factors

Observations

Age Analysis Conclusion: Conclusion and


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0

90 91 92 93 94 95 96 97 98 99 00 01

0.000AGE

AVDLR/FH

0.00

90 91 92 93 94 95 96 97 98 99 00 01

AGE

AVDLR/FH

g yO&S Cost Changes Over Time

There is A Complex Calculus Associated with the Issue of Age and Operations andSupport Cost Growth within US Naval Forces. Although Age is a very SignificantContributor Other Factors Identified In this Briefing Must Also be Addressed in aComprehensive Strategy to Mitigate Operations and Support and FHP Cost Growth

Observations

Public Affairs Office Clearance


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Public Affairs Office Clearance

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