Aircraft Cost Considerations

16.1 Overview

An aircraft design, construction, and operation is an expensive endeavor, and not all nations can afford it. Countries that can must be cost-conscious, whether in a totali­tarian or a free-market-economy society – the ground rules for accounting may dif­fer but all strive for the least expensive endeavor for the task envisaged. The success or failure of an aircraft project depends on its cost-effectiveness. Cost-consciousness starts in the conceptual design phase to ensure competitive success. In fact, cost estimation should start before the conceptual design phase in a topdown analysis. If funds cannot be managed through the end of the project, then starting it is not viable.

Visibility on costing forces long-range planning and provides a better under­standing of the design’s system architecture for trade-off studies to explore alternate designs and the scope for sustainability and eco-friendliness of the product line. The product passes through well-defined stages during its lifetime: conception, design, manufacture, certification, operation, maintenance and modification, and finally dis­posal at the end of the life cycle. Cost information for previous products should be sufficiently comprehensive and available during the conceptual stages of a new project. The differential evaluation of product cost and technology – offering reli­ability and maintainability – as well as risk analysis are important considerations in cost management. Cost details also assist preliminary planning for procurement and partnership sourcing through an efficient bidding process. The final outcome ensures acquisition of an aircraft and its components with the objective of balanc­ing the trade-off between cost and performance, which eventually leads to ensuring affordability and sustainability for operators over a product’s life cycle. Cost analy­sis stresses the importance of a more rigorous role, as an integrated tool embedded in the multidisciplinary systems architecture of an aircraft design that arrives at a “best value,” specifically for manufacturing and operational needs.

During the last two decades, the aerospace industry has increasingly addressed factors such as cost, performance, delivery schedule, and quality to satisfy the “customer-driven” requirements of affordability by reducing the aircraft acquisi­tion costs. The steps to address these factors include synchronizing and integrat­ing design with the manufacturing and process planning as a business strategy; this
lowers production costs while it ensures reliability and maintainability to lower operational costs. Therefore, more rigorous cost assessment at each design stage is needed to meet the objective of a more effective, value-added, customer-driven product. At this time, data from the emerging geopolitical scenario, national eco­nomic infrastructure, increasing fuel prices, and emerging technological considera­tions (e. g., sustainable development, anti-terrorism design features, and passenger health issues) are scarce and fluctuating.

The civil aviation industry expects a return on investment with cash flowing back for self-sustaining growth, with or without government assistance. The sustainability and growth of civil aviation depend on profitability. In a free-market economy, the industry and operators face severe competition for survival, forcing them to operate under considerable pressure to manage efficiently the manufacture and operation of aircraft. Although substantial detail about civil aircraft cost is available in the public domain, the cost of manufactured parts is not readily available.

Conversely, the military aircraft industry is driven by defense requirements with the primary objective of meeting the national defense needs. The export potential is a byproduct, which is restricted to friendly nations with the risk of disclosure of technical confidentiality. There are differences between the ground rules for costing the manufacture and operation of military and civil aircraft. Because by its nature it must stay ahead of adversaries’ capabilities, military aircraft designs must explore newer technologies, which are expensive and require laborious testing to ensure safety and effectiveness. Many military projects were abandoned even after proto­types had been flown (e. g., the TSR2 [U. K.] and the Northrop F20 [U. S.]); the rea­sons may be different but the common factor is always cost-effectiveness. A prod­uct must have the appeal for the best value. Readers are encouraged to review both types of aircraft project history. This chapter primarily addresses civil-aircraft cost considerations with a passing mention of military aircraft costing.

There are two types of costs to consider: (1) the research, development, design, and manufacturing costs (RDDMC), including testing and production launch costs; and (2) the operational cost (OC). An aircraft must be built before it can operate for a mission. OC depends on aircraft cost, which is known when it is purchased. For this reason, aircraft manufacturing costs are analyzed first in Section 16.4, followed by OC analysis in Section 16.5. Aircraft cost analysis, as discussed herein, is not possi­ble without the instructor’s help. The analysis depends on industrial data, which are not available due to confidentiality. An instructor must obtain these data or gener­ate equivalent data – it is difficult to obtain realistic data that can be substantiated – in order to progress with establishing the appropriate indices. However, the DOC estimation can be carried out easily if the aircraft price is known. Other methods are available to estimate aircraft costs, but their accuracy is debatable without industrial input. Aircraft cost estimation is included in this section to show readers that oth­erwise relatively simple mathematics involved in cost analysis actually are complex. This discussion provides some exposure to cost analysis.

Research, design, development, and test (RDD&T) costs occur once and are termed nonrecurring cost (NRC); however, manufacturing costs continue into pro­duction and are termed recurring cost (RC). Typical RDDMC (i. e., the project cost) of a new civil aircraft project in the midrange class of high-subsonic aircraft can

be in billions of dollars with a 4-year wait until delivery, when the return on the investment begins to flow back. A new advanced combat aircraft costs several times more and taxpayers bear all costs. The cost of a large, high-subsonic-jet aircraft project (i. e., RDDMC) could approach $20 billion.

Without industry participation, it will not prove realistic for academics/ consultants to offer cost models; these will remain exploratory in nature. Indus­tries depend on their own cost models, which are constantly reviewed for improve­ments. This chapter outlines various levels of aircraft cost considerations practiced in a free-market economy. Based on in-house data, each industry generates spe­cific cost models (with or without external assistance) at different levels of accuracy suited to different departments at various phases of project activities. The estima­tion of project cost is a laborious task involving numerous parameters and a large database. Cost estimators and accountants devote considerable time to predicting project costs; they subsequently verify actual expenditures if their estimation is close to their prediction. Experience has taught costing teams to use company-generated factors to predict estimates; these are not available in the public domain. In a com­petitive market, cost details are sensitive information and are therefore kept in strict confidence.

Because access to actual cost data is not easy, a good method for the aircraft cost estimate is to first assess the manhours involved and then use the average manhour rates (they vary) at the time. Material and bought-out item costs can be obtained from suppliers. The scope of this book does not include accurate industrial-cost details; academic institutes must generate data as required. This chapter provides a generic, rapid methodology for predicting manufacturing costs, which is more suited to coursework, without ignoring what is considered in the industry. It is based on a parametric method, and a normal market situation without any unpredictable trends (i. e., global issues) is assumed.

The scope of a cost study allows those working with a highly complex system architecture of aircraft design to explore cost control beyond current practices and to understand through trade-off studies how a diverse range of systems works, allow­ing the transfer of best practices and risk-management experience throughout the operating life of ownership. This chapter stresses the need for cost analyses of dif­ferent disciplines at an early stage in order to exploit the advantages of advanced digital design and manufacturing processes (see Chapter 17). Cost trade-off stud­ies at the conceptual design stage lead to a “satisfying” robust design with the least expenditures. Strong multidisciplinary interaction is essential between vari­ous design departments to attain the overall, global goal of minimizing cost rather than individual (i. e., departmental) minimization. Initially, a proper cost optimiza­tion may not be easily amenable to industrial use.

Aircraft DOC is the most important parameter of concern to airline operators. The DOC depends on how many passengers the aircraft carries for what range; the unit is expressed in cents per seat nautical miles (seat-nm). There are stan­dard rules (e. g., the Association of European Airlines [AEA] method; see Sec­tion 16.4) for comparison when each industry or airline has its own DOC ground rules, which results in different values as compared to those obtained from standard methods.

Figure 16.1. Levels of cost-prediction methodologies at various project phases