HOW OLD IS TOO OLD? AN ECONOMIC APPROACH TO REPLACING MILITARY AIRCRAFT
The US Air Force is asking when to replace its aging aircraft. We develop a framework to identify economically optimal replacement strategies that recognizes cost trade-offs and incorporates age effects. We also preview a stochastic methodology. We use the framework to identify an optimal strategy, defined by the replacement age, for a generic fleet and conduct a sensitivity analysis. Quantitative illustrations show that the range of strategies that provides close-to-optimal outcomes widens as the operating and support (O&S) cost growth rate decreases and the ratio of the acquisition price to the initial O&S cost increases. A wider range implies more decision-making leeway.
Keywords: Aging aircraft; Capital investment; Dynamic programming; Military equipment; Optimal replacement; Uncertainty
Document Type: Research Article
Affiliations: 1: Rand, 1200 S. Hayes Street Arlington, VA 22202, USA 2: RAND Graduate School, 1700 Main Street, Santa Monica, CA 90407, USA
Publication date: 01 October 2003
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