Investigating Optimal Replacement of Aging Air Force Systems

The authors examine a common problem: Whether to continue to repair an aging system or to invest in a new replacement. As part of a continuing project on aging aircraft and the replacement-or-repair decision, the authors develop a parsimonious model of the decision and apply it to the U.S. Air Force’s C-21A transport and KC-135 tanker aircraft. They find that, for the C-21A, it probably would be appropriate to undertake a 20,000 flight hour system and component replacement schedule-prescribed renovation in the 2012 timeframe, but the aircraft should be retired around 2020. It would be optimal to replace the KC-135 tanker before the end of the decade, assuming its maintenance costs and availability continue to worsen at the current rate. In general, the Air Force should repair, rather than replace, an aging system if and only if the availability-adjusted marginal cost of the existing aircraft is less than the replacement's average cost per available year. Because parameter estimates are speculative, the authors urge more in-depth analysis.