Gallery: Deconstructing Aircraft Life-Cycle Cost Analysis

Despite the mix of known and unknown variables, the three most significant cash operating costs tend to be for fuel, crew and maintenance. The contribution of each will vary over time, but typically fuel will account for about a quarter of narrowbody cash costs and 40% of widebodies’. Crew accounts for roughly another quarter of narrowbody cash costs, slightly more for widebodies, while maintenance hovers near 15% for both.

Initial Expectations

Despite the inherent inaccuracies of life-¬cycle analysis, it has become increasingly important to airline fleet strategy as competitive pressures, especially from low-cost carriers, have increased.
When buying new aircraft, airlines will remove some uncertainty about operating costs by securing fuel-burn and maintenance cost guarantees from the manufacturers, even though these will cover only a small part of the aircraft’s expected service life. 

Initial Expectations

Airlines know that OEM estimates for maintenance costs are a marketing tool and will be tailored to be as low as possible. Other factors that may feed into lowball forecasts could be overconfidence in the reliability of new technology (especially around its entry into service), the repairability of complex components and the influence of single-source suppliers on parts-price inflation over time.

Aftermarket Costs

When it comes to supporting aircraft over their life cycle, one of airlines’ chief complaints is the ever-increasing cost of parts and the particularly severe inflation of the most popular life-limited parts.

Aftermarket Costs

The balance between acquisition and life-cycle costs may become more relevant in the wake of the COVID-19 pandemic as lessors take a greater share of new aircraft. Indeed, the majority of new aircraft deliveries this year may be for lessors, and if that trend becomes entrenched, it raises questions about where OEMs will strike that balance, given that generally lessors pay the purchase price and their airline customers pay for maintenance. 

Beyond Maintenance

The complexities of the aircraft and engine aftermarkets are such that no two airlines are likely to have the same strategy for minimizing maintenance life-cycle costs. Even full-service, flight-¬hour-¬based support deals, which bring some predictability to cost planning, will have bespoke elements for each customer, not to mention numerous conditions and exceptions regarding factors such as operating environment and minimum utilization levels.

Beyond Maintenance

It is worth remembering that although there are endless arguments over the aftermarket strategies and policies of OEMs, MROs and airlines, maintenance costs usually comprise only up to about 15% of an aircraft’s DOC. That means one important labor deal with air crew unions may influence life-cycle costs far more than dozens of painstakingly crafted maintenance and supplier agreements.

Stakeholder Communications

Feedback from airlines and MRO providers helps OEMs to improve their products and how they are supported, often with the goal of reducing life-cycle costs.

This gallery is a shortened version of the Inside MRO article, Deconstructing Aircraft Life-Cycle Cost Analysis, by Alex Derber. 

You can read the article in full here.