IM­POR­TANCE OF LIFE-CY­CLE COST

In view of lim­ited fi­nan­cial re­sources and con­se­quently low bud­getary al­lo­ca­tions for de­fence, it would be nec­es­sary to fac­tor in life-cy­cle cost in the se­lec­tion of de­fence equip­ment

SP's MAI - - FRONT PAGE - AIR MAR­SHAL B.K. PANDEY (RETD)

The ex­pres­sion ‘Life-cy­cle Cost’ re­lated to mil­i­tary hard­ware, whether a tank, war­ship or air­craft, per­tains to the to­tal cost of ini­tial ac­qui­si­tion of the equip­ment, ex­pen­di­ture on main­te­nance for it to re­main fit for op­er­a­tional de­ploy­ment and the cost of op­er­at­ing the equip­ment over its en­tire life as de­fined by the orig­i­nal equip­ment man­u­fac­turer (OEM). This con­cept would ap­ply also to all other mil­i­tary sys­tems in­clud­ing soft­ware-based equip­ment such as com­mand, con­trol, com­mu­ni­ca­tions, com­put­ers, in­tel­li­gence, sur­veil­lance and re­con­nais­sance (C4ISR) sys­tems. In other words, life-cy­cle cost refers to the cost of par­tic­u­lar mil­i­tary equip­ment and the sup­port­ing el­e­ments over their en­tire life from ‘cra­dle to grave’.

The method­ol­ogy of com­put­ing the to­tal cost of own­er­ship of de­fence equip­ment ac­quired through ei­ther de­vel­op­ment within the coun­try or through im­ports, was orig­i­nally evolved in the early 1960s by the US Depart­ment of De­fense. It has since then been adopted by var­i­ous coun­tries, such as the United King­dom, Aus­tralia and more re­cently by In­dia as well. Also, with the ever tight­en­ing con­trol on de­fence ex­pen­di­ture and shrink­ing de­fence bud­gets of na­tions across the world, re­duc­tion of life-cy­cle cost has be­come an in­alien­able im­per­a­tive. Ways and means of re­duc­ing life-cy­cle cost has been an area of ever-in­creas­ing fo­cus of global aero­space ma­jors to re­main com­pet­i­tive and also by the user na­tions to re­main within the bounds of fi­nan­cial af­ford­abil­ity.

When a na­tion pro­cures de­fence equip­ment in size­able num­bers, it may be ad­van­ta­geous for the buyer na­tion to also set up the fa­cil­i­ties to as­sem­ble or man­u­fac­ture in-house a ma­jor por­tion of the to­tal num­ber of units con­tracted for, ac­quire the lat­est tech­nolo­gies through trans­fer of tech­nol­ogy, ob­tain the nec­es­sary doc­u­men­ta­tion and have ad­e­quate num­ber of per­son­nel trained to re­spectable pro­fi­ciency lev­els. For ex­am­ple, in the ten­der for the 126 Rafale com­bat jets for the In­dian Air Force (IAF) from Das­sault, the OEM was re­quired to sup­ply 18 air­craft di­rectly in fly­away con­di­tion. The re­main­ing 108 plat­forms were to be man­u­fac­tured in In­dia in col­lab­o­ra­tion with an In­dian part­ner. Apart from the fact that this ar­range­ment would have con­trib­uted to re­duc­tion in the unit cost of the equip­ment, the man­u­fac­tur­ing fa­cil­i­ties es­tab­lished in the process would have later un­der­taken man­u­fac­ture of spares and would have pro­vided main­te­nance sup­port for the fleet through­out its ser­vice with the IAF as well as would have un­der­taken midlife up­grade thus re­duc­ing life-cy­cle cost sig­nif­i­cantly. Un­for­tu­nately, this par­tic­u­lar ten­der proved abortive.

How­ever, there is sim­i­lar ar­range­ment with the on­go­ing con­tract with Sukhoi of Rus­sia in case of the Su-30MKI fleet of 272 air­craft of which only 40 have been re­ceived di­rectly from the OEM in fly­away con­di­tion and the re­main­ing are be­ing man­u­fac­tured un­der li­cence by the In­dian aero­space ma­jor the Hin­dus­tan Aero­nau­tics Lim­ited. The of­fer from Air­bus-Tata Ad­vanced Sys­tems Lim­ited con­sor­tium to sup­ply 56, C-295 medium-lift mil­i­tary trans­port air­craft to re­place the age­ing fleet of Avro air­craft in the IAF is also formulated on sim­i­lar lines with 16 air­craft sup­plied di­rectly from the Air­bus fac­tory in Seville, Spain, and 40 plat­forms to be man­u­fac­tured within the coun­try at a fa­cil­ity yet to be set up.

As is gen­er­ally the case, the ini­tial cost of ac­qui­si­tion of mil­i­tary as­sets is high. One of the rea­sons for this is the rel­a­tively lower vol­umes of pro­duc­tion when com­pared with non-mil­i­tary hard­ware. The to­tal quan­ti­ties pro­duced are low pri­mar­ily be­cause the de­mand is low and there are a num­ber of im­ped­i­ments, po­lit­i­cal or oth­er­wise, in pro­mot­ing global trade of mil­i­tary equip­ment. Be­sides, the cost of op­er­at­ing and main­tain­ing mil­i­tary equip­ment over its com­plete life-cy­cle which may ex­tend up to 40 years or even more, is in fact much higher than the ini­tial ac­qui­si­tion cost. This is one of the im­por­tant fac­tors that should and must be taken into ac­count in the process of se­lec­tion of the equip­ment. For ex­am­ple, the cost of op­er­at­ing the fifth-gen­er­a­tion com­bat air­craft like the Lock­heed Martin F-22 Rap­tor works out to $44,000 per hour. As against this, the cost of op­er­at­ing the fourth-gen­er­a­tion com­bat air­craft Gripen from Saab of Swe­den is only $3,000 per hour. The ques­tion for a na­tion scout­ing the global mar­ket for com­bat air­craft then boils down to whether it must go for the F-22 Rap­tor or make do with the Saab Gripen.

In the pro­cure­ment of a mil­i­tary air­craft there­fore the de­ci­sion must not be based on the ini­tial pro­cure­ment cost alone. While the low price quoted for a par­tic­u­lar piece of hard­ware may ap­pear at­trac­tive, its life-cy­cle cost may turn out to be much higher than that of an equiv­a­lent plat­form where the sig­nif­i­cantly higher unit cost is more than com­pen­sated for by the much lower life-cy­cle cost. Euro­pean and Amer­i­can mil­i­tary air­craft gen­er­ally fall in the lat­ter cat­e­gory, i.e high unit cost but much lower life-cy­cle cost.

The dif­fer­ence in the to­tal op­er­at­ing cost over the com­plete life­cy­cle of the two air­craft would be im­por­tant from the point of view of af­ford­abil­ity and lim­i­ta­tions of fu­ture bud­getary sup­port. In view of lim­ited fi­nan­cial re­sources of the na­tion and con­se­quently low bud­getary al­lo­ca­tions for de­fence, it would be nec­es­sary to fac­tor in the life-cy­cle cost in the se­lec­tion of de­fence equip­ment whether for im­port or do­mes­tic pro­duc­tion.

Fi­nal­i­sa­tion of con­tract for Air­bus A330 MRTT se­lected for the IAF long ago is de­layed pos­si­bly due to lack of un­der­stand­ing of ‘life-cy­cle cost’

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