Operating costs for Air Force aircraft are about twice as large as acquisition costs and are thought to depend on age. When researchers have examined the question using data from the 1990s, they have found little or no association (none to 3 percent per year) between airplanes’ age and operating costs, but when they have used data from the 2000s with similar methods, they have found a significant association between the two (3 percent to 8 percent per year). A current study by CBO reconciles that discrepancy by using the size of the Air Force’s budget as an additional explanatory variable. Estimates that do not account for the Air Force’s budget, according to the study, show that an additional year of age is associated with costs mostly in the range of 3 percent to 6 percent. Estimates that do account for the Air Force’s budget find associations mostly in the 2 to 4 percent range. Presentation by Derek Trunkey, an analyst with CBO’s National Security Division, at the 93rd Annual Conference of the Western Economic Association International.

1. Congressional Budget Office
93rd Annual Conference of the
Western Economic Association International
Vancouver, British Columbia
June 29, 2018
Derek Trunkey
National Security Division
Operating Costs and Aging of
Air Force Aircraft

2. 1
CBO
Operating costs are about double
acquisition costs and are thought
to depend on age.

3. 2
CBO
Source: K.R. Sperry and K.E. Burns, Life Cycle Cost Modeling and Simulation to Determine the Economic Service Life of Aging
Aircraft (October 2001).
Aircraft Operating Costs Are Expected to Decline
in Initial Years of Operation, to Plateau, and
Then to Increase During a Final Phase

4. 3
CBO
Estimates of the cost growth associated with age
using data from the 1990s found little or no association
(0 to 3 percent per year), whereas estimates using
data from the 2000s found significant real growth as
aircraft age (3 to 8 percent per year).
CBO looked to see if there are factors that could
explain the higher growth rates in the recent past.

5. 4
CBO
 Studies based on 1990s’ data found little or no growth associated with age
– LMI (2003) found no age effect
– CBO (2001) found growth of 1 to 3 percent per year
 Studies based on 2000s’ data found larger growth
– Keating and Arena (2016) found real growth mostly in the 4 to 8
percent per year range
– Current study found real growth mostly in the 3 to 6 percent per year
range (based on a similar model with age as the only explanatory
variable)
CBO’s Results Explain Divergent Findings From
Previous Studies
See Logistics Management Institute, The Relationship Among Cost, Age, and Usage of Weapon Systems (January 2003);
Congressional Budget Office, The Effects of Aging on the Costs of Operating and Maintaining Military Equipment (August 2001),
Appendix B, www.cbo.gov/publication/13213; and Edward G. Keating and Mark V. Arena, “Defense Inflation: What Has Happened,
Why Has It Happened, and What Can Be Done About It?” Defense and Peace Economics, vol. 27, no. 2 (April 2016), pp. 176–183.

6. 5
CBO
CBO’s current study reconciles past
studies from different eras by using the
size of the Air Force’s budget as an
additional explanatory variable.

7. 6
CBO
 CBO used linear regression models to explain the costs per flying hour
(semi log form)
 The first model used only age of aircraft as an explanatory variable
 The second model used both age of aircraft and the size of the
Air Force’s budget as explanatory variables
 CBO used annual AFTOC data from 1999 to 2016 for B-1B, B-52,
C-130, C-17, C-5, F-15 A-D, F-15E, F-16, F-22A, HH-60G, KC-135,
RQ-4, and U-2
– Most data are from the midpoint of an aircraft’s life
CBO Explored Factors That Could Explain the
High Recent Growth in Operating Costs

8. 7
CBO
The model that did not account for the budget
found results comparable to those from prior
research.

9. 8
CBO
B-1 Costs per Flying Hour Generally Increased as
the System Aged
2.9 percent
growth in costs
per year of age
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0 5 10 15 20 25 30 35
Age (Years)
Costs per Flying Hour (2016 dollars)

10. 9
CBO
Estimates that did not account for the
Air Force’s budget show an additional
year of age is associated with costs
per flying hour mostly in the range of 3
to 6 percent.

11. 10
CBO
A Number of Air Force Systems Experienced Sizable But
Highly Varying Increases in Costs per Flying Hour
B-1
B-52
C-130H
C-5
F-15 A-D
F-16
HH-60
KC-135r
F-15E
0
1
2
3
4
5
6
7
8
0 5 10 15 20 25 30 35 40 45 50
Average Age Over Sample (Years)
Annual Real Growth in Costs per Flying Hour (Percent)

12. 11
CBO
Some aircraft are still in the immature
phase and experienced declining costs.

13. 12
CBO
Some Younger Air Force Fleets (F-22, RQ-4, C-17)
Experienced Declining Costs per Flying Hour as They Aged
B-1
B-52C-130H
C-5
F-15 A-D
F-16
HH-60
KC-135rF-15E
C-17
U-2
F-22
RQ-4
-60
-50
-40
-30
-20
-10
0
10
0 5 10 15 20 25 30 35 40 45 50
Average Age Over Sample (Years)
Annual Real Growth in Costs per Flying Hour (Percent)

14. 13
CBO
The Air Force’s budget increased
significantly between 2000 and 2016.
Accounting for that budget reduced the
association between cost and aircraft
age by up to half in the 2000s.

15. 14
CBO
The Air Force’s Total Budget Increased Markedly
in Real Terms Between 2000 and 2010
0
50
100
150
200
250
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Total Air Force Budget, by Fiscal Year (Billions of 2016 dollars)
Time period of data
for 2001 CBO report
Time period of data for 2018 CBO report

16. 15
CBO
The model that accounted for the size
of the Air Force’s budget found growth
rates that were more consistent with
those of models based on 1990s’ data.

17. 16
CBO
The model that accounted for the
Air Force’s budget found that the
association between aging and cost
growth was mostly in the 2 to 4 percent
range.
Other factors (such as mission capable
rates and number of hours flown)
had smaller associations or were
insignificant.

18. 17
CBO
Including the Air Force’s Total Budget as an Independent
Variable Generally Reduced the Association With Age
B-1
B-52
C-130H
C-5
F-15 A-D
F-16
HH-60
KC-135r
F-15E
B-1
B-52
C-130H
C-5F-15 A-D
F-16
HH-60
KC-135RF-15E
0
1
2
3
4
5
6
7
8
0 5 10 15 20 25 30 35 40 45 50
Average Age Over Sample (years)
Annual Real Growth in Costs per Flying Hour (Percent)
Accounting for age
Accounting for age and
the Air Force's budget

19. 18
CBO
Additional Information on
CBO’s Approach

20. 19
CBO
Cost=annual operating cost; age=average age in years; budget=Air Force Total Obligation Authority.
1. Measure simple association:
Ln(Cost/FH) = a + b1*age
2. Use an enhanced regression that accounts for the budget:
Ln(Cost/FH) = a + b1*age + b2*budget
3. Examine several aircraft types:
– B-1B, B-52, C-130, C-17, C-5, F-15 A-D, F-15E, F-16, F-22A,
HH-60G, KC-135, RQ-4, U-2
– Use annual AFTOC data from 1999 to 2016
– Most data are from the midpoint of an aircraft’s life
How CBO Explored Factors That Could Explain
the High Recent Growth

21. 20
CBO
** indicates that the P value is less than .01.
Estimated Coefficient (Standard Error)
Aircraft Intercept Age
B-1 10.55** 0.0291**
(.103) (.005)
B-52 8.47** 0.0548**
(.329) (.007)
C-130H 8.44** 0.0685**
(.099) (.005)
C-17 18.83** -0.1771**
(.082) (.011)
C-5 9.88** 0.0400**
(.206) (.007)
F-15 A-D 8.94** 0.0542**
(.143) (.006)
F-15E 9.93** 0.0271**
(.126) (.008)
F-16 9.11** 0.0375**
(.176) (.010)
F-22 15.05** -0.5610**
(.791) (.176)
HH-60 9.22** 0.0515**
(.155) (.009)
KC-135T 8.36** 0.0278**
(.248) (.005)
RQ-4 12.28** -0.2730**
(.681) (.188)
U-2 8.36** -0.0412**
(.248) (.007)
Regression Results for Simple Model,
Dependent Variable Is Ln(Cost/FH)

22. 21
CBO
* indicates that the P value is less than .10; ** indicates that the P value is less than .01.
Regression Results for Model With Budget,
Dependent Variable Is Ln(Cost/FH)
Estimated Coefficient (Standard Error)
Aircraft Intercept Age AF Budget (Billions 2016$)
B-1 10.13** 0.0190** 0.0039**
(.131) (.004) 0.0010
B-52 8.25** 0.0406** 0.0055**
(.258) (.007) (.0015)
C-130H 8.37** 0.0667** 0.0065**
(.177) (.006) (.0014)
C-17 8.79** -0.0986** -0.0064
(1.094) (.015) (.002)
C-5 8.83** 0.0343** 0.0076**
(.400) (.006) (.003)
F-15 A-D 8.53** 0.0335** 0.0059**
(.144) (.006) (.001)
F-15E 10.01** 0.0291** 0.0031*
(.144) (.010) (.002)
F-16 8.21** 0.0153** 0.0084**
(.225) (.009) (.002)
F-22 29.83** -0.7444** -0.0830
(5.850) (.162) (.006)
HH-60 8.58** 0.0370** 0.0056*
(.271) (.009) (2.716)
KC-135T 8.43** 0.0325** -0.0018
(.249) (.006) (.001)
RQ-4 3.35 -0.3491 0.0518
(7.142) (.395) (.037)
U-2 11.98** -0.0341** -0.0029
(.240) (.008) (.002)