Budget Cuts (2/2) : Consequences of a shift of Deliveries

#Defence :
This article follows the one regarding the Consequences of Fleet Size cut. It illustrates impacts due to reduction of the annual quantities of deliveries, so a domino’s effet of deliveries shift.

To summarize as introduction, keep in mind that, samely like a longer loan usually costs more than a shorter, especially if it is renegociated while running, shift deliveries will costs and not financially only.

1. Consider a smoothed delivery plan of a 12-aircraft fleet 12 appareils, with 3 deliveries per year (January, May, September).
2. The delivered aircraft have a periodical #maintenance of 400 Flight Hours \ 2 years
3. A periodical visit takes 6 months.

• This plan gives following yearly rates of flights hours (at the optimal point) : 400, 1000, 1350, 1900, (1920 in case of smoothed management : 12 x 400 / 2.5)
• According to this, a ramp-up plan of maturity has been established based on a ramp-up of +400 FH per years : 400, 800, 1200, 1600, (2000, a bit higher than the calendar periodical rythm).
  This plan offers some flexibility to face to minor delays on deliveries and/or fists visits of maintenances.

In order to simplify the analysis, I made the choice to define the maturity ramp-up strategy pending to production rate, so deliveries.
However, in reality, it is more a question of agreement between maturity plan and production plan, like for S&OP where Sales submit a need to Production which answer a feasibility pending to its capacity.

• With this plan, the full fleet will be delivered after… 3 years and 8 months after the 1st delivery ([12-1] * 4 = 44 months). With a full potential in late of the 4th year.
• Less than 4 years of Product Life (and 1 periodical visit) between the 1st and the last deliveries.

However, for any reason, because of a new budget decision or a new While Paper, (or maybe because of industrial delays), in the half of the 2nd year a new Program Agreement establishes 2 deliveries per year (Januday and July, with the delivery expected for September of the 2nd year shifter to January of the 3rd year).

–> That states a last delivery after 60 months, so 16 more than the initial plan.

2 options (and all mix of the 2) :

1. You align the maturity plan on the new delivery plan, so you reduce it.
2. Or you keep you initial maturity plan but through a reduced fleet.

… But before facing to this decision, you will face to following impacts :

• You have already invested into structures, means and several other tooling and supports that will be partially wasted, at least during a temporary time.
• Savings will not be at the level of the shifting :

1. Firstly because on such long-terme program, you have several steps payment milestones. So you have already paied some activities / value-added that the new plan shits.
2. Secondly, and it is a part of the game, the industrial company will claim for penalties : to satisfy your initial order, it has invested into technical and human means. … Note : In a such request of deliveries shift (and cut) of Rafale by French Defense, Dassault argued it will end the production if this one falls lower than 11 deliveries par year, considering this rate as the floor of profitability.
3. Because of the lower quantity of aircraft during the transition time, it is almost sure you will not be able to keep your initial maturity plan (which mixes operational fleet and training fleet) and this will have other consequences (but I will come back later on this aspect)
4. 1st issue of obsolescence : some components or equipments, selected at the aircraft definition, around 10 years before the 1st delivery, might become outdated and/or not produced anymore by the manufacturer, this maybe before the last delivery occured.
5. 2nd issue of obsolescence :
   My example is quietly short in term of execution time. However, most Defence programs take several decades between the definition and the last delivery (JSF almost started in early 1990, #F35 program started in 2001, with a first delivery in 2011…). If the time between the definition, the 1st delivery and the last delivery is too long, you might face to outdated at their mid-life, even before lasts are delivered.
   Skeptical ?
   Refer to the case of the French Tiger HAP, whereof it has been decided to retrofit them into HAD version almost at the same time than last delivery occured.
6. Other issues and matters, including other obscolescence aspects, that I will underline in each studied option…

Option 1 : Maturity plan aligned on the new delivery plan :

• Annual potentials are : 400, 950, 1050, 1450, 1750, 1900.
• In our example you will have to wait 16 months more (so +/- 1.5 years) in order to reach the full of potential
• Due to this shift, your 1st delivered aircraft will have faced to 2 periodical maintenances (which means non-value-added… as it costs while the aircraft is not available) before the delivery of the last one.
• The major matter linked to this reduction of the delivery frequency regards qualified crews, in order to keep their qualification, while continue to qualify additional crews.
  That will force you to slow down the training in order to transfer aircraft with the trained crews as they cans continue to maintain their qualifications. Up to maybe having no more aircraft for new training… (if you think this is not relevant, be sure that some programs already faced to such case !)
• Intermediate point : note the break at the 3rd year, due to the fact that the 1st aircraft delivered are going into periodical maintenance while just replaced by the new deliveries (even of new deliveries, the 3rd year has no more yearly potential than the 2nd).
  As consequence, you will have to slow down your maturity plan more than 1/3 [3/year -> 2/year = -1/3] than you (wrongly) expected :
  If you have trained crew (year 2), that will have to fly the next year (year 3), that means this next year you will not be able to train as many crews than the year before as a part of the annual potential will be required by the already-trained crews.
• As you have to keep some aircraft for the training, some for the qualified crews and some other which are in maintenance, you will have fewer (maybe none) available for operations.

Option 2 : Maturity plan kept as initially :

Even if this option could look nice, it is certainly the worst :

• You will make an overuse of the aircraft, so increase the frequency of periodical maintenance, so increase the rate of unavailability of them, which will have for consequence to reduce the number of aircraft available (see previous article).
  Actually, you will certainly be unable to keep enough aircraft available to keep your maturity plan.
• Because of that, you will be forced to slow down your maturity plan or it will become worst and worst.
• This example illustrates the case on a reduced fleet through a reduced time. Usual programs run on more than a decade of deliveries. With an overuse, you might face to the case of having aircraft at their mid-life ; typically 20 years of life after 12-15 years of use only.
  That represents a risk of early end-of-life (even the aspect of end of life is subjective), which may force you to order additional aircraft (see cases of French orders of Tiger and NH90) or to decide to replace your fleet earlier while some of them will still be « joung ».

To summarize :

• For limited savings, it will cost to you :
• A reduced availablity of aircraft to satisfy your maturity plan on all kind of missions (training, Operations…)
• An incoherency of your fleet in term of aging
• Risks of unexpected obsolescences
• The need to corder more aircraft (so less savings in term of program management)

(c) Julien Maire.