User:Askari Mark/Understanding aircraft unit costs

Identifying the proper unit costs of aircraft is a real challenge for the expert, much less the average Wikipedia editor. This is quite understandable since there are so many different ways of reporting aircraft costs, as well as the fact that most sources reporting costs mislabel the specific type being reported (usually through ignorance as well). Moreover, two different countries might have similar, but differently named and slightly differently calculated costs that are otherwise roughly equivalent. Actually discerning whether a given cost number is accurately referenced requires some experience, though, especially since sources generally aren't very clear as to what cost elements are or are not included. To aid our editors in understanding what they're reading (assuming the source is knowledgeable), I'd like to provide a brief overview of the different ways in which costs are typically captured and reported (or mis-reported).

There are two key elements to understand about reported costs you may encounter. One is the "type" of cost calculation and the other is the "year-basis" of the given value. The unit cost should be expressed in the format of "US$75 million (2002)". The reason is that your source may be supplying a value that has since changed due to the effects of inflation or fluctuating currency exchange rates. Furthermore, it would be a prodigious task to update the quoted prices for every aircraft Wikipedia has an article about.

Currency year
There are three types of accounting "year" used to express costs: "calendar year" (CY), "fiscal year" (FY), and "then year" (TY). The default, especially when no type of year is given, is the calendar year in which the valuation was first given. This would be written "US$75 million (2002)", for example.

Government budget documents and announcements are usually based on their "fiscal year", which may coincide with the calendar year, but usually do not. (The US fiscal year 2007, for instance, runs from 1 October 2006 to 30 September 2007.) Such a value should be rendered as "US$75 million (FY2002)". (I would deprecate use of the informal "FY02".)

"Then-year" valuation is principally an American phenomenon and should be avoided at all costs. It is a multi-year accounting in which the inflated dollars from each year's budget are added together in a lump sum that is meaningless without knowledge of each year's amount and projected inflation rate. If that is the only available information, then it should be expressed as "US$75 million (TY, 2002)" with the year being the baseline (zero-inflated) year on which the estimate is based. Such values should be replaced as soon as CY or FY data become available.

Types of costs for military aircraft
There are a variety of types of costs related to military aircraft programs, with each form of accounting used for different purposes and insights. The two types most commonly reported are the unit "flyaway cost" (FAC) and "unit procurement cost" (UPC), the latter also being referred to by some as "unit program(me) cost". A "unit" cost is simply the indicated type of cost divided by the number of aircraft being paid for (i.e., the "per airplane" cost). The FAC is what most people think of as an airplane's cost. Unfortunately, there are two different costs that get referred to "flyaway cost" – a "basic" FAC and a "total" FAC, and most sources do not clearly identify which is being reported. Prices mentioned by manufacturers are usually the basic FAC, since it makes the aircraft seem less expensive (especially when compared to "total" FAC or UPC prices for competitors' aircraft), but "Unit Recurring Flyaway" (URF) costs (which are only a major component of the basic FAC) are beginning to appear more frequently. The UPC is most often reported as the total announced price of an acquisition program divided by the number of aircraft, but this is just an approximation because programs can and do vary widely in what "other stuff" is included; this is often (but not always) the cost reported by news sources.

For the purposes of Wikipedia, our order of preference for the cost types we provide should be 1) basic FAC, 2) "Total FAC" and 3) UPC. However, for those who want to better understand how these costs are defined and build upon one another, the following paragraphs discuss each type. (The most-reported aircraft cost types given below are also italicized.)


 * Recurring flyaway cost: Usually reported as the "unit recurring flyaway" (URF) cost, this covers only the airframe, engines, avionics, and other such equipment that come "standard" with every airplane (and thus are "recurring"). The URF is one of the two fundamental cost elements of the basic FAC. Until the F-35 program began using it, the URF was rarely ever reported in the general press. The F-35 program uses it to capture those costs of the basic airplane that are common to all of the partners. The partners are individually responsible for those "nonrecurring" elements they may desire to better "tailor" the airplane to their specific requirements. The F-35's URF is often mis-reported as the airplane's FAC, but this understates the true FAC.


 * Nonrecurring flyaway cost: Almost never separately reported, the nonrecurring costs include basic "startup" costs which are apportioned over the whole fleet of aircraft planned to be built for the purchaser(s), as well as allowances for user-required changes. The nonrecurring cost is typically a fraction of the recurring cost.


 * Flyaway cost: The basic flyaway cost (FAC) is the sum of the recurring and nonrecurring costs and is always reported as a "unit flyaway cost" (usually abbreviated "FAC" or, rarely, "UFAC"). It is the most commonly reported cost and is normally what most people think of when they think about what an airplane "costs." However, just to keep things from being simple, there is something called "total flyaway cost".


 * Total flyaway cost: This is always reported as a "unit" cost, and is often also referred to as the "weapon system cost" or simply as the "flyaway cost" — however, it comprises not only the "basic" flyaway cost, but also the delivery costs and the peculiar support equipment, technical data packages, training equipment, and a variety of contractor services required to provide initial support for the airplanes; all of this is usually amortized over the size of the customer's purchase. Unfortunately, with the total flyaway cost often being called "flyaway cost" and the term "weapon system cost" being used generically (even sometimes for the total lifecycle cost), it can often require an expert to figure out which is which. For the purposes of Wikipedia, editors should treat the "total" FAC and "basic" FAC as roughly the same "in round numbers." For follow-on purchases of a given aircraft by the same customer, this difference is often quite small.


 * Procurement cost: This can be reported as either a "program cost" or a "unit procurement (or program) cost"; the unit procurement cost (UPC) adds the cost of initial spares — amortized over the quantity being purchased — to the flyaway cost. This is the other most commonly reported type of cost, and is usually derived from the reported procurement program cost divided by the quantity of aircraft being bought. While this is not a fully accurate estimation method, it is usually just about all one has to go with. (It should be noted also that there is no such thing as a "standard initial spares" package for costing purposes.)


 * Program acquisition cost: Rarely ever seen — and normally only in the US — the PAC adds the costs of research and development, testing and evaluation, and related military construction (e.g., new hangars, test facilities, etc.) to the procurement cost. It can be found in the US DoD's "Selected Acquisition Reports". Detractors of a program often use this to "estimate" an exceptionally high unit cost for an airplane; while it is a "legitimate" form of cost, it is often used as a political tool by comparing it to the FAC or UPC — which are very different types of costs — thereby implying that it is the "real" cost (generally perceived to be the FAC or UPC) of the airplane as opposed to the government's "official" — and by implication, deceptive — cost (the actual FAC or UPC).


 * Life-cycle cost: The (total) life-cycle cost (LCC) takes the program acquisition cost and adds to it all of the projected lifetime logistic and operational costs:  munitions and missiles, AVPOL (fuel, oil, and lubricants), spares (other than initial spares), replenishment, depot maintenance, system support and modifications, as well as the costs of hiring, training, supporting, and paying the personnel associated with the operating unit(s). In recent years, the term "life-cycle costs" has increasingly been used to refer to just the logistic and operational costs, while the term "total life-cycle costs" includes the PAC. While certain things may indeed be done to reduce LCC, any LCC projection should be taken with more than a few grains of salt; I've yet to see a verified and validated methodology for producing a realistic valuation.

Again, Wikipedia editors should strive to only use the basic unit flyaway cost (FAC) or unit procurement/program cost (UPC) in their articles and identify which they are using. This is accomplished by selecting the appropriate line in the infobox Aircraft.

Costs of civilian aircraft
Costs of commercial and general aviation aircraft are not subjected to as much torturous attention inasmuch as what is normally reported are retail prices. Sometimes you will see a reference to the cost of a "white-tail" aircraft, which is essentially the "basic" flyaway cost of the standard model without any options or user-specified modifications. General aviation aircraft can be sold for this price, but airliners, freighters and bizjets typically are not since airlines usually want tailored solutions and corporate buyers are often attracted to the various options. No two airlines are likely to buy the exact same configuration of, say, a Boeing 747-400, for a variety of reasons. What is more normally reported for them is a price range — say, "US$75-85 million (2002). (Here the date should probably be the year the source was published. Prices don't change significantly from year-to-year in these highly competitive markets, price data may come from several different years, and they're approximate anyway.)

If you have questions, please post them in the Talk page for this article. I'll update this page accordingly, as needed over time. — Askari Mark (Talk) 02:10, 21 January 2007 (UTC)