Daniel B. Levine

Inflation Adjustments for Defense Acquisition

This paper describes recent research on cost indexes by the Institute for Defense Analyses. It was performed at the request of the Cost Assessment and Program Evaluation directorate in the Office of the Secretary of Defense to assist in meeting the requirement in the 2009 Weapon Systems Acquisition Reform Act to assess and update the cost deflators the Defense Department uses to adjust for price growth in costing and budgeting major systems. The paper’s focus is on aircraft procurement. The research analyzes deflator algorithms and data to determine the source of the wide differences in aircraft cost growth rates calculated by (a) the Gross Domestic Product deflator for the entire US market basket of goods and services, (b) the national defense index for military aircraft published by the Bureau of Economic Analysis, and (c) the Producer Price Index for civilian aircraft published by the Bureau of Labor Statistics. The study demonstrates an alternative hedonic approach for calculating price indexes by using regression analysis to relate aircraft investment cost to the aircraft’s specific physical and operational design features such as weight and speed.

The Effect of Technology on the Supportability and Cost of Avionics Equipment

In keeping pace with recent advances in electronics, the military services have shifted from solid state devices (transistors) to micro-miniaturized devices (chips) in the design of avionics. By employing micro-miniaturized electronics, those who design military aircraft have sought to take advantage of the intrinsically higher reliability of chips. At the same time, designers have taken advantage of micro-miniaturized components to build more performance into avionics systems. However, in the views of some, the means used to increase performance have had negative effects on supportability, which counters the positive intrinsic effect.