How Should the U.S. Air Force Depot Maintenance Activity Group be Funded?: Insights from Expenditure and Flying Hour Data

The authors find that a large portion of Air Force depot-level costs are unrelated to flying hours, so an alternative approach to budgeting and pricing is warranted to better link budgets and prices on the one hand and activity levels in the operating commands on the other. The authors examine how Air force Material Command (AFMC) depot-level expenditures relate to operating command activity levels, i.e., flying hours. They examine the recorded expenditures of AFMC’s Depot Maintenance Activity Group (DMAG) and relate Mission Design-specific DMAG repair expenditures to various lags of fleet flying hours. They find, across a variety of weapon systems, that although both flying hours and DMAG repair expenditures for component repair vary considerably month-to-month, there is no consistent, cross-system relationship between the series. The apparent lack of systematic correlation between DMAG expenditures and fleet flying hours argues for an alternative approach to budgeting and internal pricing. Specifically, these results are consistent with multi-part pricing. Under such an approach, AFMC would receive a budget to pay for its fixed costs and operating commands would no longer face prices that include DMAG fixed costs that are unrelated to demands from the operating commands. [EK]