Making the Case for Privatizing a Government Function

In the late 1990’s the US Air Force had a strategic initiative called “Flexible Sustainment,” and the pilot aircraft program for introducing this initiative was its C-17 airlifter program. The central idea behind the initiative was that a better partnership between the Air Force and private industry (especially the suppliers of the major airframes) to support aircraft over their life cycle would improve aircraft availability and lower the cost of maintaining the aircraft. Traditionally, defense contractors would build the aircraft with Government funds and maintain them for a relatively short period of time. After the aircraft was thoroughly tested in the field, the airframe maker would turn planes over to the military. At that point, the military’s large logistical infrastructure and depot system would maintain the planes, buying consumable parts as needed, repairing expensive parts as needed, but shipping some parts back to manufacturers for specialized repairs. The Government had long held the responsibility for maintaining part inventories and the skilled maintenance people to service the planes. Flexible Sustainment envisioned a new partnership in which manufacturers would take more responsibility for logistics support of the fleet for the life of the aircraft. While the military would still do almost all of the hands on maintenance on the planes, manufacturers would do the planning for logistics support and even redesign parts on an ongoing basis to yield better reliability and either easier or less expensive repairs.

The C-17 airlifter (supplied by Boeing) was chosen for the initial pilot program because it was the new airplane. The responsibility for performing ongoing logistics support had not yet been transferred from Boeing and its suppliers to the military. The civilian infrastructure for supporting the plane was in existence and the Government infrastructure was not. The key basis for believing that leaving the C-17 logistics support in the hands of Boeing would yield better aircraft availability and lower cost was a preliminary high-level analysis by Boeing. In this analysis, there were several ways that Boeing would achieve the initiative goals, but they were more conceptual than concrete and quantitative. Moreover, the different ideas were not put in a common framework that would ensure that the ideas were synergistic rather than cannibalistic.

Boeing asked Ventana to build a simulation model that would better establish the basis for believing that Flexible Sustainment would yield the promised benefits to the Air Force. This was accomplished by building a System Dynamics model that covered all of the ideas that Boeing had for improving the Air Force logistics system. The model confirmed the likelihood that the initiative would yield better aircraft availability and lower cost, but the relative importance of the ideas for achieving the goal was fundamentally different than anticipated. Some ideas were found to yield illusory advantages while one idea was found to be much more important than expected. Indeed, the incarnation of the idea in the model was a method developed by Ventana in collaboration with a Boeing engineer who had been trying to sell the method to company management for more than a decade. The problem was that the idea was good for the aircraft operator but not for the spare parts vendor given the way commercial and military contracting had evolved. Under Flexible Sustainment, however, the incentives were different. The irony was that the method was more than 20 years old and the Air Force had already implemented parts of it. The benefits were just not recognized because the implementation was flawed. Spare parts management became a central factor in the success of Flexible Sustainment (see Aircraft Fleet Sparing).

Because the SD model was so completely encompassing and concrete, a Ventana consultant became a key mouthpiece for the Flexible Sustainment initiative. He explained the initiative at both the operational (Air Mobility Command) and strategic (Pentagon) levels. The Flexible Sustainment initiative on the C-17 program was deemed a success, and similar programs were started on a number of other aircraft and other military programs. Taken together, these initiatives almost undoubtedly constitute the largest privatization of a Government activity in the history of American government.