Pricing and Managing a Maintenance Contract for a Fleet of Aircraft Engines

A large corporation wished to expand its role as a provider of maintenance and repair services for aircraft engines. These services were to be provided to airlines based on long-term contracts. The mag nitude and uncertainty of the costs involved (total costs for a typical contract would be in excess of a billion dollars) could expose the corporation to sig nificant financial risk. To help mitigate and man age this risk, a simulation model was developed to assess costs over the life of the contract. The pri mary objective was to establish a fair contract price. The simulation model also allowed opera tional issues and sensitivities to be examined.