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 provide d to airlines based on long-term contracts. Tile magnitude and uncertainty of the costs involved (total costs for a typical contract would be in exces s of a billion dollars) could expose the corporation to significant financi al risk. To help mitigate and manage this risk, a simulation model teas dev eloped to assess costs over the life of the contract. The primary objective was to establish a fair contract price. Tile simulation model also allowed operational issues and sensitivities to be examined.