A decomposition methodology based on the concept of “thermoeconomic isolation” and applied to the synthesis/design and operational optimization of an advanced tactical fighter aircraft is the focus of this paper. The most promising set of aircraft sub-system configurations, based on both an energy integration analysis and aerodynamic performance, were first developed and detailed thermodynamic, geometric, physical, and aerodynamic models at both design and off-design were formulated and implemented. Conceptual, time, and physical decomposition were then applied to the synthesis/design and operational optimization of the aircraft system. The physical decomposition strategy used, called Iterative Local-Global Optimization (ILGO), was developed by Muñoz and von Spakovsky (2001a,b) and has been applied to a number of complex stationary and transportation applications. This decomposition strategy is the first to successfully closely approach the theoretical condition of “thermoeconomic isolation” when applied to highly complex, highly dynamic non-linear systems.