The study analyzes the economic justification of a proposal for replacement of three units of existing air compressors in a petrochemical company in Malaysia. Due to the huge capital investment, economic justification is primary in deciding the feasibility of this replacement problem, as it is commonly called. The engineering economy analysis model employed includes net present value, equivalent uniform annual cost, breakeven analysis and sensitivity analysis. Three factors namely capital investment, operating cost and labour cost were analyzed to determine their impact on the overall economics of the replacement proposal. The economic analysis showed that the compressors have to be replaced with a new unit immehately. The proposal is sensitive to the variation in the capital investment. However, it is impervious to the variation in the other two factors considered. © 2013 Asian Network for Scientific Information.