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Core Business

Global Outsourcing of Aircraft Maintenance D. Scott Worrells based upon the paper: McFadden, M., & Worrells, D. S. (2012). Global outsourcing of aircraft maintenance. Journal of Aviation Technology and Engineering, 1 (2), 63-73 . doi : 10.5703/128828431465 . Core Business.

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Core Business

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  1. Global Outsourcing of Aircraft MaintenanceD. Scott Worrellsbased upon the paper:McFadden, M., & Worrells, D. S. (2012). Global outsourcing of aircraft maintenance. Journal of Aviation Technology and Engineering, 1(2), 63-73. doi: 10.5703/128828431465

  2. Core Business • Airlines are not in the business of “Aircraft Maintenance” • Regard maintenance as “burden” • An unfortunate expense • Outsourcing 64% or more of their maintenance • Expense is the primary driver in the decision to outsource

  3. When to Outsource • Large air carriers with intermediate and depot level maintenance capability outsource less • Maintenance capability is established in-house • Fleet size/mix/age justifies the cost • Smaller air carriers are inclined to outsource more • Do not have extensive maintenance capability • Fleet size/mix/age does not justify the cost

  4. Blended Capability • Some maintenance is conducted by the carrier • And, some maintenance is outsourced • Heavy maintenance requiring a depot level maintenance capability is most often outsourced • D-checks • Engine overhaul • Ground handling and servicing is not typically outsourced

  5. Maintenance Responsibility • Regardless of who actually performs the maintenance • Aircraft operators (air carriers) • Ultimately responsible • For the maintenance conducted on their aircraft • Federal Aviation Administration • Ultimately responsible for oversight, and • Compliance with the approved Maintenance Program

  6. Evolution • Outsourcing continues to evolve • More than just typical maintenance activities • Spare parts inventory • Not a core air carrier business component • Millions of dollars, labor intensive • 15% decrease in the inventory stocked and stored (2007) • Production Panning and Control • Least outsource aspect of maintenance • Viewed as the next step in the evolution of outsourcing

  7. Regulatory Requirements • Aircraft Certification Process • MSG-3 • Guidance on the development of maintenance procedures for new aircraft • Scheduled maintenance tasks • General organizational and decision processes for determining scheduled maintenance requirements • FAA sets the tone for Air Carrier Maintenance Programs • AC 120-16E (now AC 120-16F) • FAR part 121 • FAR part 135

  8. Regulatory Requirements FAR part 121.363 paragraph: • Each certificate holder is responsible for: • Airworthiness of its aircraft, airframes, engines, … and parts • Performance of the maintenance, preventive maintenance, and alteration of…. In accordance with its manual and the regulations of this chapter • A certificate holder may make arrangements with another person for the performance of any maintenance, preventive maintenance, or alternations However, this does not relieve the certificate holder of the responsibility specified in paragraph a.

  9. Regulatory Requirements FAR part 119 Certificate Holder Responsibilities • You are primarily responsible for: • airworthiness of your aircraft • performance of all maintenance or alternations on your aircraft • Your air carrier certificate makes you a maintenance entity • You accomplish your own maintenance, preventive maintenance, or alterations, or • You can use other persons who are not direct employees to accomplish that work

  10. Advisory Circular 120-16F Air Carrier Maintenance Program Objectives • Each of your aircraft released to service must be Airworthy … for operations in air transportation; • You, or any other person, perform all of the maintenance and alterations on your aircraft in accordance with your maintenance manual; and • You, or any other person, provide competent personnel, and adequate facilities and equipment to perform maintenance and alterations on your aircraft

  11. Advisory Circular 120-16F Maintenance Responsibility For any work done on your aircraft • You retain direct and primary responsibility for performing and approving all maintenance and alterations • Whether you accomplish that work or • Whether someone else does it for you, such as a repair station • You always retain primary responsibility for the performance and approval of the maintenance done by that maintenance provider

  12. Deciding to Outsource • Prior to deregulation their was a different attitude towards maintenance • Maintenance cost were readily accepted as a cost of doing business • Post-deregulation • Airlines begin to focus on core competencies • Maintenance, or some levels of it, is not deemed a core business competency

  13. Deciding to Outsource

  14. Deciding to Outsource • Fleet size, type, and maturity • Start-ups and LCCs • line maintenance as a core business competency • heavy maintenance is not • smaller fleets, similar airframes, relatively new aircraft • Large, established carriers • Maintenance is a core business competency • Large fleets, mixed airframes, aging and new aircraft

  15. Airline Maintenance Outsourcing (as percentage of total expenses) Airline           2005          2006          2007 (through Q3) Alaska                92%             80%             81% Hawaiian             80%             86%             89% American             46%             49%             51% US Airways    77%             81%             80% America West   76%             91%             91% Delta                   48%             73%             72% Northwest           76%             83%             81%United                63%             66%             67% Continental          69%             68%             70%Southwest           68%             81%             85% AirTran                66%             93%             94% JetBlue                68%             64%             65% Frontier              65%             79%             80% ATA 18%             85%             87%

  16. Deciding to Outsource • Fully Integrated MRO • All maintenance performed in house • May sell excess capacity to other carriers • Large mixed fleets, extensive route structure • Partially outsourced MRO • Large portion of maintenance done in house • Minimal fleet mix

  17. Deciding to Outsource • Mostly outsourced MRO • Most maintenance outsourced • Line maintenance in house • Heavy maintenance outsourced • Wholly outsourced MRO • All maintenance outsourced • Start ups with small, relatively young fleets

  18. Selecting the MRO Provider • Define requirements • Explore the marketplace • Define the outsource strategy and solicit bidders: • Bundle/unbundle the work to be done • Length of contract • Type of contract • Feedback to bidders • Negotiations • Finalize the formal, detailed contract

  19. Oversight of the MRO ProviderAir Carrier • Continuing Analysis and Surveillance (CASS) • Reduce or eliminate likelihood of a non-airworthy aircraft being inadvertently returned to service • Risk-based, closed loop system, verifies performance and effectiveness of the maintenance program • Surveillance • Analysis • Corrective action • Feedback/follow-up

  20. CASS

  21. Oversight of the MRO Providerthe FAA • ValuJet 592, Florida Everglades, May 1996 • One of three accidents partially attributed to outsourced maintenance • Sabre-Tech the outsource provider • Valujet • FAA oversight

  22. Oversight of the MRO Providerthe FAA • International Repair Stations • Bilateral Aviation Safety Agreements (BASA) • Airworthiness approvals • Environmental testing • Approvals and monitoring of maintenance facilities

  23. Oversight of the MRO Providerthe FAA • Air carriers are responsible for the work performed on their aircraft • Non-certificated facilities are not required to have: • Designated supervisors • Inspectors • Return-to-service personnel • Quality control systems

  24. Oversight of the MRO Providerthe FAA • A 2005 DOT investigation found that: • 1,400 domestic and foreign non-certificated facilities • Capable of performing the same work as certificated facilities • Not inspected like certificated facilities • 104 had never been inspected by the FAA

  25. Conclusion • Outsourcing is as old as the aviation industry itself • In the deregulated, highly competitive airline industry • Economics and business core competencies • Have marginalized the importance of maintenance • Overlooking the true value that quality maintenance provides • Good maintenance is good business

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