Outsourcing Repairs On Major Aircraft Components

Aircraft Solutions (AS) is a recognized leader in the design and fabrication of component products and services for companies in the electronics, commercial, defense, and aerospace industry. Located in Southern California, AS has a dedicated, trained workforce and maintains a large capacity plant and extensive equipment to meet customer requirements. Much of the equipment is automated to increase production while reducing costs. The company's workforce has a large skill base: design engineers, programmers, machinists, and assembly personnel to work its highly-automated production systems.

By outsourcing, Qantas is able to significantly reduce costs and maintain it’s competitive advantage. However this advantage also has a draw back, hundreds of engineers have also been cut from their jobs and have had their jobs given to people overseas. This puts a bad reputation on the name of the business as an Australian business will cut jobs from Australian workers and supple foreign workers with jobs. Families and friends of these workers may feel resentment towards Qantas and choose to travel with another airline instead resulting in a loss of customers. This strategy has been effective in reducing cost but has resulted in a reduction of quality and safety and led to a decreased business reputation resulting in a loss of customers and stakeholders.

Aviation industry got hit real hard as a result of global financial crisis. Nov ’08 IATA’ traffic data showed a 4.6% drop in international passenger traffic and 13.5% drop in international cargo and stated that the worldwide aviation industry “shrinking by all measures”. During this hard time, Qantas made a

Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase a good from companies with than it is to produce the good internally.

A leading, third party aircraft maintenance, repair and overhaul (MRO) specialist, ST Aerospace employs more than 8,000 certified engineers and administrative specialists around the world and has a global customer base that includes military forces, major airlines and freight carriers. With operations established in key aviation hubs in Asia Pacific, Europe and the United States, ST Aerospace is a leading MRO provider in the world with a global network.

Outsourcing is defined as the decision to buy goods and services from external sources rather than producing them in-house when internal provision is not justified in light of existing or anticipated business condition (Leenders & Nollett, 1984). It is a common solution to outsource non-strategic business functions in order to diminish distraction and focuses managerial attention on operations within the scope of a company’s core competencies. This practice is widely adopted by today’s enterprises around the world, including airlines, to control costs, improve efficiencies and increase profitability (Feldman, 1992). However, although airlines are outsourcing their operations in order to remain competitive in increasingly challenging business environments, such practice may not always be successful and its theoretical justification may not have been fully explored (Rieple & Helm, 2008). This paper studies the potential boundaries to what airlines can or cannot outsource in their operations, and whether financial considerations are paramount in such decisions.

An issue that an airline company can face is that it cannot easily switch suppliers. The reason is the switching costs, usually firms have long term contracts with their supplier and the buyout of the contract will incur in high switching cost.

Within the aviation industry outsourced maintenance practices have become increasingly more prevalent to maintain current assets. There is generally three processes currently being utilized by the airline industry: outsourcing specific maintenance needs, in-house operations, and lastly, a hybrid approach, which entails a combination of outsourcing and in-house. How these are applied and to what extent are driven by each company and their own unique needs. This paper compares and contrasts the advantages and disadvantages of outsourcing maintenance practices as well as the effects of globalization on the airline industry.

Off-shoring is not a concept and practice that should be left to backroom accountants or high-priced consultants with promises of quick profits and spreadsheets. This is mainly because it generates mission-critical concerns with the potential of affecting the survival of the entire company, whole industries, and eventually the economy. In the past few years, several American companies have been involved in off-shoring and outsourcing some of their operations, especially manufacturing operations. For example, Boeing outsourced the manufacturing of 787 Project worth billions of dollars. This project was characterized with several problems that contributed to the postponement of its delivery schedule at least seven

The warranty terms and related contractual remedies are considered for the airline, one of the main sources maintenance costs reduction in case of reported failures. The warranty effect normally extends 48 months out of Aircraft age. The airline incurs only routine maintenance costs during this period if they have introduced efficient processes to capture all warranty opportunities. Some airlines with MRO attachment can also generate some profits from the warranty business where they recover the costs plus a certain margin they made out of manpower either from their own airline or a third party airline customer.

Implementation of similar drivers occur during Maintenance and Service Operations. As with new fabrication, labor is a key prime cost associated with service and regular maintenance of aircraft. Though this cost is easy to allocate to specific airframes by hour, it is also important to note that service and maintenance require a higher percentage of Support Costs through inspections, analysis, and customer involvement activities. As such, implementation of ABC methods in this sector requires more detailed analysis of support and labor costs to identify cross-activity correlations.

At the start of any aircraft manufacturing project, assembly fixtures are usually the largest contributors to the non-recurring cost due to the size and complexity. At Airbus according to Naing, (2004) it is estimated that tooling can be as much as a third of the total non recurring cost at the start of a project.

Recently the industry has come to be dependent on import of components parts from technologically advancing countries. In responses to increases in the number of players with technologically advanced technology, aeronautical firms have considered co-production deals, joint ventures and local content agreements. These measures are just

The corrosion and fatigue free characteristic of composite materials has helped to reduce the amount of scheduled maintenance greatly. Aircrafts are able to have a longer interval between each scheduled maintenance by having its first visual structure check at 6 years and first heavy check at 12 years. (Boeing, n.d.) This new maintenance schedule was introduced for the Boeing 787 and the Airbus 350. Man hours for each check can also be reduced by 20%. Overall reduction of labour hours over 25 years for different checks can be seen in Figure 1. (Boeing, n.d.) The reduction of scheduled maintenance and labour hours significantly aid in the reduction of the overall maintenance cost. The longer scheduled maintenance intervals would also allow the aircrafts to sustain a longer airborne period.

Good afternoon, in today’s agenda, I would like to bring your attention to the benefits of internal and external aircraft maintenance. As studies have shown that the cost benefits are marginal to maintain the aircrafts internally, the company is looking into contracting this process to external vendors. I believe most of you are wondering why we are planning on such move, let us look at the possible factors between internal and outsource of our aircraft maintenance process.