Several network carriers are bucking the trend to outsource more of their maintenance, preferring instead to keep it in-house. However, the focus on cost control remains as strong as ever
Despite predictions of an increased level of maintenance outsourcing among network airlines, a number of carriers are stubbornly holding on to and developing their in-house maintenance capabilities. But network carriers are keenly aware that the global maintenance, repair and overhaul market is becoming increasingly tough, and are striving to find ways of reducing their costs in order to be competitive.
British Airways, for instance, still performs the vast majority of its maintenance in-house, although over the past 15 years it has devolved its heavy services work away from the airline's London Heathrow and Gatwick facilities to its lower-cost, wholly-owned maintenance subsidiaries in Cardiff and Glasgow. BA has so far moved heavy maintenance of its Boeing 747s and 777s to Cardiff and is in the process of moving its Boeing 767 work from Heathrow to its Welsh subsidiary, a process which should be completed by November. The only heavy maintenance left at Heathrow for BA relates to its 757 fleet, and there are no immediate plans to transfer it.
Is the price right?
"We tactically move our work around to take advantage of lower costs and a friendly business environment, and this has proven very successful," says Garry Copeland, director of engineering at BA. "We will monitor the competitiveness of our facilities and decide whether to outsource or keep in-house." For example, BA brought wheels and brakes maintenance back in-house "because we can offer a more competitive service". Copeland adds that the carrier "will only do maintenance when we believe we are competitive with outside suppliers". BA performs all of its widebody maintenance in-house and outsources 10% of its narrowbody work. e_SDHpComponent overhaul is outsourced, as is all off-wing engine maintenance.
David Stewart, founding principal of maintenance consultancy AeroStrategy, says just over 50% of overall maintenance at major airlines is outsourced, a figure he expects to rise to over 60% by 2016. This growth in outsourcing, Stewart believes, will be fuelled by the introduction of new engines with high barriers to entry, in addition to increasingly sophisticated components.
Nevertheless, another network carrier keen in principle to keep most of its aircraft maintenance in-house is Qantas, although it is currently carrying out a wide-ranging review of its future capabilities to determine whether its Airbus A380s and Boeing 787s will be maintained in-house or outsourced to foreign providers. The review is expected to be completed by the end of this year.
"Our over-arching strategy is to support the Qantas group and to focus on building a viable MRO industry in Australia," says Qantas executive general manager of engineering David Cox. Qantas has maintenance units in Sydney, Melbourne, Avalon and Brisbane. The carrier last year moved its 747-400 airframe heavy maintenance from Sydney to Avalon, and similar moves are expected in the future.
"We've been through a significant consolidation process. There is still consolidation going on and where we have duplication, we're working on further consolidation," says Cox. "The goal is to grow the business, but we've got to be competitive and efficient. We're having ongoing discussions with our people around developing efficiencies." Qantas carries out 90% of its heavy maintenance in-house, and Cox says it will "continue to sit around that number" going forward.
Conversely, Delta Air Lines, which carries out a large amount of maintenance through its Delta TechOps division, outsources all of its heavy airframe maintenance and will continue to do so in the future, says Delta TechOps senior vice-president Tony Charaf. Delta specialises in engine, component and line maintenance. "The growth in insourcing has been phenomenal," he says.
Charaf lists four ways in which major carriers can reduce their maintenance costs and increase their efficiency: "First you need to reduce your footprint, then you need to decide which products you want to be in," he explains. Carriers must also "continue to look at remaining flexible" and focus on growing their insourcing businesses.
Third-party work
Air France and KLM combined their respective maintenance operations when they merged, and the group is focused on expanding its list of third-party customers. "Air France has more than 100 third-party maintenance customers and KLM also has a significant number," says Air France-KLM chairman Jean-Cyril Spinetta. "Maintenance activity is our core business and we do not intend to sell or reduce our activities in this area."
Maintenance has been divided between the two carriers, with Boeing 737, 747 and 767 work carried out in Amsterdam, and Airbus A320, A330 and Boeing 777 maintenance performed in Paris. "We have saved a significant amount of money by having one engineering process, and we have also saved lots of money in purchasing activities as we launch many joint tenders," adds Spinetta.
Kimmo Soini, senior vice-president of Finnair's maintenance arm, Finnair Technical Services, says 30% of the work it performs is for outside customers. But there are no plans to increase this figure "while Finnair is growing its fleet", and the carrier has no immediate plans to expand its maintenance offering. "Finnair Technical Services won't introduce many new capabilities, except Airbus A330 and A340, in the near future, but will focus on working more efficiently in those areas in which it is working now," says Soini.
But not all network carriers see third-party maintenance as forming a key part of their strategies. For instance, BA's Copeland says: "Our fleet is large enough to give us critical mass and third-party maintenance is not a core part of our business." BA offers a "fair bit" of line maintenance and component repair, but does not offer any heavy maintenance to third parties. Likewise at Qantas, the carrier's main strategy is to focus on its own operations: "We're a modest third-party provider but our predominant role is to provide service to Qantas," says Cox.
One thing that is making airlines and maintenance providers pay attention is the emergence of longer-term, nose-to-tail maintenance agreements. Delta TechOps is hopeful that this type of deal will become prevalent in the future, and is gearing up to offer such agreements to customers. "The integrated solution is very important and we are hoping to make this the wave of the future," says Charaf.
However, it is unclear as yet how popular programmes like Boeing's GoldCare will prove to be. Charaf says it is "too early to tell" but he believes "there is a niche market for an integrated solution", while Cox is non-committal: "We don't have a philosophical view on whether they're right or wrong - we will evaluate each offering on its own merits. We're looking at such programmes for the 787 and the A380, and if we see value in them we will have no problem signing up."
Cathay Pacific general manager engineering commercial, Elvis Ho, says Cathay is also "moving more and more to integrated services". Ho says the carrier is consolidating its components and maintenance supplier base from over 300 to only a few. "We're looking for large packages. As the airline grows bigger it's a more efficient way to get the work done."
The long-term approach
Cox concedes that longer-term partnerships in general "deliver the best value" for airlines, and says Qantas is "in the market" for a long-term service deal on its GE CF6 and CFM-family engines. The carrier expects to make a decision on this by the end of the year.
Network carriers are also looking increasingly towards "lean" techniques as one method of shaving their maintenance costs. "Legacy airlines may do some outsourcing, but a lot will be looking at lean and PMA [parts manufacturer approved]," says Stewart of AeroStrategy. "Traditional airlines are looking at traditional ways of cutting costs." Copeland says BA has adopted lean techniques at some of its maintenance facilities and is "looking at expanding" the method. Meanwhile, Cox says the cost reduction programme at Qantas includes "a very large commitment to lean".
However, Cox points out that cost reduction is an ongoing challenge in a fast-moving environment: "Globally capable alternatives are growing in capacity and scale, so we have to remain competitive and efficient. We've achieved considerable change and have reduced our costs by hundreds of millions, but the bar keeps moving."
Source: Airline Business
