Doug Birch/LONDON
Tight control of component repair and overhaul costs is essential to airline operations. The need to minimise client costs has led maintainers - in-house and independent - to rethink their overhaul strategies, resulting in the establishment of enhanced work practices, based on economy of scale principles.
Cost structuring for component overhaul and support is divided into three sectors:
direct maintenance, accounting - 50% of total cost; depreciation and interest - 30%; general and logistics, including administration and purchasing - 20%.In the direct maintenance division, maintenance, repair and overhaul providers identified four economy of scale zones - each with emphasis on process improvement and leading to reduced component overhaul costs. They are:
using a one-stop overhaul shop; utilising a fleet-compatible maintainer; using a provider involved in joint purchasing programmes; ensuring that a chosen providers' achievement and efficiency are the highest.If all these measures were used, airlines would reap considerable financial rewards.
By contracting component overhaul to a one-stop facility, customers save time and eliminate the expense of transporting components between maintainers. In addition, a one-stop shop allows uninterrupted flow control, a process that stimulates efficient workmanship and gives an enhanced quality product, factors that contribute to faster turnaround times and competitive pricing policies. Competitive one-stop providers usually operate a centralised maintenance record (CMR) system which, in the case of component overhaul, lessens the chance of unjustified parts removal as well as giving a rapid troubleshooting capability.
An airline will gain by contracting its component overhaul to a specialist who maintains its particular aircraft type. SR Technics, for example, markets its A320 component overhaul capability. With the Swissair fleet and the airlines alliance partners, SRTechnics is involved in the component overhaul of more than 100 A320s. Alex Kugler, former vice president for component maintenance, says, "The technical expertise SR Technics applies to the Swissair fleet is passed on to all its customers."
A maintainer's ability to buy in bulk on behalf of alliance partners and client airlines qualifies for discounts that are unavailable to 'smaller' contractors, with savings that are passed on to the customer. This emphasises the benefits of economy of scale purchasing.
Optimising efficiency is the most important skill in the maintainer's portfolio. The basic requirement needed to attain this level of achievement is an astute and knowledgeable management team that has the ability to institute practical workflow programmes, stock everyday and emergency situation parts and ensure work schedules cope with customers' on-time requirements. Organisation is the key to efficiency and, without it, turn-around times will be missed and work quality suffers.
Full optimisation of vital equipment and tooling is essential if production is not to be lost. By operating at less than 100% efficiency, all cost benefits will be lost, the original capital investment made in machinery will not produce expected returns, output will drop and in some instances, staff overtime will be required to meet contractual obligations.
Owning inventory
While component maintenance and overhaul can prove expensive, the cost remains small compared to the overall expenditure of owning inventory. The capital outlay to invest, store, move and administer parts is much greater than undertaking pure maintenance of components. Cost factors to consider include:
n Initial purchase with its associated financial arrangements and depreciation costs. How much capital is tied up with stock? Storage, insurance, transport and freight plus the costs of warehousing and logistics, for example, storemen, communications and security and all have to be taken into the final account analysis; n Management and administration, including the people and systems associated with managing stock;
Recertification, modification and stock control, which involves keeping stock up to date and scrapping if surplus or redundant; n Stock management - do you own enough stock, or do you have too much, and how well controlled and active is it? Perhaps ultimately, the most cost-effective component maintenance is achieved by not owning any spares, although in most cases this is not practical, but stock pooling is a different matter.
An operator with, say, 10 aircraft would require an investment of $15-20 million to build up an inventory store capable of adequately supporting its fleet. But, if the 10-aircraft airline became a pool member of a major maintenance contractor, its investment would only be $8-$12 million, a minimum saving of 40%.
Small airlines can benefit by having an effective pooling agreement with a reputable contractor. The most obvious benefit is improved cash flow. By not having to make a large investment in spares, capital that would have been tied up is made available for other projects. Turnaround times are minimised by having the correct level of equipment, facilities, staff training, technical support and spares holdings.
The advantages of inventory system pooling can only be achieved if managed by a substantial maintenance organisation that has the infrastructure and maintenance knowledge to support the programme. As with all cost-effective component maintenance, scale of economy is important. To achieve this state of readiness, the pool maintainer needs to be involved with an alliance or joint venture with partners whose business objectives are compatible with its own.
Overall, the cost of component repairs can vary considerably between contractors. While some maintainers may overhaul or repair at a cheaper price it does not necessarily mean that money is being saved, and it is as well to remember that you get what you pay for. Reliability is a further important factor that should be studied before components are committed to maintenance.
Early in the service life of new engines, repair technologies tend to be limited to the original equipment manufacturer (OEM) and/or a small number of vendors. As the engine matures, repairs become commodity services, putting direct pressure on prices, which forces providers to continually focus on ensuring they have efficient and competitive internal work strategies. Pratt and Whitney Engines Services utilises both Six Sigma and Achieving Competitive Excellence (ACE) optimum efficiency programmes to achieve their aims, while specialists such as SIFCO Industries, the Irish-based element of the SIFCO Group, a market leader in engine component repair, has concentrated its efficiency drive by incorporating advanced brazing and welding techniques and laser drilling technology into its portfolio.
Expenditure Reduction
In reference to his company's research programmes, Aidan Kennedy, the SIFCO Group's vice president for research and development, says, "Component repair specialists continue to develop and introduce new techniques that are yielding substantial reductions in maintenance expenditure, all of which help contractors to remain competitive in an increasingly price-sensitive market."
Savings of up to 25% on the repair of JT8D-219 first-stage nozzle guide vanes are being made, using advanced brazing and welding technology. A previously irreparable guide vane can now be fixed by the insertion of an airfoil insert - a practice that doubles or even triples the component service life.
Laser hole drilling technology has reduced process time to approximately 20s since the early 1980s, when electro-discharging machining was slow and expensive and took as long as 30mins for each hole. These time reductions at individual component repair level translate into an overall 20% cut in labour costs.
Unburdened by the large development costs associated with a new engine, the gas turbine component repair industry offers real cost savings. Depending on circumstances, repair costs per part usually range from 10% to 30% lower than replacement with a new component.
Pratt and Whitney assembled 22 PW4084 development engines prior to the design entering airline service. The options for recovering development expenditure on sales are limited because of the extremely competitive environment, so manufacturers must amortise these development costs over the engine's full life. Because of this, new parts carry most of the burden and are expensive. This is why there is a thriving component repair industry.
Another option for operators is buying from the secondary spares market. The airline industry spends around $10 billion a year on components, of which 10% are bought from secondary spare parts companies such as Aviation Sales Company and AirLiance Materials.
When AirLiance Materials, the joint venture between Lufthansa Technik, United Airlines and Air Canada, was launched in mid-1998, Hans Schmitz, LHT Logistik executive board said, "There is a huge demand among airlines for high-quality spare parts at low prices."
The strong emergence of specialist secondary market component providers reflects the growing trend within today's airline industry towards more innovative, cost-effective solutions in providing spare parts. By establishing efficient vehicles for the reallocation of inventory between airlines, the parts re-marketeers are helping lower maintenance costs within the industry by making quality pre-owned materials a more cost effective alternative to buying new spares from manufacturers.
Source: Flight International
