Just in case - the insidious reason behind all those rows of aircraft components sitting in hangars around the world. But being prepared for every eventuality comes at a steep price and it is one that airlines cannot afford. When you have played unwilling host to unused inventory for several years you know things have to be done better. And when it turns out that some of those items are actually no longer usable then the full horror of the situation becomes clear.
As maintenance managersgathered at the MRO Europe event in Hamburg in September, the theme of airline efficiency was high on the agenda. Head of Irish inventory control software specialist Armac Systems MicheálArmstrong described the situation he encounters at airlines: "In aerospace typically more than 50% of the inventory hasn't moved in two years. The accountants come in and ask what's going on, and I tell them that actually that isn't too bad. Typically we find that the solutions people have in place leave a very high level of slow moving and dead stock on the shelf."
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He adds that by using a service like Armac, companies can manage their inventory more effectively and cut their spend by around 25%. "That is money for things that have just sat on the shelf before going obsolescent."
Times are tough and airlines are under pressure to seize upon any potential cost savings. SR Technics vice-president, business strategy and commercial services. Erwin Bamert says: "Components are currently 20-25% of fixed asset costs of today's airlines so there is tremendous room for improvement. There is up to a 30% saving potential on the total cost of ownership and operation."
Theseestimates are broadly backed up by the experience of Icelandair, which has slashed its inventory expenditure. Senior vice-president, technical services, Jens Bjarnason, says: "We achieved about a 25% reduction in rotables costs. So today I am much happier than I was three or four years ago."
The sums of cash involved can be quite substantial. A new study from consultants Oliver Wyman observes that a typical developed airline has several hundred million dollars worth of rotable and repairable components in its inventory, totalling as much as $700 million at the largest airlines.
So what is the problem? Armstrong from Armac believes he has the answer: uncertainty. "In the aerospace industry there is a lot of on-condition maintenance, but even when it is scheduled it is based on inspections and you still don't know what you will need. So all that results in a level of uncertainty, and there is an even higher level of uncertainty about material. As you move down the supply chain then the tail gets wider." This means around a quarter of all orders raised are for stock which will ultimately become obsolete.
"Uncertainty is a reasonable excuse but it could be done much better. It's not possible every day to make decisions about tens of thousands of parts and decide what to buy and what not to buy. You have to put in place a solution that addresses the complexity of the problem," says Armstrong.
For many airlines, particularly smaller ones, the accepted answer is to outsource the problem, normally as part of a wider contract with one of the major integrated maintenanceproviders. Bamert from SR Technics says airlines with narrowbody fleets of fewer than 60-80 aircraft lack the critical size to manage maintenance as a management function and to handle inventory financing, but above that scale you get beneficial scale effects. Bamert continues: "Also a dense, homogenous network provides many more intrinsic possibilities in itself, whereas an airline in a very remote environment is more looking for safety and reliability and so on."
The increasingly common solution is to make use of component-pools in which a third party, sometimes the airframer, operates a pool of spares for a group of airlines. Bamert supports this concept but cautions that it is vital to take a long-term approach.
He explains: "Older aircraft benefit from the pool because they get rejuvenated, but younger aircraft get aged. So the result is that integrated solutions are not something to do just for one year. You enter at the very beginning and get warranty credits. Then you operate for five to ten years and, although you get some premature ageing at the beginning, you get the profit at the end."
Icelandair, which owns 17 Boeing 757s and manages a further 16 aircraft, has successfully used outsourcing at Delta TechOps, although it continues to own its rotables. Bjarnason notes part of the problem is that when new aircraft types are introduced into the fleet, airlines, and the airframers themselves, tend to create conservative inventories because of the uncertainty about operational needs.
"I have pilots' seats that have been sitting in the stock room for 15 years and nobody has touched them. That dates from Boeing support at entry into service all those years ago, but reducing the level of stock by selling it is not easy," says Bjarnason. "We considered things like sale and leaseback, but when we did the numbers it turned out that we didn't see the benefit. Although it remains an option for all operators because many of those parts are rarely used."
Icelandair ended up choosing between British Airways and Delta TechOps. Just three hours away and operating Rolls-Royce-powered 757s like Icelandair, BA seemed the obvious choice, but more distant Delta, with its Pratt & Whitney-powered 757s won the day. "Delta was willing to put turnaround times in a binding contract with penalties, so that overrode the BA advantage of location and commonality. Mostly we wanted a single vendor who would basically handle the repairs of the rotables on a flight-hour basis which would be variable and come down with activity and protect against the risk," says Bjarnason.
TIME PRESSURE
Lufthansa Technik director of components sales and customer service, Burkhard Pfefferle-Tolkiehn, confirms the growing importance of turnaround times in the components context, noting: "In the MRO business the main driver is turn-time. Our focus is to get turn times on the components too and to get the overall cost of ownership right down."
Oliver Wyman is also sceptical about sale and leaseback, saying in its report: "It is purely a financial play for cash and liquidity, doing little or nothing to improve the management and optimisation of the underlying asset base. In North America most such transactions have focused on this financing aspect and have proven costly and complex to manage when compared to more traditional sources of capital."
But it is enthusiastic about pooling, finding it gives airlines access to the expertise of dedicated specialists and provides the benefits of scale. The consultancy firm also questions the reluctance of North American carriers to engage in pooling, compared with their European equivalents, concluding: "Pooling makes more sense than ever for carriers in the USA, Canada and Mexico. Shifting massive amounts of inventory to pool managers should become a high priority. Doing so will create leaner balance sheets with more cash and less hard-to-manage inventory."
In Asia, the army of low-cost start-ups over the past few years has tended to follow the European model, benefiting MRO-provider ST Aerospace among others. ST Aero president Tay Kok Khiang says: "One of our most successful case studies is Spring Airlines from Shanghai. Since their inception in 2005, ST Aerospace has been providing components management and maintenance support for their fleet of A320s. We believe its ability to remain profitable throughout these four years is much due to its ability to keep its maintenance cost structure lean."
Source: Airline Business
