Aircraft Maintenance
Management Module
Aircraft Maintenance- Inhouse Vs. Outsourcing
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Outsourcing Vs In-House
Maintenance
 The current economic downturn forces accompanied by a
slow in demand had pushed severely on airlines budgets to
the limit where many started to evaluate their business
model. Outsourcing was the main reorganisation tool used
by some airlines and the trend is increasing.
 Outsourcing allow airline Managers to leverage resources
and capabilities by concentrating on core business
competencies that create value for customers and outsource
those non value added labour based activities.
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Levels of Outsourcing
The question asked by airlines, Should we outsource? If yes
then, which extent and what level?
This decision making process for outsourcing is described by
a four step model starting by internal benchmarking, leading
to external benchmarking, contract negotiation and
outsourcing management.
The four main level of outsourcing are:
1. Level I- Essential, few processes have an effect on the
airline performance and any misconduct of these processes
leads to more costs or threat to service level.
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2. Level II-Demand justification: the level of demand for
MRO by a customer does not justify venture in capabilities’
development.
3. Level III-Airline potential, there may be financial
constraints, skilled labour scarcity or availability of facilities,
this case MRO activities have to be outsourced.
4. Level IV-MRO capacity, the final element in deciding on
MRO activity is capacity where MRO can be under or over its
capacity.
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Cost factors consideration during
Outsourcing evaluation
 A number of factors would be analysed prior to reaching
outsourcing decision.
 The primary issue in this context “Is it feasible and cheaper
to outsource or keep In house? And most significantly
which activity or type of maintenance we should consider
outsourcing?”
 There is also another school of thought where they
disagree to outsource maintenance activities and stress on
the overall maintenance management concept. This
concept involves planning and strategies by keeping close
control over maintenance to avoid degradation of quality.
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 In order to address all these concerns, cost factors, theory
and practice that are affecting outsourcing during
evaluation process are outlined:
1. In house Maintenance Cost: This is the primary factor, as
the airline must exactly identify their In house costs
elements to be able to evaluate outsourcing options and
proposals. For example, the DMC cost element of In house
labour rate must be calculated accurately accounting for
variable and fixed costs including but not limited to facility
equipment, overhead cost as erroneously few experts
discount such costs from their rates analysis. All other
relevant costs to also be considered such as training, staff
pay and support maintenance
costs.
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2. Outsourcing maintenance costs: This aspect
includes subcontracting costs including third party
direct
charges,
Airline
representatives,
administration of documentation and audit teams,
etc. Additional costs with regard to mobilising
aircraft or components to MRO Base which means
loss of revenue to the airline during this activity.
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3. Risks of incomplete, deferred tasks and poor
quality. All these factors come in place more
frequently and would be difficult to penalise the
MRO for such faults as they will most likely
manifest
themselves
post
Maintenance
check
completion and even post the one year warranty
normally granted for such activity.
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Advantages of Outsourcing
1. New Airline Start up: If a new Airline starting up with
limited financial resources it would impractical to invest
high capital of Maintenance facility establishment.
Alternatively such airline is better off subcontracting this
smaller fleet size to an MRO and negotiates competitive
maintenance costs. For example, FlyDubai as a new airline
starting up in Dubai have subcontracted all of its
maintenance activities for a period of five years to
Emirates. This is considered a sensible decision given the
high establishment investment at a time when they try to
secure a sound Low cost model.
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Advantages cont’d
2. Airline existing capacity: Due to the airline
exponential fleet growth and per the aircraft
maintenance program, they could run out of hangar
slots, this way they need to outsource. Emirates
airline is a good example of this scenario, as hangars
slots are fading away with more aircraft due for
maintenance.
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Advantages cont’d
3. Human resources: In view of company policy
regarding staff costs, when more resources are
required for the extra maintenance tasks, hence such
activities can be outsourced to alleviate the burden
from the airline and release aircraft back to service
swiftly.
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Advantages cont’d
4. MRO Competitive charges: The MRO market is growing
rapidly and trying hard to secure airline maintenance business
for longer terms, hence they offer competitive rates which
might be well below airline costs it self had they established
maintenance facilities.
5. Fixed
costs
agreements-clear
prediction:
Fixed
maintenance agreements future costs are predicted easily for
budgets based on estimated flight hours.
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Advantages cont’d
6. More attention on airline business: If the airline
alleviate the maintenance burden and put that on
MROs, then it can further invest on the airline main
business and give more priority to passenger
satisfaction and relevant services.
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Disadvantages of Outsourcing
1. Quality and production control: As mentioned earlier in
this chapter, quality is not fully guaranteed by MROs to
match the airline standard even if it contractually reflected.
The production activity needs to be monitored by the
airline representatives, which brings higher costs to the
airline by accommodating its teams in foreign places. Also
the MRO charges dearly for even allowing those
representatives enter their premises or use of facilities.
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Disadvantages cont’d
2. Contractual penalties: Normally MRO contracts dictate
heavy Penalties on airlines if they miss a booked hangar slots.
This is prone to happen quite frequently due to potential
reasons where aircraft are delayed for days or even weeks
from the pre allocated maintenance slots.
3. Risk of Warranty loss: Warranties are normally granted
for the airline and not for third party MROs; hence OEMs
might reject warranties if units are tampered with by others. A
Long warranty claim process is required by suppliers if
Repairs authorisation provided to MRO staff.
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Disadvantages cont’d
4. Incomplete MRO capability: It is not uncommon to find
MROs subcontract many of the airline maintenance activities
to other third party in the maintenance loop. This introduces
more risks of Maintenance check delays with no control over
the full supply chain.
5. Logistics: As the aircraft or Engines are
mobilised/transferred to different location, this impose
additional costs of transportation and parts logistical support
between the base and the MRO facility.
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In house Repair facilities and
increasing maintenance costs
 Traditionally, the MRO services were an integral part of
the airline structure mainly due to the smaller size of such
airlines and lower demand of air travel. However in late
1980’s airlines started thinking of having more focus on
core transport activity and outsource remaining
maintenance functions. Besides, with the increased fleet
size and design sophistications of aircraft systems and
components, airlines are no longer capable of including all
required maintenance services under one roof.
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 Secondly, the development costs of such In house facility
including building, equipment, engineers training, and other
specialised testing jigs and benches, made it extremely
uneconomical for airlines to invest for such additional
establishments; therefore, the need arise to seek MRO for highly
specialised maintenance services. For example, Emirates airline
grew rapidly in the last decade in fleet size from small to a mega
carrier that had a direct impact on aircraft maintenance facilities
to also grow in similar magnitude.
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 For example, Emirates had invested more than $600M in
the new Engineering centre which was inaugurated in Nov
2007; this is already identified as not sufficient to cater for
Emirates new fleet. It is clearly evident that Emirates must
envisage outsourcing certain maintenance activities which
would alleviate burden from its In house maint costs.
 The development costs of In house repair shops greatly
depend on the level of outsourcing which the airline select.
In other words, if an airline elects to handle all levels of
maintenance including the non core activity, then large
investment capital must be secured towards establishment
of such facilities.
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Outsourcing Options- Heavy and
Line Maintenance
 The Airframe minor transit and “A” checks neither require
extensive labour nor material as the MPD task calls for
minimum inspections and routine maintenance. Airlines
have traditionally carried out these checks by their own
employees with less outsourcing. However low cost or
smaller type carriers tend to outsource not only heavy
checks but also Line maintenance and transit checks which
would allow them to fully focus on their core business of
transporting passengersAircraft
or Maintenance
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 Large carrier such as Emirates had invested in heavy
maintenance checks In-house and established a highly
advanced Technical maintenance facilities including fully
equipped hangars, specialised support overhaul shops and
expensive aircraft docking systems. In a contrast to the
past, Emirates heavy checks have been outsourced due to
lack of facilities and resources; all of the heavy “C” and
“D” checks are conducted in house when only a small
portion of outstation Line maintenance is outsourced.
 It is quite sensible to invite third party work and generate
revenues for those minor repairs within the maintenance
facilities if capacity and resources permits.
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 On the other hand, the MRO business started early 1990
and swiftly developed in the last decade. Airlines realised
that with the steep fleet growth and the technological
development and diversification of aircraft equipment, it
became extremely difficult for the airlines to have their
maintenance facilities undergo repeated developments or
investing in new repair schemes apparatus. That is why
many of the best – in – class airlines such as Lufthansa and
British Airways, have their own Maintenance organisation
turn into a fully fledged separate MRO companies that
focus on maintenance business development and act as a
profit centre while the airline focused on the core transport
operation activity.
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Outsourcing Options- Power Plant
Maintenance
 The engine normally is the highest stressed module due to
running high temperature during the aircraft takeoff/landing not to mention their susceptibility to bird
strikes, external environment factors and airports altitude
status.
 Since Engines produce power by burning fuel within the
core chambers, the internal hot section parts such turbine
blades must have special material alloys design and
specialised manufacturing processes.
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 This specific hot section design raises the Engine
maintenance costs significantly where such parts are
replaced at certain cyclic maintenance overhaul intervals,
otherwise referred to as engine rebuild.
 The Engine also contains many major expensive controlled
parts called Life Limited Parts (LLPs) such as Discs,
Shafts and rotors. As these LLPs are revolving at a vey
high speed, they are prone to damage at any point in their
life, hence these are strictly monitored and their records are
carefully controlled for proper maintenance (repair or
replacement).
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 Therefore Engine maintenance cost consist highly of
materials over 80% of total Engine repair costs as
compared to the rest of the aircraft systems where
maintenance costs are extensively labour (i.e. more than
50% are labour costs).
 Engine accessory LRUs and cowlings rotables and are
handled in the same manner as condition based parts to
either repair or overhaul to restore their serviceability and
fit back for further flights. This process continues until a
hard life refurbishment or replacement requirement though
manufacturer often waived such need due to embodiment
and continuous technical development to these
components.
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 The Engine and accessory repair/overhaul facility usually
require a major investment due to specific repair processes
and sophisticated repair schemes. The airline is heavily
burdened by such facility establishment and therefore
majority of airlines (more than 96%) outsource engine
maintenance to OEMs or MROs.
 These outsourcing options are arranged commonly through
negotiated fixed repair agreement or guaranteed power by
the hour packages, i.e. fleet management agreements. The
other available outsourcing option is to utilise the
contractual maintenance costs guarantees and remain on
time and materials basis.
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 However, this option might bring many risks due to future
costs uncertainties though initial repair costs would be at
minimum due to newness, warranty and guarantees factors.
 Similarly, the power by the hour contracts have negative
impact on the airline revenues and cash out flow because
of fixed payment from the start of operations. Also, for an
established airline engineering maintenance facility with
high fixed costs, outsourcing option will increase engine
repair costs to the airline due to improper utilisation of its
own facilities and coverage of such high fixed running
costs.
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Outsourcing Options- Components
Maintenance
 This is a significant area of maintenance activities because
of population and higher number of removals as compared
to Engines and Aircraft systems.
 OEMs historically did not focus on maintenance work of
the LRUs but due to the erosion of their profits from
production units through aircraft manufacturers and/or
airlines negotiated contracts, they start to give more focus
on maintenance work and in most cases competing with
MROs and other service providers.
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 Therefore, if the OEM long term component repairs or
restoration charges are viable, outsourcing of such services
thereby recommended that allows the airline to focus on its
core business and other value added in house repairs.
 Therefore, it is clearly evident that with the steep fleet
growth and new technological advancement of aircraft
parts, airlines are left with no options but to envisage
outsourcing but with due diligences and focus on the
process of how this would be conducted.
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Additionally, airlines could consider following steps:
1. Airlines must approach single source suppliers in order to
secure lower exposure and/or guaranteed thresholds prior to
buying aircraft, i.e. during aircraft negotiation acquisition to
use the leverage to obtain the required deals and protections.
2. Focus on consumables which are top DMC drivers which
are clearly overlooked due to insignificant individual item
price but collectively extremely expensive. Shops to develop
In house capability focus on high DMC cost items.
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 3. Airline Engg leadership might need to consider
organisational structure change within the Engg Depts to
align, channel efforts and approach for the optimum goal
of efficient utilisation of people and equipment.
 4. Put non exclusive GTA with MROs in order to leverage
Airlines position with OEMs. This will provide the airline
the necessary buffer to conduct proper outsourcing in the
most efficient economical manner.
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Outsourcing Conclusion
 As a general conclusion, all aforementioned
reduction in maintenance costs initiatives and
endeavours will certainly have an impact on the
airline’s profitability, competitive advantage but
would not affect quality and overall corporate
objectives.
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