Outsourcing Airplane Maintenance: A Blessing in Disguise or a Bad Deal?

Subcontracting airplane maintenance is nothing new. In fact, it is an ongoing trend that is now becoming the norm, especially among the fastest growing segment of the global aviation market, the Low-Cost Carriers (LCCs). Think of Jetstar Asia’s Head of Engineering, who explicitly said that the company wants a Maintenance, Repair, and Overhaul (MRO) provider that is capable of providing a full suite of Fleet Technical Management (FTM) and Inventory Technical Management (ITM) services, along with a strong and proven ability to provide Aircraft on Ground (AOG) recovery from technical failures. This also finds air carriers like SQ Group on the same page, who have subcontracted out both the FTM and ITM and the quality department to Boeing. Let’s also note that local aviation authority seems to consider outsourcing quality to a 3rd party could deliver benefits to air carriers.

The question is, therefore, whether outsourcing airplane maintenance and technical management tasks is indeed such a good deal or not. Should airlines keep subcontracting engineering work or keep it in-house?

Evaluating the Subcontracting Reality

Although all air carriers agree that their business is to make sure people fly safely from one location to another (with most of them making line maintenance a requirement), some argue that MRO is out of their league, and that it calls for a lot of tooling and overhead that they would instead leave to the experts. So, it is no wonder that maintenance expenses have increased by about 30% between 1996 and 2007, in the US alone, while the number of foreign FAA-certified repair facilities has doubled during those years too.

Now, when it comes to inventory management, the cost runs into millions, mainly for being a challenging task (demands a large workforce and a considerable amount of work to be done), which is why airlines choose to get out of inventory management and outsource it to companies dedicated to ITM. 

Chart: An average of 35% of airline expenditure goes to maintenance. Subcontracting out the engineering contribute to cost reductions, given that most tasks can be performed by specialised providers in workplaces with more efficient utilisation of equipment, manpower and resources. (Note: Flight Operating Costs (FOC) varies from aircraft type and different airlines using the same aircraft)

According to IATA (International Air Transport Association), international MRO spend was valued at around $62 million in 2014 (includes overhead), taking up almost 9% of operational costs. It is expected to climb to $90 billion by 2024 (3.8% annual increase).

Problems About Subcontracting FTM & ITM

Two of the most fundamental concerns that bother everybody involved include:

·      Passenger Safety – Although air carriers are (in many countries) the ones solely responsible for the maintenance of their aircrafts (whether subcontracting it or doing it themselves), outsourcing FTM & ITM could put passengers’ safety at risk if maintenance standards are not met (i.e. mechanics or inspectors not being trained, qualified, or certified to do the required work).

·      Airline reliability – If airlines don’t ensure that they subcontract critical tasks to reputable suppliers (for inventory management) and service providers (for fleet management), it may have a direct impact on the airline’s reputation, with flight delays, cancellations, environmental pollution, and airplane accidents. Data shows that airlines with higher levels of maintenance subcontracting tend to receive more complaints about flight delays.

Benefits of Having an MRO Provider

Some of the main pros about outsourcing FTM and ITM are:

·      Maintenance Cost Savings - It can save you significant amounts on maintenance. This is because you get specialised personnel with expertise on the specific types of aircraft, who are sometimes equipped with more cutting-edge aviation technology, such as better machinery (and even better processes) for maintenance.

·      Reduction of HR overheads - Think of the money you save from not having to deal with sick days, leaves, and disciplinary actions – there will always be someone to do the job required.

·      Experienced Workforce Available Pronto – There is no need to send the engineering staff for type training, which, in turns, reduces engineering debt for air carriers.

·      Low Storage Cost – If inventory management is outsourced, airlines will not need to keep aircraft spares in-house, which consequently reduces storage cost.

Most Common MRO Models

Airlines usually choose one of the following MRO practices:

1.    Wholly Outsourced MRO – Very common among startup airlines who do not wish to take on MRO, either because establishing an MRO capability is not part of their core business plans or because they don’t have the funds to do it.

2.    Mostly Outsourced MRO – Airlines choose to deal only with their most significant needs as defined by their own requirement, and outsource most of the FTM and ITM work.

3.    Partially Outsourced MRO – This is a practice mostly suited for air carriers with a few types of aircraft, who want most of the management to be done in-house.

4.    Fully Integrated MRO – Nothing is subcontracted. Could be effective for air carriers with large fleets (many different aircraft types).

MROs are growing by the day, in response to the increasing demand. With significant aircraft maintenance (and other) cost savings to consider it is also paramount to establish trust relationships with reputable MRO providers to ensure the credibility of the airline.