Airline MRO Strategy

MAINTENANCE STRATEGY

MORE TO MAINTAIN

InterVistas’ Emre Serpen considers the processes airline MROs should be undertaking when looking at how they can develop their business as the market grows

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irlines today face increasing competition. Boeing’s latest global market forecast estimates the number of aircraft in service will grow from 19,890 in 2011 to 39,780 aircraft in 2031. It sees delivery of 34,000 aircraft over these 20 years, including more than 23,000 single-aisles.

At the same time, a study by aircraft lessor Avolon shows the proportion of the aircraft fleet that is 25 years and older has increased from 30% in 1990 to 60% today.

These figures all strongly suggest that the maintenance, repair and overhaul market is set to grow significantly. Some airlines can benefit from this growth by leveraging their MRO capabilities and extending their thirdparty MRO services. This, however, requires the improvement of their MRO capabilities, and of delivery performance.

MROs without a captive customer which have to compete for third-party business have a general need to be more efficient, compared with those that retain captive customers.

There are many symptoms of inefficiencies.

Often, leadership is focused on day-to-day

execution, leaving insufficient time for strategy, planning and performance management.

Other symptoms include a lack of collective view and consensus on priorities and a firefighting mentality that inhibits the delegation of accountabilities and empowerment cascading down to management and supervisory levels. Insufficient focus on costs and productivity, finance marketing and human resource capabilities could limit an airline’s MRO efforts to improve its competitiveness.

The right market segment

Improving competitiveness starts with a focus on the right market segment. This should be one where demand exceeds supply and the airline MRO has previous experience and exposure to the market segment, including aircraft engine and component type. This is then followed by alignment of the business and productivity improvements, enabling an airline MRO to deliver the service at market rates with the ability to grow market share profitably.

Factors that influence the selection of particular market segments include the airline MRO’s previous expertise, market demand for

the target segment and available and planned competitive capacity. A market forecast can be executed at the global and regional levels, as well as with a specific geographic focus, and can include the following elements: ■ Aircraft category ■ Aircraft generation ■ Maintenance activity ■ Aircraft/engine type ■ Component category Analysis of supply is just as important as the demand for MRO services. Such an analysis includes the airline MRO’s competitors, relative strengths and weaknesses and market fares. The typical supply-side analysis will address the following questions: ■ Who are the main suppliers/supply groups

by MRO segment? What are their strengths and weaknesses? What are their capabilities?

■ What are the main services/value propositions? Where possible, what is their estimated market share?

■ What are the MRO’s pricing strategies?

■ Who are their main customers? What are their fares?

■ Evaluate current and potential customers of

SAMPLE SUPPLY CHAIN PROCESSES

Material forecast

Inventory management

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Procurement

Stores

Transport

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Air France KLM

INVENTORY COSTS Inventory & components

Airline 1

Airline 2

Airline 3

Total inventory carried Number of aircraft Inventory per aircraft

$8.45m 12 $704,000

$13.5m 22 $614,000

$10.25m 17 $603,000

an airline MRO to assess expected business potential ■ Which airline customers are likely to use it?

■ What amount of business can be generated from third parties?

■ What services should be offered?

■ What are the target fares?

Demand and supply side analyses help airline MROs to quickly focus on the right segments. Involvement of MRO leadership and sales and marketing will enable them to contribute their expertise. Workshops to discuss priorities will complement the detailed analysis, and help engage executives and management.

However, demand and supply-side analyses only provide a macro level view to an MRO’s operations. These analyses must be complemented with a bottom up micro-focused analysis of the airline MRO’s customer requirements, and feedback on its performance. The information can be used during business alignment and productivity improvement efforts.

Customer analysis can be carried out through a series of meetings and workshops with the airline MRO’s current and future customers. The information obtained from these meetings and workshops can be used to provide a more detailed and granular view of cusflightglobal.com/ab

tomer expectations. It can also be used to identify new service requirements and areas for improvement in performance. The information will be useful for the airline MRO to capture a greater share of the market.

Once the segment priorities are established, the airline MRO is ready to deliver the service at market rates, which then requires business alignment and productivity improvement efforts. Activities include benchmarking, diagnostic, process improvement, organisation alignment, performance management and systems.

The benchmarking process is carried out to compare the airline MRO with its peer group, competitors and best-in-class companies. The benchmarking process includes: ■ Asset utilisation: fleet availability, unscheduled aircraft out of service, on-time performance ■ Maintenance costs: maintenance CASK, MCASK per flight hour, maintenance yield ■ Labour productivity and costs: employee aircraft, overtime costs, material usage ■ Planning and engineering efficiency: maintenance planning yield ■ Turnaround time and costs: airframe, engine shop and component shop productiv-

ity, average costs and duration of light and heavy checks ■ Supply chain efficiency: inventory per aircraft, inventory turns, delays due to lack of parts, AOG requests ■ Safety: in-flight shut down rate, diversions, engine MTRB, rejected take-off.

The benchmarking process will identify areas of potential opportunity for improvement, and must be followed by a detailed diagnostic assessment of processes and procedures.

This should include a review of engineering, maintenance planning, base maintenance, line maintenance, production control materials supply, outsourcing and contracts, QA, inspection and safety and security. By utilising predefined diagnostic templates and checklists the assessment can be handled quickly.

The processes are examined for inefficiencies by measuring any deviation from recognised best practices in the industry, as well as any compliance infringements. The diagnostic analysis will focus on the variances between inefficient operations and best practices, and will determine what impact the gap is having on the airline MRO’s performance. The diagnostic analysis can identify missing components in a typical supply chain process (see chart 1). For example, some airline MROs do not have a structured material forecasting process driving the supply chain, and these activities are fragmented with different reporting lines in the organisation, with no one having accountability for delivering the required part to the required place when required at minimal cost.

An operating plan based on the airlines’ schedule will optimise the top and bottom line revenues by minimising aircraft ground time and utilisation, subject to operational constraints. Network design and flight schedule development can drive inefficiencies in

“Once the segment priorities are established the airline MRO is ready to deliver the service at market rates” line maintenance costs, with many aircraft resting overnight in outstations away from maintenance bases. The lack of alignment between network and fleet planning, scheduling, operations control and maintenance can also be key drivers to inefficiencies.

Line maintenance benchmarking can quickly indicate inefficiencies in the MRO process. For example, (see table 2), a top-down evaluation of inventory costs indicates that Airline 1 has higher inventory costs when compared with the other two sample airlines.

Line maintenance improvements can be November 2012 | Airline Business | 39

MAINTENANCE STRATEGY

Perfomrance measures FINANCIAL Actual financial performance v budget Maintenance cost/ASK ($/ASK) Maintenance cost/flight hour ($/fhr) Maintenance cost/ man-hour ($/hr) Total revenue ($) Operating profit ($) Operating profit rate (%) Return on assets (%)

OPERATIONS Flight exceptions (no./1,000 dep) In-flight shut-down rate (no./1,000 dep) Compliance fractions (no.)

Ground damage value ($) Total aircraft out of service (%) Scheduled aircraft out of service (%) Unscheduled aircraft out of service (%) Revenue man-hours/ employee

CUSTOMER SATISFACTION Technical delays (no./1,000 dep) Maintenance delays (no./1,000 dep) Parts delays (no./1,000 dep) GSE delays (no./1,000 dep) Customer satisfaction (%) Share of revenue of returning customers (%) Customer retention rate (%)

driven by comparing line management activities against a predefined diagnostic checklist: ■ Selection of line maintenance: bases should be considered against the schedule to minimise costs ■ Maintenance programme: Ensure the transit checks and overnight checks are performed in compliance with programme ■ Planning: carefully manage maintenance yield of line checks ■ Shift optimisation: staff according to aircraft maintenance demand ■ Material kitting: prepare line check kits consisting of all material (rotables and consumables) required to perform their jobs efficiently ■ Outstation contracts: proactively negotiate and establish on-call contracts for low traffic cities Supply chain improvements can be driven by comparing line management activities against a predefined diagnostic checklist: ■ Do we have supply chain benchmarks? How do we rate against them?

■ Do we balance inventory carrying costs against AOG risk? Do we have KPI in place, and is someone of authority held accountable?

■ End to end responsibility for supply chain management material supply, inventory management and procurement.

■ Whether to own parts or have the parts owned by heavy check contractors?

■ Streamline supply chain and take out breaks/barriers?

■ Evaluation of long-term demand and volume procurement against best timing (ICC versus AOG risk.) Obtain volume discount?

■ Different elements of supply chain reporting to different units?

■ Do we have supply chain KPI’s implemented?

■ Provide variable compensation to supply chain manager (performance based on measures of on-time delivery, AOG time and inventory carrying costs) ■ Do we perform regular stock checks, analyse turns – fast movers versus slow movers – and sell unused stock?

Performance management is key to improving staff motivation, offering clear accountabilities and developing quality, financial, customer service and results-focused teams across the organisation.

measured performance

Effective MRO performance management requires the use of easily measurable and simple performance measures. This increases the level of empowerment and staff motivation.

Use of a balanced scorecard enables a focus on profitability, technical compliance, customer service and staff development. Measures are further developed for each level in the organisation, and they are part of an integral system enabling alignment of staff and management goals with the goals of the airline MRO. Key performance measures are assigned to staff accountabilities in job specifications.

Developing best practice airline MRO processes and performance management should be supported with and integrated into effective systems strategy enabling integration of MRO activities. Systems are often not fully aligned with requirements of the processes, and they do not provide sufficient integration across the business. Without a fully aligned and integrated systems portfolio, efficiencies will be compromised. Selected objectives of systems portfolio supporting business objectives include: According to business information provider Visiongain, the global commercial aircraft MRO market is estimated at $48.8 billion in 2012. With a strong forecast for aircraft deliveries in the next 20 years, the aircraft MRO market is poised to experience strong growth in the near future. Airlines will improve the efficiency and effectiveness of their MRO capabilities to take advantage of this lucrative market. ■ Dr Emre Serpen is an executive vice president and head of InterVistas Consulting Group’s Airline Practice.

Emre has led multiple airline MRO strategy and improvement projects worldwide. Emre.Serpen@ Intervistas.com

SELECTED OBJECTIVES

PEOPLE DEVELOPMENT Technical flight accidents/ incidents (no./1,000 dep) On-the-job injury rate (no./mhr) Work-related deaths (no.)

Improvement in employee satisfaction (%) Progress against strategic plan Progress of training against plan Growth of revenue man-hours

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Process

Objectives & Benefits

Maintenance planning

Plan and scheduled preventative maintenance, co-ordinate non-routine maintenance, develop plan based on usage Use finished records to analyse legal configuration and associated costs, modification based on operational plans and regulatory requirements Ensure resources are planned to deliver maintenance plan, modify production events to meet changes in operations and schedules, monitor work in progress Provide spare parts need to support maintenance operations, manage and track parts usage, warranty and claim administration Monitor aircraft hours to ensure aircraft meet maintenance plans, ensure aircraft flo is consistent with operational objectives, track main-base visits to better forecast return to service Track and retain aircraft modification information for each aircraft, airworthiness directives, service bulletins

Configuration management Production planning Inventory management Routing Airworthiness requirements

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