Outsourcing of Aircraft Maintenance - Cost Essay Example
BENEFITS OF OUTSOURCE FOR AIRCRAFT MAINTENANCE Good afternoon, in today’s agenda, I would like to bring your attention to the benefits of internal and external aircraft maintenance - Outsourcing of Aircraft Maintenance introduction. As studies have shown that the cost benefits are marginal to maintain the aircrafts internally, the company is looking into contracting this process to external vendors. I believe most of you are wondering why we are planning on such move, let us look at the possible factors between internal and outsource of our aircraft maintenance process.
A) Factors for continuing aircraft maintenance and outsourcing it Currently, by managing our aircraft maintenance internally, our maintenance crews are able to learn and co-train for each type of aircrafts; hence this helps to improve individual’s competencies and knowledge. However, last year’s finance summary showed that the cost involved in training the crews, salaries, purchasing and maintaining the tools and equipment were over budget, and the benefits were just marginal.
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Besides our maintenance crew, we also added additional crew to form a quality team and a safety team to ensure quality and environment safety for the maintenance crews, which contributed to the labor costs. All the maintenance cost incurred is known as the variable cost. Friend (1992) states, “A way to measure maintenance cost is the number or proportion of an airline’s staff engaged in engineering and maintenance work. ” One solution to reduce the cost is to outsource the whole maintenance process; this will reduce the number of workers in our company, especially those on long-term contract.
For example, the variable cost needed to maintain the aircraft internally might be $200 thousand, which is dependent on the number of man-hours required to service it. Outsourcing the maintenance package is based on fixed cost, and according to market rate, it is about $100 thousand for each aircraft. This helps us save $100 thousand in servicing cost. Another factor is that the agencies will have responsibility to oversee the whole maintenance process, which will significantly reduce our workload, and hence ur manpower can focus on other important sectors. Cannon and Richey (2012) state, “Business aviation is driven by technological advances in airframe design and avionics development. Maintaining the seemingly ever-increasing inventory of business aircraft is accomplished by a diverse set of rules and regulation. ” As technologies advance, newer, more sophisticated and costly equipment are introduce into the market to maintain the aircrafts, we will need to buy and maintain those equipment if we continue to do our maintenance internally.
By outsourcing the maintenance, this can help the company to reduce the expenses in purchasing that equipment, and maintaining them. Our airline will continue to purchase new aircraft within the next five years and the current hangers that we have currently will not be able to cater for the whole fleet’s servicing; therefore if we were to continue with our maintenance, we will need to look into building a new hanger in the near future. If we are able to go for outsource option, we might be able to sell off or rent out some of our existing hangers’ space to generate revenue.
Cannon and Richey (2012) state, “Poised on countless ramps and sequestered in thousands of hangers around the world, the business aviation fleet of aircraft is maintained by a dedicated group of professional maintenance managers and technicians. ” We understand that there are concerns such as maintenance standard from external agency, what if it doesn’t meet the standard, dateline, and will it affect the aircraft flight safety and hence ruin our reputation?
We can base our criteria on the following factors during the selection process • Cost of the overall process, known as fixed cost • Reputation of the agency • Labor skills, competency levels • Past history records on time delivery of paper work and aircraft • Warranty claims, contract clause and liquidity damages charges These are just some of the vital pointers, but we are definite that the agencies need to meets our requirements before we engage them. B) Decision on adopting external agencies maintenance
Since our current cost benefits are marginal, I believe our next step is to outsource the maintenance. Although we may be in a better situation of ensuring quality control by up keeping the maintenance internally, we should consider external agencies. Sheehan (2003) states, “A properly certificated repair station has the advantage of written minimum personnel qualifications, supervisory methods, quality control programs and a higher level of surveillance from the national regulatory authority.
Further, the depth of personnel and experience for a given task are usually greater for an Approved Maintenance Organization, AMO. ” With such professional services, we will be able to shorten aircraft turnaround time so as to eliminate passengers’ inconvenience due to technical irregularities. Furthermore, we can attach some of our technicians to the external maintenance agency to learn on the servicing process, as it is excellent training for them. This also helps to enhance our technician’s competency.
At the same time with technicians on the site, this sends a strong message to the agencies regarding a desire for quality output. They can also act as a ready point of contact in case if there is any dispute or delay in production. Another significant benefit of outsourcing is saving fuel costs. If we are to maintain our aircrafts’ servicing, the aircraft needs to fly back to the hub in order for servicing to happen, if not, we have to service the aircraft in advance to prevent maintenance due when aircraft is deploy to other countries.
With worldwide outsourcing maintenance made available, aircrafts can conduct their servicing as and when necessary. They do not need to fly back to their hub anymore; hence this helps to save cost by saving fuel consumption. There are some reputational maintenance agencies overseas such as in Indonesia and Brunei, and if they meet our requirements and standard, we can outsource to them and send our aircrafts there for servicing. The cost servicing will be cheaper than maintaining them internally due to heaper labors and rental. Moreover, our currency is higher; hence it is more economical in terms of cost and also where safety is paramount with our standard. Our mission statement is to gain profits for the company and stakeholders. In this competitive industry, while the company is trying various ways to generate revenue, outsourcing the maintenance helps to relieve labors cost, reduce the company expenditure; which is another way of generating revenue.
Members of the board, we do seek your kind support in our proposal. Please highlight to me your area of concerns if you do have any. Thank you. REFERENCE BookJohn J. Sheehan, 2003. Business and Corporate Aviation Management. James R. Cannon and Franklin D. Richey, 2012. Practical Application in Business Aviation Management. C. H. Friend, 1992. Aircraft Maintenance Management. AI-Kaabi, H. , Potter, A. , and Naim, M. , 2007. An outsourcing decision model for airlines’ MRO activities.