Leaning the line with outsourcing
Line work is usually the last maintenance segment to be outsourced as it is so intertwined with daily operations and requires mostly labor, not specialized capital equipment. But that may be changing, as managers take a closer look at all costs and options.
The case for outsourcing line duties is usually strongest at airports where an airline bases a small amount of aircraft, usually fewer than five jets operating a total of 30 daily flights. It is hard to fully utilize line staff, stocks and facilities with this volume. Outsourcing is also attractive at foreign destinations or purely seasonal destinations where long-term staff commitments are difficult.
Most important, as line outsourcing has grown in recent years, sophisticated providers have expanded their services to more airports, allowing airlines to take advantage of economies of scale. Those companies also have gained experience in writing smart contracts that tie payments to performance and aircraft reliability.
Outsourced line maintenance can include “anything that can be done when turning an aircraft or during an overnight layover at an outstation,” summarizes Mark Davis, senior VP of sales at Timco Aviation Services. The typical 6-10-hr. layover provides opportunity to repair deferred items. “These are not safety items,” Davis emphasizes. “For example, a cabin tray that does not flatten, a seat that does not stay upright or a faulty passenger service light. These are not critical, but they are important to customers.”
Savings from outsourcing such line repairs depend partly on airline labor costs. Timco can generally save customers 20-40% on line support, Davis estimates.
Hurdles to outsourcing include an airline's possible need to meet contractual obligations to unions. “We do not want to overstep those bounds or cause issues,” Davis says.
But Davis expects more line maintenance will be suited for outsourcing, partly due to the maintenance programs on new aircraft. For example, the first heavy check on thewill not be due until its 12th year of service. “Until then, phased checks will apparently be done in a line environment,” Davis observes. “A lot of these will be done in-house, because airlines will normally layover the aircraft at their bigger locations where they have their own staff, but some may be in outstations that will present opportunities for line outsourcing.”
Timco has no problem working with customer IT systems and the maintenance control centers that release aircraft after repairs are done. The company has Galaxy devices on which it can load airline manuals and get real-time updates. “We have been beta-testing this for six months and plan to roll it out to all our stations,” Davis says.
Outsourced line maintenance can be anything from on-call support to dedicated services, notes Certified Aviation Services (CAS) President Brad Caban. “We are the workforce for the airlines.”
One advantage of being an outsource provider is that CAS learns how various airlines work. “We see the good, the bad and the ugly,” Caban says. “We can recommend best practices to our customers.” For example, CAS recommends efficient ways of handling documents and parts. And the company is helping several start-up carriers track liabilities, plan tools and inventories, and establish a maintenance control center. “You learn much quicker as a contractor.”
The other advantage of outsourcing is efficiencies of scale. “We can deploy staff efficiently for multiple customers,” Caban says. “They pay only for services, not full-time employees.” He estimates customers generally save about 15% of line-maintenance costs by outsourcing.
Airlines usually pull line work in-house when they receive up to five (remains over night) checks daily at a station. Fewer than five RONs per airline is the sweet spot for outsourcing. “Of course we want more than one customer at an airport,” Caban stresses. “Once we get to critical mass our efficiency goes up and we can build storage for inventory.”
Caban says one hurdle to outsourcing is that small airports try to keep national providers out in order to protect local providers. And some carriers still see contract maintenance as of lesser quality than in-house support. But he insists that national providers like CAS employ technicians comparable in experience and knowledge to airline mechanics.
Union interests are still quite strong, Caban acknowledges. “We are sensitive to that.” Unlike union shops, CAS does not pay seniority differentials. The CAS chief says working with multiple airline information systems is not a problem, as the company has learned to adapt.
CAS provides line support at 23 stations, sends teams to modifyin India, installs inflight entertainment and WiFi systems and does repairs like re-skins and stabilizer replacement.
Outsourcing line maintenance, where 70% of costs are for labor, can reduce overall labor expenses, says Andy Best, head of line maintenance-international at(SRT). Line outsourcing also cuts costs for training, equipment and tooling, especially for start-up carriers.
“Well-managed third-party maintenance providers possess a range of capacities and experiences that can improve aircraft turnaround time, reduce maintenance downtime and increase aircraft availability,” Best asserts.
Line work that can be outsourced to SRT includes maintenance through A checks, non-destructive testing, cleaning, fueling, de-icing, cabin maintenance, inflight entertainment, aircraft-on-ground recovery and troubleshooting.
Best says cost savings depend on scale economies and occur in many areas; for example wages, pensions, training, clothing, insurance, health costs, tooling, equipment, property, heating, lighting, communication and transport.
One major hurdle to outsourcing is that line maintenance is critical to operations, so third parties must take ownership and be accountable for results. Providers must commit to key performance indicators (KPIs) for maintaining quality and staying on time and on-budget. And customer airlines must have the staff and processes to ensure compliance. “We have regular and productive communication to track performance KPIs, and services are developed in line with airline strategic aims,” Best summarizes.
He says outsourcing line maintenance is more likely when a carrier has four or fewer aircraft based at an airport. But other factors also matter. What is the airline's maintenance strategy? What type of support is required? Is the airport a seasonal or foreign destination, both of which are often outsourced? Is the airline a member of International Airlines Technical Pool (IATP) so it can call upon IATP members for part-support? What local facilities and business licenses does the airline have? Finally, is there a service provider available with the necessary aircraft type approval?
All types of line maintenance can be outsourced to third parties. “There are no objective technical reasons that prevent outsourcing in most situations,” says Jonas Butautis, CEO of FL Technics. “But decisions to outsource are politically and socially sensitive.”
Butautis downplays flight counts as a critical factor. The key is “benchmarking your in-house solution with a quality alternative at the same airport.”
KPIs are often given as a reason not to outsource, but Butautis says it is easier to hit desired KPIs with strict contract management of an outsourced supplier, including heavy fines for non-performance, than with in-house staff.
Butautis argues that even home-base stations can save costs by outsourcing or partnering with the right providers. “The U.K. TUPE [Transfer of Undertakings, Protection of Employment] employee-transfer system makes savings more challenging to achieve.” But even with TUPE, “savings can range from 15-25%.” Moreover, “outstations are always more cost-effective to outsource, if quality local maintenance organizations are present.” Butautis estimates savings of 15-60% at outstations, depending on how inefficient in-house work is.
The FL Technics executive attributes savings to three areas. First, number of staff, since he say over-staffing is common with in-house maintenance. Second, non-union workers, which allows for more flexibility in shift assignments. Third, having the same staff support several carriers, flight schedules permitting.
Butautis says the major hurdles are resistance by in-house staff and, for flag carriers, political resistance. But managers must focus on cost per turnaround, cost per check and reliability. “Get alternative quotations from trusted third-party providers. If savings are 25-50%, it is worthwhile to mobilize the board. In certain countries, TUPE arrangements can be made to ease the risk of people losing jobs.”