Component Maintenance As A Part of An Inventory Technical Management Solution. 18 October 2012

Transcription

1 Component Maintenance As A Part of An Inventory Technical Management Solution 18 October 2012

2 Who are we? TBE international Limited ( TBE ) is a boutique Hong Kong based consulting and contracting company incorporated in February 2007, specialising in Aviation and Aviation associated management and advisory services. Our Services Our People Airline Executives Airline Senior Managers Six Sigma Black Belts Professional Engineers Accountants Licensed Engineers Aircraft Trading and Lease Management Support Lease Mgt Asset Health Check Services Lease/Sale/Purch ase Services Asset Valuations 2 Physical Maintenance Management and Commercial Support Maintenance Management PBH Agreement Negotiation Lease Return Master Class Training Seminars Structured knowledge transfer Project based learning lean/6-sigma mentoring Business Planning and Advisory Services Start-up Planning and implementation Economic Analysis Business Improvement Aero-political Advisory Services

3 Agenda 1. ITM solution overview 2. Benefits of an ITM solution 3. Structuring an ITM solution 4. Areas to focus 5. Roll of the OEMs 6. Summary This presentation focuses on a complex topic and is intended as an overview rather than a detailed description of all segments of an ITM solution 3

4 What is an ITM solution? ITM = Inventory Technical Management. by this we mean the supply, management and repair of rotable/repairable inventory (Components), but can include expendables/consumables Traditional Model F Unserviceable Components Serviceable Components Repair Facility Expendables + Consumables Inventory Airline Q Airplane Airline Owned Supplier Owned ITM Model F Repair Facility (may or may not be part of ITM Supplier) ITM Supplier Unserviceable Components Serviceable Components Consignment Expendables + Consumables Inventory Airline Q Airplane Airline Owned Supplier Owned The main difference is that the Supplier owns and manages the float Components 4

5 Key elements of an ITM solution ITM solutions can have a number of different attributes but they typically have 2 key elements: 1. Provision of float/spare components 2. Provision of repair services Pooling Spares Solution Repair Solution Buy Fixed Price TAT Guarantee Lease Repair by Hour Advance Exchange Integrated ITM Solution Modification/Technical Mgt All elements can be part of an ITM solution. there are no fixed rules 5

6 Why enter into an ITM deal? Why bother. Seems more complicated. Consider the following case study. 6

7 Case Study 1: Inventory acquisition costs Fleet Parameters New fleet, first of type for airline 4 aircraft OEM(s) RSPL provisioning recommendations: Rotables: US$16.7m Repairables: US$1.4m Expendables: US$0.6m US18.7m ITM Solution 1: Lease Consignment Stock Pool Access for Rotables/Repairables Buy Expendables Buy Cash flow Benefit Sell ITM Solution 2: Buy Consignment Stock Pool Access for Rotables/Repairables Buy Expendables NPV=US$15.4m NPV=US$8.3m NPV=US$8.5m The benefits can be significant particularly for a small fleet 7

8 When does it no longer make sense? As with most business decisions the answer is. it depends For inventory driven solutions the key driver is the quantity of aircraft in the fleet Significant benefits for small fleets ITM Solution Traditional Solution aircraft is a typical breakeven point As the fleet grows the relative benefit is smaller Repair cost reduction may further benefit the airline Leverage on scale of MRO to reduce repair costs Simplify the airlines supply chain If repair cost reduction is a significant driver then can extend the break even to aircraft Another question to ask: is component management a core competency? 8

9 So is it all good news? Before considering an ITM solution, the airline should consider: R/Q Its fleet size and how long will it operate the type R/Q Impact of mixing of components (new v old) R/Q Lease return issues (110%, records etc) R/Q Loss of control, ie: what happens if the supplier doesn t deliver? The airline hands over a significant portion of its technical reliability management to the Supplier If there is doubt about a Suppliers ability to deliver or its quality: DON T GO THERE! For a ITM solution to work there is a key element required: TRUST! This will be a marriage rather than a relationship 9

10 Structuring an ITM Solution 4 key elements into account when structuring the solution Scope Service Level Price KPIs Its important to take a balanced view when assessing an ITM solution.the airline will have to accept some risk Risk mitigation costs money structure the solution so risk is balanced against price 10

11 Scope: Services When structuring the service scope its important to look at both Supply Chain inclusions, and Maintenance inclusions Typical ITM service inclusions (in fixed rate) are: Service Attributes Supplier Acceptance 1. Logistics to/from airline or an agreed handover point High 2. Repair repair of u/s components for qualified events High 3. Modifications - Supplier initiated mods reliability improvement mods with financial payback High - ADs/Mandatory mods forced on Supplier and may not have a $ payback Moderate - Airline initiated mods often not beneficial to Supplier (weight reductions etc) Low/Nil 4. Beyond Economical Repair if a component is determined BER by supplier High 5. Obsolescence - Parts in component the items within a component become obsolete High - The component the component itself becomes obsolete Low 11

12 Scope: Covered Parts A second element to consider relating to scope is the content of covered parts Consignment stock Pooled components Content of consignment stock No go / Go if items MEL A/B items ETOPS items Higher levels = Low Operational risk = higher cost Content of pooled parts Use the rotables/repairable identified in the RSPL as a guide Plus added others not in RSPL Consider which items are truly repairable Consider if items that are normally damaged via excluded events should be included (eg: radome) Defined by Airline Ensuring the correct parts are covered in either the pool or consignment stock reduces risk 12

13 Service Delivery A key element of the an ITM solution is how quickly the airline will receive the component once a requirement arises Consider. Type Unserviceable Components Serviceable Components Replenishment lead time Delivery lead time Attributes Handover Point Consignment Pool Delivery lead time will influence the content of Consignment Stock Long Delivery lead time = more Consignment stock Types of lead times commonly found in ITM solutions: Airline Logistics Redelivery lead time Q Airplane Supplier Acceptance Dispatch guarantee (ok) Supplier commits to availability and store pick time High Delivery guarantee (better) Supplier commits to availability and entire supply chain Moderate Don t forget Redelivery lead time, this will be important to Supplier 13

14 Price Balance price against Scope and Service Level Don t just compare rates - No two deals are the same Consider what level of overhead is covered in the rates Who should cover Taxes and Duties? Don t forget about warranty, best practice is for the Supplier to: Administer warranty and retain proceeds Build in warranty claim rebate into rates Consider the rate type, structure and adjustment factors: Rate Type Consignment Stock Rate Structure $/mth based % of CLP Flight Hour Minimums N/A Escalation Supplier Acceptance High Pool Access $/FH R Q Moderate or $/mth (better) N/A Moderate R/Q Repair $/FH R(Cap) Q Q High 14

15 KPIs They form a contractual benchmark to determine minimum performance levels The airline shouldn t be scared to sign up to KPIs to manage its obligations an ITM solution is a partnership At a minimum KPIs should govern direct agreement deliverables Delivery/dispatch times of each order Ideally KPIs should reflect the airlines operational parameters Dispatch reliability MEL quantity and clearance rates Inop levels of T/Rs, APU etc What about remedies? If the Supplier does not perform a service for which it has been paid, it seems reasonable for the airline to request a financial remedy Continual non performance should be a termination event The Supplier will suggest these are out of their control.. These are at least partly effected by component quality A reasonable Supplier will agree to this but expect caps to their exposure. Remember an ITM solution is a partnership KPIs should be balanced 15

16 Other important issues items Excluded events should be items outside the control of both the airline and Supplier FOD Misuse Incorrect maintenance Accident (rather than an incident) Be careful when considering No Fault Founds ( NFF ) Most Suppliers will put a limit on NFFs (~15% of removals) A removal due to trouble shooting directed by AMM should not be classed as an NFF When does title transfer occur, consider the typical solution: Serviceable Component Unserviceable Component Q Airplane Float Components Owned by Supplier Title Transfer at fitment Fitted Components Owned by Airline/Lessor 16

17 What about the OEMs... Is there room for OEMs as suppliers of ITM solutions? Yes absolutely There are a number of benefits: OEMs design/sell the component so they should be responsible in-service support OEMs can leverage their scale (to pass on savings to airlines?) Extra competition in the market is a good thing But what would happen if the OEM leveraged its position to over time build a monopoly? What would happen to price and service levels in a monopoly environment? Entry of OEMs is a good thing but BE CAREFUL! 17

18 Case study 2: OEM repair costs - an extreme case In 2011 an airline went to market for repair services as part of a new fleet acquisition and the OEM offered a repair support solution -10% ~ 11% escalation +300% ~ 10% escalation ~ 3% escalation Like for like scope/service delivery Later communication with a MRO and OEM: MRO: We have capability but due to existing agreements with the OEM we are unable to repair these items. If you get the OEMs permission we are glad to repair these items To OEM: Are we free to go to another supplier to obtain XYZ services OEM: Yes Airline: Can we have this in writing? OEM: No, because you don t need it in writing! 18

19 Summary ITM solutions are not for everyone - there is no magic formula, consider Fleet size How long will you keep the aircraft You geographical location Core competency in managing inventory, maintenance and logistics Feel free to customise a solution that works for you Outsource areas where you are not competitive Keep/in source areas where you are competitive Understand the operational risk profile of the solution When assessing an ITM solution, look at: What you get (Scope) When you get it (Service Delivery) And for how much (Price) Have contractual performance management (KPIs) OEM have a roll to play but so do MROs/Airlines Competition is important to keep them all honest 19

20 Thank You! TBE Capability through people 20

21 For further information please contact: Tom Bemstein TBE International Limited Level 19, Two International Finance Centre. 8 Finance Street, Central. Hong Kong. Phone: Fax: [email protected] or [email protected] (direct) 21