The project is an analysis of aircraft maintenance strategy for British Airways as required under the Aircraft Maintenance Management assignment for the EA205EKM Aircraft Maintenance Management course. For the purpose of the assignment, every student is required to select an airline company or maintenance & repair organization for the analysis of their aircraft management strategy, the factors affecting the strategy, and the cost implications among other elements. Therefore, to play its role and contribute towards the economy, it is critical for airlines to operate efficiently, which means that they have to be well maintained. Also, given the fact that they should operate in a profitable environment, it is critical that the cost of maintenance, and general operation, is kept at the minimum possible level. Behind the maintenance of aircraft is the importance of making sure that the aircraft is completely serviceable to carry out a flight safely. It is critical to ensure that the maintenance cost of the aircraft does not go beyond between 10 and 20% of the overall operation cost (PeriyarSelvam et al. 2013). The cost is considerably low considering the various other costs involved.
Based on the requirements of the assignments, positioned as the main headings of the assignment, a review of maintenance of aircraft at British Airways is presented. The various aspects of the strategy used by the airline will be investigated through thorough online research. Some of the aspects included are the main maintenance strategies, in-house vs. outsourcing, and the benefits of the strategy assumed by the airline. The factors, including political, economic, social, and technological that impact on the particular strategy and the cost-benefit analysis of the strategy of choice will be discussed.
British Airways are the airline of choice for the analysis because of its global position as one of the leading carriers. The flag carrier and the leading airline in the UK has been in operation since 1974, clearly revealing that there is a lot to learn from such an airline in terms of aircraft maintenance. The airline was formally established in 1974 following the merging of “British Overseas Airways Corporation, British European Airways, Cambrian Airways and Northeast Airlines” (British Airways, 2015, p. 1). When the airline was established, it incorporated primarily United Kingdom built fleet of aircraft.
In the 1980s, the airline acquired the Boeing 737 and Boeing 757. In the 1990s, three more were included the “Boeing 747-400, Boeing 767 and Boeing 777” (British Airways, 2015, p. 1). The airline currently holds the largest Boeing 747-400s fleets, with 57 of the aircraft. The 777-200 aircraft was ordered for the very first time in 1991 and four more in 2007 to add to the fleet. An announcement was made by the management of the airline of the plan to acquire 36 long-haul aircraft. In 2008, six Boeing 777-300ERs were ordered. The airline received its first 787s in 2013. Currently, the company operates about 400 aircraft all of which require some level of maintenance.
2.0 Maintenance Strategies: Outsourcing Versus In-House
2.1 Outsourcing Maintenance Analysis
The importance of the airline industry in contributing to the national and global economy cannot be ignored. Based on their potential to transport passengers and cargo to different parts of the world, the airlines would be highly profitable, particularly if they are well managed. However, to be able to make the trips and gain the profits for the owners, the airlines should be prepared to invest in the adequate maintenance of their aircraft (Rodrigues and Lavorato 2016). One of the strategies assumed, with the consideration of the cost, is outsourcing. The concept of outsourcing is the practice of transferring the maintenance activities to external maintenance companies instead of having those engaging in the activities in-house.
2.1.1 Main Parameters of Outsourcing
Outsourcing is mostly considered based on the cost involved in maintaining an in-house maintenance. Hence, for those companies that are operating on a tight budget, this is the most cost-effective strategy. For the companies that are struggling to earn sales revenue and make a profit, particularly under a low cash flow environment, having to maintain maintenance activities in-house can be a costly affair (Bazargan, 2016). The situation especially applies to small and startups within the airline industry. For such companies, outsourcing the services is the most effective approach to assume. A related situation is for the major airline companies that have many aircraft in their fleet that the in-house services cannot adequately cater for the demands of the services.
There is another trend that is making outsourcing highly attractive and less costly activity for the airline companies. The trend is the increasing popularity of the Maintenance, repair, and overhaul (MRO) within the aeronautical sector (Rodrigues and Lavorato 2016). There are many companies that are emerging within the sector, which are becoming more attractive for the airline companies due to the reality of the competitive pricing. Because it is a competitive business, and the reality that the companies are established for the purpose of providing maintenance services to the airlines, it becomes more cost effective to transfer the maintenance operations to them. Provision of these services by the organizations allows for the streamlining of activities as the cost and other issues related to maintenance are transferred to the third party.
However, there are drawbacks in choosing the outsourcing path. One of the drawbacks is the loss of control over the maintenance of the company’s airline. Given the reality that no one within the company can direct the actions of the outsourced workforce, there is a lack of control over the way the maintenance activities are carried out. There are chances that the outsourced operations cannot meet the standards and requirements of the outsourcing airline company. Contractual activities can mess up the response time for the maintenance activity, and hence affect the entire maintenance outcome to the detriment of the airline. It is possible for the company to miss flights or cause delays if there are delays instigated by the outsourced company (Al-Mutairi and Al-Hammad 2015). Also, in terms of parts and the related warrants, the airline might be disadvantaged since there is a contract on a warrant signed between the provider and the airline as would be the case if the parts were bought by an in-house maintenance management. Such issues should be put into consideration when making the decision to outsource maintenance.
2.2 In-House Maintenance Analysis
The strategy is based on the situation where the airline company has the room for employing maintenance staff and providing all the necessary resources to make the entire process possible. In such an arrangement, the airline company assumes all the cost of maintaining the aircraft (Bazargan 2016). The arrangement could be feasible for large companies that can afford to maintain all the maintenance activities in-house.
2.2.1 Main parameters of In-House Maintenance
With in-house maintenance, the problems associated with outsourcing are addressed, especially the inadequate control. With the in-house operations, the management is able to have control over the entire process as they can track all activities from the beginning to the end. The control over the staff performing maintenance is especially critical to ensure adequate time management. With the in-house approach, the acquisition of parts is done by the staff belonging to the company, hence eradicating the chances of loss of parts as well as issues with quality. However, there are major cost implications where the airline chose the in-house option. The company has to acquire the resources necessary, including the human resources as well as Hangers, docking stations, machinery, and equipment. The cost implication could have serious impacts on the cash flow and profitability of the company (Bazargan 2016). The strategy could work for large companies that have huge revenues and faster cash flow cycles based on the cost implications.
2.3 Analysis of Maintenance Levels
2.3.1 Four Levels of Maintenance
For the airline company, the choice of a good partner for maintenance activities can make a huge difference as opposed to a choice to build an in-house maintenance. The initial level of maintenance is Essential. These are the most important processes that affect the performance of the airline. It is the strategic thinking, in which the management of the airline makes a considered decision to work with the outsourcing partner for the maintenance services. Demand justification is the second level of maintenance. The demand for maintenance should be justified in line with the resources available to the organization. The company carries out an evaluation of the cost and benefits of assuming the strategic decision to outsource the operations. Airline potential is the third level at which the issues that might affect the decision are evaluated, including the availability of resources and skills. It depends with whether or not the company has the necessary capability or has to outsource maintenance. MRO capacity is the final level (Kumar et al. 2012). In fact, this is where the company evaluates the capability of the MRO in performing the maintenance.
2.3.2 Suitable Level to Start with in the Maintenance
Establishment of in-house maintenance comes with major cost implications. However, following cost-effective analysis and other factors associated with outsourcing, major airlines such as BA will benefit more from having their own maintenance facilities. Based on the third level, the airline qualifies for level three where the capacity is evident. In fact, it has always been convenient for the airline to maintain its own MRO to ensure convenience and flexibility in maintaining its aircraft. The use of in-house maintenance option for the major airline is beneficial from a number of perspectives, including a high level of control and convenience, hence ensuring that the aircraft are always served in time for scheduled flights (Kumar et al. 2012). Having the MRO for the company will not affect the operations of the airline (BA) as it will run as a separate facility from the airline itself which will be managing the flights.
2.4 Maintenance Influencing Factors (PEST Analysis)
The political factors affecting maintenance in BA are the managerial policies that are created at the organizational level that impact the process. For instance, BA has created an engineering facility with a team of engineers that are engaged in maintaining its fleet (Ding and Kamaruddin 2015). In the event that any other decision is to be made affecting the maintenance of the airline, a political process has to come to play, where the decision is made at the management level considering factors such as the cost.
The maintenance cost for the company is an important part of the overall operations cost incurred in the operation of the airline company (BA). Various economic factors impact on the operations cost, including the labor, model of aircraft, size of airline and fleet, network aspects, route systems, and other policies and strategies affecting the operations of the airline (Ding and Kamaruddin 2015). There are both direct and indirect costs relating to maintenance. The direct costs are those involved in the actual maintenance, labor and materials. Indirect costs are those incurred during the maintenance process as the aircraft takes time off from generating revenue for the airline (Dupuy et al. 2015). Hence, it is critical to ensure that the aircraft is grounded for the shortest time possible. Table 1 below shows a list of the factors that affect the cost of maintaining airlines:
(Adapted from Moreira 2014)
The class of customers of BA and their preferences has an impact on the maintenance option assumed. Consideration of the clients can create changes in maintenance, for example, where the customers determine the time of travel or the schedule. It is necessary to assume a strategy that does not affect the operations or inconvenience the passengers (Ding and Kamaruddin 2015). In the case of BA, use of their own MRO has allowed more control over maintenance and ensuring that service delivery is not interrupted.
It has become critical for BA to implement the most effective technology in airline maintenance to remain competitive (Ding and Kamaruddin 2015). With its own MRO, there is room to implement the most recent technologies within the engineering sector to enhance efficiency. In summary, the British Airline should focus on the cost-benefit analysis in the choice of the airline maintenance technology to implement. The idea is to implement the most effective, but the lowest cost option. The airline should implement MRO as part of its maintenance strategy as it will ensure efficiency and effectiveness at the lowest possible cost, in terms of direct and indirect costs.
3.0 MRO Maintenance Offering and Marketing Strategy
3.1.1 MRO Activities movement to Emerging Clusters
The assessment is based on the geographic location where MROs have the most potential. There are regions where the performance is possible at low cost. Evidently, it is critical for the organizations to operate at low cost to attract customers or to save the airline some cost when they assume in-house operation (Bazargan 2016). However, this does not mainly apply for a major airline like BA where the services are provided within the company.
3.2 Assessment of effectiveness of Selected Marketing Strategies
For the airline, the most effective marketing strategy is one that involves attracting of more airline companies to outsource the services of BA maintenance facilities. Besides maintenance of the fleet belonging to BA, more revenue can be generated from maintaining aircraft from smaller airlines. Indeed, this is useful to reduce the idle time when the engineers are not maintaining the Airline’s fleet. Convenience is assured where management of aircraft is performed in a well-known MRO. Media marketing is an effective strategy for advertising the MRO for more clients from the small airlines. The MRO can sign agreements with the other airlines to outsource its services to cut on the cost of its in-house maintenance. It is a great revenue creation avenue for the airline even as its own fleet is also being maintained within the facility (Bazargan 2016). The BA’s MRO continues to promise value and low cost maintenance for other airlines that outsource their maintenance services.
3.3 Benchmarking as Part of Analysis
Benchmarking considers the cost of services in terms of the factors that drive the cost of maintenance within the airline sector. However, the cost is not the only factor as there are other issues that should be considered, including the level of productivity and profitability associated with the maintenance process. Benchmarking is critical in making the decision on whether to obtain the MRO services offered by BA (Bazargan 2016). The decisions are made by considering the cost reduction promise against the promised benefits of using the services of the MRO. The decision is also made following consideration of efficiency and flexibility offered, primarily given the fact that the fleet should be served in time to assume all their scheduled travels.
In summary, it is evident that BA is running an effective and efficient MRO that maintains its fleet and offers outsourcing services to other smaller airlines that do not have lack in-house maintenance facilities. The cost factor is put into consideration, and the reality is that while maintaining the MRO might be high, the benefits to the large airline are more. The cost issue is also addressed through outsourcing the services to other airlines.
4.0 Maintenance Costs and Financial Assessment
For BA, the focus is not necessarily on saving the cost of maintenance, but getting the value for the cost, especially considering the size of the fleet (Ding and Kamaruddin 2015). The idea is to use the in-house services to ensure that all the aircraft are serviced at the greatest convenience. The cost is covered in two ways, taking the flights to get the revenue and outsourcing the MRO services to gain more cash flow into the business.
The company operates in a highly competitive environment, with the competition coming from internal and external sources. Hence, it has become critical to assume the business model that will give it an edge over the competitors (Ding and Kamaruddin 2015). Competing with companies that do not have additional services to provide to other smaller airlines, such as MRO, allow the company a greater edge over competitors.
4.2 Selected Airline to Business Models
BA airline is gaining an edge by using a business model that has made it highly competitive. Promising value to the customers through convenient servicing of the fleet is a critical business model assumed by BA. To the customers using the services, the Airline promises value through the provision of affordable flights based on cutting on or subsidizing the cost of operations. Outsourcing the maintenance services to other airlines is one of the ways of subsidizing the cost of operations (Ding and Kamaruddin 2015). The revenue obtained is useful to allow cutting the prices of the flights for the customers.
4.3 Airline Financial Performance
Use of the MRO in the form of British Airways Engineering is one of the ways the airline has used to cut on the operation costs. The figure below indicates success in cost reduction for the airline through the use of MRO:
(Source: Ding and Kamaruddin 2015)
For BA, one of the main focuses has been the reduction of operational costs. For the year ended in December 2016, the company has been able to have a charge of £124 million. Overall, the cost of operations has been reduced to £9,970 in 2016 from the 2015 figure of £10,069. However, the cost of maintenance (engineering), alone increased slightly to £710 in 2016 from £579 in 2015. Evidently, this indicates a need to make maintenance less in cost to be able to decrease the operation costs for the airline further. Given the decrease in the cost of fuel by £562 million or 18.5%, there is evidence that a further decrease in the maintenance of the fleet would allow more profits from the company from the 2016 figure of £1,473 million (British Airways Plc 2016). Therefore, it is critical for the airline to seek ways of reducing the cost of maintenance.
As it is palpable, the above research is an analysis of the airline maintenance management for the British airways. In terms of the strategy used by the airline for the maintenance of its fleet, the airline is revealed to have an in-house facility that maintains its fleet and outsources the services to other airlines. The primary forces of cost of maintenance are investigated with the aim of establishing some of the cost cutting measures that could be assumed by the airline for greater profitability. Based on a business model point of view, while the airline has not been able to cut on the cost of maintenance, outsourcing the services to other airlines subsidizes its revenue. From the financial analysis, it is evident that the cost of maintenance has increased although the overall cost of operations has gone down. Hence, it is recommended that the airline change the model to outsource the maintenance services to reduce the cost.
References
Al-Mutairi, A.O. and Al-Hammad, A., 2015, Advantages and Disadvantages of Maintenance Outsourcing in Manufacturing Companies: With Special References to Jubail Industrial City–KSA. European Journal of Business and Management, 7(20), pp. 8-27
Bazargan, M., 2016. Airline maintenance strategies–in-house vs. outsourced–an optimization approach. Journal of Quality in Maintenance Engineering, 22(2), pp.114-129.
British Airways Plc, 2016. Annual Report and Accounts Year ended 31 December 2016. available from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwi-8sP14d7TAhWiIpoKHTRbD7MQFggoMAE&url=http%3A%2F%2Fphx.corporate-ir.net%2FExternal.File%3Fitem%3DUGFyZW50SUQ9NjYzMTY0fENoaWxkSUQ9MzcwNDUzfFR5cGU9MQ%3D%3D%26t%3D1&usg=AFQjCNENw9E84yCPyxlvu1nPCpHVxZJUzA&sig2=tdnGFP7iDt19bJW7JS1MYQ
British Airways, 2015. History and Heritage. Available in:. Accessed: September, 8.
Ding, S.H. and Kamaruddin, S., 2015. Maintenance policy optimization—literature review and directions. The International Journal of Advanced Manufacturing Technology, 76(5-8), pp.1263-1283.
Dupuy, M., Wesely, D. and Jenkins, C., 2015. Airline Fleet Maintenance: Trade-Off Analysis Of Alternate Aircraft Maintenance Approaches [online] 1st edn. USA. available from <http://seor.gmu.edu/projects/Capstone_2011/AFM_IEEE_SIEDS.pdf> [16 April 2015]
Kumar, U.D., Crocker, J., Knezevic, J. and El-Haram, M., 2012. Reliability, Maintenance and Logistic Support:-A Life Cycle Approach. Springer Science & Business Media.
Moreira, M. (2014) The Main Cost-Related Factors In Airlines Management [online] 1st edn. Brazil: Technological Institute of Aeronautics. available from <http://www.scielo.br/pdf/jtl/v8n1/01.pdf> [7 March 2015]
PeriyarSelvam, U., Tamilselvan, T., Thilakan, S. and Shanmugaraja, M. 2013. Analysis on Costs for Aircraft Maintenance, Advances in Aerospace Science and Applications, 3(3), pp. 177-182
Rodrigues, D. and Lavorato, P., 2016. Maintenance, Repair and Overhaul (MRO) Fundamentals and Strategies: An Aeronautical Industry Overview. International Journal of Computer Applications, 135(12), pp.21-29.
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