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Global Outsourcing of Aircraft Maintenance


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Before the airlines were deregulated, the majority of air carriers conducted their maintenance in-house. After deregulation, with competitive pressures mounting and airlines failing and starting up seemingly simultaneously, the outsourcing of maintenance became more prevalent. Not restricted to U.S. airlines, outsourcing maintenance has become a global practice. Factors involved in the outsourcing decision range from a startup not having the capital to develop their own in-house maintenance program, to legacy carrier’s cost cutting efforts, and all points in between. This paper will address specific aspects of the global outsourcing of aircraft maintenance. For the purposes of this paper, Maintenance, Repair, and Overhaul (MRO) and maintenance are used synonymously.
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Journal of Aviation Technology and Engineering 1:2 (2012) 63–73
DOI: 10.5703/1288284314659
Global Outsourcing of Aircraft Maintenance
Michael McFadden
D. Scott Worrells
Embry-Riddle Aeronautical University, Worldwide Campus
Before the airlines were deregulated, the majority of air carriers conducted their maintenance in-house. After deregulation, with
competitive pressures mounting and airlines failing and starting up seemingly simultaneously, the outsourcing of maintenance became
more prevalent. Not restricted to U.S. airlines, outsourcing maintenance has become a global practice. Factors involved in the outsourcing
decision range from a startup not having the capital to develop their own in-house maintenance program, to legacy carrier’s cost cutting
efforts, and all points in between. This paper will address specific aspects of the global outsourcing of aircraft maintenance. For the
purposes of this paper, Maintenance, Repair, and Overhaul (MRO) and maintenance are used synonymously.
Keywords: Maintenace Repair Overhaul, Outsourcing, Maintenance
Global Outsourcing of Aircraft Maintenance
For those who study the airline industry, and more specifically, aircraft maintenance, it is a well-known fact that airlines
are not in the aircraft maintenance business. However, the importance of quality, compliant, cost effective maintenance
cannot be overstated. Estimates for the total cost of aircraft maintenance range from 10% to 15% of an air carrier’s budget
About the Authors
Michael McFadden is a professional pilot flying for the fractional ownership provider Netjets. Mr. McFadden received his graduate degree in
Aeronautical Science from Embry-Riddle Aeronautical University in 2011.
D. Scott Worrells is a full time faculty member in Embry-Riddle Aeronautical University’s Worldwide Campus. Dr. Worrells holds a doctoral degree in
Workforce Education and Development from Southern Illinois University Carbondale, and graduate and undergraduate degrees in Management and
Technology-Avionics from Embry-Riddle Aeronautical University.
(Al-Kaabi, Potter, & Naim, 2007). As recently as 2007, the
Federal Aviation Administration (FAA) estimated that
‘overall, major air carriers outsourced an average of 64
percent of their maintenance expenses compared to 37
percent in 1996’’ (Department of Transportation, 2008,
p. 1). Airlines continually search for ways to reduce this
expense, and it is the primary factor in the decision to
outsource maintenance.
Economics of scale has an impact on the decision to
outsource maintenance. Each individual airline must
determine the point at which there is a positive return on
the investment in maintenance capability. Large air carriers
with hundreds of aircraft can justify the investment for a
multi-level maintenance capability. However, an airline
with a relatively small fleet may not have the capital,
desire, or need to establish a multi-level maintenance
program. This is particularly true for startup air carriers and
low cost carriers (LCC).
Another factor is the tendency to blend maintenance
capability. All air carriers outsource some element of their
maintenance requirement. Typically, heavy maintenance,
which is labor intensive and requires extraordinary outlay
for facilities and equipment, is outsourced. For carriers in
the US, 71% of heavy maintenance is outsourced, with
engine maintenance one of the fastest growing segments of
the maintenance, repair, and overhaul (MRO) market
(Phillips, 2008). On the other end of the maintenance
spectrum, ground handling, servicing, and organizational
level maintenance is most frequently not outsourced.
Regardless who conducts the maintenance on an airline’s
aircraft, aircraft maintenance is ultimately the responsibility
of the airline (FAA, 2008). Accordingly, the most critical
part of the outsourcing process is selecting a reputable
MRO provider. While high rates of reliability are always
expected, many air carriers are looking for more, such as
total support solutions.
Global MRO Growth and Consolidation
Global MRO revenue in 2002 was between 25 and 30
billion dollars (Czepiel, 2003). Recent economic conditions
have reduced short term estimates of MRO demand;
however, long term growth is forecast at 4.3% through
2018 (Phillips, 2009). From 2002 through 2010, average
spending for MRO was $340.2 billion (see Figure 1). It is
estimated to reach $65 billion by 2020, doubling the 2003
$30 billion estimate by Czepiel.
Projected MRO growth is ‘‘particularly strong in India
and China, followed by Asia, Europe and North America
with less growth in North Africa and the Middle East’’
(Phillips, 2008, para. 9). The North American MRO market
remains largest in dollars spent, at $15.6 billion in 2007,
‘followed by Western Europe ($10.4 billion), Asia-Pacific
($5.6 billion), China ($2.3 billion), the Middle East ($2
billion), South America ($2 billion), Africa ($1.5 billion),
Eastern Europe ($1.2 billion), and India ($444 million)’’
(Jackman, 2007, para. 18).
The global recession has contributed to consolidation in
the MRO industry. Lufthansa Technik (LHT) has started a
joint venture with Qantas, opening up LHT Sofia to
overhaul short and medium range aircraft and ‘‘…several
MROs reported forming partnerships with firms in other
regions to offer more competitive costs and convenience to
customers’’ (Moody, 2009, para. 16). Aeroman, the largest
MRO in Central America, sold 80% of the company to Air
Canada Technical Services in 2006 and now operates under
the Aveos brand (Tegtmeir, 2011).
Outsourced Maintenance
Heavy Maintenance Visits
Heavy maintenance visits (HMV) will grow from $9
billion in 2008 to $13 billion in 2017 (Phillips, 2008).
Industry experts estimate two-thirds of HMV costs are
labor costs (Jackman, 2007). With foreign labor costs less
than 50% of those in the US (see Figure 2), it is easy to see
why many air carriers have shifted their HMV to overseas
providers (Weaver, 2008), with estimated savings at $1
million per aircraft each year (Pandit, 2007).
Delta TechOps Program Manager Beadle concurs,
stating: ‘‘Labor costs represent approximately 70% of
HMV costs’’ (M. Beadle, personal communication,
February 9, 2011). In 2008, starting pay at Aeroman was
approximately $4,500 per year with veterans earning
approximate $15,000. That compares to the U.S. average
of $52,000 (Smith & Bachman, 2008). ‘‘Delta Airlines
sends the majority of wide-body HMV to facilities in the
Far East to take advantage of lower labor costs’’ (M.
Beadle, personal communication, February 9, 2011).
Narrow body HMV work tends to stay in the Western
Hemisphere, with MRO providers in Central America
playing a significant role; lower labor costs and shorter
ferry flights contribute to cost savings.
Figure 1. Estimated world MRO spending. Adapted from ‘‘Airline
maintenance costs executive commentary,’’ 2011, International Air
Transport Association, p. 3.
64 McFadden and Worrels / Journal of Aviation Technology and Engineering
Another factor in the outsourcing equation is the capital
investment in facilities, equipment, and associated over-
head. The hangar space required to shelter an aircraft that is
virtually dissembled is considerable. In addition, the heavy
equipment, work stands, test equipment, support equip-
ment, test benches, etc., represent a considerable outlay of
capital. And, this equipment needs to be maintained and
calibrated on a regular basis, as well. The cost of
establishing a heavy maintenance capability can be
prohibitive, with breakeven return on investment perhaps
10 to 15 years down the road. Another cost consideration is
the maintenance burden, ‘‘administrative and overhead
costs associated with the maintenance function that cannot
be attributed directly to a particular airframe or engine
but allocated on a fairly arbitrary basis’’ (Wensveen, 2007,
p. 305).
Power Plant MRO
Power plant MRO is projected to be the fastest growing
segment of MRO at an estimated annual growth rate of
4.6% (Phillips, 2008). Power plant technology has allowed
for greater reliability and on-wing time. While it would be
natural to assume that this would translate into reduced
costs, that is not necessarily the case; some estimates show
power plant maintenance spending increasing ‘‘two percent
faster than traffic through 2013’’ (Canaday, 2005, para. 30).
The reason for this projected increase is mainly due to the
high cost of repair parts. Costs of repair parts from
‘General Electric (GE), Pratt and Whitney (PW) and CFM
International (CFMI) …[are] increasing at an average of
3.5 to 4.5 percent a year’’ (Canaday, 2005, para. 27).
Line Maintenance
Line maintenance is outsourced much less frequently
than either heavy maintenance or power plant MRO;
however, the outsourcing of line maintenance is primed for
growth. AeroStrategy principal Stewart states: ‘‘Our
analysis estimates that for 2008, about 12 percent of line
maintenance is outsourced, and by 2017, that could reach
as much as 30 percent’’ (as cited in Seidenman, 2008, para.
4). Line maintenance occupies a very special place in the
operation of an airline due to the direct impact it can have
on operational performance, both positive and negative.
Delays at the gate can be expensive, with estimates from
$50 to $100 per minute and an outright cancellation up to
$60,000 (Certified Aviation Services, 2007, para. 17).
Before an airline will outsource such a critical function, it
needs to be assured that a potential vendor would be able to
supply the same level of qualified personnel.
Component Repair and Spare Parts Inventory
Component repair. The outsourcing of component
repair and replacement is also undergoing a significant
degree of transformation. As in other areas of aircraft
maintenance, established airlines once had their own shops
to repair or rebuild components such as landing gear,
auxiliary power units, electrical system components,
hydraulic-pneumatic system components, and various
power plant components. Some even had their own
avionics shops for the repair of communication and
navigation equipment, flight management systems, and
flight instruments.
Airlines look for component support solutions that are
flexible, with predictable costs. For example, ‘‘Airtran
outsources its component support to several large vendors,
mostly manufacturers like Honeywell’’ (Canaday, 2005,
para. 69). Borowski, Airtran’s vice-president of main-
tenance and engineering, states: ‘‘We pay a rate per flight
hour, the invoicing is simple, there is very little adminis-
tration, and the costs are predictable’’ (as cited in Canaday,
2005, para. 69).
Spare parts inventory. The cost of inventory runs into
millions of dollars and inventory management is labor
intensive. While these facts have not changed, the
landscape has changed dramatically with airlines reducing
the amount of inventory they hold directly, outsourcing it to
companies dedicated to inventory management. In 2007,
inventories were reduced to 61% from 75% of the $48
billion spare parts inventory previously stocked and stored
(Trebilcock, 2007, para. 2). One airline executive says,
‘We continue to see upward trending with airlines
choosing to get out of the inventory management and
repair business’’ (as cited in Moorman, 2011, para. 3).
Figure 2. Estimated man hour costs in dollars. Adapted from ‘‘Tenets of MRO strategy for airlines,’’ by P. Pandit, 2007, p. 6.
McFadden and Worrels / Journal of Aviation Technology and Engineering 65
While the benefits of outsourcing component repair and
inventory management can be considerable, there are risks.
An airline must make sure that it is using a reputable
supplier for not only reliability and timely delivery of the
required items, but for quality and legitimacy of approved
parts, as well.
Production Planning and Control
Airlines have been reluctant to give up control of
production planning and control activities, making them the
least outsourced. That may be changing, according to
House of TIMCO Aviation Services: ‘‘But now that airlines
are accustomed to subcontracting to lower labor cost
providers, many view outsourcing of the back office as the
next cost saving opportunity’’ (as cited in Seidenman &
Spanovich, 2009, para. 1).
As with the other areas of outsourcing, ultimately a
vendor must be able to show that, while they are able to
keep costs under control, they can also effectively manage
the contracted work. Demeis, president and founder of
Continuum Applied Technology, believes that the move to
outsource these important functions may be premature:
Frankly, I don’t think that any savings involved with
outsourcing back office support would be great at this
time, because at least a portion of the carrier’s quality
control department will have to supervise the perfor-
mance of the third-party company. That means that any
savings related by eliminating an internal IT staff
position will be greatly diminished. (as cited in
Seidenman & Spanovich, 2009, para. 20)
Regulatory Requirements
All air carrier maintenance programs have their roots in the
initial certification of an aircraft. Design of maintenance
programs must be flexible enough to accommodate air carrier
specific requirements and must comply with Federal Aviation
Regulations (FARs). Most of the world’s airlines and
manufacturers use the Airline/Manufacturer Maintenance
Program Planning Document or Maintenance Steering Group
(MSG) in the development of maintenance programs (Air
Transport, 2003). The Air Transport Association of America
(ATA) administers and maintains this document to provide
guidance on the development of maintenance procedures for
new aircraft. Specifically, the ATA states:
It is the objective of this document to present a means for
developing the scheduled maintenance tasks and inter-
vals which will be acceptable to the regulatory
authorities, the operators, and the manufacturers. The
scheduled maintenance task and interval details will be
developed by coordination with specialists from the
operators, manufacturers, and the Regulatory Authority
of the country of manufacture. Specifically, this
document outlines the general organization and decision
processes for determining scheduled maintenance
requirements initially projected for the life of the aircraft
and/or power plant. (2003, p. 11)
Once these basic regulatory requirements are met, the
FAA provides fairly wide latitude on the specific structure
of an airline’s maintenance operations. According to the
Establishing appropriate standards and regulatory require-
ments is a risk management process and the underlying
legal structure provides for more than one level of
acceptable risk. Air transportation regulations are all-
inclusive and stand alone, whereas the regulations
governing other air commerce do not. Similarly, the
scope of responsibility for those in air transportation is
very broad and not shared, whereas in other air commerce
it is relatively narrow and shared. The regulations in parts
119, 121 and 135 relate directly to air carrier maintenance
programs and reflect the highest possible degree of public
safety. The regulations in parts 43, 65, 91, and 145 do not
necessarily reflect the highest possible degree of safety in
the public interest. (2008, para. 8)
The FAA sets the tone for Air Carrier Maintenance
Programs; it describes in detail how an air carrier may
structure its maintenance program. Advisory Circular (AC)
120-16E describes how a maintenance organization can be
set up for both a FAR Part 121or a FAR Part 135 operation.
The foundation and legal basis for airworthiness and
maintenance of an air carrier’s aircraft is found in FAR Part
121. As stated in FAR Part 121.363:
(a) Each certificate holder is primarily responsible for
(1) The airworthiness of its aircraft, including air-
frames, aircraft engines, propellers, appliances,
and parts thereof; and
(2) The performance of the maintenance, preventive
maintenance, and alteration of its aircraft,
including airframes, aircraft engines, propellers,
appliances, emergency equipment, and parts
thereof, in accordance with its manual and the
regulations of this chapter.
(b) A certificate holder may make arrangements with
another person for the performance of any main-
tenance, preventive maintenance, or alterations.
However, this does not relieve the certificate holder
of the responsibility specified in paragraph (a) of this
section. (Responsibility for Airworthiness, 1973)
By definition, ACs are not mandatory as issued; AC 120-
16E describes ‘‘the scope and content of air carrier aircraft
66 McFadden and Worrels / Journal of Aviation Technology and Engineering
maintenance programs’’ (FAA, 2008, p. i). This AC
describes how an air carrier’s maintenance program
‘should reflect three specific program objectives to provide
the highest possible level of safety in air transportation’’
(FAA, 2008, p. 2). These objectives are:
(a) each of your aircraft released to service is airworthy
and has been properly maintained for operations in air
transportation; (b) maintenance and alterations that you
perform, or that other persons perform for you, are
performed in accordance with your maintenance manual;
and (c) competent personnel with adequate facilities and
equipment perform maintenance and alterations on your
aircraft. (FAA, 2008, p. 2)
Advisory Circular 120-16E describes the 10 elements
required of an air carrier maintenance program. These 10
elements are:
1. Airworthiness responsibility
2. Air carrier maintenance manual
3. Air carrier maintenance organization
4. Accomplishment and approval of maintenance and
5. Maintenance schedule
6. Required Inspection Items
7. Maintenance recordkeeping system
8. Contract maintenance
9. Personnel training
10. Continuing Analysis and Surveillance System
Chapter nine of AC 120-16E describes what is expected
for contract maintenance. The first paragraph of chapter
nine of this AC clearly spells out this responsibility, stating:
Consistent with 121.1 (b), 135.1 (b)(2) and others, when
you use a maintenance provider to accomplish all or part
of the maintenance activities on your airplane or its
component parts, that maintenance provider becomes, in
effect, part of your maintenance organization and under
your control. (FAA, 2008, p. 33)
The Decision to Outsource
Prior to deregulation, most aircraft maintenance was
conducted in-house (vertically integrated) and, according to
Delta TechOps Program Manager Beadle, ‘‘years ago no
one really paid much attention to the cost of aircraft
maintenance. It was all part of doing business’’ (personal
communication, February 9, 2011).
Outsourcing as a business model has become an
accepted way for companies to reduce costs and focus on
core competencies. Sackett and Sakburanapech state:
‘Although outsourcing enables companies to focus on
their core competencies and may reduce costs, most
enterprises are cautious about outsourcing business critical
activities’’ (2006, p. 1). Critical outsourcing as shown in
Figure 3 is ‘characterized by both high importance and
financial impact’’ (Sakburanapech, 2008, p. 28).
Outsourcing of aircraft maintenance is a business critical
activity with regard to strategic importance and finances.
What makes outsourcing of aircraft maintenance unique is
that lives are potentially at risk if maintenance is not done
Aircraft maintenance is now viewed as a non-core
business. However, this widely accepted definition does not
apply to all areas of outsourced aircraft maintenance; at
least one airline, Jet Blue, considers line maintenance a
core competency. Ramage, vice-president of technical
services, stated: ‘‘Each airline defines what core business
is differently. For Jet Blue, line maintenance is a core
business; heavy maintenance is not’’ (as cited in Schifrin,
2007, para. 28).
Rapid emergence of LCCs in the US and abroad has had
an impact. These air carriers have decided to outsource
maintenance rather than establish maintenance operations
from scratch. The maintenance outsourcing trend is well
established (see Table 1).
Jet Blue’s Director of Maintenance states:
Our business is to fly people safely from one point to the
next. Line maintenance is a requirement. You must have
that if you want reliability. But when you start talking
about MRO, that’s a whole different business. It requires
a lot of overhead and tooling and we leave that to the
experts. They can do it a lot more efficiently than we
can. We’ll stick to our core business. We believe that
will maximize shareholder value. (as cited in
‘Maintenance Outsourcing: Emerging,’’ 2009, para. 23)
Figure 3. Outsourcing Classifications. Adapted from ‘‘Development of a
relationship management framework and related performance metrics for
outsourced aircraft maintenance,’’ by A. Sakburanapech, 2008, Cranfield
University, p. 11.
McFadden and Worrels / Journal of Aviation Technology and Engineering 67
Foreign LCCs, one of the fastest growing segments of
the worldwide aviation market, feel much the same way.
Indicative of this is the view of Jetstar Asia’s Head of
Engineering, Neo. Neo indicates that he wants an MRO
provider with ‘‘the capability to provide a full suite of
Engineering services, including a proven and strong ability
to provide AOG [Aircraft on Ground] recovery from
technical breakdowns’’ (as cited in Moody, 2010, para. 24).
With the trend towards outsourcing, a question arises as
to whether an airline should keep the work or send it out.
When evaluating the outsourcing decision, some air carriers
use a Make/Buy decision model to help them determine
whether or not to outsource. Well established as an
accepted course of action in many industries, it provides
management with a tool for determining where work
should be done. According to Smith, ‘‘it is the maximum of
every prudent master of the family, never attempt to make
at home what it will cost him more to make than to buy’
(as cited in Ferreira & Serra, 2010, para. 1). Is it more cost
effective to have someone else do the required work or is it
better if it is kept in-house? Transaction Cost Economics is
one description of the Make/Buy method. Transaction Cost
Economics is ‘‘fundamentally concerned with the question
of whether it is advantageous, in terms of cost, for
transactions to occur within the hierarchy of an organiza-
tion or externally in the open market’’ (Rieple, 2008, para.
2). According to Program Manager Beadle, Delta TechOps
uses a Make/Buy decision for all of Delta’s maintenance
work, and while TechOps might be given a preference in
getting the bid for some work, if they are not competitive,
the work will in fact be outsourced (personal communica-
tion, February 9, 2011).
The MRO Model
Al-Kaabi et al. (2007) describe four levels of MRO:
Fully Integrated, Partially Outsourced, Mostly Outsourced,
and Wholly Outsourced, as shown in Figure 4. Within
these levels, the entire aircraft maintenance spectrum is
Table 1
Airline Maintenance Outsourcing (as percentage of total expenses)
Airline 2005 2006 2007 (through Q3)
Alaska 92% 80% 81%
Hawaiian 80% 86% 89%
US Airways
77% 81% 80%
Northwest 76% 83% 81%
America West
76% 91% 91%
Continental 69% 68% 70%
JetBlue 68% 64% 65%
Southwest 68% 81% 85%
AirTran 66% 93% 94%
Frontier 65% 79% 80%
United 63% 66% 67%
Delta 48% 73% 72%
American 46% 49% 51%
18% 85% 87%
Note. Adapted from ‘‘Outsourcing of airline maintenance sours,’’ by W. J.
McGee, 2008, Consumer Reports, para. 18.
Merged with America West,
Merged with US Airways,
Figure 4. MRO Model Depictions. Adapted from ‘‘An outsourcing decision model for airlines’ MRO activities,’’ by H. Al-Kaabi et al., 2007, Journal of
Quality in Maintenance Engineering, 13(3), p. 220.
68 McFadden and Worrels / Journal of Aviation Technology and Engineering
Fully Integrated MRO
An airline performs all aircraft maintenance activities in-
house. In addition, it may look to sell excess capacity to
other airlines.
This practice is well-suited for airlines with large, varied
fleets and an extensive route structure (Al-Kaabi et al.,
Partially Outsourced MRO
An airline meets a large portion of its needs in-house
with a minimum of outsourcing. This permits a good deal
of flexibility and adaptation to seasonable demands, and is
best suited for airlines that have just a few different fleet
Mostly Outsourced MRO
Most maintenance is outsourced while critical needs are
kept in-house (Al-Kaabi et al., 2007). ‘‘Critical needs’’ are
defined by individual carriers. For example, Jet Blue
Airlines defines line maintenance as critical to its operation
and keeps most of that activity in-house.
Wholly Outsourced MRO
All maintenance is outsourced. This model is used by
startup airlines that do not have the capital to establish an
MRO capability or that choose not to as a part of their
business model.
MRO Provider Selection
Perhaps the most important factor to consider is the
selection of the MRO provider. Many variables come into
play and each one must be considered carefully. Wyman
uses a very thorough six-step process that evaluates all
aspects of a provider before making a recommendation to
an airline. These six steps are:
1. Define requirements. Develop a detailed description
of what is to be expected, including the volume and
timing of the work required.
2. Explore and understand the current marketplace.
Knowing who is doing quality and reliable work is
extremely important.
3. Define outsource strategy and require initial bids for
the work. Determine whether or not to bundle/
unbundle services; length of contract; and type of
4. Feedback for bidders. Specific details concerning
pricing and suggestions on ancillary services are
5. Face to face negotiations. Establish terms and
conditions. On-site inspection must be a contract
provision. Conclude with formal Memorandum of
Understanding (MOU).
6. Convert MOU into formal, detailed contract. (as cited
in Canaday, 2007, para. 5)
It should be noted here that this last step is recommended
by the FAA in AC 120-16E Chapter Nine as an important
factor in the outsourcing process. The Federal Aviation
Administration states:
When possible, you should have a written contract with
anyone performing maintenance work for you on a
continuing basis. This will help ensure your responsi-
bilities are addressed. In the case of major operations,
such as engine, propeller, or airframe overhaul, the
contract should include a specification for the work. You
should include or reference that specification in your
manual system. (2008, p. 33)
Sakburanapech (2008), describes a process that was
developed by Momme and Hvolby that has three phases
and six activities, as shown in Figure 5.
The actual selection process varies by airline and is
based on needs and priorities set by management.
However, regulatory requirements must be addressed to
Figure 5. The outsourcing process.Adapted from ‘‘Development of a relationship management framework and related performance metrics for outsourced
aircraft maintenance,’’ by A. Sakburanapech, 2008, Cranfield University, p. 15.
McFadden and Worrels / Journal of Aviation Technology and Engineering 69
the satisfaction of the FAA. For example, Becher, a
spokesman for Northwest Airlines stated in 2005:
While costs for outsourced maintenance are lower than
for in-house maintenance, quality and safety are not
compromised.... Northwest selects them because of their
world class management, control systems and technical
ability. Outside vendors undergo a rigorous review
before being offered a maintenance contract by
Northwest. (as cited in ‘‘Maintenance Outsourcing,’
2009, para. 14)
Jet Blue’s vice-president of technical services, Ramage,
uses turnaround times and the quality of service as key
factors in the selection process. He said ‘‘The first thing we
look at is the culture of the company. And obviously when
I talk about quality, it is what the safety culture is and can
they do the job well. Quality, safety and experience is
important’’ (as cited in Arnoult, 2010, para. 7).
The Oversight Process and its Contribution to Safety
Air Carrier Oversight
The first line of defense in prevention of errors that may
lead to improper maintenance is an air carrier’s CASS.
Required by FAR Part 121.373, CASS is one of the 10
elements of a maintenance program (Continuing Analysis
and Surveillance, 1996):
The high level purpose of a CASS is to reduce or
eliminate the likelihood of your aircraft being approved
for return for service when it is not airworthy through the
continuous, system safety-based, closed loop cycle of
surveillance, investigation, data collection, analysis,
corrective action, monitoring, and feedback of a
CASS. (FAA, 2010, p. 6)
Four basic activities of CASS are: surveillance, analysis,
corrective action, and follow up. Encompassed therein are
audit processes, data collection processes, Root Cause
Analysis (RCA), and performance measurement. This risk-
based, closed loop system verifies performance and
effectiveness of a maintenance program (see Figure 6)
(FAA, 2010).
FAA Oversight
U.S. repair stations. Problems with FAA oversight of
outsourced maintenance and contract repair stations drew
attention from Department of Transportation’s (DOT’s)
Office of Inspector General, the public, and the U.S.
Congress. The catalyst for this attention was the crash of
ValuJet Flight 592 into the Florida Everglades in May,
1996. The ValuJet accident was one of three fatal airline
accidents related to contract maintenance (Adams, 2009).
The ValuJet accident investigation ultimately laid blame at
the feet of the Sabre-Tech (the contract maintenance
provider), ValuJet, and the FAA (National Transportation
Safety Board, 1997).
International repair stations. The U.S. and select
foreign countries recognize each other’s aviation safety
standards and programs through Bilateral Aviation Safety
Agreements (BASA):
The purposes of this Agreement are to: (a) enable
reciprocal acceptance of findings of compliance and
approvals issued by the Technical Agents and Aviation
Authorities; (b) promote a high degree of safety in air
transport; and (c) ensure continuation of high level
regulatory cooperation and harmonization between US
and EC. The scope of cooperation under this Agreement
is: (a) airworthiness approvals and monitoring of civil
aeronautical products; (b) environmental testing and
approvals of civil aeronautical products; and (c)
Figure 6. Four Basic CASS Activities. Adapted from ‘‘Developing and implementing an air carrier continuing analysis and surveillance system,’’ 2010,
FAA AC 120-79A p. 15.
70 McFadden and Worrels / Journal of Aviation Technology and Engineering
approvals and monitoring of maintenance facilities.
(Council of the European Union, 2011)
Certified/non-certified repair stations. Certification of
Part 145 repair stations is subject to regulatory require-
ments of the FAA; non-certificated stations are not (see
Figure 7).
Air carriers ensure through proper audits and oversight
that contracted facilities perform according to approved
maintenance programs. According to the DOT: ‘‘Non-
certificated facilities performing critical maintenance cre-
ates a double standard because certificated repair stations
are required to have designated supervisors, inspectors,
return-to-service personnel, and quality control systems.
No such requirements apply to non-certificated facilities’’
(DOT, 2005, p. 6). A DOT investigation found:
…as many as 1,400 domestic and foreign facilities that
could perform the same work (e.g., repairing flight
control systems and engine parts) a certificated facility
performs but are not inspected like certificated facilities.
Of those 1,400 facilities, we identified 104 foreign non-
certificated facilities—FAA had never inspected any of
them. (2005, p. 6)
Contract maintenance is as old as the aviation industry
itself. Over time, and as the aviation industry has evolved,
the airline industry has integrated contract maintenance into
a post-deregulation business model that emphasizes its core
business, transporting passengers/cargo from point to point,
while marginalizing, to the greatest extent possible, the cost
of aircraft maintenance. Worldwide MROs have grown, in
response to continuous and increasing demand, into a
viable segment of the aviation industry. Proliferation of
MRO facilities worldwide should continue, although
growth has slowed as a result of current economic
stagnation, as long as the industry and the regulators meet
their responsibility to ensure aircraft are maintained to the
high standards required by regulation and good business
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... The airlines, however, have struggled to find novel ways to maximize profits and cut costs so that they can survive various economic and political oscillations (Belobaba et al., 2016;Bruce et al., 2018;Graham et al., 1983). Airlines have increasingly outsourced fleet maintenance to third-party aircraft maintenance providers as an efficient means of reducing labor costs, a practice known as contract maintenance (Czepiel, 2003;McFadden & Worrells, 2012). While outsourcing maintenance tasks aims to reduce operational cost, there is no quantitative research that explores the effect of maintenance outsourcing on airline profitability. ...
... 2. Does the in-house maintenance labor expense have a statistically significant impact on profitability of these carriers? visit, it may require up to 50,000 man-hours to finish it (Department for Business, Innovation and Skills, 2016;McFadden & Worrells, 2012). ...
... Lufthansa and Delta Air Lines are the industry leaders by not only operating large networks, but also by maintaining strong technical operation subcompanies (Lufthansa Technik AG and Delta TechOps). This allows them to satisfy not only the maintenance requirements of their own fleets, but also other alliance, competing airlines' fleets, and even military customers around the globe (Visiongain, 2018;Erickson et al., 1997;McFadden & Worrells, 2012). ...
... Cost pressures mainly drive outsourcing, which is realized through a service provider selection process (McFadden & Worrells, 2012;Yang et al., 2007). The portion of outsourced maintenance has been growingfrom 37 per cent in 1996 to 64 per cent in 2008 as measured by cost at main U.S. airlines (Quinlan et al., 2014). ...
... Connected also to heavy regulation and usage of public funds (e.g., in military aviation), the development of MRO outsourcing necessitates increased sophistication and control both in service provider selection and during execution (Hsu & Liou 2013;Van Wagner, 2007) as well as constant development of regulatory oversight (Machado et al., 2016;Quinlan et al., 2014). Professional, efficient, transparent, and traceable processes are important to ensure the expected results in cost savings, to meet regulations and to ensure flight safety (Hsu & Liou, 2013;McFadden & Worrells, 2012). The U.S. Office of Inspector General that works under the umbrella of the U.S. Department of Transportation has noted a chronic history of inadequate FAA oversight of service providers in the United States and European Union where outsourced maintenance was performed on U.S.-registered aircraft and components. ...
... Outsourcing is used for various purposes and not only to reduce costs. This is a wider scope compared to cost typically mentioned as the only driver in the literature (e.g., McFadden & Worrells, 2012;Yang et al., 2007). Using findings of Ali-Marttila et al. (2016), it could also be possible to categorize the operators into basic-, quality-and collaboration-oriented ones related to what value they are mainly seeking from the outsourcing. ...
... Its dominant components are depreciation, fuel and maintenance, repair and overhaul (MRO) costs. Because of increasing complexity of aircraft avionics, MRO cost share in DOC grows up [1], [2]. ...
... Traditionally, modern aircraft maintenance is a hierarchical structure, consisting of 3-5 levels, including, maintenance, repairs and modifications [1]. Some of the procedures are carried out by the operator independently, but now outsourcing become widely distributed, especially for in complicated systems maintenance [2]. The largest operators have the ability to quickly replace the problem unit with another, without waiting for repair, but even in this case the aircraft gets out from service for some time. ...
Full-text available
Aircraft Maintenance, Repair and Overhaul (MRO) is one of the major components of the Aircraft Life Cycle Cost (LCC). Increasing the efficiency of MRO, as well as reducing MRO cost, is one of the main ways to reduce LCC. In modern aviation technology complexity of Avionics and its maintenance increase. Traditional methods of failure prediction are difficult to apply in complex technical systems which make it necessary to reduce MRO interval. This research proposed the mathematical method of Artificial Neural Networks (ANN) as a possible solution to this problem. The avionics of Unmanned Aerial Vehicle (UAV) is the research object. The reliability and forecasting of failures by traditional and ANN methods have been analyzed, and results comparison are received. The study suggests that the method used is suitable for solving this problem. The obtained results show a high degree of reliability. Further research is proposed to scale to more complex avionics aircraft. The introduction of ANN in the MRO system entails many advantages, including the possibility of increasing the avionics service intervals and failure prediction, taking into account external factors of operation. This will inevitably lead to LCC reduction and increase safety.
... As the largest MRO market, North America accounted for $15.6 billion of the industry in 2007 compared to $10.4 billion in Western Europe, $5.6 billion in Asia-Pacific, $2.3 billion in China, $2 billion in Middle East and South America, $1.5 billion in Africa, $1.2 billion in Eastern Europe, and $444 million in India (McFadden & Worrells, 2012). The projected demand for air travel is also higher in Asia-Pacific than in other countries, which will notably influence market share. ...
... All FAA-approved stations must comply with Part 145 requirements. The Advisory Circular (AC) 120-16E describes how a maintenance organization should be set up for both a FAR Part 121 and Part 135 operations (McFadden & Worrells, 2012). The management perspective behind the FAA certified Part 145 repair station is that it will provide superior maintenance, and play a significant role in reducing accidents, mishaps, and enhancing safety. ...
... and mining industries, that often rely on complex, heavy and critical equipment [TTMP06]. Instead of investing in the latest maintenance tools and facilities, and training in-house maintenance teams, firms outsource maintenance activities to specialized companies [MW12]. It may be hard for firms to observe whether maintenance companies put sufficient resources into providing best service, which gives rise to agency issues. ...
Business operations often need long-term contracts to manage incentives over time. In this proposal, we discuss three projects in designing long-term contracts in different incentive management settings. In the first chapter, we study an optimal contract design problem, where a principal hires an agent to repair a machine when it is down and maintain it when it is up. If the agent exerts effort, the downtime is shortened, and uptime is prolonged. Effort, however, is costly to the agent and unobservable to the principal. The principal, therefore, devises a mechanism to always induce the agent to exert effort while maximizing the principal's profits. In the second chapter, we consider a service management setting, where the principal hires an agent to provide services to customers. Customers request service in one of two ways: either via an online or a traditional, walk-in, channel. The principal does not observe the walk-ins, nor does she observe whether the agent exerts (costly) effort that can increase the arrival rate of customers. This leads to a novel so far unexplored double moral hazard problem. We also present dynamic contracts that maximize the principal's profit. In the third chapter, we study the optimal incentive scheme for a long-term Poisson project with both moral hazard and adverse selection. The project has a flow cost that must be reimbursed by the principal, but the agent privately observes the cost that he incurs. The principal's optimal contract is a menu that contains several items, each of which is prepared for a specific group of agents. The agents reveal their costs immediately after they pick their preferred contract. We fully characterize the optimal contracts in the case of two types of agents. When the number of agent types is infinite and the cost distribution is continuous, we formulate an easy-to-compute upper bound optimization problem to the original problem. This optimization problem further provides a way for us to design a menu of contracts. Our numerical study illustrates that the proposed menu of contracts is indeed optimal with commonly used distributions.
... The current maintenance manual for a jet fighter also recommends periodic testing of the environmental control system by measuring the temperature and pressure. (1)(2)(3) Testing also determines the components that need to be replaced. Even with a designated inspection period and manual testing, the reliability is not easily improved as the intervals between inspections and tests are short, which increases the maintenance cost. ...
... Such companies are usually called repair stations. According to [34], U.S. airlines outsourced 71% of heavy maintenance in 2008. Therefore, we consider only the organizational level maintenance (O-level) for the first post-warranty maintenance (PWM) option. ...
Full-text available
Modern avionics can account for around 30% of the total cost of the aircraft. Therefore, it is essential to reduce the operational cost of avionics during a lifetime. This article addresses the critical scientific problem of creating the appropriate maintenance models for digital avionics systems that significantly increase their operational effectiveness. In this research, we propose the lifecycle cost equations to select the best option for the maintenance of digital avionics. The proposed cost equations consider permanent failures, intermittent faults, and false-positives occurred during the flight. The lifecycle cost equations are determined for the warranty and the post-warranty interval of aircraft operation. We model several maintenance options for each period of service. The cost equations consider the characteristics of the permanent failures and intermittent faults, conditional probabilities of in-flight false-positive and true-positive as well as the cost of different maintenance operations, duration of the flight, and some other parameters. We have demonstrated that a three-level post-warranty maintenance variant with a detector of intermittent faults is the best because it minimizes the total expected maintenance cost several folds compared to other maintenance options.
... In general, maintenance of aircraft is divided into three types, namely maintenance of light levels (routine maintenance) (Aungst et al., 2009), moderate maintenance and overhaul maintenance ( Cheung et al., 2005;Rao et al., 2017). Heavy level maintenance or aircraft overhaul is carried out periodically and scheduled every certain number of flight hours or aircraft calendar years, whichever is achieved first (McFadden, M., 2012). The overhaul maintenance of aircraft is a heavy level maintenance that requires a very long time to process,it may take several months or even more than a year. ...
Maintenance outsourcing is quite common in industries that rely on complex and critical equipment. Instead of investing in the maintenance facilities, firms outsource maintenance activities to specialized companies. However, it may be hard for firms (i.e., principal) to observe whether maintenance companies (i.e., agent) put sufficient resources into providing the best service, which gives rise to agency issues. In a dynamic environment in which an agent is responsible for both maintenance and repair of a critical machine, how the principal uses payments and termination to tackle agency issues is a challenging problem. In “Optimal Contract for Machine Repair and Maintenance,” F. Tian, P. Sun, and I. Duenyas provide theoretical guidance on designing the optimal contract to induce efforts from an agent to efficiently operate a machine. Although they consider the very general contract forms, the optimal contracts demonstrate simple and intuitive structures, making them easy to describe and implement in practice.
Full-text available
After-sales service on a product could be a lucrative source of profits however it is notoriously difficult to manage due to uncertain demand from consumers, and its complex organization such as either to provide warranty or maintenance contract or repair service. This paper focuses on a problem where the manufacturer sells a repairable product while an agent provides after-sales service under uncertain demand. Due to demand volatility, either manufacturer or agent or both the players are risk-averse toward their decisions. The goal of this paper is to design various after-sales service strategies where the optimal price of repair or maintenance contract for the agent whereas the optimal product price for the manufacturer are explicitly determined such that the utility of both players can be maximized. Moreover, the impacts of risk-preference and demand uncertainty are investigated on both players’ price decisions, demand level, and their utility function. Also, the impacts of the agent’s warranty service on product price as well as repair and maintenance contract price are investigated. The interaction between the manufacturer and agent is performed under non-cooperative game where the manufacturer is the leader, and the agent is the follower. The analytical results show that when both players are risk-averse, they should adjust their prices with demand uncertainty and risk-tolerance level in order to maintain the demand stability and get more utility. Further, we consider some special cases where the risk-tolerance level of the manufacturer has an impact on the risk-neutral agent’s decisions whereas the risk-tolerance level of an agent does not have any impact on the risk-neutral manufacturer’s decisions. The analysis also shows that there is a significant impact of the agent’s free-replacement renewing warranty (FRRW) on repair and maintenance price decision if both players are risk-averse. A numerical example is presented to further illustrate the results and related issues.
Conference Paper
Full-text available
The authors present a structure for identifying and linking the important criteria for success in critical outsourcing. Characteristics of activities have been widely outsourced are mapped to business metrics. The result provides guidelines and frameworks for both researchers and practitioners to craft and develop appropriate outsourcing relationships.
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In this paper, we use the transaction cost theory [TCT] and the resource-based view [RBV] to discuss three propositions on the models of client-supplier relationships in mature industries. The two theories seem to advance different organizational forms of the client-supplier relationships, and in some instances are contradictory. How should firms organize to prosper and grow, namely in the international markets? Through the case study of three Portuguese packaging firms, with primary (interviews) and secondary data, we discuss how the three firms deploy three distinct strategic organization models in a mature industry. One firm utilizes marketbased governance mechanisms, and concentrates its production in a few selected locations. Another firm vertically integrates almost the entire value chain of the product to provide full service to its clients. The third firm operates in a model of integrated outsourcing, with the installation wall to wall with its clients. The clientsupplier models adopted by these firms are based on efficient, stable, and trustworthy relationships that permit them to focus on their core competences and reduce transaction costs. The superior performance of firms requires a proper alignment of hierarchical and relational governance, taking the dimensions of their transactions into consideration.
Purpose – This paper aims to evaluate the main business models used for airlines' maintenance, repair and overhaul (MRO) activities and determine the activities to which these relate. Design/methodology/approach – A critical literature review is used to develop a conceptual model of MRO activities. This is evaluated through a SWOT analysis before an exploratory study of eight airlines is used to confirm the applicability of the conceptual model. Findings – Four levels of MRO outsourcing are identified; from fully outsourced to fully in-sourced. From the exploratory study it is shown that critical MRO activities such as line maintenance are frequently in-sourced, while activities with low demand at an airline level such as engine maintenance are often outsourced. Practical implications – MRO represent around 10-15 per cent of an airline's operational costs. By identifying the strength and weaknesses of different MRO models, it is possible to evaluate alternative MRO strategies. Originality/value – Unlike other research in maintenance which was aimed mainly at the manufacturing sectors, this research provides insights into the maintenance practises in a service sector. In particular this research studies the different outsourcing levels existing in airlines' MRO. The knowledge gained by understanding the mechanism of outsourcing in airlines' MRO can be further extended to other industries and help in best configuring their maintenance units.
The objective of this study was to identify the most common criteria that airlines use to select, monitor, and assess the performance of third-party maintenance facilities. These criteria formed the basis to develop performance measures and risk indicators for the operation of aviation maintenance repair stations. In particular, this study focused on outsourcing of major maintenance to larger repair stations. A limited data collection effort was conducted by interviewing representatives from both airlines and repair stations, primarily in their respective quality assurance departments. The most important measures and risk indicators are grouped into three areas. The most important measures for repair station capabilities include training of employees, experience level of employees, and tools and test equipment of the repair station. The most important measures for repair station performance include audit procedures, ability to meet turn times, number of work discrepancies, suspected unapproved part(s) infractions, and certification infractions of the repair station. The most important measures for repair station administration include the financial status of the repair station and change in management of the repair station.
Although airlines are increasingly outsourcing to achieve competitiveness in ever more challenging business environments, this practice is not always successful and its theoretical justification has not been fully explored. The paper compares the extent to which a number of key resources and functions in a sample of major, legacy airlines have actually been outsourced with a theoretical appraisal based on the transaction cost economics framework. The findings show that the degree of outsourcing of these activities is not always what theory would predict to be advantageous.
Development of a relationship management framework and related performance metrics for outsourced aircraft maintenance. Retrieved from the Cranfield University website http
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