Outsourcing effects at Pratt and Whitney and global airline vendors

Outsourcing: "The Effects on Pratt & Whitney vs. Other Global Airline Vendors"

Aviation maintenance is the basic issue. Therefore the process of aviation maintenance and its issues have to be seen in the light of outsourcing. There are many systems in the regular maintenance of aircrafts other than mere issue of parts and replacements. It is in this light that the problems and position of the airline vendors ought to be considered. The many components on the ground include a proper workforce with perfect training and the maintenance issues of civil craft are part of key factors in aviation safety. The actors in the system not only include airlines, airports, manufacturing organizations, air traffic control, and corporate entities not directly involved with flights. The field under study is very broad, and hence there are many smaller specializations. For example even accident investigation comes under this broad span. The major failures can be avoided if engineers show high integrity for the development and operation of equipment and people. (Garland; Wise; Hopkin, 1999)

However the issue of integrity and safety has been discussed in depth especially after the aviation industry was allowed to outsource some of its maintenance operations. Today maintenance has then become so complex that maintenance is now almost automatic using computing and other electronic equipments. The aircraft automation and the change in the way the interaction of humans with the machines they control have occurred have created changes in the way the machines are understood and in the adaptation of technology. The major processes by which people and the machines interact determine how well the job gets done. (Billings, 1997)

The older and earlier planes had little maintenance but they were also unstable and uncontrollable. With the advent of sophisticated technology, while the flight has become safe, the maintenance of the machines require greater technical skill and precision parts and the aircraft automation was put in place to lower the possibility of better maintenance. Today the process of maintaining aircraft control, and many management functions and later the technological use of computers have changed the way the traditional maintenance and flight changed. (Billings, 1997) Therefore the way the maintenance is being done has also come to be changed. The major reasons for the outsourcing are cost factor.

Aircraft Issues:

Many aircraft that are used by the airlines come with component issues that are beyond the scope of ordinary maintenance crews and require highly competent engineers trained by the manufacturers of the aircraft. This can be seen in the case of Boeing and Airbus. The greater maintenance problems in these aircraft seem to be the landing gear and other critical assembly. Can these issues be solved with an outsourced vendor?

Maintenance Costs:

The U.S. airlines outsource 20% of the total maintenance work to contractors and the figure grows. The newer airlines and the established older ones both take to this practice. The newer airlines tend to outsource almost all their schedules after the deregulation came into effect. The companies outsource to Alaska, America, and the reason for this is that the vendors of the services provide more leverage in terms of cost. On the other hand established airlines like American, Delta, and TWA have their own in house maintenance crew and set ups. There are constraints for these airlines to outsource because of the many problems that attend the reduction of their staff. The convenience of outsourcing is used mostly by smaller airlines and the vendor assumes responsibility and quality. Vendors can be changed after a contract expires and this gives the flexibility to airlines and make them cost effective. (Office of the Under Secretary of Defense for Acquisition & Technology, 1996) For the aircrafts there are many issues with costs other than the components. For example there are the direct maintenance costs -- DMC of commercial aircraft that can be called the cost of owning the plane. The primary method in planning a maintenance schedule ought to be based on lessening the cost of ownership, in other words the maintenance costs. (Wu; Liu; Ding; Liu, 2004)

Airlines can also have issues in cost with the maintenance of fleets and sourcing of components. The big companies have problems with the maintenance of aircrafts with their own in house capacities on account of rising costs. Before the deregulation in 1978, the airlines had to have their own maintenance facilities. The spares and the maintenance schedules are all looked for in the light of cost savings and the repair stations seem to efficiently manage maintenance and spares needs. The ten major airlines spent over nine billion dollars for maintenance during the year 2000, of which over two billion dollars went to the outsourced services. This also goes hand in hand with the fact that over the years the outsourcing did decrease costs by ten percent, which is a substantial achievement in an industry beset with rising fuel costs, competition and a general slump. (Czepiel, 2003)

Thus outsourcing as a relief has to be understood from this perspective of the airlines. Aircraft maintenance as a part of fleet management is the biggest of the overall operational costs and is important in the planning of flight operations. Maintenance scheduling thus is a part of aircraft being able to be in flight and this depends on the maintenance facilities, capacities and skills of maintenance workers, and many more variables. Costs of flight maintenance are variable and depend on maintenance for a single aircraft or an entire fleet. The way outside vendors reduce cost is by undertaking to perform an identical operation on many aircraft at one time. Maintenance also depends on the flight plans and pressure to run services and on the wear and tear of aircraft components. The major factor in air craft maintenance is the method of creating a schedule to do preventive maintenance. (Steiner; Hosang; Barta; Wust; Eigel, n. d.)

Learning and becoming equipped is also possible for the vendors on account of the inputs from many organizations that look into the aircraft safety for example the organization that learns and passes on the findings of shortcomings noticed in accidents, for example air crashes and the organization is the NTSB which is thus responsible for the safety of traveling public for the entire world. It is the agency involved in the accident investigations and is responsible for investigating the transportation accidents and then creating safety rules for the governmental agencies such that the recommendations of the Safety Board thus helps create better maintenance systems and avoid commercial aviation accidents. (Steiner; Hosang; Barta; Wust; Eigel, n. d.)

A study conducted by the department of aviation showed how the airlines monitor, and use third party maintenance facilities. The outsourcing of major maintenance to larger repair stations was the subject of the study. It involved a major training of employees, and the tools and equipments that are used in the process. It also included the financial status of the off shore vendors. It was found that the Airlines extensively use such third party providers for the simple maintenance tasks. This may range from a simple service for a component to complete overhauling or even a D. check for the fleet of aircraft. (Billings, 1997)

Outsourcing had become viable for those who do not have sufficient number of crafts that can be serviced by in house and such airlines make substantial savings in outsourcing maintenance which is performed externally. The vendor attains profitability by multiple contracts from many such companies and the large volume makes the work outlay profitable and the vendor will thus charge a lower cost and in record time. There are now a lot of vendors and half of all maintenance operations in the United States airlines are done by third party aviation maintenance industry. There is also an oversight by the Federal Aviation Administration -- FAA and the oversight of repair stations also come under it thus making it possible that the vendors adhere to quality. (Billings, 1997)

Therefore the issue is not only of the costs and savings or safety. The complete maintenance spans a lot of activities which have become so complex that there must be minute specializations including the issue of aircraft automation and there are many management functions and other executive considerations that hitherto did not touch maintenance. Changing consideration and completion deadlines based on competition have changed the way the airline companies approach aircraft maintenance which is now an ongoing process in fleet management that generates the highest overall operational costs. The outsourcing of the maintenance is the method of breaking down of functions in such a way that through out the world the individual component of the maintenance capacities and skills of maintenance are available. For this specialization with opportunity to grow are necessary. The question relates to what is the position of 'Pratt & Whitney' and other 'Global Airline' vendors in this regard. The authorities have placed a great quality control needs on the vendors.

Outsourcing Now:

The major companies have begun outsourcing from the beginning of 2004. By 2006 all airlines big and small became cash-strapped and therefore they began outsourcing the labor-intensive aircraft maintenance where it was cheaper because it was done by non-union workers. For the bigger airlines the younger low-cost airlines are cost efficient because they are not burdened with the in house maintenance cost. "Network carriers outsource 40% of their maintenance while low-cost carriers outsource half." (Economic Times, 2006) The Northwest Airlines has outsourced all its 'heavy maintenance' works with the line maintenance. The airlines replaced union workers with the contract outside vendors. Likewise U.S. Airways Group has sourced outside work for the airframe maintenance. Now Delta Airlines outsource most of its maintenance while Continental Airlines is the only big airline that still keeps the maintenance work in-house. (Economic Times, 2006)

The oversight and quality control is stringent in the industry as a whole and some cases where "bankruptcies, unionization, regulatory compliance issues" of vendors create problems the issues may result in a disruption. Thus Alaska was forced for negotiating agreements on less favorable terms. The researchers Sedatole; et al. (2011) point out that examining the Alaska Airlines' 2008 annual report shows that the suppliers often specialize in some single aspect of the production process and have large number of buyers. Thus they gain a business advantage and like wise TCE has both economic and vertical integration as a function, thereby reducing transaction costs. The question still is if these operations will ultimately create a moral hazard in the terms of appeasement of managerial self-interest is a debatable point. (Sedatole; et al., 2011)

In a study by Sedatole; et al. (2011) that examined the intra-firm moral hazard and control mechanisms that controlled for the transaction costs and economies of scale found that the hazards that would occur is minimal with the job design that included outsourcing and it is a method of overcoming moral hazards inside the company. Further that the CEO risk behaviors and decision models changes with the outsourcing option indicates that the outsourcing can positively alter some of the top management of the company. The research points out that though these positive outcomes can be associated with the aspect of outsourcing there is still no evidence as to what are the determinants of outsourcing.

One of the major elements outsourced is the data base and the front office and back office management with relation to aircraft maintenance. The back office is also being outsourced and it is the 'brain of the maintenance operation.' (Seidenman, Paul; Spanovich, 2009) For example the internet-based Avtrak Globalnet provides an "aircraft maintenance compliance tracking, electronic logbook and work order/inventory control system for 3,500 aircraft today." (Seidenman; Spanovich, 2009) The internet and computing technology have made the virtual space a means of outsourcing critical functions. Thus moving the back office maintenance support to Avtrak eliminated additional staff even when multiple aircraft types are involved and the tracking and information is available 24/7 and thus the maintenance people can leave the data management and paperwork to the vendor. This is one type of outsourcing.

Aircraft Specialties:

There are specialized maintenance that is a part of the type of the aircraft used by the fleet and therefore is based on specialization of the aircraft. Even companies like Airbus outsourced the development of the systems on its planes. The company for example entered into an MOU with the Polish applied research group as "technology partners for aeronautics research and technology projects. (Laming; Hewson, 2000) The result is expected to be seen in the surface technologies, ergonomics and environmental technologies, mathematical modeling, measurement and testing. Goodrich-Krosno, the supplier from Poland also produces shock absorber parts for the A380's landing gear. (Laming; Hewson, 2000)

There is a general contention of the aviation experts about the planes that broadly number 2,500 planes of the Airbus 320 family, that flies to almost all destinations of the globe is claimed by the experts to be with a good safety record. The front landing gear usually is shown to be the point of danger with the wheels twisting 90 degrees to the plane. According to Howard Plagens, a senior air safety investigator with the National Transportation Safety Board, the problems with landing gears is a common feature with flights. However the locking of the nose landing gear on Airbus jets is one of the noted recurring problems. A Canadian study shows 67 incidents of nose-landing-gear failures on Airbus 319, 320 and 321 aircraft worldwide since 1989. (Oldham; Garvey, 2005)

The crashes continued with the recent one in 1999 that caused the issuing of mandatory airworthiness directive to all airlines operating the aircraft to fix possible faults with O-ring seals in the landing-gear steering module. Thus in spite of the technical advances, it seems that all is not well with the A230's landing gear. The problem if we observe in detail need not be with the design but with the myriad of maintenance issues and service and inspection issues that dog the airlines industry as a whole. In such circumstances outsourcing can add to safety issues. The maintenance problems of aircraft begin with corrosion. Critical areas prone to corrosion include galleys, lavatories, cargo compartment and the landing gear. (National Research Council (U.S.), 1996)