Outsourcing: A look at some of the industry practices

Webster’s definition seems harmless enough, “to procure (goods or services needed by a business or organization) under contract with an outside supplier,” but this word has become a blanket banner for all things wrong with the aviation industry. Deserved? There are those in the industry who think so, but there are others who are trying to change the mindsets, as well as the vocabulary, of the industry and the flying public.

The whys of contract maintenance

Why send away work when you’ve got perfectly capable people in the first place?

“A couple of reasons,” answers Bill Brinkley, a veteran technician who is now in maintenance safety with American Eagle Airlines at DFW in Dallas, TX. “First, is money. It is often cheaper to outsource maintenance to a third party. This can be because of labor costs, equipment costs, parts cost, or other factors.”

He continues, “Second is speed. When a company specializes in one thing, they tend to get very good at doing it and can accomplish it quickly. Occasionally, an operator will outsource something because of a backlog in their own shops, even when it might cost a little more to get the work done. An aircraft on the ground is a liability — not an asset. Airlines can’t afford to have extra liabilities.”

Brinkley shares that both American Airlines and American Eagle Airlines are making a concerted effort to keep as much work in-house as possible.

“We do outsource some component parts and some specialized engine work,” he says, “but for the most part, our work is done in-house, and there are no plans at present to change that — other than to possibly increase the amount of work we keep in-house.”

“Airlines are in a crisis,” says Brian Hirshman, principal with Mercer Management Consulting in Boston, MA. “To avoid bankruptcy, they have to find every possible way to reduce cost — including labor rates. Since some outsourced service providers can offer the same services for less than $40 per hour, airlines cannot afford to pay more than $80 per hour if they are to survive in this revenue environment.”

A former line mechanic, Hirshman adds, “I think there are several types of MRO services that make sense to keep ‘in-house.’ While low-tech, high-labor jobs (such as airframe maintenance) will not stay in-house, certain high-tech, low-labor positions (engines and avionics repair) could remain in-house if unions relax certain work rules to allow airlines to run more productively.”

According to Hirshman, business has never been better for MROs.

“Our recent study of the MRO industry showed that two-thirds of MROs expect their revenues to increase over the next three years,” he says, “and nearly all airlines surveyed plan to increase outsourcing or keep it constant. Latin America, Asia, and Eastern Europe continue to have very impressive labor rates and will continue to attract new work.”

Safety first

While the main concern with the outsourcing of maintenance is safety, the definition of safety differs for the various groups involved. Does contract maintenance affect safety?

“I personally think not,” answers Brinkley. “Although there have been a couple of widely reported instances of technicians with fraudulent documents working at overhaul facilities, those pale in comparison to the number of fully legal and successful operations out there that don’t get noticed. As for safety, you have to remember that these outsource facilities are required by regulation to have FAA-certificated personnel on staff. Although the FAR does not require each person employed there to be certificated, they do require oversight by certificated personnel.”

Hirshman says that his group has seen no correlation between the level of outsourcing and a decline in safety and offers that safety and quality can be directly controllable by two factors: how well the airline selects and transitions to a supplier and how the airline manages the supplier on an ongoing basis.