Outsourcing: A look at some of the industry practices

by Michelle Gardner
Created: August 8, 2005

Although the word outsource has only been around since 1979, many in aviation wish it would be stricken from the English language today.

Percent of Outsourcing for 14 Air Carriers in 2002, 2003, and the First Three Quarters of 2004*

Air Carrier	Percent of Maintenance Expense Outsourced
	2002	2003	2004**	Change (2002 to 2004)
Jet Blue	39%	51%	63%	24%
United	33%	41%	54%	21%
ATA	22%	20%	43%	21%
Air Tran	31%	46%	46%	15%
Frontier	20%	27%	33%	13%
US Airways	50%	58%	60%	10%
Northwest	44%	56%	51%	7%
American	38%	38%	42%	4%
Alaska	79%	75%	80%	1%
Continental	65%	65%	65%	0%
Southwest	65%	65%	64%	(1%)
Delta	38%	37%	35%	(3%)
America West	77%	75%	72%	(5%)
Spirit	NA	34%***	30%	Unknown

* To determine outsourced maintenance percentages, we compared the amount of direct maintenance expense air carriers incurred for outside repairs to the amount the carriers incurred for total direct maintenance expense as shown on Form 41 financial data that air carriers submit to the Department’s Bureau of Transportation Statistics. This is the best source currently available for data on air carrier outsourcing.
** First three quarters only
*** Percent for Spirit Airlines based on FY 2003 fourth quarter data only.
Source: DOT Form 41 data
From the Inspector General’s Report: Safety Oversight Of An Air Carrier - Industry In Transition, Federal Aviation Administration
Report Number: AV-2005-062 • Date Issued: June 3, 2005 • http://www.oig.dot.gov/item.jsp?id=1575

Nearshoring
Like the outsourcing trend, many companies are chosing to offshore operations to save money. Puerto Rico is trying to capture some of that business in what it refers to as “nearshoring.” Last October, Puerto Rico celebrated the grand opening of Infotech, a Pratt & Whitney joint venture that will provide technical services to Pratt & Whitney, Hamilton Sundstrand, Sikorsky Helicopters, and United Technologies Corporate Procurement. Puerto Rican officials pitch Puerto Rico as “The advantages of going offshore. The security of being home.” Some of the advantages touted are:
Corporate income tax rate of 7 – 0 percent, with no withholding tax on dividends or distributions

No U.S. federal income taxes

Profit center under foreign corporation structure

By Joe Escobar

Additional ReSources
Aeronautical Repair Station Association (ARSA)
Inspector General’s report: FAA Safety Oversight of an Air Carrier Industry in Transition, June 3, 2005
Mercer Management Consulting
Professional Airways Systems Specialists (PASS)
AFL-CIO

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