Old-timers might be shocked if they visited Delta Air Lines' Atlanta maintenance complex these days.
You're as likely to see employees at the massive facility repainting an ABX cargo jet or overhauling an American Airlines engine as you are to see them working on Delta's jets.
Almost half the 5,000-employee Atlanta shop's engine overhauls --- which can take two months and cost $1.5 million --- are for outside customers. Delta says its revenues from such "insourcing" rose to $312 million last year, from $50 million in 2000. Its maintenance operation, known internally as Tech Ops, is now the world's third-largest maintenance supplier run by an airline, according to Delta.
Meanwhile, however, Delta is doing less of the work on its own jets than it used to.
Delta's spending on outsourced maintenance has grown from a third to almost half of its nonlabor maintenance expense in recent years, according to government figures, after the carrier contracted out virtually all of its major aircraft overhauls. Such overhauls, which involve extensive inspections every six years or so, once filled many of Delta's hangar bays.
The changes are part of Delta's effort over the past few years to cut costs and rework processes to mirror industry trends.
Along the way, Delta cut its 9,500-employee maintenance staff by a third and shuttered hangars in Tampa, Dallas-Fort Worth and Atlanta.
Delta hit some bumps after it shifted overhauls to outside contractors, but executives remain committed to the strategy.
For instance, Delta earlier this month pulled the plug on a contract with Air Canada, which has been overhauling Delta's widebody Boeing 767s at its Vancouver, British Columbia, hangar. It was one of two five-year overhaul contracts Delta penned two years ago. Delta ditched its contract with Florida-based Avborne last spring.
Delta moved the work to contractors ranging from TIMCO in Greensboro, N.C., to SkyTeam alliance partner Aeromexico and Hong Kong Aircraft Engineering Co., or HAECO, in China.
Delta's top maintenance executive, Tony Charaf, said both outsourcing and insourcing are here to stay. He said such moves have netted $250 million in annual cost savings or revenues, compared to two years ago.
The strategy helped persuade Delta to drop tentative plans to sell Tech Ops. Instead, Delta announced about four months ago that it was calling back 700 idled mechanics.
"Our plan is working. We are delivering to Delta the product that keeps Delta competitive," said Charaf, who joined Delta in 1996. "At this point the study [of whether to divest Tech Ops] is on the shelf."
Charaf said Delta will keep doing specialized work such as engine overhauls and avionics repairs where the labor costs of its relatively well-paid mechanics are a smaller share of total costs. Delta's senior mechanics make about $59,000 a year, well above salaries at many independent shops.
"We outsourced where we knew we didn't have a competitive edge," said Charaf.
Delta still lags the industry in how much it has outsourced, but it's catching up. About one-third of Delta's maintenance spending went to contractors in 2004, compared to an industry average of 53 percent, according to a 2005 report by the Department of Transportation's Office of Inspector General.
By 2005, Delta's outsourced maintenance had jumped to 48 percent of its $775 million in nonlabor maintenance expense, according to OIG data.
Charaf argues that repair work on equipment sent back to the original manufacturers shouldn't count as outsourced. By that measure, "we outsource less than 20 percent," he said.
Airlines' heavier reliance on outside contractors worries some airline experts. The DOT's inspector general also raised red flags regarding the Federal Aviation Administration's ability to monitor outsourced work.