American and Continental  Airlines have used different  tactics against the recent move towards outsourcing, but both workforces have cut costs and improved efficiency

It is no secret that the number of US majors doing their own heavy aircraft maintenance has dwindled drastically over recent years, but there are always exceptions to any rule. In this case, they are American and Continental Airlines. Both Texas-based carriers, historically with strong in-house maintenance capability, have bucked the recent outsourcing trend, although in different ways. Both, though, have enlisted their workforce to help preserve jobs by cutting costs and becoming more efficient - and they are succeeding.

© Uni-Systems
"Our people can see that other airlines have given up their in-house maintenance" Pat Stewart, vice-president and chief operating officer, TAESL

American, which continues to maintain all its 700 aircraft in-house, is using the considerable cost reductions and productivity it has gained to seek third-party maintenance work in an effort to turn its engineering operations into a profit centre. Continental used its increased employee efficiencies to bring back in-house last year work it had been outsourcing to third-party providers and to start up another overhaul line this year. But unlike American, it has no plans to create a third-party business.

American's wide-ranging engineering and maintenance make-over is part of the airline's "Turnaround Plan" created and promoted by AMR chairman Gerard Arpey as a way forward to profitability without resorting to the disruptive and destructive bankruptcy protection option its main competitors have chosen. The plan has four underpinning principles: lower costs to compete fly smart - give customers what they value pull together, win together and build a financial foundation.

Building on the plan, maintenance and engineering has its own "vision", says Peter Sirucek, managing director aircraft overhaul and component maintenance, at American's Alliance Maintenance Base in Fort Worth. It is to have the best maintained fleet in the world at competitive cost, producing a safe, reliable product, with "on time" dependability, and at an optimum cost. "It's been the focal point," Sirucek says. "It builds the fundamentals both to keep maintenance in-house and to attract MRO business from outside."

American's three major maintenance bases - in Tulsa, Oklahoma Kansas City, Missouri and at Alliance - each have their individual "breakthrough goals", targets for obtaining a specific amount of annual "value creation" for American through cost savings and revenue generation. Initiatives at the three bases are intended to produce over $1 billion in annual value creation by the end of 2008. Last month, a team of management and Transport Workers Union (TWU) employees at 10 line maintenance bases added their own goal of $95 million over the next two years.

The changes are not always easy and have required a "culture shift" for both, says Sirucek. No longer can management make key decisions on their own or "in the shower", as Sirucek puts it, as before. "Now, we have new partners, the TWU leadership. We're going to be less commanding, more participative and we're jointly going to make decisions - because we are tied together."

Gary Peterson, president of the TWU Local 567, says the new regime has meant a big change for his members too, who "used to work in a comfort zone" before. "Everything changed after 9/11," he says. The union represents 1,800 maintenance technicians and engineers at Alliance - all non-management workers outside of security and cleaning personnel - including 99% of the workforce of Texas Aero Engine Services Ltd (TAESL), American's 50:50 joint venture with Rolls-Royce.

American's newest base, Alliance is a full-service engine, aircraft and component repair and overhaul facility, built at a cost of $500 million in the early 1990s, with about 1.8 million ft2 (167,225m2) of space. It maintains American's fleet of Boeing 777s and 767-300s. TAESL, which subleases space and draws all direct labour and most management from American, services Rolls-Royce Trent 800 and RB211-535 engines. American's engines represent less than 50% of TAESL's total business customers include Delta Air Lines, US Airways, UPS and leasing companies. "TAESL has gone from being a cost centre to profit for both owners," says its president Andrew Heath.

Labour co-operation

Pat Stewart, TAESL chief operating officer and the senior American official on site, says the most significant change is that management does not have to explain to labour what is needed to keep American's maintenance capability intact. "They can see that other airlines have given up their in-house maintenance," he says. "The rest of the industry has been their crystal ball." He says employee input - TWU representatives routinely participate in his meetings - has been advantageous, creating more ideas and thoughts and quickening the pace of getting things done. "Employee involvement helps us make much better decisions," he says.

Many changes are being made under the aegis of "Continuous improvement" (CI), a set of principles and techniques designed to eliminate waste and produce a more efficient maintenance system. CI empowers mechanics to develop and implement change, Sirucek says, so they play a critical role in keeping heavy maintenance in-house. Employees also were assured the cost savings, cost avoidance and revenue generation flowing from CI would never cause a lay-off.

As a result, employees take an active part in seeking changes in processes to improve safety and quality and save time and money, he says. "The hurdle has been historically that people thought that if they do their jobs better and quicker, we would need fewer of them."

Stewart says most changes were generated by self-directed employee performance teams. "They know the business better than we do," he says. "They have created real value for us."

For example, the galley shop, called "a nightmare before" by one manager, underwent a radical change. Using CI principles to increase productivity, employees decided to assemble a whole galley complex within the shop to assure quality control. It used to take four employees four days to install galleys on an aircraft undergoing overhaul, in part because the galleys would not line up. Now it takes two employees two days. Their own safety programme to lower industrial injuries proved so good it was extended across the base.

In airframe maintenance, the base achieved 12-day turntimes on a key main base visit for the 777, freeing 30 days of capacity this year. Moving staff around easily within the six-bay hangar saves millions of dollars in scheduling.

In the engine shop, employees came up with the idea of using three 15ft-deep pits with elevators, no longer in use, as vertical stands to work on the core of the Trent engine. The core could fit into the pit and be spun around horizontally and vertically for tear-down and build. Employees no longer have to bend over so there are ergonomic and safety benefits, and a better product was produced, Sirucek says. The change shaved five shifts off the turntime on the core work, or 120 hours. "It's a pretty big benefit the time means a lot to a customer." The process has since been adopted by Rolls-Royce across its service network.

Another employee-developed change substituted rotary trunion fixtures for fixed stands to work on the fan module of the RB211, Sirucek says. "It's more ergonomically-friendly it reduces injury and we gained 125 hours."

Employees using CI also designed new tooling to work on the Rolls-Royce RB211 engine, taking 150 hours out of repair, says Heath of TAESL. CI changes brought Trent overhaul down from 100 days' turnaround time, to 70 days last year, and 63 today.

Bringing work back

The improvements in work processes, reduced turntimes and cost savings, including lower spare aircraft and inventory, have allowed American to bring back work that had been outsourced, such as 757 landing gears and 777 slides. Employees have accepted all the work and American hopes to be able to recall people, says Sirucek. "Right now, we're just absorbing more work with the same number of people." The intention is to use the productivity increase to attract more third-party work, which will in turn allow recalls.

Each base has a business development group, including management and labour, which researches potential business and then goes out to sell its capabilities to customers. Just two years ago, American did no third-party work except line maintenance, but has been increasingly successful over the last year. "We're talking with former customers now," says Peterson.

Continental, though it sends its 777s and 767s to an outside shop for heavy checks, has been expanding its in-house maintenance of Boeing aircraft as its narrowbody fleet continues to grow. Officials say this is a direct result of its partnership with its maintenance workers, represented by the International Brotherhood of Teamsters (IBT), to work together to reduce costs and span times. The airline has three maintenance bases: at Houston Hobby and Intercontinental airports and in Orlando.

Joe Ferreira, Continental's staff vice- president-maintenance, says the airline had come "to a fork in the road" after retiring the last of its Boeing MD-80s last year. It could close the check line at its Hobby base that had maintained the MD-80 - and lose the engineers - or find a way to keep them busy, knowing its overall fleet would be growing over the next few years, and that its newer aircraft would be growing into major maintenance checks.

After analysing its future needs, Continental was able to bring back major work on its 58 757s, which had been outsourced, to its Houston Intercontinental base and to modify its Hobby base - using employee ideas - in order to start up a second check line for its growing fleet of 737 new generation aircraft. "Now about 95% of our airframe work is in-house," Ferreira says.

The outcome was the result of the partnership Continental has formed with its employees, Ferreira says, and the flexibility its agreements provide. The company's decision on the 757 work followed a detailed analysis showing that "nobody we looked at could beat our 'span times', the days out of service for the checks," he says.

"We challenged our technicians to bring the span down to 20 days," he says. "The span time we were getting from outside vendors was roughly 25 days," he says. "So far, they've overwhelmingly met our expectations." In fact, the base is currently doing modifications to the airline's inflight entertainment system and is fitting that into a reduced overall span time of 19 days.

Fast turnaround times

"Even though our labour costs are a little higher, in the end we save a lot more money because of span and other efficiencies," Ferreira says. The analysis also factored in the cost of ferrying aircraft to a third-party maintenance firm in Cascade, Canada, as well as the expenses of the staff involved. A study this year on whether to start up a second 737 check line in-house proved similar. "We did the analysis again and there is no one, maintenance-wise, that could meet our span times," says Ferreira.

© Continental Airlines  

That Continental could put the 757s at Houston Intercontinental and a new 737 line at Hobby are another indication of its flexible contract with the union. Most legacy carrier agreements call for work on a specific fleet type, Ferreira says, while Continental's agreement says only that the airline will maintain a check line. In fact, with the shifting of work between its Houston bases, on opposite sides of the sprawling city, employees can move where they want to, Ferreira says, and be closer to home. "It split up pretty evenly and people are where they want to be."

The company also does heavy maintenance on 111 older-generation 737s, but its 18 777s and 26 767s are maintained in Hong Kong. Ferreira says Continental flies its widebodies heavily in the summer and puts them in for checks in the winter, so if it brought them in-house it would not have a full check line four months of the year. It now employs 3,482 in its maintenance operation, up 350 over the past two years. It has no workers on furlough, and has been hiring entry-level technicians laid off by other carriers.

Award winner

Continental Airlines won the Operations category at the recent Airline Strategy Awards, partly because of its maintenance services strategy. Here Mark Moran (right) receives the award from David Herrick of American Express. For the full citation, visit: 

Unlike American, it has no plans to seek third-party maintenance work from other carriers. "We won't," says Ferreira says. "We want to stay focused on our airplanes, our mission, and not compromise that." It certainly has the opportunity. Copa Airlines, its sister carrier, wanted Continental to do C checks on its 737s in Orlando because of its span rates and quality, Ferreira says. "We just don't have enough of a buffer to be able to slot in any other airplanes. We are in the business of making sure we take care of our fleet." ■

The outsource players

With strong in-house airframe capability used to maintain their own fleets at one time, both United and Delta Air Lines now are counted as outsourcers. United outsources virtually all its airframe work to third-party firms, and Delta outsources the vast majority of its heavy maintenance.

Both continue to market their remaining capabilities - primarily in maintaining engines and components, considered higher-value work - to make them successful stand-alone businesses.

Six months before its bankruptcy-protection filing last year, Delta joined most other US carriers in outsourcing its airframe work. In a move aimed at reducing its maintenance costs 34% over five years, Delta began sending work on 200-plus Boeing 757s and 767s to Air Canada Technical Services and 136 MD-88s and MD-90s to Avborne in Florida. The work has shifted in the interim, with overhauls on Delta's 757s now being done by Timco at Lake City, Florida, and on its 120 MD-88s by Aeromexico, according to Delta.

The latter stems from an agreement Delta and Aeromexico signed in April, making the Mexican carrier the exclusive heavy maintenance provider for Delta's MD-88s and Delta TechOps the exclusive maintenance provider for Aeromexico's CFM56-7 engines and 131-9B auxiliary power units.

Delta TechOps had third-party revenues of $240 million last year.

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Source: Airline Business