airlogic holding s.a. aircraft maintenance russia:
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AIRCRAFT MAINTENANCE RUSSIA:THE EMERGING MARKET20-21 March, 2007, Moscow
Achieving High Performance with Global
Supply Chain Service and Support
Solutions
Presented by:Ethan Alpert
Chief Executive OfficerAirlogic Holding S.A.
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AGENDA
Current Challenges
Lessons Learned
Key Airline Objectives
Current Demand Side Dynamics
Current Supply Side Dynamics
Solutions
The Way forward
What does Airlogic do?
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HOW CAN RUSSIAN AIRLINES RELIABLY AND ECONOMICALLY SUPPORT THE DAILY TECHNICAL REQUIREMENTS OF THEIR BOEING AND AIRBUS FLEETS?
CURRENT CHALLENGES
No significant spare parts inventories for western-built aircraft currently in Russia
Few technical personnel having experience to purchase and manage repair logistics for western material
Several Russian operators of western aircraft are at the ‘mercy’ of powerful, high-cost, ‘FULL SUPPORT’ maintenance providers; often paying well in excess of market value for components and receiving limited customer support
Operators must wait for material to be delivered from distant locations and then deal with the time constraints and expense of the Russian customs regime
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CURRENT CHALLENGES
Ad Hoc Purchasing – Reliance on numerous vendors with individual credit tolerances; too many gaps in reliability
Main Base Leases – Up front costs (e.g., customs duties) of importing high value inventory makes leasing expensive; scale of turnover (potential lease revenue) is still too low; owners of inventory are reluctant to dedicate ‘new generation’ inventory
Pooling – Same issues as for leasing; insufficient scale in terms of number of aircraft and revenue stream
Spares Financing – Western style ‘asset-based’ lending not available and too expensive; airlines shouldn’t be owning inventory
‘Full Support’ – Far too expensive as a long term solution; especially beyond aircraft warranty phase
THE CURRENT SOLUTIONS ARE NOT SUFFICIENTLY PRACTICAL OR ECONOMICAL
THE STATUS QUO ISN’T GOOD ENOUGH
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CURRENT CHALLENGES
ONE ISSUE IS VERY CLEAR . . .
SUPPLIERS NEED TO INTRODUCE BOTH INVENTORY AND RELIABLE, EFFICIENT LOGISTICS SUPPORT MECHANISMS HERE, IN RUSSIA
WE ALL KNOW THE OBSTACLES –
LOCAL CUSTOMS REGULATIONS
IMPORT DUTIES
PROTECTION OF INVENTORY OWNER INTERESTS
MATTERS OF SCALE
ETC.
CHANGE IS INEVITABLE IF RUSSIAN AIRLINES ARE TO BE GLOBALLY
COMPETITIVE
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LESSONS LEARNED BY U.S. ‘LEGACY’ CARRIERS:
THREE PRINCIPAL FUNCTIONS OF AIRLINE OPERATION
FLYINGAIRPLANES
MAINTAININGAIRPLANES
COORDINATINGALL
LESSONS LEARNED
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LESSONS LEARNED
SUPPLIER MANAGEMENT Contract NegotiationInvoicingWarranty Administration Follow-upMeeting SuppliersPurchasing
MAINTENANCE PLANNINGTestRepairOverhaulNFFADS/SBsSoftware Upgrades
STOCK / INVENTORY Financing Obsolescence Depreciation Residual Values
AOG MANAGEMENT Loan Components, AOG Fees,AOG Shipping, Forwarding, Tracking
OWN SHOPS InfrastructureToolsStaffProceduresManualsUpgradesQualityLogisticsPurchasingInventory Management
We know there is redundant overhead associated with the performance of maintenance-related functions – the difficult part is deciding which of these functions the airline does best and which it should outsource
LOGISTICSInfrastructureStaffWarehousePlanningAdministrationShippingBookingPackagingTrackingCustomsTaxesDocumentationFollow-up
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LESSONS LEARNED
CONSENSUS OPINION AMONG AIRLINE MANAGERS TODAY IS THAT AIRLINES SHOULD CONCENTRATE ON FLYING PASSENGERS
AIRLINE CAPITAL STRUCTURES CAN NO LONGER BEAR COSTS OF PERFORMING NON-CORE FUNCTIONS SUCH AS SPARE PARTS INVENTORY OWNERSHIP AND IN-HOUSE LOGISTICS SUPPORT
OBJECTIONS TO OUTSOURCING PURCHASING AND LOGISTICS HAVE BECOME OUTDATED WITH THE ADVENT OF SENSIBLE, WELL-STRUCTURED, TRANSPARENT AND AUDITABLE PROGRAMS
SUCH PROGRAMS ARE NOT SIMPLE TO IMPLEMENT - OFTEN FACING INTERNAL OPPOSITION - BUT AIRLINE MANAGERS RECOGNIZE THAT THESE ARE VIABLE AND ESSENTIAL OPTIONS WHEN PROPERLY STRUCTURED AND MONITORED
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Reduce costs of procurement, inventory, distribution, transportation and readiness
Reduce number of suppliers; establish single point of contact for day to day operational requirements
Reduce repair turnaround times
Optimize logistics reliability
Minimize capital investment in spares
Increase flexibility during rapid fleet evolution
Enhance accurate and stable cash flow forecasting
Simplify warranty administration
INNOVATIVE SUPPLY CHAIN MANAGEMENT SOLUTIONS
KEY AIRLINE OBJECTIVES
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INCREASING COMPETITION AMONG RUSSIAN CARRIERS
ENORMOUS PRESSURE ON OPERATORS TO DEVELOP EFFICIENT AND ECONOMIC SUPPLY CHAIN SOLUTIONS
SHORTAGE OF QUALIFIED TECHNICAL LOGISTICS AND PURCHASING PERSONNEL
AIRLINE DEMAND FOR COMPREHENSIVE ‘JUST-IN-TIME’ INVENTORY ACCESS, LEASING, POOLING AND ‘FLY-BY-HOUR’ PROGRAMS EXCEEDS SUPPLIER INTEREST; RUSSIAN MARKET IS NOT YET MATURE ENOUGH TO GENERATE REQUIRED THIRD-PARTY INVESTMENT
AIRLINE REQUIREMENTS ARE EVOLVING RAPIDLY; SUPPORT AGENCIES MUST INNOVATE TO MEET RUSSIA’S GROWING AIRLINE SUPPORT REQUIREMENTS
CURRENT DEMAND SIDE DYNAMICS
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EVOLUTION OF MARKETPLACE AWAY FROM INDEPENDENT REPAIR PROVIDERS; OEMs RECAPTURING REPAIR BUSINESS
OEMs AND MROs DEVELOPING ECONOMIES OF SCALE BY CONSOLIDATING LOGISTICS AND SUPPORT PROGRAMS
OEMs RECOGNIZE NEED TO BE ‘CLOSER’ TO OPERATORS BOTH PHYSICALLY AND DIGITALLY
INCREASING COOPERATION AMONG OEMs TO PROVIDE ‘ONE-STOP’ SUPPORT
CURRENT SUPPLY SIDE DYNAMICS
OEMs, MROs AND LOGISTICS PROVIDERS WANT YOUR COMPONENT SUPPORT BUSINESS; AND THEY ARE STARTING TO EMBRACE THE MECHANISMS THAT CAN FULFILL RUSSIA’S SPECIFIC REQUIREMENTS
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CURRENT SUPPLY SIDE DYNAMICS
BURDEN OF HIGH COMPONENT AND ‘HANDLING’ COSTS FROM MAJOR MRO PROVIDERS IS BORNE SOLELY BY AIRLINES – MROs KNOW THIS IS NOT SUSTAINABLE
TREND IN FAVOR OF A NEW GENERATION OF TRANSPARENCY- DRIVEN, PERFORMANCE-BASED CONTRACTS AND RELATIONSHIP MANAGEMENT COMMUNICATIONS APPLICATIONS
RECOGNITION OF NEED TO OUTSOURCE LOGISTICS TO LOCAL SERVICE PROVIDERS
GROWTH OF THIRD-PARTY LOGISTICS SUPPLIERS AND ENABLING TECHNOLOGIES (REAL-TIME, TRANSPARENT CRM APPLICATIONS)
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SOLUTIONS
WHAT WILL THE NEW MODELS LOOK LIKE? GREATER PURCHASING CENTRALIZATION (FEWER VENDORS)
INCREASED OUTSOURCING OF PURCHASING FUNCTIONS
INCREASED COOPERATION AMONG COMPETITOR AIRLINES OPERATING SIMILAR EQUIPMENT
LOCAL INDEPENDENT LOGISTICS PROVIDER TO ‘HOST’ LOCAL ‘EXCHANGE POOLS’ OF CRITICAL ITEMS
BACK-UP EXCHANGE STOCK FOR NON-CRITICAL MATERIAL
TRANSPARENCY AND DETAILED PERFORMANCE METRICS
INCREASED MONITORING OF TATs FROM REPAIR PROVIDERS
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SOLUTIONS
HOW ARE NEW MODELS BEING STRUCTURED?OEM POOL SPONSORSHIP – LEVEL 1
THALES PLACES EXCHANGE POOL OF HIGH VALUE AVIONICS IN ISTANBUL AND CONTRACTS WITH FOUR TURKISH OPERATORS FOR PER-FLIGHT-HOUR (PFH) SUPPORT PROGRAM
GUARANTEED ACCESS TO POOL COMPONENTS WITHIN 4 HOURS OF REQUEST FOR EXCHANGE (RFE)
RFE IS TRANSMITTED TO AIRLOGIC (THALES LOCAL SERVICE PROVIDER (LSP) IN TURKEY) – LSP COSTS BUILT INTO PFH FEE
OPERATOR’S RESPONSIBILITY BEGINS AND ENDS WITH SUBMISSION OF RFE
A TRULY WIN-WIN SOLUTION:OEMs GET REPAIR BUSINESS/
AIRLINES HAVE LOCAL ACCESS
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SOLUTIONS
SPECIFIC RESPONSIBILITIES OF LSP INCLUDE:
Management of main base stock at airport
Exchange order management (via Thales CRM system)
Delivery of serviceable units and retrieval of unserviceable units
Local customer service hotline and personnel
Repair logistics management
Customs clearance
Door to door transportation
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OPTIMIZEDMAIN BASE
Customer Support
Aftermarket Inventory Pool
RepairManagement
Logistics
OEM Administration
WarrantyFollow Up
LOCALLOCAL SERVICESERVICE
PROVIDERPROVIDER
SOLUTIONS
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SOLUTIONS
OEM POOL SPONSORSHIP – LEVEL 2
USE COMBINED LEVERAGE OF RUSSIAN OPERATORS TO PERSUADE KEY OEMs TO CONSOLIDATE EXCHANGE POOLS AS AN OEM ‘NETWORK’
OEMs ARE FAR MORE RECEPTIVE WHEN HIGHER VOLUME OF REPAIR AND EXCHANGE POOL REVENUE CAN BE GENERATED IN A GIVEN REGION
RUSSIAN AIRLINES SHOULD CONSIDER COOPERATING WITH EACH OTHER TO ACHIEVE A COMMON
OBJECTIVE -
RELIABLE, ECONOMIC, LOCAL ACCESS TO ESSENTIAL MATERIAL
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‘OEM NETWORK MANAGEMENT’
A NETWORK OF OEMS SUPPLYING UP TO 70% OF AIRCRAFT ROTABLE REPAIR AND EXCHANGE REQUIREMENTS
COORDINATED BY A PROVEN THIRD-PARTY SPARES AND LOGISTICS NETWORK MANAGER
REMAINING 30% SUPPORTED BY NETWORK MANAGER
SINGLE CUSTOMER SUPPORT INTERFACE
FLY-BY-HOUR PRICING
SOLUTIONS
ULTIMATE OBJECTIVE
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SOLUTIONS
CENTRALIZED/OUTSOURCED PURCHASING
AIRLOGIC CURRENTLY FUNCTIONS AS ‘OUTSOURCED’ PURCHASING DEPARTMENT FOR TWO TURKISH AIRLINES (38 AIRCRAFT; 85 ENGINES)
PRICING STRUCTURE DEPENDS UPON:
1) TYPE OF MATERIAL (CONSUMMABLE, EXPENDABLE, ENGINE COMPONENTS)
2) INVENTORY VS. NON-INVENTORY
3) LOAN, EXCHANGE OR OUTRIGHT SALE
OVERRIDING PRICING PRINCIPAL IS: COST-PLUS
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SOLUTIONS
WHY IS THIS A GOOD IDEA . . . ?
THE “PLUS” COMPONENT OF ‘COST-PLUS’ IS CALCULATED AS A PERCENTAGE OF PURCHASING
PERCENTAGES DETERMINED USING FORMULAS BASED ON:
1) ANNUAL PURCHASING VOLUME
2) TYPE OF MATERIAL (I.E., ENGINE, AIRFRAME, CONSUMMABLE, ROTABLE, NEW, REPAIRED, ETC.)
3) TYPE OF SERVICE (I.E., SALE, LOAN, EXCHANGE, REPAIR MANAGEMENT, CUSTOMS CLEARANCE, FREIGHT FORWARDING, ETC.)
IF YOU KNOW YOUR ANNUAL PURCHASING BUDGET, WE CAN SHOW YOU WHAT YOUR PURCHASING OVERHEAD WILL BE
IF NOT - WE CAN ASSIST IN PERFORMING THE ANALYSIS
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SINGLE VENDOR SIMPLIFIES EVERY STEP OF THE PURCHASING/LOGISTICS PROCESS
SHIPPING INVOICINGCONTRACT
ADMINISTRATIONVENDOR
SELECTION
TRACKING
TRACKING
SINGLEVENDOR NONE
SINGLE DELIVERY POINT
ONE SYSTEM
ONE ACCOUNTABLE VENDOR
SINGLE SOURCE
ONE SET OF PAYMENT TERMS
SINGLE CONTRACT
ONE SET OF RULES
MULTIPLEVENDORS
ONGOING
MULTIPLE DELIVERY POINTS
MULTIPLE SYSTEMS
MULTIPLE VENDORS
MULTIPLE PAYEES
ALL DIFFERENT PAYMENT TERMS
MANY CONTRACTS
DIFFERENT TERMS AND CONDITIONS
SOLUTIONS
ONE SOURCE = OVERHEAD REDUCTION
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Tracking Material Movement Through Single Web Portal
Dedicated and Accountable Third-Party Product Support Team
Dedicated Program Director
On-site Field Representative
Regular Status Reporting
Reliability Analysis Reporting
TAT Monitoring
AOG Management
Program Review Meetings
SOLUTIONS
ADDITONAL FEATURES OF CENTRALIZED PURCHASING
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THE WAY FORWARD
SUBCONTRACT LOGISTICS > REDUCE COSTS >INCREASE ACCOUNTABILITY
SINGLE CUSTOMER INTERFACE
LOCAL SERVICE PROVIDERLOCAL SERVICE PROVIDERDIRECTLY ACCOUNTABLE TO AIRLINEDIRECTLY ACCOUNTABLE TO AIRLINE
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Repair Management
Rotable Access
Single Channel Interface
RELIABILITY =
Consumables Support
Logistics Support
THE WAY FORWARD
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ALL OF THE THINGS JUST DISCUSSED . . .
WHAT DOES AIRLOGIC DO?
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Спасибо!
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