October 15, 2024

sasadmin

Sofema Aviation Services (SAS), www.sassofia.com, considers the best practices and opportunities related to Aviation Supply Chain Management: provisioning Aircraft Components, APUs, Wheels, Brakes, etc.

Introduction

Contracting for flight hour or cycle-based maintenance provisioning offers significant benefits in terms of cost predictability, improved cash flow, and reliability.

  • Primary challenges include:

o   Dependency on supplier performance

o   The complexity of contracts, and

o   Potential supply chain disruptions.

By employing best practices like detailed contracting, strategic supplier management, data transparency, risk diversification, and continuous improvement, airlines can maximize the value of these contracts while minimizing risks.

Power by the Hour (PBH)

Contracting for flight hour or cycle-based agreements (commonly known as “Power-by-the-Hour” or PBH contracts) for aircraft maintenance materials provisioning, particularly for components like Auxiliary Power Units (APUs), wheels, and brakes.

Opportunities

  • Predictable Costs:
    • Budgeting and Forecasting: PBH contracts allow airlines and operators to have predictable maintenance costs, which are tied to actual usage rather than unexpected failures. This predictability helps in better financial planning and cost control.
  • Improved Cash Flow:
    • Pay-as-you-go Model: Operators pay for maintenance services based on the number of flight hours or cycles, which aligns payments with revenue generation. This can significantly improve cash flow management.
  • Enhanced Availability and Reliability:
    • Guaranteed Component Availability: These contracts typically ensure that spare parts and components are available when needed, reducing Aircraft on Ground (AOG) time and enhancing fleet reliability.
  • Vendor Expertise and Focus:
    • Specialization: Suppliers often have deeper expertise and dedicated resources for specific components, leading to potentially better maintenance outcomes and technological updates, which are more challenging to achieve in-house.
  • Risk Mitigation:
    • Shared Risk: The risk of unforeseen failures and associated costs are transferred from the airline to the service provider, which can reduce the financial impact on the airline.

Specific Challenges

  • Detailed Terms: PBH contracts are often complex and require careful negotiation to ensure that all parties’ interests are adequately protected. Misalignment on terms like repair turnaround times, component availability, and penalties can lead to disputes.
  • Reliance on Vendor Performance: Airlines may become highly dependent on a supplier’s ability to deliver quality components on time. Poor performance from the supplier can directly impact fleet availability and operational efficiency.
  • Overhead Costs: While costs are predictable, they may be higher over the long term due to the premium service levels and risk mitigation built into the PBH contracts. Additionally, inflation or other cost escalators could increase the cost over time.
  • Information Asymmetry: Suppliers might have better visibility and control over component health and lifecycle data, which can lead to an imbalance in negotiating power. This can also complicate the monitoring and enforcement of contract terms.

 Best Practices

    • Clear Terms and Conditions: Ensure that contracts clearly define the scope, responsibilities, performance metrics (KPIs), penalties for non-compliance, and conditions for escalation.
    • Flexibility: Include provisions for adjusting the contract based on significant changes in operations or unforeseen circumstances.
    • Strategic Partnerships: Cultivate strong relationships with key suppliers. Regular performance reviews, open communication channels, and joint problem-solving initiatives can enhance collaboration and service quality.
    • Backup Suppliers: Develop relationships with alternative suppliers to mitigate the risk of dependency on a single source.
    • Diversification of Supply Chain: Avoid over-reliance on a single supplier or region. Diversify the supply chain to include multiple sources and geographies.
    • Contingency Planning: Develop and regularly update contingency plans for potential supply chain disruptions, including alternative logistics solutions and inventory buffers.
    • Regular Audits: Conduct regular audits of the PBH agreements and supplier performance to ensure compliance with the contract terms and identify areas for improvement.
    • Continuous Improvement Initiatives: Implement feedback loops and continuous improvement programs that allow both the airline and the supplier to optimize processes, reduce costs, and improve service quality.

Next Steps 

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Sofema Aviation Services and Sofema Online provide multiple supply chain training courses, including Suspect Parts – Please see the websites or email team@sassofia.com.

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