Airlines Hedging Maintenance

Using risk-management to balance costs and efficiency, airlines are now hedging maintenance costs.

Airlines are hedging maintenance costs now instead of fuel costs, says Frank Stevens, Embraer’s vice president of global MRO centers.

Hedging, by definition, is a risk-management technique, and what maintenance decision today doesn’t fit that description?

Cost savings are driving Aero mexico to bring Boeing 787 2C maintenance checks (done at six years) in-house by the second half of this year. This is based on the cost savings of 50% compared to outsourcing achieved by bringing 1C checks (done at three years) in-house about a year ago.

Aero mexico performed its first 787 1C check in November 2017 and has completed four others with an average 12-day turnaround time. Each 1C check averaged 6,459 maintenance labor-hours, 4,729 of them for routine work and 1,730 for non routine work, David Nakamura, Aero mexico’s senior vice president for engineering, planning and technical services, said at Aviation Week’s MRO Latin America event. He adds that those numbers have been stable.

During the downtime, Aero mexico has chosen to incorporate service bulletins, which take 1,000-1,300 labor-hours and are counted in the routine maintenance labor-hour figures. In 2018, that included 55 service bulletins, rising to 200 total going back to the start of 787 operations six years ago.

This year, Aero mexico is planning to complete three 2C checks, each averaging 16 days and 9,569 labor-hours. Nakamura says a challenge for those checks will be to incorporate as many service bulletins as possible to bring the performance of the older 787s up to the level of the new ones that are more reliable.

As part of the balancing act, “We could reduce the turnaround time without major investment, but this is also the best time to refurbish interiors,” he says, which includes touching up paint, replacing carpeting and updating seat covers.

Aero mexico’s 787s average 14.2 flight hours per day, which Nakamura says isn’t the highest rate, but close to it. Its reliability is also among the highest, which shows Aero mexico’s plans are working.

Maintenance is a balancing act that is full of risk-management strategies. As a whole, MRO expenses as a percentage of total airline operating costs are static, but “maintenance costs per available seat-mile are rising slightly for middle-aged aircraft, due to their age and the larger share of the total fleet,” and costs for younger aircraft are flat, says David Marcontell, senior vice president of Oliver Wyman Cavok. His latest figures show maintenance costs per block-hour are 19.3% for narrow bodies with fewer than 150 seats, 17.1% for large narrow bodies and 15.6% for widebodies. Labor costs are rising, but those are being offset by lower fuel costs for the time being

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