19 May 2017
Christopher Whiteside, CEO and President at AJW, examines how the rise in demand for low cost air travel is seeing aftermarket providers change their approach to better support the needs of airlines.
Over the next ten years, the total size of the global airline fleet is expected to grow to some 35,000 aircraft, with the low-cost and ultra-low-cost sectors being a key pillar of that growth.
The increase in propensity for air travel is accompanied by the ever-increasing consumer demand for lower prices, resulting in constant pressure for airlines to assess and continually improve their levels of efficiency. This comes with the need to evolve and adapt, and nowhere is this more the case than in MRO.
Outsourcing is one of the key trends in aircraft maintenance, enabling airlines to manage their parts inventories more effectively and so better control their bottom line. MRO providers now need to be more than mere suppliers.
AJW, a leading specialist in the global management of aircraft spares, is evolving its approach in order to provide its customers with the greater efficiencies that they demand. The focus is on listening and understanding customer challenges, aligning solutions with customer’s business models, and developing mutually beneficial partnerships that transform their operational efficiency.
For many years, the service agreement in aircraft parts has been based around the “power by the hour” (PBH) model. AJW was a pioneer of that model, and its evolution to the PBH offering of today.
However, PBH is becoming an increasingly inefficient concept that often drives neither value nor intelligence between providers and airlines. PBH fixed pricing can lead to cost-inefficiencies as contracts are often determined more on the basis of managing cash flow in the short-term, rather than supporting the airline’s true operating characteristics.
Evolution from this model is crucial if airlines are to survive and thrive in the coming years. AJW are leading the way with a developed approach of their PBH offering, which will be launched in the near future to the market. Their contractual structures have also been developed on a foundation that is more aligned to their airline customer’s business models, helping them to transform efficiencies and drive down costs.
Supply chain management
Effective supply chain management involves providers effectively managing airlines’ supply chains, and focusing on aligning them with the material planning environment of each individual airline.
In 2015, AJW commenced the industry’s largest single-source supply chain solution with Europe’s leading airline, easyJet, supporting their fleet of 241 aircraft. This contract was evidence of a pioneering and new dynamic in aviation support; a cultural shift that allowed the airline to completely outsource all of their inventory and logistical requirements that culminates in the continual and mutual driving of both operational and financial efficiencies.
There are many benefits for airlines to outsource the management of their supply chains with providers such as AJW; one being the opportunity to leverage MRO services with AJW Technique (AJWs state-of-the-art MRO facility) and the Group’s long-standing relationships with vendors and OEMs. Working in partnership with such providers allows an airline to utilise significant buying power and streamline their procurement - generating effective cost savings; all managed through one point of contact.
AJW continues to support customers through flexible, integrated supply chain management, optimising inventory, minimising procurement and utilising gain share mechanisms that maximise efficiencies and ultimately reduce overall operating costs. This in turn assists the airline to compete in a price-driven low-cost market.
In reality, material planning and inventory management can sometimes be underutilised resulting in surplus stock sitting redundant in warehouses and absorbing capital at an alarming rate.
The logical answer is actually for airlines to outsource the management of their assets to specialists, rather than owning and managing their own inventory. In these circumstances access to the aftermarket is crucial.
Access to the aftermarket is achieved through utilising provider’s established global sales teams who have long-standing relationships with the world’s airlines. With tailored plans, this increases the opportunity to monetise assets and gain a return on surplus and often redundant stock.
By working closely with the customer, providers such as AJW, create transparent, strategic and tailored plans to control and manage inventories, profiling demand and aligning them with airline’s unique needs.
The supply, maintenance and repair of aircraft parts continues to be a significant cost for airlines, whilst all the while facing increasing pressure to save money in order to remain competitive. In a world of low cost carriers and ‘no frills’ travel this isn’t going to change.
AJW recognise that to be successful in this rapidly evolving market, providers need to become informed and insightful partners that can truly add value to airlines. To do this, providers need to be innovative and offer a flexible and collaboratively tailored approach that is aligned to individual airline’s business models and continually work in partnership to identify inefficiencies and drive down costs.
For those providers who don’t recognise this, the next few years could be very challenging. Simply put, it is a case of adapt and evolve to offer airlines cost effective solutions, or lose relevance and suffer commercially and reputationally.
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