Government/Military Trends
June 2005
Outsourcing MRO
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As the U.S. fleet ages, its need for specialized care increases. Aircraft that have served for decades, some being flown and maintained by the sons and grandsons of their original pilots and mechanics, are becoming more geriatric in character. Maintaining these aircraft is growing more complex and more expensive. Of the $1.1 trillion spent yearly worldwide on maintenance, operations, and personnel, $450 billion spent by the U.S. government, according to Donna Newitt, Director for Government & Defense at IHS.
In taking steps toward greater outsourcing of maintenance, repair, and overhaul (MRO), the military can scrutinize the advantages and disadvantages from a broad perspective. Can outsourcing live up to its promise? Can it reduce costs and increase efficiency to the extent that it becomes an acceptable risk? Newitt anticipates that it could. “It could lead to better maintenance,” he says, “and it certainly is going to decrease costs…. A service provider whose core competency is in MRO on five models of aircraft can focus on those specific needs in terms of scheduling maintenance and warehousing parts.” As specialists, their ability to predict the aircraft’s aging behaviors allows them to save money and pass those savings to their clients.
The MRO service industry has weathered a rough patch over the past five years. The economic downturn forced them to become more competitive. They struggled to increase capacity and improve their offering of capabilities. Now, those who have survived are driven to even more aggressive strategies in order to remain competitive with the rise of MRO providers outside the United States, especially in South America. The fine-tuning that has come out of these clashes results in better service at a lower cost.
A benefit of outsourcing MRO that can be harvested only by the military is the ability to free military personnel from routine maintenance tasks. Stretched thin by current obligations, the Services can reduce their MRO demand and move their personnel to other crucial tasks.
Outsourcing of maintenance to an MRO service provider is not without drawbacks, however. Some of the expense that is saved will be transferred to the costs of procuring a qualified MRO provider, managing that provider, ensuring ongoing airworthiness and basic accounting charges. In addition, as Mark Schulz, of IHS Aviation/Aerospace Solutions, points out, the process of preparing for aircraft maintenance to be outsourced has associated set up costs as well. But perhaps the greatest sense of risk in outsourcing MRO comes from the loss of control, a challenge that can be remedied only over time with the building of trust relationship with the MRO provider and the proof of performance.
In an age of infinite complexity that demands increasing specialization, outsourcing offers tantalizing advantages that at first glance seem to offset the risks. Whether it is actually able to fulfill its possibilities is yet to be demonstrated.