Good afternoon, in today’s agenda, I would like to bring your attention to the benefits of internal and external aircraft maintenance. As studies have shown that the cost benefits are marginal to maintain the aircrafts internally, the company is looking into contracting this process to external vendors. I believe most of you are wondering why we are planning on such move, let us look at the possible factors between internal and outsource of our aircraft maintenance process.
A) Factors for continuing aircraft maintenance and outsourcing it
Currently, by managing our aircraft maintenance internally, our maintenance crews are able to learn and co-train for each type of aircrafts; hence this helps to improve individual’s competencies and knowledge. However, last year’s finance summary showed that the cost involved in training the crews, salaries, purchasing and maintaining the tools and equipment were over budget, and the benefits were just marginal.
Besides our maintenance crew, we also added additional crew to form a quality team and a safety team to ensure quality and environment safety for the maintenance crews, which contributed to the labor costs. All the maintenance cost incurred is known as the variable cost. Friend (1992) states, “A way to measure maintenance cost is the number or proportion of an airline’s staff engaged in engineering and maintenance work.” One solution to reduce the cost is to outsource the whole maintenance process; this will reduce the number of workers in our company, especially those on long-term contract.
For example, the variable cost needed to maintain the aircraft internally might be $200 thousand, which is dependent on the number of man-hours required to service it. Outsourcing the maintenance package is based on fixed cost, and according to market rate, it is about $100 thousand for each aircraft. This helps us save $100 thousand in servicing cost. Another factor is...