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REVIVAL OF A SICK AIRLINE9 by suiqizheng

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									 AIR TRANSPORT MANAGEMENT- Part II



        First Project Assignment



“REVIVAL OF A SICK AIRLINE”




         PRESENTED BY:
         DEEPTHI BADRI
                            CONTENTS




1. Introduction
2. About AIRHIND
3. Increasingly being faced with tough competition
4. Aging Fleet and Low Profitability
5. Poor On time performance
6. Lack of Leadership
7. Unhealthy Industrial Relations
8. Inadequate Cash Flow
INRODUCTION


ABOUT HIND AIR LINES:

Hind Air Link Pvt. Ltd. of Hind Industries has been involved in Airline
Business. It is a company formed by a group of professionals with the expertise
and investment coming from the parent organization HIND GROUP,
established in 1981, which has diverse and multi-disciplined business interest.
The company has consistently explored various ways to being premium value to
its customers and has always believed in setting benchmarks in quality of
service and customer satisfaction. Our name has become synonymous with
excellence and commitment.

Increasingly being faced with tough competition

Innovation is the key to sustainable competitive advantage, and its pursuit is the
holy grail of most companies with global ambitions. Innovation comes
naturally to most small, entrepreneurial companies because it is vital to their
survival and growth. Innovation in large companies presents more significant
challenges, since they tend to be more financially driven and less tolerant of
risk. In this paper, we look at this issue and how three companies, Danfoss1,
Hewlett-Packard2, and Qualcomm3, have stimulated innovation in a relatively
short time period by harnessing the power of the business plan competition, a
concept that was leveraged from the world of entrepreneurship.



Building and managing long-term supplier networks

The overriding goal of a value-oriented overhaul of the purchasing function is to
build long term supplier networks from which all partners derive clear
advantages. In order to assume the new role of central creator and manager of
an effective supplier network, purchasing departments need to acquire
completely new skills and abilities. Above all, partner like cooperation and open
communication within the organization and to the outside are vitally important.
―These kinds of abilities are critically important to the successful
implementation of value sourcing programs,‖ Dr. Heiss explained. ―Best
practice companies incorporate their suppliers into their planning processes,
whether in product development or marketing. For this to succeed, they need to
build up suitable skills, processes and structures.‖

To achieve lasting cost advantages, the entire value creation strategy should be
reconsidered and redesigned from a value perspective. One outcome of such
optimization programs can be the reduction of product variants, achieved
through the use of modular product programs, same-part strategies or changes in
specifications in order to reduce unit costs. The goal is to achieve permanent
cost savings by means of a comprehensive value chain optimization. According
to Dr. Heiss, such measures can reduce costs by more than 20 percent in all
stages of the value chain.

To preserve the cost savings achieved in this manner, the internal and external
value creation should be continuously measured and checked against best
practices. A permanent controlling and benchmarking program will ensure that
the results are achieved and the processes are constantly revisited. ―Value
sourcing programs are designed to shift attention away from short-term price
considerations in favour of creating lasting value. When completely
implemented and carried into practice, value sourcing helps the company attain
lasting cost leadership, exploit shared growth potential and boost the innovation
capacity of the supplier network,‖ Dr. Heiss said.

Value Sourcing combines a number of key advantages

1. Long-term focus

Value Sourcing goes far beyond short-term cost reduction measures. Although
profit and cost pressures are intensifying in all industries, short-term gains
should not be allowed to dominate the project agenda at the expense of
permanent improvements. Successful companies combine short-term efficiency
gains with the implementation of forward-looking strategies.

2. Concentration instead of breadth

The growing share of value creation shifted to suppliers is fuelling an
inexorable increase in the complexity of the procurement function. For that
reason, success comes not from working on many sourcing categories at once,
but from concentrating on each procurement category to achieve far-reaching
improvements.
3. Focus on innovation

In today‘s environment of global competition, innovation has become a critical
success factor. Therefore, Value Sourcing seeks to initiate continuous
improvement processes and joint development projects with suppliers, to
promote the success of both sides.

4. Partnership and trust

Building a supplier network that is among the best in the world with respect to
cost, quality and speed is a long and difficult process. Value Sourcing relies on
partnership and trust, instead of one company exploiting its market power to
gain short-term advantages at different links of the value chain.

5. Global orientation

Successful sourcing knows no boundaries. In this era of globalization, physical
distance is no longer a barrier. No corporate function is feeling this
transformation more directly than procurement. An enterprise that does not take
advantage of global markets is wasting vital opportunities for productivity,
innovation and growth.

6. Continuity

The continuous evolution and growing dynamism of markets have a direct
impact on procurement. Therefore, Value Sourcing is not to be understood as a
single project, but as an on-going value enhancement process. This is the only
way to attain and preserve competitive advantages over time.

Aging Fleet and Low Profitability

Aircraft, like cars, require more maintenance as they get older. This increased
maintenance has a major impact on operating cost, reliability, availability and,
at some point, continued viability as part of a fleet. The impact of aging on
maintenance costs. To Aircraft Cost Evaluator and Life Cycle Cost program
may know, have used an aging curve for the cost of parts and labour for some
years. Recently revised this curve, based on better data. Three new sources and
while some of the data is for parts and some for labour, it does show a very
clear trend. One source of data was provided by the published cost of parts for
two business aircraft guaranteed maintenance cost programs. Both programs are
well accepted and can be assumed to be fairly representative of what operators
face when they buy parts as required. Take the published prices and normalized
them so that they are at 100 in year 5.

In Aircraft Economics magazine it was an interesting article about the ratio of
scheduled to unscheduled maintenance labour for ―D‖ checks for the Boeing
727aircraft. These checks, which are typically required every 5 years, show that
at the first ―D‖ check, the ratio of scheduled to unscheduled labour is 1:1.
However, at the 5th one (at year 25), the ratio has increased to 2.7:1. In short,
the amount of scheduled time for inspections doesn‘t change, but the
unscheduled work that results from the inspection goes up by a factor of almost
3 over the course of 25 years.

The early years when the aircraft are young and warranties are in effect show
very low maintenance costs – less than half of what they are at year 5. However,
when the aircraft is 30 years old and wear and tear is taking its toll, the
maintenance costs are 2.2 times what they were at year 5.



But aging extracts an even greater toll in the areas of reliability and availability.
And this can cost a lot more than the increase in maintenance costs discussed
above. First, availability is defined as the number of days an aircraft is available
for flight operations divided by the total number of days in the operating year.
Reliability is usually measured as the percentage of departures that leave within
a specified number of minutes of the scheduled departure time and is referred to
as the ―dispatch reliability‖. Thus, if on average, one departure in 50 is delayed
for maintenance reasons, the ―mechanical dispatch reliability‖ is 98%. Airlines
aim for and get a 98 to 99% mechanical dispatch rate and the data shows that
operators of corporate aircraft achieve the same kind of reliability.



As aircraft age, the increase in unscheduled maintenance associated with
scheduled inspections also requires a great deal more maintenance down time.
Similarly it will take more and more maintenance to achieve any kind of
acceptable dispatch reliability. Both detract from the availability of the aircraft
for flight operations Available data shows that availability drops from the 95%
range for aircraft up to 15 to 20 years of age to an average of 70% at age 25 and
55% at age 30.
What this means for a charter operator is that as the aircraft availability
decreases, so does its revenue and profit potential. Consider, for example, a
typical operator with a Hawker 700 that flies about 725 revenue flight hours per
year. That equates to just about 2 revenue hours per day. Thus, for each day that
the aircraft does not fly because of lack of availability, the operator loses $4400
in revenues (at a typical rate of $2200 per hour).

Let‘s assume for this analysis that the 95% availability up to age 20 is
acceptable.



Then as availability decreases to 70% at age 25 and 55% at age 30, here is what
happens to revenues:



Age (yrs)     Availability (%)    Revenue Days Lost       Revenue Lost

 0-20               95                  18                   79200

 25                 70                  110                  484,000

 30                 55                  164                  721,600




And at the same time, maintenance costs are increasing!



A similar picture can be painted for corporate operators of old aircraft. The
difference is that decreased availability translates into increased cost for charter
rentals to provide the air transportation required by the company.



Clearly, at some point, an old aircraft is no longer economically viable and
should be withdrawn from service. In fact, the in-service rate of older aircraft
parallels the availability rate. Up to age 20, almost 100% of the aircraft
produced are in service. At age 25, the average in-service rate is 90% but can be
as low as 75% for some makes/models of aircraft. At age 30, the average in-
service rate is just under 80% and below 50% for some makes/models. And at
age 35, the average rate is just about 50%.



Unfortunately, there is no clear standard that spells out when an aircraft should
be withdrawn from service because of these factors. Instead, what needs to be
done is to keep track of the key parameters:

   -Mechanical Dispatch Reliability

   -Aircraft Availability

   -Maintenance Cost per Flight Hour



Keeping careful track of these parameters is the best way to support senior
management in their decision to keep or to retire an aircraft from your fleet.



Punctuality: How Airlines Can Improve On-Time Performance

Punctuality is one of the key performance indicators in the airline industry and
an important service differentiator especially for valuable high-yield customers.
In addition, improved on-time performance can help achieve significant cost
savings: Airlines report delay costs from 0.6 to up to as much as 2.9% of their
operating revenues.

Consequently many carriers have started initiatives and set up special teams or
organizational units to achieve these potential cost savings and service
improvements. Although these initiatives can appear to be expensive at first
glance, if they are well conducted they can generate significant pay-offs.
Research on the performance of major airlines suggests that there is a positive
correlation between on-time performance and operating profit. This is a similar
phenomenon to that found in manufacturing industry—where the cleanest
factories tend to be those with the highest productivity.

Despite the increasing attention that airlines pay to punctuality the industry‘s
on-time performance is still far below satisfactory levels. In 2000,
approximately 25% of all flights in the USA and Europe were delayed by more
than 15 minutes. A good portion of this can be attributed to increasing
congestion of air space and poor operational performance of air traffic control
and airport facilities. Nevertheless, the individual improvement potential within
an airline‘s reach is significant.

Exploiting this potential requires a key insight and mind-shift by the airline‘s
management: Punctuality is a key leadership challenge throughout the
organization and should rank high on the management agenda—from strategy
and planning all the way to front-line operations. In rising to this challenge
airlines need to take a strategic perspective and apply a comprehensive
framework that addresses the three main levers for punctuality improvement
that are within their reach:

— Network planning and control

— Aircraft availability

— Ground operations and departure process

Tools such as simulations, statistical sampling, process monitoring and key
performance indicators build the foundation to drill down to the root causes of
delays. The key success factor is to merge quantitative analytical rigor with the
rich qualitative information from front line observations, know-how and staff
experience.

Once agreement on the root causes of delay has been reached, the path to
solving the problem is in most cases clear. Quantifying both costs and the
benefits of individual improvement measures allows the trade-offs between
punctuality, investment, turnover, utilization, and other performance targets to
be managed effectively.

Punctuality Does Matter



Punctuality differs widely between airlines. It has become a competitive
differentiator, both in positive and negative ways—and customers do care
strongly about it. When following newspaper headlines it is clear that airlines
are active in sharing good punctuality performance with the world, and when
they have problems with their punctuality, it is unlikely that the world will not
quickly hear about it in the press.
More importantly, however, punctual airlines appear to be more profitable. Our
research shows that major airlines with above average punctuality rates have
been more profitable than those with lower than average punctuality
performance.

Acknowledging this cost relevance of punctuality, top management must take a
firm stance on at least two major trades-offs:

— Punctuality vs. turnover and yield

— Punctuality vs. cost and equipment utilization

Punctuality vs. turnover and yield.

Short-term revenue considerations such as display visibility in the global
distribution systems (GDS) do in most cases work against punctuality.
Maintaining slots at peak times during the day, short connecting times and tight
block times are valid sales-based arguments. However, they may ultimately
result in poor operational performance, and may therefore become counter-
productive to revenue maximization in the long run.

Punctuality vs. cost and equipment utilization.

One of the most obvious and easy measures to increase punctuality is to remove
bottlenecks and add capacity (e.g. the number of aircraft, longer block times,
and more ground staff and equipment). Without a solid quantitative business
case, based on analyzing potential savings from avoided delay costs, it is
unlikely that a controller will support such ideas, especially as most of the
savings are variable while the capacity increase builds up fixed costs.



TYPICAL DELAY COST BREAKDOWN—CLIENT EXAMPLE

Holding

Yield reduction (re-booking)

Passenger care

Bound A/C capacity

Flight crew
In-flight acceleration

Station cost

Processing cost

Lost yield

Supplier capacity and more



Setting the Punctuality Target

Punctuality performance differs widely across airlines. Europe has seen a span
of performance of up to 30%-points during certain months. It seems difficult to
achieve and maintain punctuality levels of 85% and above.

Punctuality targets are usually defined in terms of 15-minute punctuality, i.e. a
flight is still counted as departing on-time, if the plane goes off-blocks within 15
minutes of the scheduled time of departure.

Using this approach the industry allows itself to ―steal‖ 25% of the average
travel time on a domestic flight in Europe. The argument that a 15-minute
departure delay still allows on-plan arrival is not really valid. Although on-time
arrivals are important for connections and the execution of the rotation plans—
in the awareness of the traveller‘s mind it is departure punctuality that defines
his or her impression of an airline‘s on-time performance.

Consequently the 15-minute bar is not appropriate—especially for short haul
operations. Ultimately, this means up-front acceptance of failure. In a similar
way to the total quality movement or six sigma philosophy applied by leading
firms in the manufacturing sectors, it is mandatory to strive for a zero-defect
strategy in the turnaround process. Allowing, for example, a 95% on-time
performance (i.e. a failure rate of 5%) at seven supporting sub-processes for the
departure (the total number of such support processes is actually much higher)
will in combination lead to only a 70% on-time departure rate. This means the
targets for the sub-processes have to be set much higher—but how can this be
realized if the airline industry‘s quality understanding of the end product allows
15 minutes or 25% slack?
Three Main Levers to Push Punctuality

An effective framework for approaching punctuality in a structured way should
use three main levers

— Network planning & control

— Aircraft availability

— Ground operations & departure process



Network Planning & Control

Sound network planning and control is the foundation for high punctuality. Our
work with clients, which has included extensive analysis and simulations,
enables us to quantify the proportion of delays which are inherent in the
schedule and the rotation plans.

Statistical capabilities are extremely important in the airline planning process.
The capability to execute complex simulations is a critical tool for
understanding schedule dynamics. A capability to carry out what-if analyses is
crucial for simulating schedule changes and quantifying their impact on
punctuality.

The fine-tuning of simulations is best achieved by using real historical data.
Therefore, it is critical that airlines capture operational data, in real time if
possible, and use it to feed the systems used for schedule simulations and
planning.

The first step to overcoming poor planning and control, is to develop an
integrated planning process, in which all the planning entities work in the same
context and, if possible, use the same systems—or at least the same timetables
and rotation plans. Harmonization of the level of detail used throughout the
planning process is important; the plans for each function must connect
seamlessly to those of prior and consecutive functions. Achieving a high level
of detail early in the process can be cumbersome, but in our experience, it will
result in a more stable operational platform.

A sound network structure and appropriate block, ground and slack time
deployment are key to a good plan. Adding slack time is expensive. A possible
solution is to identify the flight numbers where the punctuality impact on the
total schedule is the highest—the ―star flights‖—, add some appropriate buffers
for them and in reverse tighten time frames for other, less critical flights.

The operational procedures on the execution day (―day zero‖) are another
critical success factor.

Defining an operations control ―center of gravity‖ is of utmost importance.
Some airlines still run separate planning and control centres for the major
operational functions. These have to be centralized, or at least work closely
together and be driven by integrated processes, systems, and a common
command structure.

Hub operations in particular struggle with on-time performance at peak times
when their own network knots coincide with highest traffic loadings. Managing
this problem requires the airlines explore new ways to share the airspace, either
in concerted actions with other airlines, ATC providers, airport operators and
regulators or by driving for new market driven methods of slot allocation.

Effective strategies for recovering from ‗disaster days‘ are also very important
to deliver sustainable, high rates of punctuality.

To start tomorrow‘s operations effectively airlines must consider cancelling
some flights if necessary—yes, take a hit on the holy schedule regularity. This
will pay off in the increased stability of the overall system.

Aircraft Availability

 Aircraft availability is the second main lever in the punctuality framework. If
the punctuality target is really taken seriously it needs to have an impact on fleet
planning and structure.

It is not only the sheer size of the fleet that is affected; it is also about the
variation within and across the aircraft types.

Vulnerability to version and equipment changes, or spare part logistics
problems, has a direct impact on the ability to quickly restore punctual
operations after irregularities. Punctuality management needs to raise this
problem early with the network and fleet planners.
If, as a result, the airline decides to increase the number of reserve aircraft it is
critical to deploy them carefully and not in a sweeping fashion. Monitoring their
deployment avoids the tendency to simply use them as a buffer for maintenance
requirements.

Unscheduled maintenance is a major driver of low aircraft availability rates.
This is especially true for intensive hub and spoke operations with tight rotation
plans. The direct impact on punctuality is not surprising

Ground Operations and Departure Process:

Significant improvements in on-time-performance at a low price—without
major capacity investments and undue impacts on the sales front—can be
achieved through focused process engineering in ground operations and in the
departure process.

This entails thorough operational diagnostics, followed by a careful design of
the multitude of tasks that build the departure process as well as the
implementation of the improvement measures.

Sound ground operations are based both on solid up-front plans and process
designs as well as on highly motivated people. The empowerment of front line
staff, combined with a high level of discipline supported by adequate incentive
schemes do more for punctual operations than millions of investment dollars
spent at the wrong areas.

Ground operations are increasingly outsourced by airlines, with the expectation
of (at least) equal service levels but at lower—and most importantly—variable
costs. Our observations show, however, that airline operations typically do not
have the processes and systems in place that are necessary to monitor supplier
performance in an adequate way. Traditional airline supplier measurement
systems focus on costs and product quality, whereas assessing timely
performance on a minute-by-minute scale is not widely applied. This is a major
deficiency in the case of the very complex multi-user and multi-participant
ground handling processes. Here, the famous ―extended enterprise‖ approach to
managing the entire process beyond organization boundaries can be an effective
remedy.

Performance indicators related to critical milestones throughout the whole
departure process are essential and it is particularly important to integrate them
with well-designed contractual agreements with the suppliers.

Tackling All Three Levers

Experience shows that there is no single ‗silver bullet‘ that will fix punctuality
problems. Airlines need to use all three of the main levers described above
simultaneously in order to be successful.

The potential contribution of each area will obviously depend on the airline‘s
specific situation, but it can be determined using analyses that identify the ‗real‘
delay root causes and the irrelative importance.
Conclusion: Punctuality deserves to rank high on the agenda

    Punctuality is not only a quality issue—it reduces costs.
    Punctuality differentiates airlines from their competitors.
    Punctuality is a powerful performance indicator that drives total
     operational excellence. When an airline runs a punctual operation with
     high service quality, most other indicators are likely to be in the green.
     Not many industries have such dominant indicators.
    Punctuality is a tool for bridging functional boundaries, which will
     always be there regardless of any organization model.
    Managing the extended enterprise effectively requires the use of
     punctuality as a key indicator next to quality and cost in contractual
     agreements.

Finally, punctuality is a leadership challenge. It requires all the skills we expect
from advanced leaders: Motivate people, create followers, decide on facts,
create understanding, and drive the wedge!
LACK OF LEADERSHIP

As the HIND airline industry enters another dark chapter, executives come
under even sharper scrutiny. As difficult as it is to admit for airline executive
recruiters, the best leadership transitions often come from within.

In truth, leadership stability can be found at the core of many of the world's best
airlines. A careful look at some of the best managed airlines reveals common
similarities in their leadership development and succession practices:

    Often, but not always, a "duo" at the top, with one person taking the
     externally-focused CEO role and the other the more internally-oriented
     President and/or COO position;
    A small cadre of highly qualified potential successors one level down,
     typically at the Executive Vice President level (or equivalent), in
     commercial, operations, and finance;
    A fairly clear indication of who is in line for the next one or two
     succession moves;
    A high degree of commitment on the part of the best-placed individuals to
     stay with the organization, despite the efforts of others to lure them away;
    Regular rotation of the top executives across functional areas so as to
     round them out in preparation for general management; and
    An effective management development and rotational program feeding
     the succession funnel from below.

As well, successful airline CEO successions tend to occur when four other basic
conditions are in place at the board-management interface:

    Succession planning is viewed as a fundamental and ongoing board
     responsibility closely tied to management development;
    There is clarity about the CEO's role versus that of the board in the
     succession process;
    There is a common understanding of the corporate strategy among the
     board and CEO; and
    There is an ongoing, logical and measurable role for the CEO in the
     succession process.



The difficulties confronting airline leadership succession

Ensuring effective leadership succession in airlines is much easier said than
done for several important reasons:
    Poor economic returns in the airline industry often make it difficult to
     both attract and retain top talent;
    Airlines are notorious for raiding each other's top management ranks,
     often seeing airline industry experience as a must for their leadership
     solutions;
    Developing internal solutions requires hard work over years, if not
     decades;
    There often just isn't enough "room at the top" for a good CEO and a
     credible lieutenant, particularly at small and mid-sized carriers; and
    Airline organizational structures are devoid of profit-and-loss platforms.

The last point warrants elaboration. Most multi-billion dollar enterprises are
effective portfolios of profit-and-loss units. In a retailer, virtually every store
can be considered a profit-and-loss unit. Yet, given the network nature and
functional operational nature of airlines, there is usually only one profit-and-
loss statement in an airline and it comes together at the very top. As a result,
only the CEO of a large airline gains experience managing a profit-and-loss. Of
late, that platform has been shared with a President in the context of a duo
managing the airline at the top.

INDUSTRIAL RELATIONS

Industrial relations has become one of the most delicate and complex problems
of modern industrial society. Industrial progress is impossible without
cooperation of labours and harmonious relationships. Therefore, it is in the
interest of all to create and maintain good relations between employees (labour)
and employers (management).

The term industrial relations explain the relationship between employees and
management which stem directly or indirectly from union-employer
relationship.

Industrial relations are the relationships between employees and employers
within the organizational settings. The field of industrial relations looks at the
relationship between management and workers, particularly groups of workers
represented by a union. Industrial relations are basically the interactions
between employers, employees and the government, and the institutions and
associations through which such interactions are mediated.

The term industrial relations have a broad as well as a narrow outlook.
Originally, industrial relations were broadly defined to include the relationships
and interactions between employers and employees. From this perspective,
industrial relations cover all aspects of the employment relationship, including
human resource management, employee relations, and union-management (or
labour) relations. Now its meaning has become more specific and restricted.
Accordingly, industrial relations pertains to the study and practice of collective
bargaining, trade unionism, and labour-management relations, while human
resource management is a separate, largely distinct field that deals with non
union employment relationships and the personnel practices and policies of
employers.

The relationships which arise at and out of the workplace generally include the
relationships between individual workers, the relationships between workers
and their employer, the relationships between employers, the relationships
employers and workers have with the organizations formed to promote their
respective interests, and the relations between those organizations, at all levels.
Industrial relations also includes the processes through which these
relationships are expressed (such as, collective bargaining, workers‘
participation in decision-making, and grievance and dispute settlement), and the
management of conflict between employers, workers and trade unions, when it
arises.

The key factors to be considered in conducting an analysis of the management-
labor relationship:

   1. Environmental or external economic, technological, political, legal and
      social forces that impact employment relationships.
   2. Characteristics and interaction of the key actors in the employment
      relationship: labor, management, and government.
   3. Rules that are derived from these interactions that govern the employment
      relationship.



INADEQUATE CASH FLOW

Cash Flow is King

This applies to for-hire and not-for-hire operators. If Cash In less Cash Out is
positive, you survive to see another day. In the case of the not-for-hire it means
living within your (reduced) budget and conserving cash whenever possible. In
order to effectively manage cash, you need. . .
A System to Capture Data

You can't control what you don't measure. If your aviation operation has three
or four big cost categories (fuel, maintenance, personnel, facilities) then you
will have a tough time identifying the areas where savings can be had.

Too many times operators can focus on the wrong costs or the right costs for the
wrong reasons. Everyone will focus attention on significant cash flow spikes or
emotional events while other, more frequent, but less noticeable events can
deplete your cash resources. An effective system, that is both detailed and easy
to use, can help identify where those dollars are going. Here are a few areas:


Warranty

A first glance we think warranty applies to new aircraft. True, but incomplete.
Every aircraft has numerous parts that were purchased new. All those parts have
some sort of warranty associated with them. A few years back, we reviewed one
operator's work orders and found $40,000 in lost cash from not aggressively
tracking warranties. You may be able to reduce your parts costs by 10% by
tracking and pursuing warranty issues.

Inventory

We need inventory to improve the efficiency (availability) of our aircraft.
Inventory is not just limited to spare parts but can also include such items as;
fuel, labour, aircraft, and ramp space. Having inventory has its associated costs:

Storage and handling costs would include the actual space required to contain
the inventory, the climate control, shelving and furniture (for the inventory
personnel), and utility costs. Handling costs would include the personnel time
associated with receiving and stocking parts, etc.

Insurance and Taxes - Coverage of inventory is part of any general business
insurance policy. If the inventory is significant enough in value, separate
coverage may be required. Specific taxes on inventory and property taxes can
vary by state.

Obsolescence. Service bulletins and directives can, in some cases, render an
item obsolete immediately. What if your fleet changes? Do you still have items
associated with the old aircraft?

Theft and Damage. Parts can "walk" and parts can be damaged by improper
handling or storage.

								
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