Journal of Quality in Maintenance Engineering

Airline maintenance strategies – in-house vs. outsourced – an optimization

approach
Massoud Bazargan
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Massoud Bazargan , (2016),"Airline maintenance strategies – in-house vs. outsourced – an
optimization approach", Journal of Quality in Maintenance Engineering, Vol. 22 Iss 2 pp. 114 - 129
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JQME
22,2
114
Received 12 August 2015
Revised 20 November 2015
Accepted 22 January 2016
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Journal of Quality in Maintenance
Engineering
Vol. 22 No. 2, 2016
pp. 114-129
© Emerald Group Publishing Limited
1355-2511
DOI 10.1108/JQME-08-2015-0038
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1355-2511.htm
Airline maintenance strategies –
in-house vs. outsourced – an
optimization approach
Massoud Bazargan
College of Business, Embry – Riddle Aeronautical University,
Daytona Beach, Florida, USA
Abstract
Purpose – The purpose of this paper is to offer a new mathematical modeling approach to help airlines
identify which types of heavy aircraft maintenance checks be performed in-house or outsourced.
Design/methodology/approach – This study offers a mathematical model to minimize the total cost
of heavy maintenance programs over a planning period subject to performing all maintenance
programs on time and other side constraints.
Findings – The results are very encouraging and somewhat counter-intuitive. The solutions recommend
that more expensive and labor intensive checks be outsourced. A detailed analyses of the total
maintenance cost breakdown is presented with implications and recommendation.
Originality/value – To the best of the knowledge, the literature on quantitative models for airline
in-house and outsourced maintenance checks is very limited. The author believes the model and airline
cases presented in this paper can help airlines with their strategic maintenance strategies and will
initiate further studies in this important area.
Keywords Outsourcing, Optimization, Airline, In-house, Maintenance strategies
Paper type Research paper
1. Introduction
In the airline industry, the role of maintenance is to provide safe, airworthy, on-time
aircraft every day. Aircraft maintenance must be planned and performed according
to prescribed procedures and standards. An airline generally has a diverse fleet of
aircraft. Each fleet type has a predetermined maintenance program established by the
manufacturer. Before the deregulation, most airlines conducted their maintenance
in-house. However, after the deregulation, because of fierce competition, outsourcing
aircraft maintenance has been viable and attractive option to many airlines (McFadden
and Worrells, 2012). According to the Global Maintenance, Repair and Overhaul (MRO),
2014 Market Economic Assessment report, civil aviation spent more than $60 B on
aircraft maintenance in 2013. Figure 1 presents the total global maintenance
expenditures from 2000-2014 (Global MRO, 2014). As the figure implies the expenditure
has been rising annually as new aircraft are manufactured and labor and parts costs
are increasing.
More than 60 percent of this cost is attributed to heavy airframe maintenance
checks. Heavy airframe maintenance checks, usually referred to as C and D checks,
include detailed and comprehensive maintenance programs. C checks are done every
2,500-3,000 hours of flight depending on fleet type and requires 2,000-4,000 man
hours of labor. D checks are done every 20,000-24,000 of flight hours and require
10,000-50,000 man hours. Engine overhauls are done every 4,500-24,000 hours
depending on engine type costing $450,000-$5 M (Global MRO, 2014). It should be noted
that typically a larger check includes all smaller sub-checks too. For example, when
performing D checks, they include all categories of A, B and C checks.
 Aircraft maintenance cost is among the major cost drivers within the airlines. Fuel Airline
and crew cost typically rank among the top cost components at the airlines. maintenance
For comparison purposes, the following figure represents the average percentages
of total and aircraft operating cost for fuel, flight crew salaries and maintenance for six
strategies
US airlines (Delta, American, United, Southwest, Alaska and US Airways) from 2003 to
2013[1] (Figure 2).
Similar to global airlines, the US airlines also experienced a steady and 115
increasing maintenance cost. Figure 3 presents the average index for maintenance
cost for US airlines, with year 2000 as base (index ¼ 1) from 2000-2013 (see footnote 1).
As the graph shows the maintenance cost expenditures has risen more than 70 percent
since year 2000.
Depending on the network sizes and business models, the airlines conduct
their heavy maintenance checks in one or a combination of the following options
(ARSA, 2014):
airline – typically large airlines perform their maintenance completely in-house or
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by a subsidiary of the airline and may offer their services to other carriers;
• independent – dedicated maintenance providers with no relation to either aircraft
manufacturers or airlines;
• joint ventures – maintenance providers who are established jointly with airframe
or engine manufacturers typically in a different country capitalizing on local cost
advantages and/or technical know-how; and
• manufacturers (OEM) – offering maintenance services to airlines on their products.

Global Maintenance Expenditures in B 2001- 2014

80

70

60

50

40

30
Figure 1.
20 Total global aircraft
10 maintenance
0 expenditure
2000 2002 2004 2006 2008 2010 2012 2014 2016

Cost Drivers in Total Operating and Aircraft Cost

60%
50% % of Total Aircraft Cost % of Total Operating Cost
50%

40%

30% 26%
Figure 2.
22% Average percentages
20% 17% of major cost
11%
9% components in
10%
total and aircraft
0% operating costs
Fuel Crew Mx
 JQME 2
Maintenance Cost Indices for US Airlines 2000 - 2013
22,2 1.8

1.6

1.4

1.2
116
1

0.8

0.6

0.4
Figure 3.
Cost indices for 0.2
maintenance at 0
US airlines
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99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14
19

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
2. Literature review
Different studies show that airlines typically outsource some elements of their maintenance
requirements (McFadden and Worrells, 2012; Quinlan et al., 2013). In particular, due to
labor intensive heavy checks, the airlines outsource these maintenance programs to
countries/locations with cheaper labor cost (Phillips, 2008). These studies further show that
airlines with large fleet tend to do more in-house maintenance than smaller and low-cost
carrier airlines.
There are many studies in the literature on optimizing maintenance cost and
processes at manufacturing facilities. Lieckens et al. (2015) offer a review of such
quantitative models in manufacturing. The airlines’ aircraft light maintenance checks
in the literature are primarily studied under a series of interrelated optimization models
starting with schedule, fleet, tail and crew assignments (Bazargan, 2010). In these
models, maintenance is included as a side constraint to insure that the aircraft is at the
right station for light maintenance checks after certain number of flight hours. Diaz-
Ramirez et al. (2014) provide a comprehensive review of such models.
Other aircraft light maintenance studies include Sriram and Haghani (2003). They
propose a mathematical model to determine which and where each aircraft should
undergo light maintenance checks (A and B) so that the corresponding maintenance cost
is minimized. Sarac et al. (2006), propose an aircraft routing model by considering
availability of resources for light maintenance checks at each station. Cheung et al. (2005),
propose an expert system for allocation of labor for aircraft maintenance services.
Some of the literature pertaining to heavy aircraft maintenance checks include
scheduling, sequencing and work planning (Samaranayake and Kiridena, 2012;
Chiang and Torng, 2014), manpower planning (Bazargan 2004; De Bruecker et al.,
2014), safety and quality (Ahmadi et al., 2010; Quinlan et al., 2013) and human factors
concerns (Drurya et al., 2010).
Academic studies on economics aspects of aircraft heavy checks and maintenance
strategies in terms of in-house or outsourced is very limited. These studies primarily use
qualitative approaches to provide some guidelines on aircraft maintenance outsourcing
strategies. Among the studies that consider in-house and outsourcing of aircraft
maintenance programs include Al-Kaabi et al. (2007). They propose a qualitative
approach through a flowchart process where the airlines are asked questions in terms of
 their core businesses, capacity, demand and fleet. The answers to these questions Airline
determines the maintenance strategy ranging from fully in-house to fully outsourced. maintenance
McFadden and Worrells (2012) provide a qualitative approach offering a list of factors
that may impact outsourcing decisions. They indicate that airlines see aircraft
strategies
maintenance as a necessary evil and not their business cores and therefore outsourcing
has become more attractive to them. They provide definitions to different modes of
outsourcing from partial to whole and offer a list of factors to select MRO providers. 117
Rieple and Helm (2008) similarly offer factors and frameworks for aircraft outsourcing
and conclude that the benefits expected from outsourcing various airline services
including maintenance may be exaggerated. The maintenance of military aircraft,
strategies and manpower planning has received extensive attentions (see, e.g. Howe et al.,
2009; Moore et al., 2007).
Although these research works provide some qualitative guidelines on airline
maintenance strategies, they do not provide any quantitative approaches to help
airlines make such decisions. This paper attempts to address this void by offering a
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mathematical model aimed at helping airlines develop an in-house/outsourced

maintenance strategy for each fleet and each aircraft. The model seeks to minimize the
total maintenance cost over a planning period by identifying which maintenance
programs should be done in-house or outsourced. The primary focus of this paper is
therefore to offer strategies leading to lower maintenance cost for the airlines.
Any reduction in maintenance cost, enhances the competitiveness of an airline
(Fritzsche et al., 2014).
The generic topic of In-house vs outsourcing or other variations of this topic such as
make or buy, make or build, buy or lease have been studied from different perspectives
such as economics, purchasing, operations research, accounting and strategic
management (Canez et al., 2000). The quantitative cost models discussed in these
studies primarily recommend buy/lease/outsource for smaller size products/services
and/or short planning periods and make/build for larger jobs and/or longer planning
periods to justify the fixed infrastructure costs. However, as it will be presented in this
study the results in this paper do not support such a recommendation.
Section 3 of this paper presents the details and assumption of the mathematical
model. Section 4 discusses the solutions generated by the mathematical model. Section
5 elaborates more on the solutions and strategies recommended by the model and
finally Section 6 concludes this paper.

3. Mathematical model
The development of the proposed mathematical model is focussed at minimizing the
total maintenance cost of the airline over a planning period by identifying in-house/
outsourced maintenance checks for each fleet and each aircraft. The following
assumptions are made in this study:
• the strategies of in-house and outsourcing maintenance programs are purely
driven based on minimizing the total cost over a planning period;
• only heavy airframe C and D checks are considered;
• the airlines have complete flexibility to do their heavy checks in-house or
outsourced; and
• the quality of maintenance programs at both in-house and outsourced are
identical.
 JQME The details of the mathematical model is as follows:
22,2 Index:
k index for fleet (k ¼ 1, .., F);
i index for aircraft (i ¼ 1, …, Ak);
j index for scheduled maintenance program (j ¼ 1, …, Pk); and
t index for thresholds representing the number of aircraft that can be maintained
118 by one in-house facility (t ¼ 1, …, Tk).
Parameters:
F fleet types;
Ak number of aircraft of fleet type k;
dk average daily flight utilization (hours) for aircraft fleet type k;
Pk types of maintenance programs for fleet type k;
Tk number of thresholds for fleet type k;
ICj,k variable cost for in-house maintenance check j fleet type k;
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OCj,k outsourced maintenance cost for maintenance check j fleet type k;

FIj,t,k fixed cost incurred when number of jth in-house maintenance program of fleet
type k reaches t threshold;
Lj,t,k staggered number representing index t for jth in-house maintenance program of
fleet type k;
T number of days in the planning period;
IHj,k current flight hours on aircraft i of fleet type k at the beginning of the planning
period;
FHi,k final flight hours on aircraft i of fleet type k at the end of the planning period
calculated as: FH i;k ¼ I H i;k þd k UT
δi,j discount factor for future maintenance cost type j for aircraft i. These rates are
used for conversion of all future maintenance costs into present values.
δt,j discounted rate for future fixed cost to set-up in-house maintenance facilities for
maintenance type j and threshold t. These rates are used for conversion of all
future fixed costs into present values.
Sj,k scheduled hours for maintenance j on fleet type k.
N in
j;k upper limit imposed by the airline on number of in-house aircraft maintenance
check type j fleet k.
N out
j;k upper limit imposed by the airline on number of outsourced aircraft for
maintenance type j fleet k.
M1 and M2 arbitrary large numbers.

Decision variables:


1 if the jth maintenance of aircraft i of fleet type k is perfomed in house
xi;j;k ¼
0 otherwise

1 if the jth maintenance of aircraft i of fleet type k is outsourced
yi;j;k ¼
0 otherwise

1 if number of in house maint: of type j fleet type k has reached t
zj;t;k ¼
0 otherwise
 The mathematical model is presented as follows: Airline
F X
X Ak X maintenance
Pk
  XF X
Tk X
Pk
 
Minimize di;j xi;j;k UI C j;k þ yi;j;k UOC j;k þ dt;j zj;t;k UFI j;t;k (1) strategies
k¼1 i¼1 j¼1 k¼1 t¼1 j¼1

Subject to:
119
xi;j;k þ yi;j;k ¼ 1 8i; j; k (2)

FH i;k S j;k p M 1 xi;j;k þ M 2 yi;j;k 8i; j; k (3)

 
FH i;k S j;k X M 1 xi;j;k 1 8i; j; k (4)

 
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FH i;k S j;k X M 2 yi;j;k 1 8i; j; k (5)

X
Ak
xi;j;k Lj;t;k p M 1 zj;t;k 8j; t; k (6)
i¼1

X
Ak
 
xi;j;k Lj;t;k X M 1 zj;t;k 1 8j; t; k (7)
i¼1

X
Ak
xi;j;k p N in
j;k 8j; k (8)
i¼1

X
Ak
yi;j;k p N out
j;k 8j; k (9)
i¼1

xi;j;k ; yi;j;k ; zj;t;k A f0; 1g 8i; j; t; k (10)

Objective function (1) attempts to minimize the total discounted net present value of
maintenance cost over a planning period. It has two components. The first component
is the total discounted in-house and outsourced variable costs. The second component
is the discounted in-house fixed cost to set up the maintenance facilities and hangars,
should the model recommend in-house maintenance programs. This cost is calculated
based on the number of maintenance facilities needed for in-house maintenance checks.
For each in-house maintenance check, the model makes sure that there is adequate
maintenance facilities (zj,t,k) available. One maintenance facility/hangar can handle up
to a certain number of in-house aircraft maintenance checks. Additional facilities are
required if the model recommends more in-house maintenance services. The number of
additional maintenance facilities is governed by the constraints (6) and (7).
The set of constraints (2)-(5) identify what maintenance services are required
for each aircraft within a planning period and insures that they are performed either
 JQME in-house or outsourced. Constraints (6) and (7) insure that there are adequate number of
22,2 maintenance facilities available for those in-house checks by incorporating their fixed
costs. It counts the number of maintenance programs recommended by the model
based on the pre-defined thresholds (Lj,t,k) and then determines if a new maintenance
facility is needed (zj,t,k). Depending on airlines strategies, constraints (8) and (9) enable
them to impose maximum number of in-house and/or outsourced maintenance services
120 on certain checks for each aircraft and/or fleet types. Finally constraints (10) imposes
the binary condition on all decision variables.

4. Computational experimentation
In order to evaluate the performance of the model discussed in Section 2, three US and
three European airlines with different network sizes and business models are selected.
A major reason for this selection was to see if the solutions exhibit same patterns on
major, low cost, US and international airlines. The US airlines are United (UA), JetBlue
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(B6) and Delta (DL). The European (EU) Airlines are British Airways (BA), Ryanair
(FR) and Lufthansa (LH). The number of aircraft, fleet diversity and average fleet age
for each airline, as of December 2014, are as follows[2] (Table I).
The following parameters were compiled for each airline:
• Number of aircraft, fleet, age, airframe hours and cycles (planespotters.net).
• Variable in-house and outsourced cost for C and D Checks (Aviation
Commerce, BTS).
• Fixed cost for setting up an in-house heavy maintenance facility and number of
aircraft that can be maintained by one such facility (Aviation Commerce, BTS,
FlightGlobal, Aviation Week).
• Maintenance programs for fleet (Airbus, Air Commerce, Boeing, Bombardier,
Embraer). As indicated earlier, a larger maintenance checks covers all smaller
sub-group checks too.
• Discount factors: the nominal discount rate (δi,j and δt,j) which also incorporates
inflation rates is referred to as the industry wide weighted average cost of capital
(WACC). The WACC is the rate that a company is expected to pay to finance its
assets (IATA, 2014; Wikiwealth, 2014).
• Planning periods were set to 5, 10, 15, 20, 25 and 30 years. The rationale for
fluctuating the planning periods was to see if and how the pattern of solutions
change with longer term planning.

Airline Number of aircraft Fleet diversity Average age of fleet (years)

US airlines
UA 695 8 13.5
DL 751 11 16.9
B6 201 3 7.6
Table I. EU airlines
Fleet information BA 266 10 13.1
for the US and FR 304 1 6.3
European airlines LH 283 8 11.8
 The models were solved using Cplex[3] and the solutions were generated instantly. Airline
The following figure shows schematically what inputs are required and the solution maintenance
outputs generated by the optimization model (Figure 4).
The model sizes in terms of number of decision variables and constraints range from
strategies
30,820 and 61,700 for 30-year planning period for the smallest and largest models
( JetBlue and Delta airlines) to 2,190 and 4,400 for five year planning period for the same
airlines, respectively. We ran three models for each airline (six airlines), and for each 121
planning period (six planning periods), a total of 108 cases. The three models for each
airline and each planning period are as follows:
• the optimum (opt) solution generated by the mathematical model as described in
Section 2;
• all in-house – represents a strategy where constraints are added to restrict the
solutions to only all in-house maintenance checks; and
all outsourced – represents a strategy which restricts the solutions to only all
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outsourced maintenance checks.

The last two models were added to compare the optimum solutions with the two
extreme all in-house and all outsourced maintenance strategies.
Figures 5 and 6 present the solutions for average normalized maintenance cost
indices for US and European airlines over the six planning periods five to 30 years.
In these charts, the cost figures were normalized with optimum costs as base,
represented by index 1. The other solutions represent the indices for all in-house and all
outsourced strategies compared to the optimum solution.

Fixed and variable cost

Scheduled heavy
Airline Fleet, aircraft and for in-house and
maintenance checks
airframe hours outsourced heavy
per fleet
maintenance checks

Optimization engine
Determine lowest heavy
maintenance cost over the
planning period

Identify number of Figure 4.

Identify in-house heavy
maintenance checks per
fleet per aircraft
Identify outsourced heavy A summary of
required hangars for
maintenance checks per inputs and outputs
in-house heavy
fleet per aircraft
maintenance checks of the optimization
model
 JQME The cost figures for US airlines indicate that on average all in-house and all outsourced
22,2 maintenance strategies cost 9 and 23 percent higher than the optimum solutions,
respectively. These figures are 13 and 22 percent for EU airlines, respectively.
The model provided the optimal solutions for in-house/outsource strategies for each
aircraft and each check for the proposed planning periods by considering their current
age and airframe hours. Tables II and III summarize the number of in-house,
122 outsourced and total maintenance checks in the optimal solutions for US and EU
airlines and for each of planning period.

5. Analyses of the optimal solutions and implications

As indicated, Figures 4 and 5 represent the cost index averages over the six planning
periods. Figures 7 and 8 present the detailed cost indices for all in-house and all
outsourced strategies for each of the six planning periods for US and EU airlines.
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Average Cost Indices for US Airlines

1.40
Opt All In-House All Outsourced 1.28
1.24
1.17
1.20 1.11
1.09 1.08
1.00 1.00 1.00
1.00

0.80

0.60
Figure 5.
Average cost 0.40
indices over 6
0.20
planning periods
for US airlines 0.00
UA B6 DL

Average Cost Indices for EU Airlines

1.60
Opt All In-House All Outsourced 1.40
1.40
1.20 1.17
1.20 1.13 1.12
1.00 1.00 1.01 1.00
1.00

Figure 6. 0.80

Average cost 0.60

indices over 6 0.40
planning periods 0.20
for EU airlines 0.00
BA FR LH

UA B6 DL
In Out Total In Out Total In Out Total

Table II. 5 years 2,261 338 2,599 830 255 1,085 2,225 344 2,569
Optimum solutions 10 years 4,500 657 5,157 1,637 525 2,162 4,276 840 5,116
for number of 15 years 6,535 1,188 7,323 2,455 785 3,240 6,336 1,344 7,680
in-house and 20 years 8,454 1,848 10,302 3,262 1,059 4,321 8,381 1,858 10,239
outsourced checks 25 years 10,337 2,546 12,886 4,068 1,334 5,402 10,391 2,410 12,801
for US airlines 30 years 12,242 3,198 15,440 4,879 1,603 6,482 12,450 2,916 15,366
 These indices are derived based on their respective optimum solutions represented by Airline
index 1. An interesting observation is that the trend for all in-house cost indices for US maintenance
and EU airlines increase with longer planning periods. Similarly, all outsourced cost
indices tend to decrease. This observation, as will be discussed later in this section, may
strategies
potentially indicate that the optimum solutions favor more outsourcing strategies with
longer planning periods.
123
BA FR LH
In Out Total In Out Total In Out Total

5 years 821 178 999 834 0 834 807 263 1,070 Table III.
10 years 1,602 393 1,995 1,675 0 1,675 1,607 540 2,147 Optimum solutions
15 years 2,155 834 2,989 2,505 0 2,505 2,257 984 3,241 for number of
20 years 2,738 1,258 3,996 3,317 0 3,317 2,979 1,338 4,317 in-house and
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25 years 3,395 1,579 4,974 3,967 174 4,141 3,720 1,685 5,405 outsourced checks
30 years 4,063 1,910 5,973 4,431 550 4,981 4,437 2,047 6,484 for EU airlines

Cost Indices for US Airlines

1.60
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
1.33
1.40 1.28 1.25
1.19 1.23
1.12 1.13 1.14
1.20 1.07 1.08 1.05 1.09

1.00

0.80

0.60

0.40
Figure 7.
0.20 Cost indices for
0.00 all in-house and
All In-House All Outsourced All In-House All Outsourced All In-House All Outsourced all outsourced
for US airlines
UA B6 DL

Cost Indices for EU Airlines

1.80
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
1.60 1.54

1.40 1.24 1.25

1.16 1.19 1.21
1.15 1.15
1.20 1.09 1.09
1.00 1.03
1.00
0.80
0.60
0.40 Figure 8.
0.20 Cost indices for
all in-house and
0.00
All In-House All Outsourced All In-House All Outsourced All In-House All Outsourced all outsourced
for EU airlines
BA FR LH
 JQME Based on the solutions presented in Tables II and III, Figures 9 and 10 show the
22,2 percentages of outsourced checks recommended by the optimum solutions for US and
EU airlines for each of the six planning period. As the figures suggest the percentages
of outsourced checks tend to increase with planning periods.
According to Tables II and III and Figures 9 and 10, the optimum solutions suggest
that on average 19 percent of all maintenance checks are outsourced and the remainder
124 81 percent are performed in-house for both US and EU airlines. It is, however, of interest
to observe the cost percentages for the outsourced checks in the total optimum cost.
Figures 11 and 12 present the percentages of cost for outsourced checks in the
optimum solutions for US and EU airlines for each planning period. These figures suggest
that despite the fact that on average only 19 percent of the checks are outsourced, they
constitute more than 50 percent of the total cost in the optimum solutions.
As the figures show the percentages of cost for outsourced maintenance programs
in the optimal solutions increase with longer planning periods. To better understand
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% of Outsourced Checks in the Opt Solutions for US Airlines

30%
UA B6 DL
25%

20%
Figure 9. 15%
Percentages of
10%
outsourced checks in
the optimal solutions 5%
for US airlines 0%
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years

% of Outsourced Checks in the Opt Solutions for EU Airlines

35%
BA FR LH
30%
25%
Figure 10. 20%
Percentages of 15%
outsourced checks in 10%
the optimal solutions 5%
for EU airlines 0%
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years

% of Outsourced Cost in Opt Solutions – US Airlines

70%
5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
58% 60% 61%
60% 55% 55%
51%
50%
43% 43%
38%
40%
Figure 11.
Percentages of 30%
outsourced cost in 20%
the total optimal
cost solutions 10%
for US airlines 0%
UA B6 DL
 the relationship between the number of outsourced checks and their corresponding Airline
costs, Figures 13 and 14 summarize the results presented in Figures 9-12. These figures maintenance
provide the averages of percentages of outsourced checks and their costs in the optimal
solutions over the six planning periods.
strategies
As the Figures 13 and 14 suggest, with such a low percentages of outsourced
checks, they represent a high portion in the total optimum costs. In other words, the
optimal solutions recommend more expensive checks (such as D checks) to be 125
outsourced. According to Phillips (2008), many airlines outsource their most expensive
checks. This observation and other studies (see, e.g. McFadden and Worrells, 2012)
indicate that the reason airlines outsource their heavy checks is that they do not
consider maintenance as the core of their businesses. The solutions recommended by
this paper concurs with this strategy, however, the rationale is that, it is cheaper for the
airlines to outsource their expensive heavy checks rather than convenience. We are not
aware of any other quantitative study that recommends outsourcing heavy checks
based on cost.
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An interesting observation in Figures 9-12 is the upward trend with the number of
outsourced checks and their percentages in the optimal solutions with longer planning

% of Outsourced Cost in Opt Solutions – EU Airlines

90% 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
80%
80% 73% 72% 76%
66%
70%
58%
60% Figure 12.
50%
Percentages of
40%
28% outsourced cost in
30%
20%
the total optimal
10%
cost solutions
0% 0%
0% for EU airlines
BA FR LH

Average % of Outsourced Checks and % of Optimal

Total Cost for US Airlines
70%
60% % of Checks % Total Cost
60%
50%
47%
50%
40% Figure 13.
30% 24% Average percentages
20% 17% 17% of outsourced
10% checks and cost
0% for US airlines
UA B6 DL

Average % of Outsourced Checks and % of Optimal

Total Cost for EU Airlines
80% 72% 71%
% of Checks % Total Cost
60% Figure 14.
Average percentages
40% 29%
27% of outsourced
20%
3% 7% checks and cost
0% for EU airlines
BA FR LH
 JQME periods. This is somewhat counter-intuitive and in contrast with some of the results
22,2 studied under buy/make or in-house/outsource strategies discussed in Section 2 in the
literature review. The typical recommendation by these studies is to lease/outsource
for shorter periods and buy/make for longer planning periods to justify the fixed
capital costs investments. The following may highlight some justifications to these
unusual results:
126 • A closer look at the structure for the maintenance costs in the optimal solutions
may provide some clarification. The percentages of the fixed costs in the total
costs are low compared to variable and outsourced costs. Figures 15 and 16
present the cost structures for outsourced, variable in-house and fixed costs in
the optimal solutions for both US and EU airlines in this study. As the figures
suggest, the percentage of fixed costs are significantly lower compared to the
other two components. Accordingly the initial fixed cost to set-up the hangars,
tooling and other relevant cost are dominated by the cheaper outsourced and
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more labor intensive checks.

• The second justification is perhaps the aircraft maintenance costs as they increase
sharply with age. That is, as the planning periods increase, the aircraft age more
and therefore undergo more expensive checks. As an example Figure 17 presents
the average annual maintenance cost indices for Airbus 320 fleet as they age[4].
As the indices show the maintenance cost increase significantly every cycle which
is about nine years for this type of fleet. This increase is higher for in-house than
outsourced maintenance as the aircraft age. Therefore with longer planning
horizons, the aircraft age more and thus the cost difference between in-house and
outsource grow higher. Accordingly, the optimization model recommends more
outsourced checks with aging aircraft than newer ones. Our analyses with other
fleet shows similar cost patterns.

% of Cost Structure in the Opt Solutions – US Airlines

70%
60% Outsourced Variable In House Fixed in House
60%
50%
50% 47% 46%
40%
40% 36%

Figure 15. 30%

Optimal cost 20%
10%
structures 10%
7%
4%
for US airlines 0%
UA B6 DL

% of Cost Structure in the Opt Solutions – EU Airlines

100% Outsourced Variable In House Fixed in House
81%
80% 71% 71%

60%
Figure 16.
40%
Optimal cost 24% 23%
structures 20%
5% 7%
12%
6%
for EU airlines 0%
BA FR LH
 It is of interest to see the current strategies adopted by the airlines studied in this paper Airline
for their maintenance checks. Table IV presents these current strategies. According to maintenance
this table, the major/legacy airlines have established subsidiary MRO companies and
therefore outsource the maintenance checks to themselves.
strategies

6. Conclusion
This study presented a quantitative approach to help the airlines identify strategies for 127
in-house and outsource heavy maintenance programs based on cost. Three airlines
from US and Europe were selected for this study. The quantitative models and their
solutions conclude:
• A combination of in-house and outsourced maintenance checks are recommended.
• More expensive maintenance checks (heavy D checks) are recommended to be
outsourced while less expensive ones to be performed in-house.
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• The aircraft require more expensive checks as they age. The cost of in-house
heavy maintenance checks grow faster than outsourced for older aircraft.
Airlines need to evaluate aircraft replacement strategies with older fleet to justify
the rising maintenance costs (Bazargan, 2012).

Maintenance Cost Index vs Age - A 320

4
In House Outsourced 3.46
3.5
3
2.50
2.5
2.06
2
1.57 1.55
1.5
1.36 Figure 17.
1.16
1 Maintenance cost
1 indices with the age
0.5 of the aircraft for
Airbus 320 fleet
0
9 Years 18 Years 27 Years 36 Years

Airline In house (%) Outsourced (%) Notes

US airlines
United 100 0 In house done by United Technical Operations
JetBlue 0 100 Outsourced in Florida and Central America.
Recent contract with new Lufthansa Technik
MRO in Puerto Rico
Delta 100 0 In house done by Delta Technical Operations
EU airlines
British Airways 100 0
In house done by British Airways MRO subsidiary
RyanAir 50 50
Light checks are performed in house. Heavy
checks outsourced Table IV.
Lufthansa 90 10 In house done by Lufthansa Technik. A380s Current maintenance
outsourced to AirFrance strategies for US and
Sources: Delta TechOps, United TechOps, Lufthansa Technik, Air France MRO Services, RyanAir, European airlines
JetBlue, Aviation Today in this study
 •
JQME Fixed costs to set-up hangars for in-house maintenance facilities represent a
22,2 small percentage in the overall cost structure. Variable in-house and outsourced
maintenance are the major cost drivers.
• In contrast to other buy/make strategies for manufacturing/service industries,
the aircraft maintenance model in this study, encourage more outsourcing for
longer planning periods due to increased maintenance cost of aircraft as they age.
128

Notes
1. Bureau of Transportation Statistics (BTS)
2. PlaneSpotters.net
3. www.IBM.com
4. Aircraft Commerce. www.aircraft-commerce.com/
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Corresponding author
Massoud Bazargan can be contacted at: bazargam@erau.edu

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