Armac supports Finnair to optimize their Rotable Component Availability Sourcing Strategy
What is new in the Finnair concept is exploring the utilisation of the units from the teardown aircraft to provide a significant proportion of the availability for the remaining fleet. The impact on the total spare’s portfolio cost base forces a rethink of the entire component availability sourcing strategy.
Armac have released a case study which demonstrates how our RIOsys inventory optimization software was effectively applied in Finnair to support rethinking their component availability sourcing strategy by identifying opportunities and options for leveraging components harvested from prematurely retired aircraft.
The project enabled Finnair to:
- Identify optimal teardown aircraft and sequence to support the new/emerging operation
- Determine the inventory availability costs baseline for an insourced availability model as a key input to strategic vendor analysis
- Understand availability insource costing to evaluate “Make or Buy” options
- Optimize pool and on-site stock (OSS) scoping for future operation
- Prioritize shortage identification for various teardown scenarios
- Identify surplus potential from teardown aircraft for liquidation and cash generation
- Identify potential for repair costs reduction through re-use of surplus aircraft components from teardown aircraft
- Prevent excess part-out in an already oversupplied market
Commenting on the project Mr. Pete Reinikkala, Head of Supply Chain Management at Finnair Technical Operations, stated that:
“RIOsys proved to be the suitable solution to enable and optimize Finnair’s inventory sourcing decision making at a critical time for the business.”
Finnair is a modern premium network airline, specialising in passenger and cargo traffic between Asia and Europe. Helsinki’s geographical location gives Finnair a competitive advantage, since the fastest connections between many European destinations and Asian megacities fly over Finland. Sustainability is at the heart of Finnair´s strategy – Finnair intends to reduce its net emissions by 50% by the end of 2025 from the 2019 baseline and achieve carbon neutrality latest by 2045. As a central element of the sustainability strategy, Finnair has engaged into recycling of some of its older A320 family aircraft with part-outs currently running for the fleets two oldest A319 aircraft. Finnair’s fleet consists of over 80 mostly Airbus aircraft, with ATR-72 turboprops and Embraer E-190 jets on the shorter routes. Finnair operates A350 and A330 aircraft on their long-haul routes, and the A320 family (A319, A320 and A321s) aircraft support its European short-haul network. Finnair is a member of the oneworld alliance.
THE COVID-19 CHALLENGE
As a consequence of the COVID-19 global pandemic there has been a significant downturn in the aviation sector. While air travel will certainly recover, the extent and nature of the recovery is uncertain. Like many other airlines, Finnair will have surplus capacity and surplus aircraft for the short to medium term. In particular Finnair identified that there were surplus aircraft within the main short-haul fleet of A320 aircraft. In the current flooded marketplace components from teardown aircraft have reduced value, so a simple strategy of tear down and sell components would be a sub-optimal approach.
From an MRO perspective this also creates a requirement to consider more economic material provisioning to provide component availability for the remaining operational fleet. Acknowledging the new reality, and to proactively address the challenges in a sustainable way, Finnair wished to explore the possibility of utilising components from surplus aircraft within Finnair´s own fleet to support the remaining operational fleet as this could be a more efficient alternative to other availability solutions such as pooling or consignment power by the hour offerings.
Aviation MRO has a complex supply chain. The nature of maintenance means that demand is highly uncertain. Removed unserviceable parts are repaired and reused.
Therefore, to support maintenance activity material is supplied from a multitude of sources including: strategic pooling contracts; consignment lease stocks; AOG procurement; planned and ad hoc exchanges and airline owned stock. Introducing airline owned teardown aircraft components and a weak surplus trading market further complicates the picture and forces a complete rethink of optimal sourcing strategies across the portfolio of part numbers to be supported. In addition to the economic and operational benefits, in alignment with its sustainability strategy, Finnair wanted to maximize the reuse of material from its (prematurely) retired aircraft.
To address this complex challenge Finnair requested analytical inventory planning and provisioning support from Armac. Armac System’s best of breed RIOsys inventory optimization software has the analytical capability to optimize the sourcing of component availability and our subject matter experts have significant domain expertise in the area of inventory planning for aircraft spares.
Tearing down aircraft for spares is not a new concept. This normally happens when an aircraft is end of life and an airline or lessor wants to maximise the residual value on the market place. What is new in the Finnair concept is exploring the utilisation of the units from the teardown aircraft to provide a significant proportion of the availability for the remaining fleet. The impact on the total spare’s portfolio cost base forces a rethink of the entire component availability sourcing strategy.
Armac’s RIOsys software has the capability to optimize inventory that an airline owns. Additionally, it can also be used in DSS (Decision Support System) mode to evaluate the efficiency of sourcing options across the inventory profile. To accomplish this analysis, it was necessary to consider aircraft within the Finnair owned A320 family as both a source of demand if retained in the operation, and a source of supply if a candidate for tear-down.
Armac defined a process which involved the extraction of data from Finnair’s AMOS MRO IT System and iterative scenario analysis to consider every teardown option and every sequence of teardown aircraft.
To address this critical decision for Finnair, a six-week project was launched.
The initial stage involved the data discovery and scenario scoping. Armac took the data provided by Finnair from the AMOS system using standard reports, and transformed and augmented the data to create a data set to support the scenario analyses.
Parameters and business drivers were agreed. We followed a structured process to converge on the optimal solution scenarios. The scenarios considered multiple teardown options and sequences which varied depending on the uncertain future fleet utilisation.
For each teardown scenario, the output from RIOsys provided:
- Holistic incremental service level increase and improvement per inventory category
- Shortages addressed through optimal incremental teardown
- An analysis on shortages to consider prioritised CAPEX investment and forecast exchange volumes and OPEX per annum
- Reduced scope of candidates for pooling
- Scrap replenishment CAPEX
- Increase in surplus material generated
- The opportunity to utilise surplus for repair cost avoidance and timescale for the savings
Additionally, based upon the data, the optimal On-Site Stock (OSS) was proposed should the continuation of outsourcing be selected for all or a subset of parts.
In summary, the project provided Finnair KPIs and part level deep insight into:
- The impact of utilizing teardown aircraft to support the remaining fleet
- Is it feasible?
- Which aircraft are the best candidates for part-out?
- The sequence and timing for teardown considering
- Availability impact, aircraft NBV and base maintenance cost avoidance
- Shortages that will remain following the teardown of selected aircraft
- How should they be categorised and availability addressed via purchase, pool and exchange?
- Teardown surplus utilization in a soft trading market to offset repair cost
- Over what timescale can this be achieved?
- The impact of utilizing teardown aircraft to support the remaining fleet
Sensitivity analysis was accomplished to account for variations in:
- Actual aircraft utilisation
- Part reliability
- Scrap rates from forecast
- Variability in logistics and repair Turnaround Times (TAT)
The sensitivity analysis established the impact of opportunity and risk associated with operational assumptions on the scenario results.
THE BUSINESS BENEFITS
The project provided Finnair with a deep understanding of the operations new component availability cost drivers; CAPEX forecast for shortage and scrap replacement, repair cost OPEX avoidance through utilization of teardown surplus, exchange costs OPEX and transactional volumes, alternative pooling scope potentials for OPEX reduction in case of continued flight hour rate based contracting.
In doing so the analysis informed the “Make vs. Buy” decision-making process in terms of baseline costs for strategic contract scoping or insourcing.
As circumstances unfold the solution allows Finnair to quickly remodel new scenarios to enable a faster, more responsive, more flexible and more resilient supply chain.
Reflecting on the project, Mr. Pete Reinikkala, Head of Supply Chain Management at Finnair Technical Operations, commented
“The project delivered a comprehensive analysis on how our surplus aircraft can impact our component sourcing strategy and availability costs. The results exceeded our expectations and highlighted opportunities that had not been considered at the outset. It provided Finnair with the data led insights that we required and identified optimal component availability sourcing options that can deliver real cost savings for the business.” He went on to say that “Finnair is impressed with the capability, speed and flexibility that the RIOsys software had to model Finnair’s supply chain.… RIOsys proved to be the suitable solution to enable and optimize Finnair’s inventory sourcing decision making at a critical time for the business.”
Armac’s CEO Micheál Armstrong commented
“We are delighted with the feedback from Finnair and the value of the solution that we delivered to support them. There are many other airlines and MROs who are in a period of transformation and who need to rethink their strategies in this relaunch phase for our industry. We are particularly pleased that we have taken the learnings from this project and codified the process so that we are able to support our customers at this critical time with these crucial supply chain strategies.”