Our industry leader this month is Hans Ulrich Beyeler, ceo SR Technics Holdings. A PhD in physics, he was initially involved in research before joining Swissair in 1993 to head its technical department. He was instrumental in managing the transformation of this cost centre into a market oriented business unit. In 1997, SR Technics was created as a separate company, fully owned by the parent SAir Group. With the collapse of Swissair and the end of the SAir Group in 2001, SR Technics was transferred to new ownership in December 2002. Now majority-owned by finance investors 3i plc, Star Capital, other finance partners, and its own management, SR Technics has become the largest independent (non-OEM and non-airline-owned) provider of highest quality technical services for civil aircraft, engines and components. It is probably best known in the UK as the owner of the FLS engineering group.
”After more than ten years in aviation I still sometimes fall back into the habits of my earlier life as a physicist and look at our industry from a distance in search of analysable patterns and underlying mechanisms. Are there patterns, processes, evolutions that have similarities to those in other industries, where we might learn from? Or are we a truly unique industry, as many insiders might think?
Of course there are similarities, and maybe we can learn from them. What we see as turmoil in our industry is mainly a paradigm shift at the top end of the industry, coupled with a fundamental regrouping of the whole supply chain. The paradigm change is the realisation that air travel has become similar to bus or car travel. It is no more the exclusive reserve of the elite who travel in style, eating fancy food and being pampered.
The aviation supply chain is only slowly catching up on what other industries have done decades ago. Car manufacturers have long since broken up their supply chain. A large number of separate suppliers feed today”s car assembly lines with wheels, interiors and other subassemblies and take responsibility for ”just in time” deliveries. The same is true for almost any modern and complex product. Dell is another fascinating example.
What does this all mean for aviation? First of all let”s be humble and accept that nobody knows today if and when a new stable industry situation will emerge, nor what it will look like. Yet a number of important observations can be made. While some of the important benefits of the break-up of supply chains are increased flexibility, faster management decisions and swifter processes to adapt the products to changing markets, outsourcing alone won”t do it. It”s great for an airline to play the market in contracting catering, technical services, ground handling etc, yet if pilot unions or lease contracts do not allow the airlines to adapt their fleet in size or composition then the airline remains at a serious disadvantage against newcomers.
Probably the hottest debate on outsourcing in our industry now focuses on maintenance, an area where traditional airlines were particularly reluctant to face the challenges of the ongoing industry transformation. Many see performing maintenance as ”having control”. In my view this is the wrong focus. If ”having control” was truly a consideration, why then do airlines outsource the check-in, which is usually the first personal contact a passenger will have, or the in-flight food, which passengers will associate with their travel experience and ultimately the brand. Airlines who associate outsourcing maintenance with a loss of control do not yet fully realise that this process is driven by the same underlying mechanisms as other realignments in industrial supply chains. Has Dell no control of its destiny because they rely on Intel for processors? Do car manufacturers lose control of their business because third parties supply specialised components? Are Boeing and Airbus in command of their products even though others supply parts and systems ” the engines alone represent about one third of the value of the aircraft? The answer is clear, in every case the party that finishes and delivers the product takes full responsibility for it and uses all its degrees of freedom to give the product the specifications and specific brand image it wants to impose on it. The reality is, also, that all airlines are reliant on external factors that they do not have control of such as fuel prices, traffic control, airport charges, etc. Therefore, the newcomers and smart traditional airlines are deliberately outsourcing and relinquishing control to caterers, ground handlers and technical service providers without any fear and much to their benefit.
There is, however, an important point to note. Modern supply chain arrangements do not work with the traditional methodology of supplier management. If suppliers are squeezed to the maximum and are given only short term contracts then it is not surprising that the supplier will try to maximise the benefits with little regard to the changing needs of his customer. As a result the buyer needs to put considerable time into delivery monitoring and quality checks and so the interface costs probably negate any concessions obtained in the last round of negotiations. Modern supply chain relationships need to be partnerships among equals who share a common interest. Such partnerships are built on trust and a very systematic delegation of tasks to the supplier. In the case of aircraft servicing, airlines would typically entertain a classical supplier relationship with an MRO (maintenance and repair organisation) for the supply of checks, overhauls or repairs. To go beyond this needs a partner that is much more than an MRO, he must be a solution provider, taking over all tasks and actions needed to ensure airworthiness and reliability of the fleet, thinking and acting in this respect for the airline. This includes responsibility for all classical MRO activities, but beyond that it is maintenance programme management, reliability management, planning ” basically looking for better and more efficient ways to work, which ultimately benefit the airline and provider.
Partnership and thinking for your customers rather than for yourself (e.g. when escalating check intervals) requires trust, especially in a world of merciless price competition. It means accepting that, when you are in it together for the long haul, it does not pay to try to outsmart your partner.
We at SR Technics have had our fair share of industry turbulence. We have changed from having the perceived job security of being part of SWISSAIR (”a flying bank”) to standing completely on our own two feet, winning business purely on the merits of our experience and past record and through the loyalty of our customers. We are now aspiring to live up to the expectation of airlines under this new form of supply chain partnership. We have the privilege of serving a number of airlines with our ”total care” solutions. It is a fascinating and rewarding learning experience. The required change of mindset in an organisation is a true management challenge but it is a unique lifetime experience for everyone involved.”