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Markets are competitive. Finding the right economical balance between costs of Aircraft on Ground (AOG) and stock is critical.
It’s these decisions that give you, the operator, a competitive advantage. AOGs are a thorn in your spine. They give you an overwhelmed feeling deep in the pit of your stomach. A feeling you can't outrun. This is why planning and knowing your operational downside is important.
Not all AOGs are created equal
Most carriers make the mistake of believing AOGs are costly. They use the term "cost" loosely. When there’s no pre-defined measure of what cost really is, airlines start making wrong decisions. When you're first battling your AOG problem, it’s important to know what your AOGs costs are. You won't be completely accurate buts it's creating a baseline that's important part.
AOG costs vary from airline to airline. They can cancel flights or delay them for hours. Passenger carriers don't lose revenue since passengers are re-booked. But customer moral sinks. Any delay, passengers get upset. Knowing a customer's lifetime value is smart business as it'll tell you what a lost customer costs. Early morning AOGs will screw up the entire day's schedule while late domestic flights will not.
Other scenarios are at play as well. Load factors, passenger mix and aircraft type all play their part.
If you’re a cargo carrier, you can’t simply rebook passengers. You may lose all revenue if the cargo isn’t delivered on time. This is why you have more support aircraft.
And if that wasn’t enough, you'll need to know the cost of other variables:
• Additional crew costs
• Mechanics overtime
• Component shipping costs
• Productivity losses
Then there comes the AOGs costs that affect the rest of the schedule. If this AOG occurs, what other costs will you experience throughout the network? Putting a figure on this is important.
Actionable tip: Know your AOG cost. A fair estimate is better than no estimate at all.
Create a parts stock model
You’ll then need to figure out how likely each AOG will occur.
Start with your reliability of no-go parts. These are the category 1 on the minimum equipment list (MEL). When these parts malfunction or go bad you’ll have an AOG to deal with.
The next thing you’ll need to do is translate the AOG costs you calculated into a required level of parts stock. In the past this was done through a Required Spare Provisioning List (RSPL) model. This is easier said than done. RSPLs vary in how complete they are and their overall sophistication. Some airlines will use these for initial stock provisioning while other airlines just don't have the time.
The RSPL model will help determine the aircraft part demands by airport and consider transport times.
There’s a ton of software that can help achieve this, if you have the budget and time for implementation.
Actionable tip: Compile a list of your no-go aircraft parts. If you lack the time and budget, work with your preferred spares partner to be ready for AOG situations. Create a transit time from their facility to all your airports. Be prepared. Then, once you have the time and budget, refine this process and make it more integrative.
Arrange your buy, lease or pools
Your next AOG battle is to decide how much capital you want to tie up on the shelves.
Some airlines and MROs prefer to keep their stock in house. They feel as though they’re more in control over their stock. If you go this route, just know the opportunity costs of the money that’s being utilized for this specific strategy. More airlines are putting more trust in aggregators, as that’s what they do.
You must decide if it's more beneficial to take care of it yourself, or outsource so you can focus attention to other areas.
Each is a viable option.
Actionable tip: Work with an aircraft spares partner. Talk with them about the exact problems you’re looking to overcome and let them come up with solutions on how to solve it. Notice if they talk about themselves, they’ll care more about their bottom line than yours. You’ll also want a partner who can support you on the expendables and repairs front as well. This will save you hundreds of hours every year with a tight focus on your entire spare needs.
Understand that once you have a model in place it won’t solve your entire problem. You’ll never know entirely what a real AOG will cost. There’s just too many variables. But having realistic estimates will save you a ton of time and money.
Understand your tradeoffs between AOGs and inventory costs and start making incremental changes.