HKU820 Asia Case RC Research Centre POON THE UNIVERSITY OF HONG KONG Poon Kam Kai Series BENJAMIN YEN AVIATION SPARE PARTS SUPPLY CHAIN MANAGEMENT OPTIMISATION AT CATHAY PACIFIC AIRWAYS LIMITED We have 2%billion Hong Kong dollars worth of spare parts on our shelves. Managing these spare parts effectively is instrumental in ensuring the efficient operations of our airline.This presents a significant challenge to the engineering department. -Robert Taylor,manager of inventory operations,Cathay Pacific A profitable and financially sound commercial airline,Cathay Pacific Airways Limited had every reason to be proud.It was voted"Airline of the Year"in the world's largest passenger poll,conducted by Skytrax Research in 2005,and named "Airline of the Year"by Air Transport World magazine in 2006.2 However,there was an operational pain that continued to bother Cathay Pacific.In March 2007,Robert Taylor,manager of inventory operations,and Paul Barwell,manager of procurement of aircraft components and maintenance,were requested to head up a task force to optimise the supply chain management of spare parts operations at Cathay Pacific.Aviation spare parts constituted a significant expense in Cathay Pacific's financial statements.From the balance sheet perspective,as of December 2005,the total inventory value of all aviation spare parts amounted to over US$350 million.Dead and inactive stock accounted for 3%per annum and was an issue to manage with care due to obsolescence and unpredictable demand patterns.Supply chain management for aviation spare parts was complex because of the need to ensure timely service availability of a huge variety of stock and to comply with stringent quality and regulatory requirements. Company interview on25 July 2007. 2For details,see Cathay Pacific's website:http://www.cathaypacific.com. Karen Lee and Jonathan Pelosi prepared this case under the supervision of Benjamin Yen for class discussion.This case is not intended to show effective or ineffective handling of decision or business processes. 2009 by The Asia Case Research Centre.The University of Hong Kong.No part of this publication may be reproduced or transmitted in any form or by any means-electronic,mechanical,photocopying.recording.or otherwise fincluding the internet)-without the permission of The University of Hong Kong. Ref09/382C This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Karen Lee and Jonathan Pelosi prepared this case under the supervision of Benjamin Yen for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 09/382C 1 BENJAMIN YEN AVIATION SPARE PARTS SUPPLY CHAIN MANAGEMENT OPTIMISATION AT CATHAY PACIFIC AIRWAYS LIMITED We have 2½ billion Hong Kong dollars worth of spare parts on our shelves. Managing these spare parts effectively is instrumental in ensuring the efficient operations of our airline. This presents a significant challenge to the engineering department. - Robert Taylor, manager of inventory operations, Cathay Pacific1 A profitable and financially sound commercial airline, Cathay Pacific Airways Limited had every reason to be proud. It was voted “Airline of the Year” in the world’s largest passenger poll, conducted by Skytrax Research in 2005, and named “Airline of the Year” by Air Transport World magazine in 2006.2 However, there was an operational pain that continued to bother Cathay Pacific. In March 2007, Robert Taylor, manager of inventory operations, and Paul Barwell, manager of procurement of aircraft components and maintenance, were requested to head up a task force to optimise the supply chain management of spare parts operations at Cathay Pacific. Aviation spare parts constituted a significant expense in Cathay Pacific’s financial statements. From the balance sheet perspective, as of December 2005, the total inventory value of all aviation spare parts amounted to over US$350 million. Dead and inactive stock accounted for 3% per annum and was an issue to manage with care due to obsolescence and unpredictable demand patterns. Supply chain management for aviation spare parts was complex because of the need to ensure timely service availability of a huge variety of stock and to comply with stringent quality and regulatory requirements. 1 Company interview on 25 July 2007. 2 For details, see Cathay Pacific’s website: http://www.cathaypacific.com. HKU820 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited A bolt for a desk chair costs a dollar.The same bolt for a chair on an aeroplane would cost 30 dollars.It is that magnitude of difference. Everything for an aircraft is massively expensive. -Paul Barwell,manager of procurement,Cathay Pacific3 The challenge for the management team was to explore alternatives for optimising spare parts supply chain management and instigate process improvement. The Aviation Spare Parts Industry Managing spare parts in the aviation industry had always been a challenge for airline operators because the aviation supply chain was unusually complicated.The aviation industry was regulated by international and local authorities such as the US Federal Aviation Administration ("FAA"),the European Aviation Safety Agency ("EASA")and the Civil Aviation Department of the Government of the Hong Kong Special Administrative Region. Mechanics certified by the FAA were required to check all non-deferrable repairs before a plane's departure and verify that all regulations were met.In addition,the FAA had the authority to ground a plane if airline operators did not complete the deferrable repairs within the stipulated timeframe.4All suppliers of aeroplane spare parts were required to possess special legal certifications and formal protocols,which were stipulations that indicated assumption of responsibility in case of an accident.Turnaround time for repairs was critical, as highlighted by measurable and non-measurable costs.In addition to standard passenger compensation for flight delays such as hotel accommodation,it cost US$60 per minute to keep an aircraft on the runway.s Moreover,there existed a risk that customers might be upset or even shift to other airlines if delays caused them to lose their connecting flights.Therefore the cost of aircraft delays was a key decision making element in engineering. Aviation spare parts themselves were also expensive and complex.To illustrate,the average cost of an engine was US$12 million and comprised thousands components and assemblies ranging from nuts and bolts to ten thousands.In addition to manufacturing expenses,the high costs were attributed to regulatory and testing requirements of spare parts for reliability.The variability of aeroplane spare parts,coupled with the sporadic nature of demand for aircraft maintenance repair parts,made spare parts demand forecasting more difficult,necessitating increased manpower. Buyer's Market The carrying costs for aviation spare parts inventory were relatively expensive.Future demands for spare parts were made based on maintenance information,scheduled maintenance plans and past usage patterns such as flying hours or parts demand.However, the usage pattern of spare parts remained highly unpredictable because of the high level of demand variability.It was reported that 30%of the inventory of a traditional airline was active,another 30%was slow-moving but necessary to have on hand and the remaining 40% was dead stock.It was estimated that the airline industry spent over US$10 billion per year on spare parts,of which 10%came from airlines'and overhaul agencies'pre-owned stocks.7 The value of spare engines for major airlines was estimated at over US$11 billion and the 3Company interview on25 July 2007. 4 Sachon,M.and Pate-Comell,E.(2000)"Delays and Safety in Airline Maintenance",Reliabiliy Engineering and System Safery, 67(3),pp.301-309. Company interview on 25 July 2007. 6 Harrington,L.(2007)"From Just in Case to Just in Time".Air Transport World,44(4),pp.77-80. Doug,B.(2000)"Spares Apart",Aerospace International,27(6),pp.14-17. 2 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 2 A bolt for a desk chair costs a dollar. The same bolt for a chair on an aeroplane would cost 30 dollars. It is that magnitude of difference. Everything for an aircraft is massively expensive. - Paul Barwell, manager of procurement, Cathay Pacific3 The challenge for the management team was to explore alternatives for optimising spare parts supply chain management and instigate process improvement. The Aviation Spare Parts Industry Managing spare parts in the aviation industry had always been a challenge for airline operators because the aviation supply chain was unusually complicated. The aviation industry was regulated by international and local authorities such as the US Federal Aviation Administration (“FAA”), the European Aviation Safety Agency (“EASA”) and the Civil Aviation Department of the Government of the Hong Kong Special Administrative Region. Mechanics certified by the FAA were required to check all non-deferrable repairs before a plane’s departure and verify that all regulations were met. In addition, the FAA had the authority to ground a plane if airline operators did not complete the deferrable repairs within the stipulated timeframe.4 All suppliers of aeroplane spare parts were required to possess special legal certifications and formal protocols, which were stipulations that indicated assumption of responsibility in case of an accident. Turnaround time for repairs was critical, as highlighted by measurable and non-measurable costs. In addition to standard passenger compensation for flight delays such as hotel accommodation, it cost US$60 per minute to keep an aircraft on the runway.5 Moreover, there existed a risk that customers might be upset or even shift to other airlines if delays caused them to lose their connecting flights. Therefore the cost of aircraft delays was a key decision making element in engineering. Aviation spare parts themselves were also expensive and complex. To illustrate, the average cost of an engine was US$12 million and comprised thousands components and assemblies ranging from nuts and bolts to ten thousands. In addition to manufacturing expenses, the high costs were attributed to regulatory and testing requirements of spare parts for reliability. The variability of aeroplane spare parts, coupled with the sporadic nature of demand for aircraft maintenance repair parts, made spare parts demand forecasting more difficult, necessitating increased manpower. Buyer’s Market The carrying costs for aviation spare parts inventory were relatively expensive. Future demands for spare parts were made based on maintenance information, scheduled maintenance plans and past usage patterns such as flying hours or parts demand. However, the usage pattern of spare parts remained highly unpredictable because of the high level of demand variability. It was reported that 30% of the inventory of a traditional airline was active, another 30% was slow-moving but necessary to have on hand and the remaining 40% was dead stock.6 It was estimated that the airline industry spent over US$10 billion per year on spare parts, of which 10% came from airlines’ and overhaul agencies’ pre-owned stocks.7 The value of spare engines for major airlines was estimated at over US$11 billion and the 3 Company interview on 25 July 2007. 4 Sachon, M. and Paté-Cornell, E. (2000) “Delays and Safety in Airline Maintenance”, Reliability Engineering and System Safety, 67 (3), pp. 301–309. 5 Company interview on 25 July 2007. 6 Harrington, L. (2007) “From Just in Case to Just in Time”, Air Transport World, 44 (4), pp. 77–80. 7 Doug, B. (2000) “Spares Apart”, Aerospace International, 27 (6), pp. 14–17. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited overall value of spare parts stored by the airline industry had increased from US$45 billion in 1995 to US$50 billion in 2002,of which 80%was owned by airline operators.3 Aircraft components were complex,high-level modules consisting of dozens or hundreds of parts.The life span of a component could exceed two decades,during which it might be repaired or overhauled more than a dozen times.These issues,combined with aviation authority requirements such as certification and traceability and issues of reliability and safety, increased the cost of obtaining and keeping aviation spare parts.Since the majority of the inventory value in the aviation supply chain was tied up in spare components,they represented the primary target for inventory value reduction. Supplier's Market Similar to any other industry,price and quality were two major determining factors for airline operators in evaluating their spare parts suppliers.As a result of tight aviation regulations, airline operators,as customers,were constrained in supplier selection.Moreover,there were situations that were dominated by a single supplier,as with parts solely supplied by an original equipment manufacturer ("OEM").OEMs were companies who were original manufacturers of a component for a product that might be resold by another company.The limited choice and high concentration of OEMs limited airline operators'negotiation power. Unlike consumable products,the criticality of the engine and the long usable life of an aircraft had contributed to strong resistance among airline operators to switch engine spare parts suppliers.Moreover,there was limited room to negotiate after an aircraft was purchased;the purchaser was now dependent on the OEM's products. Because of tight regulations and dependence on OEMs,seeking alternative suppliers was a challenge for Cathay Pacific.The supplier's market was concentrated in a handful of aerospace conglomerates,including Goodrich Corporation and Honeywell Aerospace.This was very much unlike the car industry,in which Volvo could choose from a number of suppliers to purchase a new engine for a new car.Joint purchasing activities amongst airline alliances to influence procurement processes were also likely to be opposed for anti-trust reasons.Joint purchasing activities pursued by airline alliances were deemed as similar actions undertaken by a conglomerate trying to influence the supply market.Strict regulations were in place,in countries like Australia,to govern the extent of joint purchasing activities allowed. To alleviate over-dependence upon single source suppliers,airline operators had begun exploring opportunities of sourcing certain categories of approved parts manufactured under a regulated program called "PMA"(Parts Manufacturer Approval).Through the PMA process these categories of part were generally available at more competitive pricing with reduced lead times. Supplier selection was also influenced by whether the parts in question were new or old part models.Because OEMs were the original manufacturers,they were generally the preferred suppliers for new part models owing to their level of expertise in maintenance and repairs. For older,non-critical models,PMA suppliers were a viable option. sKilpi,J.and Vepsalainen,A.PJ.(2004)"Pooling of Spare Components between Airlines",Transporr Management,10 (2),pp.137-146. Kilpi,J.and Vepsalainen,A.PJ.(2004)"Pooling of Spare Components between Airlines"Journal ofir Transport Management,10 (2),pp.137-146. 1Company interview on25 July 2007. Company interview on25 July 2007. 3 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 3 overall value of spare parts stored by the airline industry had increased from US$45 billion in 1995 to US$50 billion in 2002, of which 80% was owned by airline operators.8 Aircraft components were complex, high-level modules consisting of dozens or hundreds of parts. The life span of a component could exceed two decades, during which it might be repaired or overhauled more than a dozen times. These issues, combined with aviation authority requirements such as certification and traceability and issues of reliability and safety, increased the cost of obtaining and keeping aviation spare parts. Since the majority of the inventory value in the aviation supply chain was tied up in spare components, they represented the primary target for inventory value reduction.9 Supplier’s Market Similar to any other industry, price and quality were two major determining factors for airline operators in evaluating their spare parts suppliers. As a result of tight aviation regulations, airline operators, as customers, were constrained in supplier selection. Moreover, there were situations that were dominated by a single supplier, as with parts solely supplied by an original equipment manufacturer (“OEM”). OEMs were companies who were original manufacturers of a component for a product that might be resold by another company. The limited choice and high concentration of OEMs limited airline operators’ negotiation power. Unlike consumable products, the criticality of the engine and the long usable life of an aircraft had contributed to strong resistance among airline operators to switch engine spare parts suppliers. Moreover, there was limited room to negotiate after an aircraft was purchased; the purchaser was now dependent on the OEM’s products. Because of tight regulations and dependence on OEMs, seeking alternative suppliers was a challenge for Cathay Pacific 10 . The supplier’s market was concentrated in a handful of aerospace conglomerates, including Goodrich Corporation and Honeywell Aerospace. This was very much unlike the car industry, in which Volvo could choose from a number of suppliers to purchase a new engine for a new car. Joint purchasing activities amongst airline alliances to influence procurement processes were also likely to be opposed for anti-trust reasons. Joint purchasing activities pursued by airline alliances were deemed as similar actions undertaken by a conglomerate trying to influence the supply market. Strict regulations were in place, in countries like Australia, to govern the extent of joint purchasing activities allowed.11 To alleviate over-dependence upon single source suppliers, airline operators had begun exploring opportunities of sourcing certain categories of approved parts manufactured under a regulated program called “PMA” (Parts Manufacturer Approval). Through the PMA process these categories of part were generally available at more competitive pricing with reduced lead times. Supplier selection was also influenced by whether the parts in question were new or old part models. Because OEMs were the original manufacturers, they were generally the preferred suppliers for new part models owing to their level of expertise in maintenance and repairs. For older, non-critical models, PMA suppliers were a viable option. 8 Kilpi, J. and Vepsäläinen, A.P.J. (2004) “Pooling of Spare Components between Airlines”, Journal of Air Transport Management, 10 (2), pp. 137–146. 9 Kilpi, J. and Vepsäläinen, A.P.J. (2004) “Pooling of Spare Components between Airlines”, Journal of Air Transport Management, 10 (2), pp. 137–146. 10 Company interview on 25 July 2007. 11 Company interview on 25 July 2007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited Company History Cathay Pacific Airways was founded in Hong Kong on 24 September 1946 by two ex-air force pilots,American Roy Farrell and Australian Sydney de Kantzow.With a single Douglas DC-3(a small passenger plane),Cathay Pacific launched its first routes between Hong Kong, Sydney,Manila,Singapore,Shanghai and Canton,with limited scheduled service to Manila, Singapore and Bangkok.In 1948,Butterfield Swire,which later became the Swire Group, bought 45%of Cathay Pacific and had since then become the de facto flagship carrier of Hong Kong. The 1960s to 1990s marked the development and growth era of Cathay Pacific [see Exhibit 1],owing to successful corporate strategy implementation in product innovation and to acquisitions.During the 1970s,Cathay Pacific had demonstrated its commitment to product innovation through its introduction of flight simulators and one of the industry's first computerised reservation systems.These technological investments further enhanced Cathay Pacific's service offering.In addition,Cathay Pacific had made timely acquisitions allowing the airline to become one of the world industry leaders.With access to capital markets for fund raising following their initial public offering in Hong Kong in 1986,Cathay Pacific pursued its plan of expansion into Europe and North America.Recognising destination reach as a critical factor for excellent customer service and acknowledging the increasing demand in China,in September 2006,Cathay Pacific not only integrated with Dragon Air but also enhanced its cooperative agreement with Air China.Cathay Pacific was also one of the founding members of the oneworld Alliance in 1998,a network of airlines designed to increase efficiency by offering nearly 700 destinations.12 Turnover in 2006 exceeded US$7.77 billion and profits surpassed US$523 million.Cathay Pacific employed over 25,000 staff worldwide,serviced over 43 destinations throughout Asia, North America and Europe and carried over 16.7 million passengers in 2006. Spare Part Supply Chain Management at Cathay Pacific Managing the inventory is tough.With the aviation business,the supply chain tends to be much more complicated compared to regular businesses.This is due to all the restrictions,the turnaround time,lead time,repair time, expensive components,how many should I keep on the shelf.my float level. -Robert Taylor,manager of inventory operations,Cathay Pacific3 Cathay's Engineering Commercial section was made up of mainly three functions, Procurement,IOPs(Inventory Operations),and Planning [See Exhibit 2].For the scope of spare parts management,IOPs was in charge of the day-to-day operation while Procurement took up the commercial responsibilities with suppliers.IOPs was operating on an annual budget of over US$450 million'4. Owing to the diversity in the nature of parts and the fact that there were over 1,000,000 parts on a single aeroplane,there were over 380,000 line items in Cathay Pacific's database as of February 2007.Accordingly,there were over 2,300 suppliers to meet the spare parts demands of Cathay Pacific's fleet of over 117 planes consisting of 11 models with an average age of 11 For details,see Cathay Pacific's website:http://www.cathaypacific.com Company interview on25 July 2007. 4Company interview n Juy007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 4 Company History Cathay Pacific Airways was founded in Hong Kong on 24 September 1946 by two ex-air force pilots, American Roy Farrell and Australian Sydney de Kantzow. With a single Douglas DC-3 (a small passenger plane), Cathay Pacific launched its first routes between Hong Kong, Sydney, Manila, Singapore, Shanghai and Canton, with limited scheduled service to Manila, Singapore and Bangkok. In 1948, Butterfield & Swire, which later became the Swire Group, bought 45% of Cathay Pacific and had since then become the de facto flagship carrier of Hong Kong. The 1960s to 1990s marked the development and growth era of Cathay Pacific [see Exhibit 1], owing to successful corporate strategy implementation in product innovation and to acquisitions. During the 1970s, Cathay Pacific had demonstrated its commitment to product innovation through its introduction of flight simulators and one of the industry’s first computerised reservation systems. These technological investments further enhanced Cathay Pacific’s service offering. In addition, Cathay Pacific had made timely acquisitions allowing the airline to become one of the world industry leaders. With access to capital markets for fund raising following their initial public offering in Hong Kong in 1986, Cathay Pacific pursued its plan of expansion into Europe and North America. Recognising destination reach as a critical factor for excellent customer service and acknowledging the increasing demand in China, in September 2006, Cathay Pacific not only integrated with Dragon Air but also enhanced its cooperative agreement with Air China. Cathay Pacific was also one of the founding members of the oneworld Alliance in 1998, a network of airlines designed to increase efficiency by offering nearly 700 destinations.12 Turnover in 2006 exceeded US$7.77 billion and profits surpassed US$523 million. Cathay Pacific employed over 25,000 staff worldwide, serviced over 43 destinations throughout Asia, North America and Europe and carried over 16.7 million passengers in 2006. Spare Part Supply Chain Management at Cathay Pacific Managing the inventory is tough. With the aviation business, the supply chain tends to be much more complicated compared to regular businesses. This is due to all the restrictions, the turnaround time, lead time, repair time, expensive components, how many should I keep on the shelf, my float level. - Robert Taylor, manager of inventory operations, Cathay Pacific13 Cathay’s Engineering Commercial section was made up of mainly three functions, Procurement, IOPs (Inventory Operations), and Planning [See Exhibit 2]. For the scope of spare parts management, IOPs was in charge of the day-to-day operation while Procurement took up the commercial responsibilities with suppliers. IOPs was operating on an annual budget of over US$450 million14. Owing to the diversity in the nature of parts and the fact that there were over 1,000,000 parts on a single aeroplane, there were over 380,000 line items in Cathay Pacific’s database as of February 2007. Accordingly, there were over 2,300 suppliers to meet the spare parts demands of Cathay Pacific’s fleet of over 117 planes consisting of 11 models with an average age of 11 12 For details, see Cathay Pacific’s website: http://www.cathaypacific.com. 13 Company interview on 25 July 2007. 14 Company interview on 25 July 2007. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited years.'5 Another 46 planes,including three new models,were expected to be delivered in the next five years. Spare Parts Classification at Cathay Pacific Spare parts were dually classified according to their function and their criticality Spare Parts by Function'5 Cathay Pacific's system divided airplane spare parts into five primary classes:rotable, repairable,expendable,consumable and expendable-repairable. Rotables consisted of the most complex,expensive and longest-lasting parts of an aeroplane (ie,the engine).In addition,they included serialised assemblies,end items,line-replaceable units and units that incorporated repairable parts.Because they were assembled units,they could consist of parts belonging to the other four categories of spare parts,meaning rotables could be built from parts which were expendables or consumables.For example,an engine was a rotable component,but there were many different assembly parts inside the engine. Rotables were depreciable over time and had an extensive life expectancy through repetitive overhaul processes that would,under normal operating conditions,equal the life of an aircraft. Unserviceable units were normally routed to overhaul/repair shops for inspection,repair or overhaul and were recertified for serviceability based on authorised procedures. Repairables included parts that were considered economically repairable and were continually rehabilitated in the normal course of operation to a fully serviceable condition over a period which was usually less than the life of the flight equipment with which they were associated. These parts were repaired until declared no longer of value because of obsolescence either of themselves or of the flight equipment to which they related,or because the assemblies had become damaged beyond repair.A fuel pump in the aeroplane was an example of a repairable part. Expendables included both integral and non-integral parts of assemblies that were reused or replaced based on inspection findings.Some examples of integral expendables were dowels, pins and sleeves.Examples of non-integral expendables included bearings,springs,bulbs and brackets. Consumables included replacement items that were discarded and replaced at each assembly overhaul pursuant to overhaul specifications and procedures.Examples of consumable parts were oil,chemicals,paints,fabrics and metals. Expendables-repairables included any expendable that might be recovered through minor repairs,such as seat arm caps. These five classes could also be addressed from two different points of view.The first was an inventory management perspective that focused on whether the units could be repaired or not. For example,rotables and repairables were components that could be repaired.The second perspective was that of accounting and focused on depreciable lifespan.Rotables,for instance, had a lifespan equal to that of an aircraft. 15 Cathay Pacific's website:http:/www.cathaypacific.com/pa/en US/aboutus/exbackground/factsheet (accessed 14 May,008). 16 Definitions taken from:Cathay Pacific(1 May 2006)"Engineering Procedure Manual Inventory Operations Volume 9A", Company Presentations. 5 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
Aviation Spare Parts Supply Chain Management 09/382C Optimisation at Cathay Pacific Airways Limited 5 years.15 Another 46 planes, including three new models, were expected to be delivered in the next five years. Spare Parts Classification at Cathay Pacific Spare parts were dually classified according to their function and their criticality. Spare Parts by Function16 Cathay Pacific’s system divided airplane spare parts into five primary classes: rotable, repairable, expendable, consumable and expendable-repairable. Rotables consisted of the most complex, expensive and longest-lasting parts of an aeroplane (ie, the engine). In addition, they included serialised assemblies, end items, line-replaceable units and units that incorporated repairable parts. Because they were assembled units, they could consist of parts belonging to the other four categories of spare parts, meaning rotables could be built from parts which were expendables or consumables. For example, an engine was a rotable component, but there were many different assembly parts inside the engine. Rotables were depreciable over time and had an extensive life expectancy through repetitive overhaul processes that would, under normal operating conditions, equal the life of an aircraft. Unserviceable units were normally routed to overhaul/repair shops for inspection, repair or overhaul and were recertified for serviceability based on authorised procedures. Repairables included parts that were considered economically repairable and were continually rehabilitated in the normal course of operation to a fully serviceable condition over a period which was usually less than the life of the flight equipment with which they were associated. These parts were repaired until declared no longer of value because of obsolescence either of themselves or of the flight equipment to which they related, or because the assemblies had become damaged beyond repair. A fuel pump in the aeroplane was an example of a repairable part. Expendables included both integral and non-integral parts of assemblies that were reused or replaced based on inspection findings. Some examples of integral expendables were dowels, pins and sleeves. Examples of non-integral expendables included bearings, springs, bulbs and brackets. Consumables included replacement items that were discarded and replaced at each assembly overhaul pursuant to overhaul specifications and procedures. Examples of consumable parts were oil, chemicals, paints, fabrics and metals. Expendables-repairables included any expendable that might be recovered through minor repairs, such as seat arm caps. These five classes could also be addressed from two different points of view. The first was an inventory management perspective that focused on whether the units could be repaired or not. For example, rotables and repairables were components that could be repaired. The second perspective was that of accounting and focused on depreciable lifespan. Rotables, for instance, had a lifespan equal to that of an aircraft. 15 Cathay Pacific’s website: http://www.cathaypacific.com/cpa/en_US/aboutus/cxbackground/factsheet (accessed 14 May, 2008). 16 Definitions taken from: Cathay Pacific (1 May 2006) “Engineering Procedure Manual Inventory Operations Volume 9A”, Company Presentations. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012