Direct Aircraft Maintenance Cost Outsourcing Analysis
The chart that appeared in USA Today relating to outsourcing of maintenance cost contained a gross error. Back Aviation utilized Form 41 cost data to estimate the amount of third party maintenance outsourcing. Their calculation included dollars paid to third party providers divided by total direct a/c maintenance. This is extremely misleading and not at all accurate, as they should have added “maintenance burden†to the total direct a/c maintenance cost.
Form 41 data divides maintenance cost into four main categories. The first three are Labor, Materials and Third Party Charges and are all assignable by aircraft type. The fourth, which was left out of the Back/USA Today analysis, is called Maintenance Burden. Burden is the cost incurred by an airline to perform maintenance. For example, the costs of hanger rental or ownership, tooling, equipment, electricity and vehicles that are required to perform maintenance activities are included in burden. Maintenance Burden accounts for 46% of American Airlines Total aircraft maintenance cost.
What makes the Back/USA Today analysis misleading is the fact that “Burden†charges that third party providers incur are included in the “Third Party Charges†category. The third party charges category includes labor, materials, burden and profit margin reported as one lump sum (the detail is not reported). Therefore the analysis included burden cost for third party providers and not for the airline, which incorrectly inflates the estimated amount of outsourced work.
AA
CO
DL
NW
UA
US
WN
TOTAL
% Direct A/C Maintenance Outsourced (Excluding Burden)
BACK/USA Today Calculation using full year data
38.4%
65.0%
37.6%
43.5%
33.1%
50.3%
65.1%
43.7%
% Direct A/C Maintenance Outsourced (Including Burden) Correct Calculation using full year data
20.9%
36.0%
25.2%
26.6%
16.7%
29.1%
56.9%
25.7%