oversight

Aircraft Maintenance: Potential Shortage in National Aircraft Repair Capacity

Published by the Government Accountability Office on 1990-10-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

AIRCRAFT
MAINTENANCE
Potential Shortage in
National Aircraft
Repair Capacity


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GAO   ” Wasl&,@,n
           DC
            20648
           United States
           General Accounting Office
                       9 I .

           Resources, Community, and
           Economic Development Division

           B-241110
           October 31,lQQO

           The Honorable JamesL. Oberstar, Chairman
           The Honorable William F. Clinger, Jr.,
             Ranking Minority Member
           Subcommitteeon Aviation
           Committee on Public Works and Transportation
           Houseof Representatives
           In responseto your September 19,1989, request, we are reviewing
           various aspectsof the United States’ aircraft repair station industry. We
           are currently obtaining a broad range of detailed information. As
           requested, we are providing you with an interim report that contains
           information baaedon discussionswith selectedairline-owned and inde-
           pendent repair stations. After completing our review, we will issue a
           report containing a more complete analysis of the aircraft repair station
           issues.
           This report discusses
       . reasonsfor recent increasesin demand for maintenance,
       . the extent to which the industry’s capacity is being used, and
       l the factors affecting future demand for and supply of airline and inde-
         pendent repair station services.
           Becausethe Federal Aviation Administration (FAA) recently mandated
           repairs and modifications to aging aircraft (approximately one-third of
           the U.S. fleet could need major repairs within 4 years), we raised con-
           cerns during hearings in late 1989 that the demand for aircraft mainte-
           nance could exceedthe aircraft repair industry’s short-term capacity.1
           This demand could mean that somecarriers would be taking aircraft in
           need of maintenance out of service until maintenance can be scheduled,
           which, in turn, could have undesirable effects on air fares and sched-
           ules. Alternatively, under someconditions, FAA can allow carriers to
           defer certain structural modifications if they agreeto inspect more fre-
           quently for evidenceof fatigue so that damagecan be identified before
           it exceedsallowable limits. If FAA permits this alternative to be exercised
           on a widespread basis, however, it could mean that the intent of FAA’s
           orders to repair aging aircraft is not being met.


           %ee Meeting the Aging Aircraft Challenge: Status and Opportunities (GAO/T-RCED89-67, Sept. 27,
           1989).



           Page 1                                                 GAO/RCED-91-14 Aircraft MaWmance
                   Ball10




                   We basethe information in this report on our analysis-of the Depart-
                   ment-of Transportation’s (nor) aircraft maintenance data and our dis-
                   cussionswith five airlines2 and four independent repair stations. These
                   repair stations are nonairline facilities that perform maintenance on
                   business,commercial, and other aircraft on a contractual basis3

                         recent regulatory changesto ensure the safety of aging aircraft
Results in Brief   FAA’S
                   will require substantial structural modifications and significantly
                   increaseshort-term demand for repair services,affecting over the next 4
                   years about 1,400 of the 4,100 planes in the U.S. fleet. The increase in
                   aircraft maintenance costs-primarily for airframes-is expected to
                   total $2 billion or more over the next 4 years, or an averageof $600
                   million per year. This increasein cost is an amount equal to all of the
                   industry’s 1988 expensesto repair airframes and represents an almost
                   Q-percentincreasein the existing $6.7 billion annual cost of aircraft
                   repair and maintenance.4

                   According to the airlines and repair stations we contacted, this
                   increaseddemand for repair servicesmay not be matched by corre-
                   sponding increasesin capacity in the immediate future. This situation is
                   particularly true for maintenance facilities of four of the five airlines we
                   contacted which expected to be operating in 1990 at or near 100 percent
                   of their hangar spacecapacitye6On the other hand, becauseof recent
                   expansion, someadditional capacity will exist in the independent side of
                   the industry. For example, three of the four repair stations expect to
                   have between 6- and lQ- percent (average was 10 percent) excess
                   capacity during 1990. Thus, if these organizations’ experiencesfairly
                   represent the total industry, the independent portion of the industry
                   could have about lo-percent excesscapacity in 1990 and the airline-
                   owned portion may well have no excess.However, becausethe

                   2The five airlines are Alaska (a 64-plane national carrier) and American, Continental, Trans World,
                   and United-all maJor carriers. In total, these carriers account for about 39 percent of the U.S. fleet.

                   3The independent repair stations we surveyed are Tramco (Everett, Wash.), Tracer Aviation Inc.
                   (Santa Barbara, Calif.), the Ike Howard Company (San Antonlo, Tex.)--all of which are relatively
                   large facilities with more than 100,000 square feet of hangar space (a 747 requires 76,000 square feet
                   to be fully enclosed)-and Aerotest (Mojave, Calif.), with 24,000 square feet of space.

                   4Although these dollar figures are in current year terms-usually 1988 because this is the most
                   recent summarized data in INI% database-additional historical data on maintenance c&s that
                   have been deflated to a common 1982 base are contained in appendix I.

                   6Hangar space is used in the industry as the measure of capacity because compared with other
                   supply-constraining variables, such as labor and parts, space ls most difficult to vary in the short-
                   tenn.



                   Page 2                                                       GAO/RCED91-14       AiremftMaintenanee
 I,                        E241110




                           independents constitute only about 20 percent of the industry, excess
                           capacity in the repair industry as a whole may be only about 2 percent
                           in 1990,
                           If these examples reflect the situation in the industry as a whole, the
                           industry’s 2-percent excesscapacity in 1990 may fall short of meeting
                           the increase in demand. Moreover, without improvement, airlines may
                           need more than the FAA-allowed4 years to meet FAA’S new requirements
                           to fix aging aircraft. If airlines cannot comply with the FAA require-
                           ments, they will need to request FAA’S approval to defer maintenance,
                           seek repair service overseas,or take noncompliant aircraft out of
                           service.

                           According to the nine repair stations we contacted for this interim
                           report, the immediate obstaclesto expanding the supply of repair
                           capacity are the shortage of skilled aircraft mechanicsin somemarkets
                           and the long time required to bring new facilities on line. In addition, FAA
                           officials said that somespecial spare parts are not currently available
                           and that this is critical to proper modification of aging aircraft. Our sub-
                           sequent report covering the whole industry will provide a more thor-
                           ough analysis of the situation>

                           New demand for repair servicesis stimulating broad growth in the air-
Operating at Near fill     craft repair industry. Not only are existing firms expanding, but also
Capacity, the Repair       new entrants are appearing in the industry. Moreover, out-pacing indus-
Station Industry Is        trywide growth is growth in work that airlines contract out to other air-
                           lines or to independent repair stations. Even with expansion, however,
Expanding                  the industry is operating at near full capacity.


Aircraft Repair Industry   Under the Codeof Federal Regulations, title 14, part 145, FAAhas certi-
Structure Is Changing;     fied about 4,000 repair stations to work on aircraft and aircraft compo-
                           nents. However, relatively few stations have the necessaryfacilities,
Airline Use of Industry    equipment, and personnel to perform significant structural repairs on
Varies                     large transport aircraft. Out of the 4,000 stations, we identified 38
                           repair stations that claimed to be capable of performing heavy airframe
                           maintenance-the type of activity necessaryto accomplish recent FAA-


                           % the longer term, the excess demand might lead to higher prices for aircraft repair services, which
                           could stimulate investment in additional repair capacity and raise the wages of aircraft mechanics,
                           thus attracting more workers to this industry.



                           Page 8                                                     OAO/lUZED-91.14    Ahraft   Malnhnance
                                             5241110




                                             ordered repairs to the 1,400 oldest aircraft in the US. fleet. (Seeapp. II.)
                                             Figure I shows a Boeing 707 receiving maintenance inside the hangar.
Figure I: A Boeing 707 Receiving Maintenance
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                                             Uncertainty about the current structure and continued evolution of the
                                             industry has led to doubts about repair stations’ capacity to handle
                                             repair work. Someairlines, for example, believe that’the number of inde-
                                             pendent repair stations capable of performing heavy airframe mainte-
                                             nance is probably much smaller than 38. Four of the five airlines we
                                             visited said that although someFAA-certifiedrepair stations may have
                                             the hangar spacefor such work, the stations either (1) lack the exper-
                                             tise, training, or equipment neededto perform the kinds of repairs and
                                             modifications FAA requires or (2) may not be able to complete the work
                                             in a reasonabletime. In addition, industry composition is changing to
                                             include portions of the defensesector that are beginning to develop a
                                             commercial repair capability. For example, Defensecontractors such as


                                             Page 4                                      GAO/RCED-91-14   Aircraft   Maintenance
                                  B-241110




                                  Rockwell International, Grumman St. Augustine, and Lockheed Aero-
                                  spacehave begun to develop commercial aircraft maintenance capabili-
                                  ties. Further, an association of military repair facilities, concernedabout
                                  maintaining the facilities’ productivity in the face of the shrinking
                                  defensedollar, is trying to keep its resourcesfully employed by
                                  accepting airline repair work.

                                  All airlines use independent repair stations to at least somedegree,
                                  according to the Vice President for Maintenance of the Air Transport
                                  Association (ATA), an organization representing 22 air carriers. However,
                                  the extent to which airlines use independent repair stations varies con-
                                  siderably. As shown in figure 2, at the five airlines we visited, reliance
                                  on independent repair stations ranged from near zero percent to 53 per-
                                  cent of total maintenance costs in 1989.

Flpure 2: Five AIrlinea’ Use of
Independent Repair Statlons       60       Fofcontap    of Total Mahtonance
                                       I

                                  SO


                                  40


                                  30


                                  20


                                  10




                                           1      1 1988
                                                       1989




                                  Page 6                                      GAO/lWED-Sl-14   Aimraft   hfahtinance
                              B-241110




                              The extent of an airline’s reliance on independent repair stations gener-
                              ally correspondedto its amount of in-house maintenance capacity. Trans
                              World Airlines (TWA), for example, barely usesthe independent repair
                              station industry becauseits own maintenance facilities can accommo-
                              date the airline’s needs.Collectively, the five airlines relied on repair
                              stations to provide maintenance repair service for all major aircraft
                              components,including airframes, power plants, communication equip-
                              ment, instruments, and accessories.

Airlines Are Contracting      In 1988, U.S. carriers spent over $6.7 billion to maintain and repair their
Out a Larger Proportion 0If   aircraft. This amount is almost double of what they spent in 1984.
                              Although DCJI’ doesnot track changesin the price of aircraft maintenance
Repairs and Maintenance       labor or materials, a D(JTmaintenance data analyst estimated that little
                              of this increasein airline spending for maintenance could be attributed
                              to the increasing costs of labor or materials neededfor performing main-
                              tenance. Instead, he said that it was due primarily to industry expan-
                              sion, including fleet growth (from 2,400 planes in 1980 to over 4,100 in
                              1990), to accommodateincreasesin air travel since deregulation in 1978.

                              Although large carriers most often accomplish this maintenance in facil-
                              ities they own themselves,the airline industry as a whole contracted out
                              a significant portion-$1.2 billion or 21 percent-in 1988. As shown in
                              figure 3, maintenance that is contracted out is growing faster than main-
                              tenance done in-house.(Seeapp. I.)




                              Page 6                                     GAO/IUXD-Bl-14   Ahraft   Maintenance
                                     B-241110




Figure 3: Comparison of In-House
Aircraft Maintenance Versus Direct
Maintenance Coats                    6.0   DollarsIn Billions

                                     5.5


                                     1.0


                                     a.5


                                     4.0


                                     3.9


                                     3.0


                                     2.5

                                      1963                1084                1985   1986            1987                1988
                                      YSSfS

                                           -        Total Direct Maintetmca
                                           - 1-1)   In-House Maintenance




Capacity Utilization Is              Both the airline and independent repair stations we contacted are oper-
High                                 ating near full capacity. Four of the five airlines said they will be oper-
                                     ating at 100 percent of their in-house maintenance capacity in 1990 and
                                     that they expect their use of independent repair stations to increase or
                                     remain at 1989 levels. Also, three of the four independent repair sta-
                                     tions we visited said they expect demand for their servicesto increase
                                     over 1988 and 1989 levels. The repair stations, too, have been operating
                                     at near 100 percent of capacity. For example, one of the four stations
                                     performed maintenance on 132 large transport aircraft in 1989, while
                                     during the sameperiod it turned away 163 more aircraft. To meet per-
                                     ceived increasesin demand, all four repair stations recently have fin-
                                     ished expanding, are in the midst of expanding, or are planning to
                                     expand in the near future. As a result of this expansion, the repair sta-
                                     tions estimate that they will have from 5 to 19-percentexcesscapacity
                                     in 1990. (Seeapp. 11.)




                                     Page 7                                          GAO/RCEDBl-14   Aircraft   Maintenance
                          E241110




                          Demand and supply in most free market industries with competitors
Factors Affecting         depend on consumerpreferences,cost of labor and materials, prices of
Demand for and            substitute goods,and many other factors. On the basis of our discus-
Supply of Repair          sions with airline and repair station officials, we have identified the
                          short- and long-term factors that seemto be most relevant to the repair
Station Services          station industry. (Seeapp. III.)


In the Short Term,        Recentregulatory changesaffecting airlines’ need for maintenance have
Regulatory Changes Have   been the greatest stimulant of increasedshort-term demand for repair
                          station services.Chief among these changeshave beenthe FAA-issued
Most Impact on Demand     “aging aircraft ADS,”or airworthiness directives, requiring structural
                          and other modifications instead of more frequent inspections. TheseADS
                          must be accomplishedwithin the next 4 years on all aircraft that have
                          exceededthe initial economicdesign life set for them by the manufac-
                          turers. After that, the ADSapply as the aircraft exceedtheir design life.
                          FAA'Sinitial estimated cost to the airline industry to implement the aging
                          aircraft ADSon approximately 1,400 aircraft was about $1.4 billion.
                          However, on the basis of remarks by FAA's Deputy Associate Adminis-
                          trator for Regulations and Certifications and our discussionswith
                          industry officials, we believe that FAA'Sestimate probably is too low and
                          the true cost could be $2 billion or more. In discussingthe cost impact
                          figure, the Deputy Administrator cautioned that it was only an estimate
                          and that actual data from aircraft operators would be more accurate. In
                          turn, airline officials of Eastern and USAir told us that their initial
                          experienceswith completing the aging aircraft ADSon specific aircraft
                          resulted in much more time than expected and at least twice the cost
                          that FAA had estimated for generic models (Boeing 727, DC-g,etc.) of
                          aircraft. Therefore, for analytic purposes in this report, we are using a
                          figure of $2 billion, and even this could be conservative.

                          On the supply side, officials from the independent repair stations
                          pointed to a series of factors that most affect their ability to provide
                          maintenance or to expand to meet increasing short-term demands for
                          services.These factors.are (1) affordable capital for operation or expan-
                          sion; (2) availability of qualified workers; and (3) ready accessto equip-
                          ment, supplies, and spare parts. Of these, officials said that skilled
                          labor, tooling, and facilities are currently in shortest supply, and spare
                          parts or “kits” of parts that aircraft manufacturers make for specific
                          applications often are difficult to obtain on a timely basis.




                          Page 8                                     GAO/WED-91-14   Aircraft   Maintenance
                               B-241110




                               Whether any one of these factors is a problem for a specific repair sta-
                               tion often dependson the specific market. For example, repair stations
                               in the Miami airport area said hiring mechanicsto work on aircraft is
                               not a problem; however, the opposite was true for repair stations in the
                               West.On the basis of our limited data gathering, we cannot now quan-
                               tify the severity of labor or other microeconomicproblems. However, we
                               will have more definitive data basedon our industrywide questionnaire
                               and will report those results in a subsequentreport.


More Factors Involved in       In the longer term, both the demand for repair station services and the
the Long-Term Equation         industry’s supply of those servicescould be affected by a host of eco-
                               nomic, regulatory, and other factors including the following:
                           . Changesin macroeconomicconditions, either globally or nationally,
                             could affect airline operations and demand for air travel in a single
                             market or in many markets. As indicated earlier, since 1978 the growth
                             in air travel-itself dependent on air fares, disposable income, and other
                             variables-has driven up demand for aircraft maintenance. On the
                             other hand, ATA observedthat a recessioncould affect airlines’ plans for
                             deploying their fleets, and this, in turn, could reduce demand for
                             maintenance.
                           l Decisionsby air carriers to expand their own maintenance facilities
                             could decreasethe reliance on independent repair stations. For example,
                             one of the largest U.S. carriers, American Airlines, is building a new
                             maintenance facility at the Alliance Airport in Texas.
                           . Changesin legislation and/or federal regulations often take several
                             years to implement but can have a significant impact. For example, FAA
                             plans to require airlines to incorporate a corrosion control program into
                             their FAA-approvedmaintenance programs. Airline and repair station
                             officials believe that incorporating this program will add to the overall
                             volume of maintenance workload required on all aircraft, thus
                             increasing the need for independent repair stations. Also, a congres-
                             sional decision is expected soon on H.R. 3774, “the Aging Aircraft Act of
                             1990,” which would require FAA to perform a comprehensiveinspection
                             of all aircraft after they reach a predetermined point in either age or
                             number of flights flown6
                           . Changesin the factors affecting air carriers’ decisionsto maintain their
                             aging aircraft or to buy new onesinstead also play a role. For example,
                               eFor a full discussion of our comments on this proposed legislation, see our testimony submitted for
                               the record to the Subcommittee on Aviation, House Committee on Public Works and Transportation,
                               entitled Observations on H.R. 3774: The Aging Aircraft Safety Act of 1989 (GAO/T-RCED-90-82,
                               May 23,lQQO).



                               Page 9                                                     GAO/RCED-91-14      Aircraft   Maintenance
                    5241110




                    the federal government could require carriers to modify or phase out of
                    U.S. operation the noisiest-and often the oldest-aircraft. This
                    phaseout would require operators to trade-off the costs and benefits of
                    installing engine-quieting technology against removing the aircraft from
                    their fleets. Becausesuch a requirement was not included in recent
                    statements of National Transportation policy, noisier aircraft received a
                    temporary reprieve and will remain in carriers’ fleets. In addition,
                    higher fuel costs have a greater effect on the operating costs of older,
                    less fuel-efficient planes than on newer, more efficient ones.Steep
                    increasesin the cost of fuel, as we have seenin recent weeks as a result
                    of events in the Mideast, could causeair carriers to purchase new air-
                    craft rather than keep old ones,depending on how purchase or lease
                    costs are traded-off against fuel and maintenance costs.In the past,
                    stable fuel prices combined with manufacturers’ backlogs-Boeing’s is
                    currently 2 years before a new order can be satisfied-have encouraged
                    operators to retain their older aircraft. It remains to be seenhow
                    Mideast instability will further affect fuel prices and operators’ deci-
                    sions to retire less fuel efficient aircraft.

                    While the future impact of many of these factors is unknown, airline
                    and repair station officials cited several reasonswhy they are expecting
                    a general increasein demand. These reasonsincluded the fleet’s
                    increasing average age (older aircraft require more maintenance than
                    newer aircraft), a continued industrywide practice of making modifica-
                    tions unrelated to safety such as refurbishing interiors, and the increase
                    in the number of aircraft in service worldwide. (Seeapp. III.)

                    As stated earlier, FAA's new requirements to repair aging aircraft have
Airframe Repair     increasedthe projected demand for airframe repair and maintenance
Capacity May Fall   over the next 4 years by about $2 billion. This averagesabout $600 mil-
Short of Demand     lion per year or about 9 percent of the industry’s 1988 total cost of
                    engine and airframe maintenance; however, airlines as a group probably
                    will not scheduletheir aircraft for repair evenly acrossthe 4 years. In
                    fact, as of May 1990, airlines have been slow to begin scheduling their
                    aircraft for this work. This slow scheduling meansthat most of the
                    demand for aging aircraft repairs could occur during 1992 and 1993, the
                    latter 2 years of the 4-year period. Therefore, we estimate that an
                    increase in actual demand may range from about $200 million in the
                    first year to about $700 million in the last year; the size of the increase
                    dependson how fast airlines recognizethat their fleets need this work
                    and can schedulethem for it.



                    Page 10                                    GAO/RCED-91-14   Aircraft   Maintenance
                                          E941110




                                          Adding this increasein demand to what would be expected of aircraft
                                          maintenance on the basis of the past, we have created the curve shown
                                          in figure 4. This figure shows historical demand for total direct mainte-
                                          nance from 1986 to 1988, projected demand at the averagegrowth rate
                                          (14.4 percent) over the last 6 years, and the added demand for airframe
                                          maintenance causedby the aging aircraft ADS.The impact of new regula-
                                          tions and ADSanticipated within the next couple of years-for example,
                                          a mandatory corrosion control program- is not factored here becauseof
                                          the difficulty in preparing an accurate estimate of their economicimpact
                                          on the industry.

Flguro 4: Relation of Aging Aircraft
Alrfreme Modlflcationcl to Total Direct
                                          12.0   Dolkn      In Billions
Alrcratt Maintenance
                                          11.6
                                          11.0
                                          10.1
                                          10.0
                                           9.5
                                           9.0
                                           8.5
                                           8.0
                                           7.5
                                           7.0
                                           6.8
                                           5.0
                                           5.6
                                           5.0
                                           4.6
                                                                                                                                                           .
                                            1088              1087           1988           IS89            1920       1001             1092        logg
                                            Yoam

                                                   -          Demand for Maintenance
                                                   I I- I     Projected Demand for Maintenance
                                                   m          Proj. Demand B Aging Aircraft Modifications


                                          With enough time and if excessdemand causeshigher prices for aircraft
                                          repair services,the industry could likely adjust its capacity to absorb
                                          the new work. However, we do not know whether this added demand
                                          for airframe maintenance will be absorbedin the short term by the
                                          average lo-percent excessin capacity that repair stations say they will
                                          have in 1990, especially in light of the small size of that portion of the
                                          industry. More specifically, an approximate dollar equivalent of the
                                          industry’s excesscapacity would be, at most, 10 percent (repair stations’


                                          Page 11                                                             GAO/RCED-91-14   Ahraft      Maintenance
              B-241110




              estimate) of the $1.2 billion mentioned earlier as the value of mainte-
              nance contracted out in 1988, This amount is $120 million (2 percent of
              total 1988 maintenance), and it is far short of the $600 million (9 per-
              cent of 1988 total maintenance) annual averagecost over 4 years to
              modify aging aircraft. Still in question is whether the repair industry
              has the ability to expand rapidly enough in the short term to meet the
              expected increasein maintenance demand.

              To obtain information on recent increasesin demand for maintenance,
Scopeand      the capacity utilization of the repair industry, and the factors affecting
Methodology   future demand for and supply of airline and independent repair station
              services,we interviewed airline associationrepresentatives, aircraft
              manufacturers, and FAA officials for industrywide information. The five
              airlines we visited account for about 37 percent of all aircraft flown by
              United States carriers, including cargo and charter companies.Of the
              four independent repair stations we visited, three have been heavily
              involved in conducting maintenance on large transport aircraft for at
              least 9 years; the fourth is planning to expand its aircraft hangar
              facility to becomeone of the largest facilities in the country. To obtain
              information on historical demand for aircraft maintenance and compare
              it with industry capacity, we analyzed a nor data base containing such
              data. We conducted our review between November 1989 and August
              1990 and performed our work in accordancewith generally accepted
              government auditing standards. Seeappendix IV for more details on our
              scopeand methodology.

              We discussedthe information in this report with responsible FAA, DCX,
              and ATA officials. They generally agreedwith the information presented,
              and we have incorporated their commentswhere appropriate. As
              requested,however, we did not obtain official comments from FAA or the
              airlines and repair stations we visited.

              As arranged with your office, unless you publicly announceits contents
              earlier, we plan no further distribution of this report until 16 days from
              the date of this letter. At that time, we will send copiesto the Adminis-
              trator, FAA; the Director, Office of Managementand Budget; and other
              interested parties. We also will make copies available to others upon
              request.




              Page 12                                    GAO/RCED-91-14   Aircraft   Maintenance
B-341110




Major contributors to this report are listed in appendix V. If you have
any questions or wish to discussthese matters in more detail, please
contact me at (202) 276-1000.




Kenneth M. Mead
Director, Transportation Issues




Page 13                                    GAO/RCED-91-14   Aircraft   Maintmance
                                                                                               .


Contents


Letter                                                                                                  1

Appendix I                                                                                              16
Analysis of Selected
Maintenance Costs of
U.S. Transport
Aircraft
Appendix II                                                                                             21
Background on the       Four Thousand Repair Stations Nationwide
                        Few Repair Stations Extensively Maintain Large
                                                                                                        21
                                                                                                        22
Repair Station              Transport Aircraft
Industry                Use of Independent Repair Stations Varies                                       22
                        Independent Repair Stations Conduct Wide Variety of                             25
                            Maintenance

Appendix III                                                                                            27
Factors Affecting       Most Airlines We Surveyed at loo-Percent Capacity                               27
                            Expect Their Use of Independent Repair Stations to
Demand and Supply of        Increase
Independent Repair      Factors Affecting Air Carriers’ Need for Repair and                             28
Station Services            Maintenance
                        Factors Potentially Affecting Future Supply of                                  32
                            Independent Repair Stations
                        Repair Stations Are Expanding Their Capacity                                    32
                        Continuing Analysis of the Industry                                             34

Appendix IV
Scopeand
Methodology
Appendix V
Major Contributors to   Resources,Community, and Economic Development
                            Division, Washington, D.C.
This Report             Seattle Regional Office
           *




                        Page 14                                  GAO/RCRD-91-14   Alrcraft   Mainbmce
Tables    Table I. 1: Total Direct Maintenance Costsfor Large                            16
              Commercial Jet Aircraft
          Table 1.2:Comparison of Operating Expensesand                                  17
              Maintenance Costs
          Table 1.3.Comparison of Airframe and Total Direct                              18
              Maintenance Costs
          Table 1.4:Comparisonsof Outside Maintenance Work to                            18
              Total Direct Maintenance
          Table 1.6:Comparison of In-House and Outside Costs for                         19
              Airframe Maintenance
          Table 1.6:Comparison of Total Aircraft Operating                               20
              Expensesand Fuel Costs
          Table II, 1: Categoriesof Maintenance Activities                               23
              Requestedby Airlines GAO Surveyed
          Table 11.2:Percentageof Maintenance Performed by                               24
              Independent Repair Stations
          Table 11.3:Categoriesof Maintenance Conductedby                                25
              Repair Stations GAO Surveyed
          Table III. 1: Percentageof Hangar Spacein Use at                               32
              Independent Repair Stations
          Table IV. 1: Airlines Surveyed for Use of Independent                          36
              Repair Stations
          Table IV. 2: Independent Repair Stations Surveyed                              36

Figures   Figure I: A Boeing 707 Receiving Maintenance                                       4
          Figure 2: Five Airlines’ Use of Independent Repair                                 6
              Stations
          Figure 3: Comparison of In-House Aircraft Maintenance                              7
              Versus Direct Maintenance Costs
          Figure 4: Relation of Aging Aircraft Airframe                                  11
              Modifications to Total Direct Aircraft Maintenance

          Abbreviations

          AD        airworthiness directive
          ATA       Air Transport Association
          Dur       Department of Transportation
          FAA       Federal Aviation Administration
          GAO       General Accounting Office
                    Traffic Alert and Collision Avoidance System
          TWA       Trans World Airlines


                                                   GAO/BcED-91-14   Aircraft   Maintenance
Appendix I

Analysis of SelectedMahtenance Costs of U.S. ’
Transport Aircraft

                                           Maintenance costs(in current dollars) for transport aircraft have risen
                                           over the last 8 years from $2.9 billion in 1980 to $6.7 billion in 1988.’
                                           This increasereflects primarily a growing U.S. transport fleet. During
                                           the 1980smaintenance on airframes rose faster than total maintenance.
                                           In 1988, for example, airlines spent over $2 billion on this component of
                                           total maintenance. Although most large US. airlines do virtually all of
                                           their major repair work at their own extensive maintenance bases,many
                                           smaller airlines must rely on a third party-an entity that neither owns
                                           nor operates the aircraft-to perform major maintenance. These airlines
                                           usually contract work out to one of the larger airlines that has excess
                                           capacity available or, more frequently, to an independent repair station.
                                           As an industry, airlines are relying more on third parties to maintain the
                                           airframes and enginesof their planes. In 1988, airlines contracted out
                                           $1.2 billion worth of this work. As a proportion of the industry, con-
                                           tracted maintenance grew from 13 percent in 1980 to 21 percent in
                                           1988. This growth is even more dramatic in terms of airframes, for
                                           which contracted repair work grew from 14 percent of all airframe work
                                           in 1980 to 26 percent in 1988.

                                           Tables I. 1 through I.6 and the following discussionprovide more
                                           detailed analysis of aircraft maintenance costs:
Table 1.1:Total Direct Maintenance Costs
for Large Commercial Jet Aircraft          Dollars in millions
                                                                                            Direct Maintenance Costs
                                           Year                                     Current dollars           Constant 1982 dollars
                                           1980                                                $2,860                                  $3,338
                                           1981                                                 2,924                                   3,110
                                           1982                                                 2,809        -.                         2,809
                                           1983                                                 2,918                                   2,806
                                           1984                                                 3,316                                   3,079
                                           1985                                                 3,677                                   3,315
                                           1986                                                 4,500                                   3,955
                                           1987                                                 4,975                                   4,238
                                           1988                                                 5,704                                   4,703
                                           Total                                             $33.683                                 $31.335




                                           ‘The maintenance cost data in this appendix are baaed on a data base created and maintained by
                                           Dar. This data base draws from information submitted quarterly by airline operators on Form 41,
                                           “Aircraft Maintenance Costs.”



                                           Page 16                                                  GAO/RCED-91-14    Aircraft   Maintenance
                                     Appendix I
                                     Analysl13 of Selected Maintenance     Costs of
                                     U.S. Tram3~0rt Aircraft




                                     As table I. 1 shows, direct maintenance costs for commercial jet aircraft
                                     have increased steadily from 1980 to 1988, except for a slight decline in
                                     1982. Direct maintenance costs in current dollars have grown from $2.9
                                     billion in 1980 to a high of $5.7 billion in 1988. This large increase is
                                     primarily due to the growth in the number of aircraft in the U.S. fleet:
                                     according to FAA, the fleet has grown from about 2,400 aircraft in 1980
                                     to about 3,500 in 1988, an increase of about 1,100 aircraft.
Table 1.2: Comparison of Operating
Expenres and Maintenance Costs       Dollars in millions
                                                                 Total aircraft
                                                                    operating               Total direct       Direct maintenance
                                     Year                           exDenses          maintenance cost                 percentaae
                                     1980                                 $18,103                 $2,860                           15.8
                                     1981
                                     ----____                              19,762                  2,924                           14.8
                                     1982                                  19,122                  2.809                           14.7
                                     1983                                  18,800                  2,918                           15.5
                                     1984       ---                        20,360                  3,316                           16.3
                                     1985                                  20,934                  3,677                           17.6
                                     1986                                  20.065                  4,500                           22.4
                                     1987                                  22,037                  4,975                           22.6
                                     1988                                  23,815                  5,704                           24.0
                                     Total                               $182.998               $33.683                            18.4


                                     As table I.2 shows, aircraft operating expenseshave generally risen on a
                                     yearly basis-except for brief declines in 1982, 1983, and 1986-from
                                     $18 billion in 1980 to almost $24 billion in 1988. After a slight decline in
                                     1982, direct maintenance costs for aircraft have steadily formed a larger
                                     share of total operating expenses.In fact, direct maintenance costs,
                                     which acceleratedin the late 1980s reached a high of 24 percent of total
                                     operating expensesin 1988. The share of total operating expenses
                                     devoted to direct maintenance has grown from about 16 percent in 1980
                                     to about 24 percent in 1988.




                                     Page 17                                                  GAO/RCED-91-14   Aircraft   Maintenance
Table 1.3.Comparison of Airframe and
Total Direct Maintenance Costs         Dollars in millions
                                                                              Total direct                          Airframe
                                       Year                            maintenance costs            Airframe     percentage
                                       1980                                          $2,860             $721                25.2
                                       1981                                           2,924               737               25.1
                                       1982                                           2,809               676               24.1
                                       1983                                           2,918               754               25.8
                                       1984                                           3,316               863               26.0
                                       1985                                           3,677             1,218               33.1
                                       --______
                                       1986                                           4,500             1,549               34.4
                                       1987                                            4,975            1,739               35.0
                                       1988                                            5,704            2,072               36.3
                                       Total                                        $33,663          $10,329                30.7


                                       From 1986 to 1988, maintenance on airframes for large commercial jets
                                       has consumedover 30 percent of all direct maintenance costs. The air-
                                       frame share of direct maintenance costs has increased from 25 percent
                                       in 1980 to over 36 percent in 1988. Except for small declines in 1981 and
                                       1982, airframe repair has accounted for an increasingly larger portion
                                       of direct maintenance costs.The dramatic increase in costs for airframe
                                       repair can be attributed, in part, to a changein nor reporting require-
                                       ments that allowed carriers to combine avionic and airframe costs into
                                       airframe accounts.However, our preliminary analysis suggeststhat avi-
                                       onics alone may not account for all of the increase.
Table 1.4:Comparisons of Outside
Maintenance Work to Total Direct       Dollars in millions
Maintenance                                                                                                          Outside
                                       Year                          Maintenance               Outside repair    percentage
                                        1980                               $2,860                       $374                13.1
                                        1981                                2,924                         330               11.2
                                       1982-
                                       -.--                                 2,809                         339               12.1
                                        1983                                2,918                         315               10.8
                                       .1984
                                        ..----__- -.-- -                    3,316                         423               12.8
                                        1985                                3,677                         578               15.7
                                        1986
                                       ~____                                4,500                         720               16.0
                                        1987                                4,975                         861               17.3
                                       -.--~---.-----
                                        1988                                5,704                       1,208               21.2
                                       Total                              $33.663                     $5.146                15.3


                                       As table I.4 shows, airlines are spending more, on an annual basis, for
                                       outside repair services for aircraft enginesand airframes. From 1980 to


                                       Page 18                                      GAO/RCEB91-14       AirenmMaintenance
                                         1988, airlines spent over $6 billion for third party maintenance of air-
                                         frames and engines.In 1980, airlines spent about 13 percent of direct
                                         maintenance costs on outside repairs of engines and airframes and 21
                                         percent in 1988. After spending an averageof $356 million per year for
                                         outside repair services from 1980 to 1984, airline costs for outside
                                         repair work dramatically increased from $578 million in 1986 to $1.2
                                         billion in 1988.
Table 1.5:Comparison of In-House and
Outside Costs for Airframe Maintenance   Dollars in millions
                                                                    Total              Percentage                         Outside
                                         Year                  airframe     In-house      in-house       Outside      percentage
                                         1980                      $721        $623           86.4            $98                 13.6
                                         1981                       737          631          85.6            106                 14.4
                                         1982                       676          582          86.1             94                 13.9
                                         1983                       754          654          86.7            100                 13.3
                                         --1984                      863         720          83.4            143                 16.6
                                         1985                      1,218         976          80.1            242                 19.9
                                         1986                      1,549       1,226          79.1            323                 20.9
                                         1987                      1.739       1.357          78.0            382                 22.0
                                         1988                      2,072       1,543          74.5            529                 25.5
                                         Total                 $10,329        $6,312          60.5        $2,017                  19.5


                                         As table 1.6shows, except for a slight decline in 1983, airlines are
                                         spending more on outside airframe repairs on an annual basis. In 1980,
                                         airlines contracted out almost 14 percent of all airframe repair work,
                                         while in 1988 this percentagehad grown to 26 percent. In 1988 alone,
                                         airlines spent over $600 million for outside repair work on airframes.
                                         Becauseof FAA-mandatedaging aircraft modifications, airlines are
                                         expected to significantly increasetheir use of third party maintenance
                                         facilities or expand in-house facilities for airframe repairs.




                                         Page 19                                        GAO/RCED-91-14     Aircrafk   Maintewce
                                         Appendix   I
                                                                                                                                    c




Table 1.6:Comparlson of Total Aircraft
Operating Expenses and Fuel Costs        Dollars in millions
                                                                       Total aircraft operating                              Fuel
                                         Year                                         expenses              Fuel      percentage
                                         1980                                           $18,103 -         $9,771               54.0
                                         1981                                            19.762           10.791               54.6
                                         1982                                            19,122            9,970               52.1
                                         ~._____-
                                         1983                                            18,800            9,265 ~--           49.3
                                         iiG-                                            20,360            9,647               47.4
                                         1985                                            20.934            9.636               46.0
                                         1986                                            20,065            7,295               36.4
                                         1987                                            22,037            7,896               35.8
                                         1988                                            23.815            7.912               33.2
                                         Total                                        $162,996           $62.163               45.0


                                         Airlines have benefited significantly from stable fuel prices in the
                                         1980s.As table I.6 shows, while total operating expenseshave increased
                                         from 1980 to 1988, the percentageof total operating expensesallocated
                                         to fuel has significantly decreased.In fact, fuel’s share of total operating
                                         expenseshas fallen from 54 percent in 1980 to a low of 33 percent in
                                         1988. Stable fuel prices have off-set increased maintenance costs for
                                         older aircraft and allowed the less fuel efficient aircraft to remain in
                                         service. If fuel prices should rise sharply, many air carriers may rethink
                                         their decision to operate older and less fuel efficient aircraft like the
                                         Boeing 727.




                                         Page 20                                        GAO/RCED-91-14     Aircraft   Maintenance
Appendix II

Background on the Repair Station Industry


                           FAA  has certified several thousand aircraft repair stations to serve the
                           air carrier industry by performing varying types of maintenance. These
                           stations, either owned and operated by air carriers or independent of
                           them, perform maintenance for carriers on a contract basis. However,
                           this report is concernedonly with a handful of these independent repair
                           stations that perform heavy airframe maintenance on large transport
                           aircraft. The five airlines in our survey varied substantially in the
                           extent to which they used independent repair stations. The four inde-
                           pendent repair stations, not all homogeneouseither, varied in the types
                           of aircraft maintenance they were capable of performing.

                           A repair station is a facility that performs maintenance on aircraft used
Four Thousand Repair       for business,commercial, and other purposes. In all, the United States
Stations Nationwide        has about 4,000 repair stations certified by FAA under the Codeof Fed-
                           eral Regulations, title 14, part 145. A repair station’s certificate specifies
                           the types of maintenance it can perform and the types of aircraft it can
                           repair. FAA licensing divides maintenance and repair activities into six
                           main categories:
                       . airframes,
                       l power plants,
                       . radios,
                       . propellers,
                       l instruments, and
                       . accessories.

                           Somerepair stations specialize in one of these specific maintenance and
                           repair categories,while others may specialize in several.
                           In addition to limiting the types of maintenance a repair station can per-
                           form, FAA may limit the scopeof a repair station’s activities. For
                           example, whenever appropriate, FAA may, by issuing a rating, limit a
                           repair station’s work to maintaining or altering only certain types of air-
                           frames, power plants, propellers, radios, instruments, or accessories.
                           Such a rating may be limited to a specific model of aircraft, engine, or
                           constituent part or to any number of parts made by a particular
                           manufacturer.




                           Page 21                                      GAO/RCRDI)l-14   Aircraft   Maintenance
                             APPek     II                                                                                               ,
                             Background on the RePah Station       Industry




Few Repair Stations          One form of maintenance and the focus of our work for this report is
                             that of heavy airframes on large transport aircraft. These are the
Extensively Maintain         largest passengerplanes, including the A-300, A-310, and A-320 made
Large Transport              by the European consortium Airbus Industrie; the Boeing 707,727,737,
                             747,767, and 767 made by the Boeing Commercial Airplane Company;
Aircraft                     the DC-8,DC-g,DC-lo, and MD-80 made by DouglasAircraft Company;
                             and the LlOl 1 made by the Lockheed Aeronautical SystemsCompany.
                             Heavy aircraft maintenance includes the following activities:

                         l   routinely scheduledairframe maintenance;
                         l   nonroutine repairs of problems found during scheduledmaintenance,
                             such as fatigue cracks found on the skin of the aircraft that would
                             require replacing or patching the skin;
                         l   FM-mandated airframe inspection and modifications, such as those
                             required by airworthiness directives (ADS).’For example, according to a
                             United Airlines official, an AD applicable to certain Boeing 737s
                             requiring that “protruding head, solid fasteners” (a kind of rivet) be
                             installed in the upper row of all lap splices in the fuselage;
                         l   nonmandated airframe modifications affecting the airframe, such as
                             turning a passengerBoeing 727 aircraft into a package freighter (which
                             involves cutting a lo-foot-wide by 6-foot-high hole in the fuselage to
                             install a cargo door, strengthening the floor, and installing tracks on the
                             floor for a roller system).

                             Relatively few domestic stations have the facilities, equipment, and per-
                             sonnel to perform heavy airframe maintenance on the approximately
                             8,000 transport aircraft worldwide. These few stations consist of airline-
                             owned repair stations and independent companiesthat perform mainte-
                             nance on a contract basis. About 14 air carriers certified by FAA to fly
                             aircraft holding more than 30 passengersor payloads of more than
                             7,600 pounds (called Part 121 carriers after the section of FAA regula-
                             tions that apply to them) have their own repair stations, and we identi-
                             fied an additional 38 independent repair stations that said they were
                             capable of performing heavy airframe maintenance.

                             All airlines and cargo carriers rely on independent repair stations to at
Use of Independent           least somedegree,according to the Vice President for Engineering and
Repair Stations Varies       Maintenance, Air Transport Association, an organization representing


                             ‘Airworthiness directives are FAA instructions that require airlines to correct conditions in their air-
                             craft, such as cracking and corrosion, that can jeopardize safety.



                             Page 22                                                      GAO/RCED-91-14      Aircdt    Maintenance
                                           Back&wM       on the Repair Stntion   Induntry




                                           22 airlines.2This statement is true in terms of the five airlines in our
                                           survey. As a group, the five airlines relied on independent repair sta-
                                           tions for maintenance and repair activities in all of the six main catego-
                                           ries. (The maintenance category of propellers is excluded becauseit is
                                           not applicable to jet aircraft.) As table II.1 shows, the airlines varied in
                                           the work they asked independent repair stations to conduct.
Table 11.1:Categories of Maintenance
Activities Requested by Airlines GAO                                                           Maintenance category
Surveyed                                                                             Power
                                           Airline                    Airframe       slants     Avionics      Instrument        Accessories
                                           Alaska                     Yes            Yes        Yes           Yes               Yes
                                           American                   Yes            Yes        Yes           Yes               Yes
                                           Continental                Yes            Yes        Yes           Yes               Yes
                                           Trans World                No             Yes        Yes           Yes               Yes
                                           United                     Yes            Yes        No            No                No


                                           The following are more specific descriptions of the work done for each
                                           airline by independent repair stations:
                                       l Alaska Airlines usesrepair stations to cover peaks in workload demand
                                         and to provide servicesthat the airline cannot economically accomplish
                                         becauseof its insufficient volume of repair work (Alaska Airlines’ fleet
                                         consists of 69 aircraft, mostly relatively newer versions of Boeing 727s
                                         and Douglas MD-80~3).For example, Alaska Airlines used Trarnco to
                                         routinely maintain and modify several of Alaska Airlines’ Boeing 727s
                                         and 737s. Also, the airline usesthe facilities of another airline, Air
                                         Canada,to routinely maintain the airframes of its fleet of Boeing 727s
                                         becauseAlaska doesnot operate enough of these aircraft to warrant in-
                                         house repair capabilities for this type of maintenance.
                                       . American Airlines usesindependent repair stations for aging aircraft
                                         modifications, fleet interior reconfiguration, and routinely scheduled
                                         maintenance. According to American Airlines officials, ADSapplying to
                                         all aging aircraft have added maintenance requirements for its fleet
                                         (American’s fleet consistsof 509 aircraft, 160 of which are more than 16
                                         years old on the average). In many cases,the new requirements supple-
                                         ment the revised procedures currently in American’s maintenance pro-
                                         gram. The added maintenance requirements have forced American to

                                           ‘In our subsequent report, we will be able to verify and quantify this statement on the basis of the
                                           results of our questionnaire to all Part 121 airlines.
                                           3Numben in this discussion on fleet size and age are from Aviation Data Services, Inc., of Wichita,
                                           Kansas, and were current as of April 4, 1990.



                                           Page 23                                                     GAO/RCED-91-14      Aircraft   Maintenance
                                           AppendixII
                                           Background    on the Repair Station   Induetry




                                           take somemodification work to an independent repair station because
                                           its in-house maintenance capacity is lacking.
                                       l   Continental Airlines usesindependent repair stations for its airframe
                                           work when FAA airworthiness directives or manufacturers’ service bulle-
                                           tins are releasedwith short notice or when the directives call for exten-
                                           sive modifications. The airline also usesindependent repair stations for
                                           special refurbishment or fleet standardization projects, overflow work,
                                           or when the airline has no in-house capabilities to perform repair work.
                                           (Continental’s fleet of 322 aircraft contains 126 that are more than 15
                                           years old on the average.)
                                       l   Trans World Airlines (TWA) usesrepair stations to work on its aircraft
                                           parts and componentswhen the airline doesnot have the necessary
                                           tooling, equipment, or facilities. For example, turbine exhaust casesfor
                                           certain jet engines are rebuilt for the airline by TK International Inc., an
                                           independent repair station. (TWA’s fleet of 215 aircraft includes 140 that
                                           average more than 15 years old.)
                                       l   United Airlines is using independent repair stations to maintain the
                                           heavy airframes of its aging aircraft. Such maintenance is, either man-
                                           dated by FAA or internally specified. (Of United’s 436 aircraft, 204
                                           average more than 15 years old.) Also, to augment its own capacity,
                                           United uses repair stations to maintain enginesand engine modules.

                                           Although each of the five airlines reported using independent repair sta-
                                           tions, the airlines varied considerably in the extent to which they relied
                                           on such facilities for their maintenance needs.As shown in table 11.2,
                                           maintenance performed by independent repair stations ranged from less
                                           than 1 percent to 53 percent of total maintenance costs.
Table 11.2:Percentage of Maintenance
Performed by independent Repair                      d
                                                                                                   Percentage
Stations                                   Airline                                                 1988                              1989
                                           Alaska                                                      56                             53
                                           American    -.-                                              7=                    __-__ 20”
                                           Continental
                                           ---___                                                      43            _____--          39
                                           TWA
                                           -.____-                                            Less than 1                    Less than 1
                                           United         ___                                           7                              7
                                           ‘Percentages refer to airframe maintenance only.




                                           Page 24                                               GAO/RCED-91-14   Aircraft   Maintenance
                                         Appmdlx II
                                         mkgroumt      on   the Repair St&ion Indueky




                                         Collectively, the four repair stations we surveyed performed all five cat-
Independent Repair                       egoriesof maintenance, as shown in table 11.3.
Stations Conduct Wide
Variety of
Maint&mnce
Table 11.3:Categories of Maintenance
Conducted by Repair Stations GAO                                                 Power
Surveyed                                 Repalr station                 Airframe plants          Avionics       Instrument         Accessories
                                         Tramco     pYes                 --         Ye.9         Nob            Yes?               Yes
                                         Tracer                         Yes         Ye9          Yes            Yesa               Nob
                                         Aerotest                 ---   Yes         Yesa         Nob-__         Nob                Nob
                                         Dee Howard                     Yes         Ye9          Yes            Yes                Yes
                                         aLimited to particular types of airframes, power plants, radios, instruments, or accessories.
                                         bReplacement only; repair station is not certified to perform this type of maintenance.


                                         Independent companiesprovided the following information describing
                                         their maintenance in more detail:

                                       . Tramco’s facility is 250,200 square feet which includes a 143,000-
                                         square-foot hangar, a 6,400-square-footnosedock, and 100,800 square
                                         feet of support shops at Paine Field in Everett, Washington. The hangar
                                         can accommodateone wide body aircraft, such as a Boeing 747, and five
                                         narrow body aircraft, such as the Boeing 737, or nine narrow body air-
                                         craft. Tramco primarily conducts regularly scheduledmaintenance and
                                         modifications of airlines and air cargo carriers. It also modifies new air-
                                         craft when specifications are changedafter manufacturing is completed.
                                         Tramco is experienced in routine maintenance as well as in maintanence
                                         required by service bulletins4 and airworthiness directives. It also con-
                                         ducts cockpit and avionic modification; interior installation, refurbish-
                                         ment, and reconfiguration; exterior refurbishment (paint, strip, and
                                         polish); and structural inspection and modifications. Tramco’s staffing
                                         levels have increased annually from 109 employeesin 1982 to currently
                                         over 1,000.Also, Tramco has worked on over 1,000 Boeing and McDon-
                                         nell Douglas aircraft for over 75 airlines and package delivery operators
                                         from all over the world.


                                         4According to the Boeing Company, a service bulletin prepared by the manufacturer informs opera-
                                         tors of a change or inspection that can be done on their in-service airplanes. The bulletin describes
                                         how to gain accessto the part or area, perform the necessary action (inspect, repair, or modify), and
                                         reassemble the airplane. It also describes the reason the bulletin was issued and what can happen if
                                         the bulletin is not incorporated.



                                         Page 25                                                        GAO/RCXD-91-14       Alrcraf’t   Maintenance
                                                                                        6


    APWd       II
    b&ground        on the Repair Station   lnduatry




. Tracer Aviation’s operations in Santa Barbara, California, are housed in
  three facilities whose total area is 327,460 square feet in Santa Barbara
  and Santa Maria California. The plant is three hangars, located at the
  Santa Barbara Airport, whose total area is 118,800square feet, and are
  used for aircraft modification, maintenance, and painting. Tracer typi-
  cally performs regular maintenance and modifications for airlines and
   air cargo carriers. For example, Tracer performs routine maintenance,
  interior refurbishment, aging aircraft inspections and terminations, lap
  joint repairs, and exterior painting. Aircraft models include Boeing 727,
  737, and 707, and McDonnell Douglas DC-g,DC-lo, and MD-80. Tracer’s
  diverse capabilities are illustrated by the maintenance checks;exterior
   aircraft painting; modification to aircraft interiors; reconfiguration of
   cockpit avionics; and incorporation of service bulletins it performed on
   19 American Airlines DC-10 aircraft between 1983 and 1986; and by
   routine, service bulletin, and ADcompliance maintenance, as well as mis-
   cellaneousairframe modifications and exterior airframe painting it per-
   formed for 76 Northwest Airlines DC-9sand MD-80sbetween 1987 and
   1990.
l Aerotest specializesin commercial aircraft engineering, maintenance
   and repair, modifications, flight testing and FAA certification. Located in
   Mojave, California, it began operations in January 1987. The company’s
   24,000-square-footfacility was modified in early 1989 to accommodate
   McDonnell Douglas’sDC-9 and Boeing’s 727 and 737 aircraft. In June
   1990, Aerotest expanded its maintenance operation into a new 125,000-
   square-foot facility tailored specifically to large air transports, such as
   the Boeing 747. Aerotest performs regularly scheduledmaintenance
   inspections and associatedrepairs. Structural and aging aircraft repairs
   are Aerotest’s current focus.
. The DeeHoward Company is situated on 42 acres at the San Antonio,
   Texas, International Airport. The company has more than 266,000
   square feet of hangar spacecapable of accommodatingthree Boeing
   747s and several other narrow body aircraft at the sametime. The Dee
   Howard Company performs routine maintenance, cockpit moderniza-
   tion, and avionic upgrades on such aircraft as the Boeing 747. In addi-
   tion, the company is currently modifying Boeing 727 passengeraircraft
   so that they can be used as cargo aircraft.




    Page 26                                            GAO/RCRD91-14   Atrcraft   Maintenance
Appendix III

Factms Affecting Demand and Supply of
Independent Repair Station Services

                           Four of the five airlines we reviewed are operating at or near 100 per-
                           cent of their maintenance capacity, and they expect their use of inde-
                           pendent repair stations to remain the sameor to increase.However,
                           future use of independent repair stations could be altered or affected by
                           many factors, such as economicconditions, availability of facilities, and
                           changesin regulatory requirements. In addition, a number of other fac-
                           tors, such as availability of capital, labor, and equipment, can affect the
                           industry’s ability to expand. Even so, the four independent repair sta-
                           tions we surveyed expect demand from air carriers to increase and have
                           recently finished expanding, are in the midst of expanding, or are plan-
                           ning to expand in the near future.

                           Four of the five airlines we surveyed said that they will be operating at
Most Airlines We           100 percent of their maintenance capacity in 1990. Also, four of the five
Surveyed at lOO-           airlines said that they expected their use of independent repair stations
Percent Capacity           to remain the sameor to increase.
Expect Their Use of    .   United Airlines expects its use of independent repair stations to increase
Independent Repair         in 1990 in order to comply with FAA-mandatedADS and to complete
Stations to Increase       heavy airframe maintenance associatedwith ADS.In the caseof the air-
                           line’s Boeing 727s and 737s, the aging aircraft workload has more than
                           doubled the time required to maintain heavy airframes: maintenance
                           visit times increased from 16 days in 1988 to 36 planned days in 1990.
                           Man-hour requirements for these visits also have more than doubled
                           from about 17,000 to 37,000 planned hours. This increasehas consumed
                           all of United’s available facilities and has required the airline to lease
                           three hangar bays for its own work and to contract out over flow main-
                           tenanceto three independent repair stations.
                       .   Continental Airlines expects its use of independent repair stations for
                           heavy airframe maintenance to increasein 1990 over 1989 becauseof
                           new additions to its fleet and FAA-mandatedmodifications, such as the
                           Traffic Alert and Collision Avoidance System (TEAS) II program. (TCASII
                           is an FAA requirement to install a radar-activated collision avoidance
                           system in all commercial transports operating in the United States by
                           December3 1, 1993.) According to a Continental official, Continental is
                           currently unable to obtain maintenance capacity from any independent
                           repair stations to perform F&+mandated nose(Section 41) modifications
                           on its Boeing 747s. (The Section 41 modification is an FAA requirement to
                           inspect for cracking, and repair as necessary,of airframe structures and
                           skin in the nose area of certain Boeing 747s.)
                       .   Alaska Airlines and TWA expect their use of independent repair stations
                           to remain at 1989 levels.


                           Page27                                     GAO/RCED-91-14   AlrcmftMaintenance
                                                                                                  ,
                                                                                                      *
                        Appendix IR                                                                          .
                        Factmu Affecting Demand and Supply of
                        Independent Repair Station Servlcee




                        The fifth airline, American Airlines, expects to use independent repair
                        stations for airframe maintenance less after the completion of lap seam
                        maintenance on the airline’s Boeing 727s. Nonetheless,the company’s
                        decreaseduse of independent repair stations for heavy airframe mainte-
                        nance is still beyond the company’s traditional level of work performed
                        by outside companies.Normally, American has maintained its heavy air-
                        frames in-house.After the issuing of aging aircraft airworthiness direc-
                        tives by FAA, American’s demand for maintenance exceededits capacity,
                        and the company had to use independent repair stations to complete the
                        work.

                        Many factors could affect the way in which airlines and air cargo car-
Factors Affecting Air   riers use independent repair stations in the future. These factors include
Carriers’ Need for      economicconditions; the availability and price of facilities, skilled labor,
Repair and              and spare parts; changesin regulatory requirements; and costs of oper-
                        ating older aircraft which, in turn, affect a carrier’s incentive to con-
Maintenance             tinue maintaining the aircraft.


Economic Conditions     Favorable economicconditions could foster more need and justification
                        for businesstravel, higher disposableincomesrelative to the price of air
                        travel, and more entrants into the airline business.These factors could,
                        in turn, by increasing the number of airline passengersand, therefore,
                        the number of planes flying, increasethe need for aircraft maintenance
                        and modification. At present, airline plans point in this direction. Four
                        of the five airlines we surveyed are expanding the size of their fleets.
                        For example, American Airlines plans to expand from 609 aircraft to
                        727 by the year 1996, and United Airlines plans to expand from 429
                        aircraft to 693 by 1996.
                        On the other hand, unfavorable economicconditions that constrain busi-
                        nessand personal travel budgets could decreasethe number of airline
                        passengersand, therefore, of planes flying. In such a casethe amount of
                        maintenance and modification work for repair stations would decrease.
                        The effects of such unfavorable economicconditions could be offset to
                        someextent by other events. For example, according to one repair sta-
                        tion official, in a worsened economy air carriers potentially would retain
                        older repair-intensive aircraft and cancel options on new orders, per-
                        haps increasing rather than decreasingthe demand for maintenance.




                        Page 28                                     GAO/RCED-91-14   Ahcraft   Maintenance
.                           APm*       m.
                            Factma Affecting Ihmand and Supply of
                            Independent Repair Station Servicea




                            Economic conditions also can affect another type of maintenance-the
                            renovation or refurbishing of aircraft interiors. According to airline offi-
                            cials, they continually refurbish their aircraft interiors so the airline can
                            maintain a competitive edge.For example, one of the four repair sta-
                            tions we surveyed (Tramco) installed and refurbished storage bins, lava-
                            tories, and galleys on 74 aircraft for 16 airlines between 1983 and 1988.
                            According to airline officials, when an airline acquires either new or
                            used aircraft, it must bring them into conformity with the rest of the
                            fleet in terms of features such as seating, galley, and cockpit configura-
                            tions. At Tramco, for example, modifications of such features were
                            made on 146 aircraft for 26 airlines between 1983 and 1988. Favorable
                            economicconditions could encouragesuch work; unfavorable conditions
                            could discourageit.


Availability of Resources   A shortage among air carriers of maintenance facilities or mechanics
                            willing to work for an affordable wage rate would force carriers to look
                            to independent repair stations for their maintenance needs.A shortage
                            of facilities had indeed occurred at the five airlines we surveyed. An
                            increase in maintenance workload had eroded any surplus capacity
                            these companieshad enjoyed in the past. At United Airlines, for
                            example, until 1989 the in-house maintenance capacity had been suffi-
                            cient for the company to accept contracts for repairs on aircraft from
                            other airlines. United officials say that, currently, their own needsfor
                            maintenance prevent them from taking in other airlines’ work.
                            Someof the larger carriers are reversing this trend, however, by
                            increasing their maintenance capability. For example, American Airlines
                            is building a new facility at Alliance Airport near Ft. Worth, Texas, and
                            expanding its current facility in Tulsa, Oklahoma. In doing so, American
                            is reducing its reliance on independent repair stations, Moreover, if
                            other air carriers were to expand their capabilities enough to once again
                            do contract maintenance work for other carriers, they would be com-
                            peting against independent repair stations. Also, according to officials
                            from two independent repair stations, since work on existing military
                            aircraft is declining, companiesthat build or maintain military aircraft
                            are looking to commercial aircraft maintenance work to fill their excess
                            capacity. For example, Grumman St. Augustine began modification work
                            on large commercial transport aircraft in 1989, while North American
                            Rockwell International Corporation began performing maintenance on
                            such aircraft in 1990.




                            Page 29                                     GAO/RCED-91-14   Aircraft   Maintenance
                       Factor@ Affwthg   Demand and Supply of
                       Independent Repair Station 8ervkea




Changesin Regulatory   Changesin maintenance requirements and regulations to ensure safety
Requirements           could also foster demand for independent repair station services.
                       Sourcesof these changesinclude FAA'SADS,manufacturers’ service bulle-
                       tins and other guidance to aircraft operators, and proposed legislation
                       such as H.R. 3774, the Aging Aircraft Safety Act of 1990, which, if
                       enacted, would require inspections and records reviews of all aging air-
                       craft during their next major maintenance period. Recenttrends show
                       that these requirements are increasing. For example, FAA'S annual issu-
                       ance of ADShas increased from 105 in 1981 to 437 in 1989. Also, air
                       carriers told us that service bulletins issued by aircraft manufacturers
                       are increasing the amount of maintenance that must be done. United
                       Airlines pointed to modifications in a wing beam and a landing gear sup-
                       port beam as two examples of recent Boeing service bulletins that are
                       labor intensive.
                       In addition to safety questions, environmental issuesalso could stimu-
                       late demand for repair station services.In commenting on a draft of this
                       report, ATA'SDirector for Environment and Operational Engineering told
                       us that EPA has recently issued a proposed new air quality management
                       plan for Southern California that contains an aircraft emissionsalloca-
                       tion scheme.Under the proposal, existing aircraft operators would be
                       allocated emissionsrights basedon their 1989 operating levels,
                       According to ATA, this would mean that growth beyond 1989 levels may
                       depend on a carrier’s ability to modify its enginesto achieve lower emis-
                       sions and that this could be a widespread problem becauseof the more
                       than 100 U.S. urban areas needing to reduce emissionsto meet ozone
                       standards.
                       Finally, FAA has begun to enforce more rigorously one of its regulations
                       that could reduce the spacerepair stations currently have available-
                       spaceused to maintain heavy airframes, FAA officials said that in Sep-
                       tember 1989, they began informing independent repair stations and Part
                       121 operators in the Miami International Airport area that, according to
                       the Codeof Federal Regulations, title 14, part 146.37,they need to fully
                       enclosea large transport aircraft in a permanent structure when it
                       needsto be shored (jacked up) and when specific types of heavy air-
                       frame maintenance are being performed. In practice, many stations rou-
                       tinely perform many types of maintenance on the ramp outside of a
                       hangar and at best encloseonly the wings and fuselage, thus leaving the
                       tail section outside the hangar. A large number of the independent
                       repair stations providing heavy airframe maintenance are located in the
                       Miami area becauseof its favorable weather, and many of these firms
                       have operated for years without having the capability to fully enclose


                       Page 30                                   GAO/RCRD-91-14   Aircraft   MaLntenanee
                      Appendix III
                      Factors Affecting Demand and Supply of
                      Independent Itepair Station Servicea




                      large transport aircraft. According to several independent repair station
                      officials, FAA's crackdown in this area is discouraging operators from
                      using their facilities. This crackdown will demand even more from the
                      facilities that can adhere to the rule.
                      On the other hand, someregulatory or policy changescould reduce the
                      demand for independent repair station services.For example, a federal
                      requirement to phase out Stage 2 aircraft-the noisiest aircraft-from
                      the U.S. fleet or a congressionalmandate to comprehensively inspect air-
                      craft that have surpassedthe lives of their economicdesign could be the
                      incentive neededby somecarriers to either retire, sell, or stop leasing
                      their noisiest aircraft or their aircraft in most need of repair. Con-
                      versely, ATA advised us that if carriers were to comply with a Stage 2
                      ban by modifying existing enginesinstead of replacing the noisiest air-
                      craft with new ones, a large increase in demand for maintenance dock
                      space,labor, and materials would result.


Changesin Costs and   Factors such as expectations about future demand-based on air travel
Prices                forecasts, potential for new air routes or markets, and ticket pricing
                      strategies- interest rates, the price of jet fuel, and the prices of new
                       aircraft can affect air carriers’ decisionsto buy or leasenew aircraft or
                      continue operating their older ones.And becauseolder aircraft require
                      more maintenance than new ones,acquiring new aircraft can directly
                      influence an airline’s operating cost by reducing the amount of mainte-
                      nance needed.Higher purchase, lease,and financing costs for new air-
                      craft combined with stable and reasonablefuel prices for the less
                      efficient models could causeair carriers to retain rather than replace
                      their older aircraft. On the other hand, the recent increasein the price of
                      jet fuel-if sustained-as a result of instability in the Mideast could be
                      the impetus behind a movement to replace older, more maintenance-
                      intensive aircraft.
                      The precise effect of such decisionson maintenance needsmay, how-
                      ever, be difficult to determine. According to a repair station official, the
                      older aircraft will be sold to other air carriers-many Boeing 727s have
                      been sold to package delivery companies-rather than being retired
                      from service. If the aircraft were retained in service by another carrier,
                      there would be no decreasein the overall level of demand for
                      maintenance.




                      Page 31                                     GAO/WED-91-14   Aircraft   Maintenance
                                             Appendix Ill
                                             Factma Affecting Demand and Supply of
                                             Independent Rapab Statlon Semicee




                                             As shown in table III. 1, the four independent repair stations we sur-
Factors Potentially                          veyed were operating at near capacity in 1988-89.Three of the four sta-
Affecting Future                             tions expect the demand for their service to increasein 1990. Declinesin
Supply of Independent                        hangar use shown for Tramco and Aerotest are the result of additional
                                             spacecoming on line, not decreasingwork loads. Oneof the four stations
Repair Stations                              (Tramco) reported turning away 163 large transport aircraft in 1989.
                                             According to a Tramco official, most of these aircraft went to four other
                                             independent repair stations.
Table 111.1:Percentage of Hangar Space
in Use at Independent Repair Statlonr                                                                       Year
                                                                                                                             1990
                                             Rspalr station                                   1988        1989        (projected)
                                             Tramco                                             100        100                      95
                                             Tracer                                             100         90                      90
                                             Aerotest                                             0         97                      81
                                             Dee Howard                                         100        100                  100


                                             According to repair station officials, air carriers create a sufficient
                                             demand for their services.However, a number of factors can affect the
                                             independent repair stations’ ability to maintain the aircraft of air car-
                                             riers or to expand to meet increased air carrier maintenance demands.
                                             These factors include capital, labor, and equipment. Starting up a new
                                             repair station or expanding existing facilities requires the capital to con-
                                             struct and furnish a new maintenance facility or to leasethe land and
                                             facilities to be used as a maintenance facility. Oncethe facility is in
                                             place, repair stations need to hire skilled employeesto carry out the
                                             maintenance requirements and capable managersto overseethe mainte-
                                             nance operation. Finally, to ensure that human resourcesare most effec-
                                             tively used, a repair station must obtain the necessaryequipment and
                                             tooling and have sufficient spare parts neededfor inspections, repairs,
                                             modifications, and compliance with FAA airworthiness directives or man-
                                             ufacturer service bulletins.

                                             Although one cannot accurately predict the way in which these factors
Repair Stations Are                          will influence supply and demand in the future, independent repair sta-
Expanding Their                              tions in our survey believe the outlook points to increaseddemand from
Capacity                                     air carriers. They expressedthe following assumptions as their reasons
                                             for expecting the demand to increase:
                   ”
                                         l   The need for more routine and nonroutine maintenance increasesas air-
                                             craft age-about half of the fleet is over 15 years old.


                                             Page 32                                     GAO/RCED-91-14    Aircraft   Maintenance
    APP@*m
    Factom Mm         Demand and Supply of
    Independent Repair Station Servicee




l   The required amount of maintenance continues to increasebecauseof
    new FAA mandates to install additional safety related equipment on air-
    craft for such purposes as collision avoidance and windshear detection,
    the structural ADSfor aging aircraft, and the proposed requirement for
    airlines to implement corrosion control programs.
l   The demand for nonmandated modifications, such as interior refurbish-
    ment or seating reconfiguration, will increase.For example, modifica-
    tions in galleys, lavatories, storage bins, seating, carpeting, lighting, and
    ah-phoneswill continue as carriers competewith each other for air fare
    revenue.
l   The total number of aircraft in service worldwide is increasing. The
    Boeing Company has projected that there will be 14,772 aircraft in the
    year 2006, a 7%percent increase in 16 years over the 8,302 aircraft in
    the current world fleet.
    Anticipating this increased demand for their maintenance services,all
    four repair stations have recently finished expanding, are in the midst
    of expanding, or are planning to expand in the near future, as discussed
    below:
l In September 1989, Tramco more than tripled the size of its facilities. Its
  new hangar, 560 by 260 feet, or 143,000square feet, can fully enclosea
  Boeing 747-400 or a McDonnell Douglas MD-l 1 and can accommodate
  combinations of up to nine narrow-body aircraft at the sametime. Even
  with this added capacity, Tramco expects to operate at near loo-percent
  capacity in 1990.
. Tracer is planning to expand its capacity with additional hangar facili-
  ties in a new location and with potential joint ventures in Europe and
  Asia.
l In June 1990 Aerotest opened its new 106,000-square-footfacility which
  is capable of accommodatingmultiple jet aircraft at the sametime. The
  facility was designedfor performing inspections, maintenance, repairs,
  and modifications on any transport aircraft. The company ultimately
  expects to have a six-hangar complex comprising more than 600,000
  square feet of hangar, shop, office, and warehouse space.
. The Dee Howard Company is planning to construct a 53,000-square-foot
  strip and paint hangar for wide-body transports in 1990. Also, the com-
  pany is expanding its manufacturing shopswith a 43,000-square-foot
  facility.
    Two of the four independent repair stations we surveyed said that, with
    their increasedcapacity, they expect to perform more maintenance in
    1990. For example, Tramco and Aerotest project that they will repair


    Page 38                                      GAO/RCEDBl-14   Aircraft   Maintmance
                         Appendix III
                         Facton Affecting Demand and Supply    of
                         Independent Repair Station Servicea




                         237 and 36 aircraft in 1990 compared with the 132 and 6 aircraft in
                         1989, respectively.

                         Although the complex mix of economicfactors makes it difficult to pre-
Continuing Analysis of   diet accurately the likely extent of future long-term demand for mainte-
the Industry             nance at independent repair stations, recent events and the opinions of
                         repair station officials indicate an increasein the need for independent
                         repair stations’ servicesin the immediate future. However, becauseof
                         questions raised about the ability of independent repair stations to
                         expand rapidly enough to meet the increased demand, we are obtaining
                         additional information from a wider range of air carriers and repair sta-
                         tions. We have sent a survey to all 38 independent repair stations that,
                         according to their officials, were capable of maintaining heavy air-
                         frames and also to 64 Part 121 air carriers. We plan to present the
                         results of our work in a subsequentreport.




                         Page 34                                    GAO/RCED-91-14   Aim&   Maint.enance
Appendix IV

Scopeand Methodology


                                           For specific information on the use of independent repair stations by air
                                           lines, we included five airlines in our survey. These five air carriers
                                           account for over one-third (about 37 percent or 1,634 out of a total fleet
                                           of 4,126) of all aircraft flown by U.S. carriers, including cargo and
                                           charter companies,as shown in table IV. 1.
Table iV.1: Airiinra Surveyed for Uss of
independent Repair Station8                                             Number of aircrx;t :~g;;              Number of passen ers
                                           Carrier                                                                   carried in ?989
                                           Alaska                                                  54                          5,017,ooo
                                           American         -                                     509                         72,083,OOO
                                           Continental
                                           -.-___--                                               329                         34,958,OOO
                                           TWA                                                    213                         25,150,OOO
                                           United                                                 429                         54,859,OOO
                                           Total                                                1.534


                                           For specific information on activities of independent repair stations, we
                                           selectedfour independent repair stations that are certified by FAA to
                                           perform heavy airframe maintenance on large transport aircraft. As
                                           shown in table IV.2, all four had repaired large transport aircraft for
                                           various U.S. and foreign air carriers. Three have been heavily involved
                                           in maintenance from 8 to 22 years; the fourth is planning to turn its
                                           aircraft hangar facility into one of the largest and most modern facilities
                                           in the United States, according to a company official.
Table iV.2: independent Repair Stations
Surveyed                                                                                                            Number of airline
                                           Repair station             Location                                clients during 1988-89
                                           Tramco                     Everett, Wash.                                                      20
                                           Tracer Aviation, Inc.      Santa Barbara, Calif.                                               48
                                           Aerotest                   Moiave, Calif.                                                       6
                                           The Dee Howard Company     San Antonio, Tex.                                                   11


                                           For industrywide information, we interviewed airline association repre-
                                           sentatives from the Air Transport Association of America, Washington,
                                           DC,, aircraft manufacturers, the Boeing Commercial Airplane Company,
                                           Seattle, Washington; Douglas Aircraft Company, Long Beach,California;
                                           and Lockheed Aeronautical SystemsCompany, Burbank, California, and
                                           FAA headquarters, Washington, D.C., as well as FAA’SNorthwest Moun-
                                           tain Region,Seattle, Washington officials.
                                           Our work did not include foreign repair stations, which are also used by
                                           1J.S.air carriers for maintenance. Foreign repair stations were excluded


                                           Page 95                                            GAO/WED-91-14      Aircraft   Maintenance
A~pendk IV
Scope and Methodology




becauseof the limited scopeof our survey and our inability to obtain
reliable and timely data from non-US. facilities. We performed our
review between September 1989 and June 1990 in accordancewith gen-
erally acceptedgovernment auditing standards.




Page 36                                GAO/RCEDBl-14   Ahwaft   Mainbnanm
Appendix V

Major Contributors to This &port


                          Robert E. Levin, Assistant Director
Resources,                Eric A. Marts, Assignment Manager
Community, and            Fran A. Featherston, ResearchAdvisor
Economic                  Thomas F. Noone,Senior SystemsAnalyst
                          Matthew E. Hampton, Staff Evaluator
Development Division,
Washington, DC.

                          Randall Williamson, Regional ManagementRepresentative
Seattle Regional Office   Steven N. Calvo, Evaluator-in-Charge
                          John E. Cass,Staff Evaluator
                          Dana Greenberg,Staff Evaluator
                          Virginia Vanderlinde, Staff Evaluator




(arloar)                  Page 87                                 GAO/RCEDBl~14   Ahcraft   Maintenance
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