AIRCRAFT MAINTENANCE Potential Shortage in National Aircraft Repair Capacity (I/jHHII 142617 RELEASED !-I T-FP!- RESTRICIYED--Not to be IT8eased outs’?ii e the General Accounting Ofl’ice unless specifblly approved by the Office of Congressional Relations. I~ ,,I’ i ii ..-...._... ..~ ..- .. _.__. ._ __..._-__. -_______________._ ~_-. - --- I j .~’ 1 ._-“” ..l*.l_--_l..---._.--..~----.--~ -- 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 --ST _. ,,- %?,mm,,,,, ,,,,,,, E’ .I. ,, -mmamru*r. 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 / ’ Ortlt~ring Information ‘I’lrc~ first, f?ve copit~s of each GAO report are free. Additional copies are $2 each. Orders should br sent to the following address, accom- panit-Ad by a <Qhtvekor money order made out t,o thth Su~)erint,end~nt of I)ocnmt~nts, when necessary. Orders for 100 or more copies t.0 be m;tilc*ci to a single address are discounted 25 percent. I I.S. Gcvleral Accounting Office I’.( 1. 130x 6015 (;ait.htv-sburg, MD 20877 Orders may also be placed by calling (202) 2’75-624 1. Of’f’it*i;il Hrrsirrt5s
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)