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Introduction
Aircraft maintenance as a critical success factor
Aircraft maintenance directly affects an airline’s ability to operate the aircraft,
sell its seats, and keep it flying. Due to the complexity of the equipment and the
severe consequences of failure, there are very strict standards for aircraft
maintenance. An airline is not the only party that controls the standards. Since
airlines engage in cross-boundary operations, maintenance standards are set by
the international community of which the airline is a member. Once an airline
agrees to the standards, it has to abide by them. In essence, aircraft
maintenance standards control the operator with respect to its domain of
operations. Aircraft maintenance could be done in-house by the operator, in
which case the sole responsibility lies with the operator. However, if aircraft
maintenance is outsourced, that should be to a maintenance facility certified by
a regulatory body.
Maintenance programmes for aircraft and components are set by a
maintenance review board (MRB) composed of:
• the Civil Aviation Authority of the country of the aircraft manufacturer;
• aircraft manufacturer;
• manufacturers of aircraft major components;
• a select group of airlines intending to use aircraft type.
The author gratefully acknowledges support from King Fahd University of Petroleum and
Minerals (KFUPM) and SAUDIA that made this research possible. During a sabbatical leave from
KFUPM for the 1995/1996 academic year, the author was associated with SAUDIA, where this
research project was carried out. The author deeply appreciates the valuable support received
Journal of Quality in Maintenance from SAUDIA’s Technical Services Vice-President and Director of Quality Assurance by making
Engineering, Vol. 2 No. 4, 1996,
pp. 32-47. © MCB University Press, their time available for conducting in-depth interviews that resulted in collecting vital
1355-2511 information for this research project.
The Saudi Arabian Airlines (SAUDIA) abides by all of the MRB’s requirements Aircraft
as well as by the Fedral Aviation Administration (FAA) rules and regulations maintenance at
which have been adopted in their entirety by the Presidency of Civil Aviation SAUDIA
(PCA). These rules and regulations cover aircraft manufacturing and spare
parts; operating into the USA (FAR 129); how to operate an aircraft
(certification to fly, FAR 121); and certification of aircrafts and related parts
(FAR 121, Part 25). 33
Also SAUDIA is bound by the International Civil Aviation Organization’s
(ICAO) common rules and regulations governing overflying, including
navigational rights, air routes, and criteria for identifying air corridors. In
essence, ICAO’s rules and regulations relate to anything dealing with air
transport from an international perspective.
Aircraft maintenance standards are directly related to the safety and air
worthiness of aircraft which are critical success factors for an airline.
Furthermore, aircraft maintenance is a major contributing factor to an airline’s
on-time performance (OTP), another critical success factor.
Director general
EVP operations
Manager Manager
maintenance product
control analysis group
centre
Organizational interfaces
Technical services maintenance interfaces directly and incessantly with:
• materials management;
• flight operations;
• marketing services;
• dining and commissary.
The interface with materials management involves ensuring availability of
needed materials on time, and at acceptable quality levels. The interface with
flight operations involves aircraft despatch reliability for scheduled and non-
scheduled flights, pre-departure checks; and unscheduled and scheduled
maintenance jobs. This interface also involves pilots and flight attendants with
regard to technical problems they record in log books and flight reports.
The interface with marketing services deals with in-flight services related to Aircraft
passengers comfort and entertainment, like audio/video systems, lavatories, maintenance at
cabin general appearance, and on-ground air conditioning. SAUDIA
The interface with dining and commissary involves in-flight kitchen
equipment and trolleys for serving beverages and food to passengers. Technical
services interface indirectly and intermittently with other SAUDIA
organizational units for administrative, medical, personnel, information 35
technology, and financial services.
These organizational interfaces are important for maintaining a certain level
of co-ordination and communication for effective organizational functioning.
The desired level of co-ordination and communication has implications for the
resource allocation process which lies at the heart of the budgeting system.
Literature review
Role of maintenance in world-class organizations
Effective maintenance management would enable the organization to gain
uptime – the capacity to produce and provide goods and services to the
customers’ satisfaction, consistently. This becomes quite critical in capital
intensive organizations because of the heavy investment in capital assets
needed for serving customers. An organization’s maintenance strategy has to
be in line with its business strategy[1]. Quality and the drive for continuous
improvement in world-class organizations is changing the philosophy and
attitude towards maintenance. Total productive maintenance (TPM) is one of
the outcomes of productivity improvement targets aimed at increasing uptime,
improving quality, and lowering costs[2]. The journey to world-class level of
excellence indicates that maintenance managers must take a leadership role in
improving the maintenance function[3].
Budgeting systems
A budget is a quantitative expression of a plan and is an aid to the co-ordination
and implementation of this plan. In addition to instilling the discipline of
systematic planning into the organization, the budgeting system provides a
two-way channel of communication for the various echelons of the
organizational hierarchy. This two-way communication capability (top-down
and bottom-up) is directly linked to the iterative nature of the budgetary process
through which the technical and financial feasibilities of planned actions are
assessed. Furthermore, well-formulated budgets provide a sound basis for
evaluating departmental and managerial performance[4].
A budget should not be perceived by the manager as only a mechanism for
securing departmental funding. Such a perception would make the budgetary
process a “number crunching” exercise. A properly functioning budgetary
system should help a manager understand that a budget needs to fulfil an
organization’s mission. This requires department managers responsible for
budget development to have a thorough understanding of the organization’s
mission and their department’s role in accomplishing it. This indicates that
JQME budget development should be designed so that a department manager’s focus
2,4 is on carrying out the mission effectively and efficiently[5].
In today’s competitive environment survival requires businesses to be flexible
and innovative mainly through the development of new products and services,
while continuously improving productivity and customer services. Building the
effects of innovation and continuous productivity improvement into the annual
36 budgets can only be achieved through continuous budgeting that rolls the
budget at the end of each quarter for the next four quarters. In this setting, the
budget also serves as a vital tool for ensuring that the corporate culture has a
unified understanding and commitment to strategic objectives. This world-class
budgetary practice has been reported about the Hon Company, the largest maker
of mid-priced office furniture in the USA and Canada. The office furniture
industry is characterized by cyclical demand, short-term uncertainties, and stiff
competition that make planning difficult, even in the short run[6].
Budget performance reports provide valuable feedback for controlling
operations and/or for revising plans if circumstances change. These budget
performance reports need to be custom-tailored to the appropriate level of
responsibility because this has implications for their timing, form, content and
level of aggregation.
The reports should establish control limits for budget variances so that the
manager can focus his attention on significant events. The budgetary control
system should keep track, over time, of the behaviour of variances that are
within the control limits so that upward or downward trends could be discerned
and reported in feedforward reports.
Marketing budget
Sales budget
Flight operations
Operating
budget
(1) the various components of the budgetary process are interrelated and
affect each other;
(2) the budgetary process is iterative in nature involving top-down and
bottom-up communication.
The outcome of strategy analysis is a general statement of objectives that
relates to SAUDIA’s strategic and long-range plans. This statement is a
reflection of top management’s expectation of where the organization should be
in terms of, for example, market share, competitiveness, profitability, cash
flows, and so on, by the end of the budget year. The focus is on key result areas
or critical success factors.
The marketing division, should translate its market research based plan into
a budget reflecting marketing objectives to be achieved and required resources.
The marketing budget should include strategies related to:
• market penetration and expansion; Aircraft
• pricing; maintenance at
• channels of distribution; SAUDIA
• customer service;
• competitive standing;
41
• research and development.
The marketing budget should be translated into a sales budget reflecting the
number of passengers, cargo and mail tonnage, and charter flights that need to
be sold in view of the marketing strategies related to the general statement of
objectives. The sales budget should provide target sales quotas by market
segment in terms of passengers, cargo, and charter flights. Pricing, advertising
and promotional campaigns, and customer service programmes should be
specified. A major component of the sales budget is total projected sales
revenue broken down by source, and projected market share. Projected sales
commissions, price discounts, and costs of advertising and promotional
campaigns, and administrative costs, should be disclosed.
The sales budget should be translated into capacity requirements through
the flight operations budget. Capacity will be expressed in terms of equipment
(aircraft), block hours, passenger kilometres, ton kilometres, cockpit crew
members (pilots), and cabin crew members (flight attendants). Optimization
techniques should be used to assign equipment and human resources in a
manner that maximizes profitability (or minimizes losses). Any excess capacity
needs to be communicated to marketing/sales so that the excess capacity could
be utilized in maximizing profits (or minimizing losses). An expected capacity
shortage should be communicated to marketing/sales so that their respective
budgets can be revised through optimization techniques which might, in turn,
necessitates changes in top management’s general statement of objectives
and/or strategy.
Technical services primary objective is to achieve an aircraft despatch
reliability factor in excess of 95 per cent for flight operations. Given the
budgeted block hours in the flight operations budget and aircraft past
utilization records, Technical services, should be able to project the number of
(in-house and out-of-Kingdom) A, B, C, and D checks by aircraft type for the
budget period. Through optimization techniques, technical services should be
able to schedule its work during the budget period to meet the aircraft despatch
reliability factor and improve on it. Effective co-ordination and communication
with flight operations is quite critical at this phase.
The technical services budget should identify the primary and alternative
means for achieving its objectives and the amount of resources needed for each
alternative. The resources should include:
• types and quantities of materials;
• labour skills by headcount;
JQME • support services;
2,4 • training and manpower development;
• maintenance equipment and facilities.
Through the budgetary process, Technical services could justify the acquisition
of resources for continuous improvements, improved working conditions, and
42 increasing the level of commitment of the individual worker.
The budgetary process should focus the attention of technical services
management on achieving objectives that are in line with SAUDIA’s objectives
and mission statement. The budgetary process should synchronize required
resources with available resources and identify constraints or bottlenecks that
could render the budget technically infeasible. Alleviation of constraints or
bottlenecks should be done through optimization techniques. Assuring the
technical feasibility of the technical services budget might trigger revisions to
the budgets of flight operations, sales, marketing, as well as the general
statement of objectives.
The budgetary process should also enable technical services to co-ordinate
and communicate effectively with materials management to assure the
availability of required materials in terms of quantity, quality, and timing. This
would prevent holding excessive inventory and pave the way for a JIT
environment. The same degree of co-ordination and communication should
prevail with marketing services for determining passenger services
requirements.
The technical services budget proposal should be structured to highlight its
objectives for the budget period; primary and alternative means of achieving
these objectives; resources required for each alternative and related costs. The
budget proposal should no longer be an extrapolation of the past, but a
management tool with a futuristic orientation.
The technical services budget should be subjected to rigorous “what if”
analysis to explicitly recognize uncertainty and add dynamism to the
budgetary process. Through sensitivity analysis, technical services would have
an action plan for coping with changing circumstances. The main advantage of
this approach is that the manager experiments with all possible plausible
scenarios “on paper” without running the risk of a crisis materializing or an
opportunity passing by. This adds significant flexibility to a manager’s ability
to deal with unexpected situations.
The same budgeting framework should be used for materials management,
catering services, and other support services appearing on the flowchart. The
individual budgets developed, thus far, make up SAUDIA’s operating budget.
The cumulative effect of these budgets is the projected result of operations
(income/loss) which will be reflected on the pro forma (budget) income
statement. If the bottom line figure of that statement is not consistent with
management’s expectations, revisions to components of the operating budget
will have to be made until management is satisfied or is willing to change its
expectations.
Financial budget Aircraft
On completion of the operating budget, the components of the financial budget maintenance at
will be assembled. The first component is the capital budget which justifies the SAUDIA
acquisition of capital assets and their relationship to current and future
operations. In the case of technical services, the capital budget should include
all capital assets and maintenance facilities to be acquired during the budget
period and their impact on current and future operations. Capital budgeting 43
techniques should be used to justify the investment in capital assets.
The second component of the financial budget is the cash budget which
synchronizes cash inflows and outflows for the budget period. The major source
of cash is operating revenue which appears in the sales budget. The magnitude
and timing of cash sales as well as the terms of credit sales and the effectiveness
of managing accounts receivable are the major determinants of cash inflows.
The payment terms for cash operating expenses and capital assets determine
the magnitude and timing of cash outflows. The cash budget is prepared for the
year as a whole and should be broken down by month or quarter to ascertain
availability of cash for operating and capital expenditures throughout the
budget year. The cash budget is a very critical document because it determines
the financial feasibility of the operating and capital budgets. A cash surplus (or
deficit) could be projected for the budget year and for shorter time periods
(months, quarters, etc.) so that the treasury department could consider all
possible alternatives for handling the projected cash surplus or deficit.
In the case of a persistent cash deficit, its impact on operating and capital
expenditures should be assessed by the treasury department. This requires
close co-ordination and communication between the treasury department and
operating departments so that necessary revisions to operating and capital
budgets, and, possibly, top management’s general statement of objectives can
be made. Available cash should be rationed among operating and support
departments by a system of priorities of cash outlays from the standpoint of
overall organizational effectiveness. Through this rationing system, each
organizational unit would be assigned its “fair share” of the pie to carry out its
activities to contribute positively toward achieving SAUDIA’s mission-related
objectives.
The implications of the cash rationing system for technical services is that it
will reduce the amount of uncertainty surrounding funding the acquisition of
resources needed for planned work during the budget period.
On balancing the cash budget, a pro forma balance sheet, and a pro forma
statement of cash flows can be prepared to project financial position by the end
of the budget period as well as cash flows for the period. These pro forma
financial statements should be analysed through tools of financial analysis. If
the results are not in line with management’s expectations, revisions to earlier
budgets become necessary to improve financial position and cash flows.
If the budgetary system operates in the fashion proposed in this section, it
will become a “business simulator” by which management could experiment
JQME with the possible effects of alternative operating and financing courses of action
2,4 for fulfilling the organization’s mission.
Conclusion
In this paper the existing maintenance budgetary and costing systems at
SAUDIA have been described. Deficiences of the existing systems were
highlighted and suggestions for improving them are given. The proposed
approach for budgeting for maintenance can be utilized by different
organizations that seek to treat maintenance as a business function that
contributes to the organization main line of business.
Properly functioning budgetary and costing systems provide indispensable
tools of management for any business organization, especially those that
operate in dynamic, continuously changing environments like SAUDIA.
Through these systems, effectiveness and efficiency of aircraft maintenance
could be facilitated, leading to the development of this vital service into an
independent business function and a valuable contributor to the airlines’
competitiveness and long-term profitability.
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