JOINT VENTURE DEVELOPMENT
I was involved in three attempts at establishing a joint venture engine shop at Canadian Airlines. The first one was with SNECMA and my role in it was to work with the SNECMA facilities engineer in designing the new plant for the venture. Canadian dropped this JV attempt in favour of the second attempt with GE. My role in that one was as a member of the team negotiating with the union for a new collective agreement. GE cancelled this JV attempt due market conditions at the time.
I initiated the third, and ultimately successful attempt at a joint venture. When all other attempts at raising capital for the engine shop had failed, we decided it was time to try another attempt at a joint venture. Drawing on the experience of why the two previous attempts had failed, I drew up a plan with my Marketing Manager that we felt would be attractive to potential partners. Hearing that MTU Maintenance division of Daimler Benz Aerospace in Hanover, Germany, might be interested, we tailored this plan to MTU’s situation, then presented it to them in August, 1995.
MTU were immediately interested, commenting that they had had many joint venture proposals put to them, but this was the first one that showed sound business reasons for them to become involved. After further negotiations, a letter of understanding to form a 50/50 joint venture was signed in December 1995. In May 1996, Daimler Benz’s due diligence of Canadian Airlines showed that Canadian was on the verge of bankruptcy, and MTU were forced to put the joint venture on hold, and I elected to retire.
In August 1998 I was called by MTU to consult for them in their renewed joint venture with Canadian. Canadian had survived and market conditions had created an urgent need for MTU to have a foothold in North America, so they had resumed joint venture negotiations with Canadian. They had successfully concluded a 70/30 joint venture deal with MTU in control, with a November start up.
I consulted for MTU for the next two years on a variety of topics. This enabled me to witness first hand what had worked as expected, what surprises there were, and what to do differently another time. I also observed the effects of cultural gaps and the very different requirements and expectations of an independent shop compared to an airline shop.
ENGINE SHOP DESIGN AND LAYOUT
In 1989, I designed a major expansion to the Canadian Airlines engine shop. The Board, due to lack of funds, did not approve this. Instead the joint venture with SNECMA was attempted in which my role was to work with the SNECMA facilities engineer in designing the new plant. SNECMA had just built their new St Quentin plant and I learnt a great deal from this exercise. We had designed what would have been a first class plant, benefiting from SNECMA’s lessons learnt, before the JV was cancelled.
About 1994, lack of space was a major obstacle in the engine shop, so I rented an offsite satellite shop of 12,000 sq.ft. and set up a CF6 module shop in it.
In 1995, I dusted off the 1989 expansion plan and, with corporate blessing, I sold inventory and signed a deal with a parts house to raise capital for it. When the money came in, the corporation decided their need for it was greater.
Working with a small-outdated plant made my colleagues and me very much aware of what is needed for an efficient engine overhaul shop.
AIRWORTHINESS AUTHORITY APPROVAL
When MTU called me to consult for them at the end of August 1998, they wanted me to set up their Quality Department and obtain their Approved Maintenance Organization (AMO) certificate from Transport Canada (TC) in time for the November 2nd start up, six weeks away. The draft Maintenance Policy Manual MTU had prepared was not acceptable to Transport Canada. By working closely with TC, I was able to re-write the manual, train all management on it, set up a QA organization, assist Human Resources interviewing and hiring a Quality Director and six Quality Administrators, and obtain the AMO certificate by Nov 2nd.
In 2002, I was asked by a mechanic in a major airline’s component MRO shop to obtain Transport Canada AMO for a component overhaul business he was starting up.
I wrote a Maintenance Policy Manual to meet TC requirements and advised the client how to meet TC requirements for QA, Records, Production Control, and Material Control.
The client obtained his AMO certificate on first application.
I was manager of the Canadian Airlines engine shop from 1988 to 1991 when there was no Director of Power Plant Maintenance, and when I was appointed the Director early in 1992, I appointed a manager to look after day-to-day production, while I took care of strategic issues. My style of management focussed on instilling pride in the workers, keeping an open door to all, and involving them, as well as management, in making changes.
In 1990, Canadian embarked on a major strategic planning exercise. I led the Power Plant Strategic Planning Group, which introduced employee-involved process improvements in the shop, which reduced turn times dramatically in the short term, but sustained a 20% reduction. From this exercise, and over the next few years, we learnt that consensus management doesn’t always work; therefore I learnt when to seek consensus, and when to direct.
Canadian Airlines went through a phase of reducing overheads, and after cutting back on overhead positions, I learnt that this can be taken too far and has a cost attached in loss of production efficiency. Later, consulting for MTU gave me insights into the type of organization needed for an independent overhaul shop, and I contributed to rounding out MTU-Canada’s organization.
Apart from day-to-day dealings with the union as Engine Shop Manager, my first real exposure to labour relations was when I was asked to join the team negotiating a new collective agreement for the proposed joint venture with GE. Initially, GE took the lead in negotiations, and used such heavy-handed tactics that the union broke off talks on the first day. The union’s terms for resuming talks were that Canadian take the lead in the negotiations, and I found myself being the chief negotiator, with the support of the Labour Relations Manager. The JV was cancelled before we reached a full agreement, but the Labour Relations Manager later told his Director that he was convinced we would have reached a satisfactory agreement with the way that I was negotiating.
Later, as a director in Maintenance and Engineering (M&E), I was responsible for hearing grievances at the presidential level from throughout M&E on behalf of the company President. Although I denied quite a number of grievances, the union only took less than half a dozen to outside arbitration. The Labour Relations department commented that this was an unusually low percentage of decisions sent to arbitration. A union official told me that they accepted my decisions because the reasons were explained so well.
TURN TIME OPTIMIZATION
Every MRO (Maintenance/Repair/Overhaul) agency strives to reduce turntimes to be competitive. Some are more successful than others.
In my experience the successful agencies are those who recognize that it can take substantial investment to reduce turntimes, and are willing and able to undertake an impartial study of the business case for the project, then follow through with the findings of that business case.
Identifying the benefits of reducing turntimes is usually fairly straightforward; for airline shops and providers of total care they are reduced downtime and reduced spares inventories, both directly quantifiable in dollars. For other third party shops, these benefits accrue to the customer, so reducing turntime is all about attracting or keeping customers. This requires benchmarking what the competition is offering, and exploring what other benefits you can offer to attract customers that may be more attractive or less expensive to achieve.
The cost side of the business case is harder to identify and will vary between agencies. A well-equipped shop may just need a relatively small investment in software for planning and production control to produce desired improvements in turntime; but more likely, there will also be issues of capacity, shop layout, in-house capabilities versus outside contract, and pool inventory to be resolved, each requiring significant capital investment before any noticeable effect on turntime is achieved.
While the marketing department may demand, say a 35 day turntime, for their sales presentations, a carefully prepared business case could show that this is uneconomical to achieve, and that, say a 45 day turntime, is both achievable economically and quite acceptable when offered with other less expensive benefits.
I have run an MRO shop in which we reduced turntimes by 33%. I have also contracted MRO work out to other agencies, received marketing presentations, made successful marketing presentations, and successfully consulted on turntime reduction for an independent MRO agency. I have the experience necessary to help your organization develop the business case and implement the optimum turntime for your circumstances.
In 1990, Canadian Airlines Maintenance and Engineering engaged a well known outside consulting company to implement a division-wide program borrowed from the Just-In-Time philosophy to achieve employee continuous improvement teams. In Power Plant Maintenance, we had some successes and some failures.
Later I witnessed MTU trying the same approach, again with mixed results. This experience has given me some firsthand knowledge of what works and what doesn’t. It is not as straightforward as the consultants engaged by Canadian made it out to be.
COST ACCOUNTING FOR REPAIRABLES
In 1993, the Vice-President of Maintenance and Engineering was frustrated by the unpredictability of the division’s expenses against budget. I was asked to lead a team to look into the matter. I formed a large team of everybody affected by the issue from all departments, and we quickly identified that the charging of repairables in the repair cycle was the problem.
Canadian had originally used an Average Unit Price (AUP) system in which parts returning to stock from the repair cycle were “bought” into stock at a price equal to the repair cost. This system had many disadvantages and was replaced by a Debits and Credits system. Parts divorced from their next higher assembly (NHA) for repair were charged at full price to the NHA as if scrapped, then when they were repaired and returned to stock, the NHA work order was credited with the full price. This caused a number of problems, including tremendous swings in expenses, depending on repair activity that month.
I urged the team to look at the idea I had seen in Europe of having a Work In Process (WIP) account in which the cost of a repairable divorced from its NHA was transferred to the WIP account, and when repaired, was transferred to stores inventory. The team worked out the details of making this work and it not only resolved the budget issue, but had several beneficial side effects as well.
I presented a paper on this at an airline conference. British Airways sent a copy of my paper to QANTAS, and QANTAS’ controller visited us at Canadian to see what we had done. He then went and introduced something along the same lines in QANTAS.
Canadian Airlines had spare overhaul capacity on some engine types, which enabled us to sell our services to third party customers. Conversely, Canadian did not have capability on other engines, or was temporarily short of capacity, requiring engines to be contracted out.
Having been both a supplier and a buyer of engine overhaul services, I have seen what works and what does not excite any interest in sales approaches. Our success in selling was highlighted in the winning of the USAF contract to overhaul the engines for the Presidential Command Post E4B fleet. The request for bids originally specified USA only bidders, but the Canadian Government got it extended to USA or Canada, and we bid. Frankly, we thought the chances of landing the contract to overhaul the engines of the President’s Command Post aircraft were non-existent, and the body language of the inspectors who came to review our facility confirmed this. However, after they had heard our sales presentation, they all but confirmed on the spot that we would win it, which we did. Not only did we win it from a US agency, who lobbied Congress to keep it in the USA, but we kept it against stiff competition and further Congressional lobbying at each contract renewal.
Following an Aviation Industries conference in Atlanta in 1993, a group of airlines formed the Atlanta Working Group (AWG), an informal group of airlines interested in engine cost data and benchmarking. I was an active member of this group until it dissolved in 1997.
All members of the AWG gained a much better idea of the difficulties involved in benchmarking, and what is needed to resolve them to gain a true apples-to-apples comparison. When a major international consulting company did some benchmarking for Canadian Airlines, I was able to challenge their conclusions, having detected a fatal flaw in their data as a result of my AWG experience.
EVALUATION OF ENGINES FOR PURCHASE
On occasion, Canadian Airlines sold used engines, and noting what the buyers were looking for gave me the experience as a consultant to evaluate the engines on various different used 747 aircraft that one client was considering purchasing. On another occasion, another client was considering buying a parts company, and asked me to evaluate the engines they had in inventory. To make my recommendations, I conducted a thorough records search, market survey and physical inspections.
Both clients expressed full satisfaction with the findings.
ENGINE MAINTENANCE AGENCY EVALUATION AND SELECTION
All maintenance agencies claim to have short turnaround times, high quality, and reasonable prices, so how do you select which one to commit a million dollar overhaul to?
On several occasions, Canadian Airlines had reason to contract out engines for maintenance. The results were varied, and we soon learnt what to believe in a sales presentation, and what to check out on a visit to the agency before committing any engines to them.
There are three basic types of contract for the maintenance of engines –
- Time and material
- Fixed price
- Fixed cost per flight hour (or “Power by the Hour” in Rolls Royce’s copyrighted but popular term.)
As both a buyer and a seller of engine maintenance, I have been involved in both evaluating and making up proposals for all three types of contract, and am well familiar with which one is right for what circumstances.
Just before I retired from Canadian, the Vice-President of Maintenance and Engineering was considering closing the engine shop. Corporate HQ was concerned about the swings in CF6 maintenance costs, and the shop badly needed capital for updating. The joint venture with MTU was on hold due to Canadian’s financial troubles. I felt a commitment to the engine shop workers who had served so well, that I felt I had to do something.
My last act before leaving was to broker a unique service contract between Canadian and MTU in which MTU provided a fixed cost per hour maintenance for Canadian’s CF6 engines, but sub-contracted some of the work back to Canadian. This provided Canadian with the budget stability and avoidance of capital investment in the shop they were looking for, and kept the Canadian engine shop busy. For MTU, it maintained a relationship with Canadian and kept the Canadian shop alive for the future joint venture that eventually developed.
This contract was cited in the company’s annual report as an example of innovation in their recovery plan.
DEVELOPMENT OF ENGINE MAINTENANCE PROGRAMS
My 14 years with Rolls Royce and nine years in Power Plant Engineering were spent either advising operators on their engine maintenance programs, or developing them myself. Some of my achievements in this field follow.
In 1967, when the R-R Industrial Avon engine was finally achieving more than its 8000 hour warranty between major shop visits, and the first engine was approaching 16,000 hours since shop visit, HQ in Britain wanted to pull the engine for safety inspection. The concept of running “on-condition” was unheard of in the aero engine industry, which was accustomed at the time to everything being hard lifed, but seeing that this was an industrial engine under continuous condition monitoring, I felt that the on-condition approach made sense. I wrote a report, detailing my arguments. My report was accepted by the Chief Engineer, with the result that the engine continued to run until its condition dictated being pulled at 23,500 hours, thus becoming the first aircraft derived gas turbine in the world to exceed 20,000 hours between shop visits.
At Canadian Airlines in 1981, I changed the JT8D engine from hard life threshold maintenance to on-condition with soft life module refurbishment thresholds. This was very successful, doubling mean time between shop visits and reducing cost per flying hour by 30-40%. Ten years later, I gave a paper about workscoping at an Aviation Industries Conference. As a result of that, Delta Airlines visited Canadian to benchmark the JT8D maintenance program, and ended up copying the program I had initiated.
In 1986, a British Airtours accident at Manchester that killed 76 people resulted in the FAA issuing a Notice of Proposed Rule Making to mandate in-service inspection of all JT8D combustion chambers. CPAir’s combustion chamber inspection program which I had implemented some years before turned out to be the only one in effect among all airlines attending an ATA meeting on the subject. , The FAA were duly impressed and issued their AD based on CPAir’s program.
The Power Plant Strategic Planning group that I led in 1990 developed a new maintenance program for the CF6-50, based on Finnair’s philosophy that I had seen first hand on a visit to Helsinki. It was very successful, dramatically improving the ability of the DC10 aircraft to fly the 14-hour Vancouver-Hong Kong route non-stop, and reducing cost per flight hour to the same very good level as Finnair’s.
ACCIDENT / INCIDENT / DEFECT INVESTIGATION
Defect investigation is part of every power plant engineer’s role. Some of the notable achievements in my experience follow.
In 1970, while investigating a spate of turbine failures on the Spey engine at a major US carrier, I identified a poor maintenance practice. This reduced Rolls Royce's warranty liability by approx. $1 million (1970 dollars).
In 1978, I was asked to lead a Rolls Royce team to review Eastern Airline's RB211 shop maintenance, because their test cell rejection rate was excessive. The resulting audit I wrote was well received by Eastern and implementation of its recommendations reduced their test rejection rate to an acceptable level.
In 1983, CPAir sold some 737s to PeoplExpress. Shortly after delivery, PeoplExpress had several major engine failures and sought warranty from CPAir. I was able to prove beyond doubt that the failures were the result of sabotage at PeoplExpress’ home base at Newark Airport, resulting in the FBI taking over the case. Pratt & Whitney presented me with a plaque for this investigative work.
In 1984, Pacific Western Airlines (PWA) had an uncontained engine failure that set the aircraft on fire and destroyed it. CPAir had overhauled the engine. PWA’s insurers engaged me to help their investigator provide the technical basis for a lawsuit. After 4 years of intensive investigation, we determined that the main cause was faulty overhaul of a component by one of CPAir’s vendors. The defendant eventually settled out of court (but not until after I had spent 10 days in the witness box in court reinforcing our case).