Airlines Need More Cash & Here’s How To Get It

Airlines and aircraft MROs are under the constant pressure of needing more cash.

Cash is the lifeblood for all organizations. Without it you’re heavily leveraged against debt, liquidity is non-existent, and the cash flow isn't able to sustain the core objectives of the organization.

It’s a lot of pressure. This is the trouble many airlines are up against.

I was speaking to an airline CEO a few weeks back and we began talking about his financial situation. They weren't driving enough gross profit and were highly leveraged against debtors. They couldn’t even take on a new strategy to get them out of the trouble they were in. The future of this airline is highly questionable and now they’re in discussion of being bought out by a much larger airline…to “save” them.

This CEO and the ones before him forgot cash flow is king.

Generating more cash and sustaining the core objectives is an imperative strategy to take full advantage of.

It’s really a no brainer. A must. A do or die mindset.

Too much cash is tied up in inventory

Right now, as my fingers twiddle away on this keyboard there’s a high value being placed on an airlines return on capital. You know, the accounting and finance calculations that put you to sleep during your undergrad.

Well now it’s time to wake up.

This particular formula tells you how well your airline generates cash flow relative to the capital invested. Important.

As an airline stocks parts, they reduce their capital liquidity and lengthen their cash flow cycle. Having inventory, both expendables and rotables, isn’t the best strategic decision for most airlines.

There’s too much time and money being tied up on the shelf. This stocking mindset has a negative impact on the return on capital. Your cash flow cycle lengthens and you become negatively leveraged against your inventory.

It’s risky, much like hedging fuel, but unless you want to open your own refinery like Delta, fuel risks are essential. Stocking risks are plain silly.

There's thousands of reasons why you should avoid excess inventory. Hear it from me, the less you have, the more cash you’ll have if the right strategy is in place.

Outsource your inventory needs

It’s very common to hear in the news about airlines outsourcing. Do you think the stewardess cooks the food or the pilot washes the windows? Not likely. The same is true for aircraft components…well it should be at least.

JetBlue outsources everything.

When you’re paying 20% a year for the value of your aircraft components in holding costs, you quickly feel the impact that inventory sucks cash.

There are many ways to go about this, but first think about your objectives. What issues are you trying to resolve? When deciding on a new strategy it’s always best to look for ways to reduce issues. You can then maximize efficiency later. It could be that you have millions of dollars tied up in inventory for your hub in Dubai, or that you spend too much money on high price, high usage components, and need more support with safety stock. Whatever it is, think hard.

When looking at your inventory and aircraft component needs you want to know which parts to stock (pooling and on-demand programs), where they're to be stocked, and how much to stock, including safety stock. Each component both rotable and consumable is classified by the following:

• Low price, short response time, high usage
• Low price, short response time, low usage
• Low price, long response time, high usage
• Low price, long response time, low usage
• High price, short response time, high usage
• High price, short response time, low usage
• High price, long response time, high usage
• High price, long response time, low usage

Don’t pay too much attention to price as that will naturally take care of itself if you outsource both your rotable and expendable consumption. You want to focus most of your efforts covering high usage and long response time items. These items will cause you the biggest problems if you don't have a proper strategy in place. They’ll also cost you the most money. I know, it’s weird how that works.

The best place to start is by reviewing the 300 - 600 rotables that are high usage, no-go items for your aircraft. If you have multiple aircrafts then you just do a simple math calculation and times those parts by the amount of aircrafts you have (of the same kind of course). This gives you a blueprint of what items cause you the most stress and what items consume much of your cash for inventory needs.

The same goes for expendables and consumables. Create a list of your high usage items. Although these are often times low priced, if you have a large fleet, the cost of the items can be in the millions. Reducing the time on shelf will ensure better cash flow management and eliminate wasteful activities.

The final decision for you to make is to outsource your rotable and expendable needs. If you hold $1,000,000 worth of inventory you’re likely paying $200,000 a year in holding costs to support your inventory. If you eliminated your inventory entirely you would have an additional $200,000 to support other important activities for your operation. A better cash management strategy I would say.

Save your money and outsource, it’s as simple as that.

P.S. We have a rotable Pooling program as well as an expendable On-Demand and Just In Time program to cover all of your cash management needs. Click the links to learn more or fill out the form below.

Never Buy A High Usage Aircraft Expendable Again

What if you never bought another aircraft expendable or consumable again?

How much time and money would that free up for you? In a world of high stress and reactive decisions, dealing with aircraft expendables is a tedious task. From all the line items and quality assurance specifications, it gets overwhelming fast. You spend a lot of time stressing over these items when you should be worrying about your most important objectives for the day.

Dealing with these pesky little aircraft parts takes time for most airlines and MROs. It get’s even worse when you have a long list of these to procure. From the coordination and delivery, time and money slips through the cracks.

In our fast paced aviation world, you’re so used to working under a reactive state, but being proactive is much more efficient.

But guess what? It’s normal and I’ve seen hundreds of airlines and MROs fix this problem. This gives them more time and money to focus on their core objectives.

Consume aircraft expendables the proactive way

The definition of proactive is “…creating or controlling a situation by causing something to happen rather than responding to it after it has happened.” For your expendables it’s having what you need, when you need it, right before you have to consume it.

When the maintenance and engineering team tells the procurement department that they need 50 lines of washers, hi-loks, tape, wire, and switches, many of the times this list is procured in a rush with the best options being overlooked.

A lot of times I see airlines and MROs procure all 50 lines from 30+ different sources. This is a huge mistake in supply chain efficiency. They just doubled their freight expenditure, not to mention all of the additional processing tasks they’ll have to do.

One way to reduce this is to have a partner that’s an expert in working long list requirements. Another way is to think proactive. What can you do to beat the chaos? What can you do to pre-plan and have expendables shipped to you with the least amount of time on your shelves? How can you organize your supply chain so you have what you want, when you want it, and where you want it?

A Just In Time and On-Demand aircraft expendable and consumable solution is about streamlining your operation.

This solution isn’t for everybody. If you’re a small airline and MRO who doesn’t see the same high usage expendables on a regular basis, then building your high usage expendable and consumable list for forecasting is a waste of your time. You won’t have enough volume yet to experience the benefits, but working with a key partner for your long lists will still give you tons of benefits.

On the other side, if you are a large airline and MRO who procures the same high usage material, the best option would be to automate delivery. Just think about the benefits of not having to cut POs, overstock or worry about shipping from multiple areas. The savings is huge.

The strategic framework this is built on is to reduce stress, be more efficient, and be proactive in your decisions.

P.S. We have an amazing Just In Time and On-demand program for our airline and MRO partners. Check it out by clicking here.

Expendable Automation: 6 months, 500 parts, 0 delays

Do you ever wonder how you can make aircraft consumable and expendable consumption easier? Or even automated?

No matter the price, no matter the size, no matter how many you need, even a small expendable can cause you to have an Aircraft on Ground (AOG). 

These are 3 words every procurement professional never wants to hear. These words raise your blood pressure, make you sweat, and keep you up at night.

AOGs are costly occurrences that thousands of airlines experience due to consumable and expendable problems. It’s often caused by the component being out of stock, but it doesn’t stop there.

These little things can cause AOGs because of capital costs / obsolescence, logistics, or even from a failed purchasing plan. 

How often does one of these create issues for you? Think about it. Once, twice, twenty times a week?

Now think of all the time and money you spend fixing these problems.  It gets messy fast.

It doesn’t have to be all that bad and is incredibly simple if the right strategies are applied.

Automating your expendable and consumable consumption

I’m a huge advocate of automating certain aspects of my life.

From social media posts and blog creation, to business development and automated ERP processes, automation can be found everywhere.

And most importantly, automation is handled by people who have a greater knowledge of certain activities. Or the opportunity cost for them to do a certain task is far cheaper than what you can do it for.

A good example is the company who cleans your office. The opportunity cost is much cheaper for them to do it instead of you. Make sense?

The same goes for automating your consumable and expendable consumption.

It’s as simple as 1, 2, and 3.

1. Identify high usage components and / or components you use every year.
2. Send this list to your consumable management partner
3. They ship these items to you on a forecasted monthly consumption rate (JIT) or they keep them in stock for On-Demand delivery.

The benefit of automating is you get On-Demand component reliability through continuous replenishment. This significantly reduces your costs of AOGs, procurement, shipping, stocking components, and out of stock scenarios.

Through automation you get aircraft consumables and expendables when you need them, where you need them, and how you need them. Direct, automated shipments can be used for one maintenance hub or 15. It doesn't matter as the program automation is designed for your unique operation.

Think about it, how will automating reduce your costs and increase your reliability?

P.S. We  structure our consumable automation program around you. For more information on how we can support your needs through this program, simply fill out the contact form below!

A Romantic Story Of Just In Time Inventory & Decision Making Fatigue

Face it. You dislike fumbling around with aircraft expendables just as much as I like making my bed.

Both are messy.

I’m a terrible bed maker. My corners are never crisp, my pillow is never fluffed and my side is always sloppy. Just ask my wife. Okay, maybe don’t ask her.

Although I’m sloppy at making my bed, being sloppy and unorganized with expendable procurement is much more costly.

I see it time and time again. Partners who procure the same seal, over and over, each time with a greater urgency. They spend thousands of dollars for a measly $300 seal.

It happens far too often. We quote a seal 3 days prior, the quote becomes urgent on day 2, the PO is placed on day 3, and now you’re in an AOG situation.

For a seal (or insert another high usage expendable or consumable)…

We can blame it all on the maintenance crew all day long, but the real problem is in the planning and decision making. 

With so many decisions being made by you, it gets overwhelming and daunting.

Everyday you make last minute decisions to avoid AOGs. It’s common and your not alone.

Decision making fatigue, it’s a real thing

Would you believe me if I told you that you only have so much energy to make a certain amount of decisions in a given day?

Willpower is like a muscle. You can only stress it out so much before it gets fatigued and tired. Each time you make a decision you deplete your willpower fuel tank. Your willpower fades with the more decisions you have to make.

Should you ship it this way, should you call this person, how are you to resolve this problem? Do these questions sound familiar? 

Every time you answer these, you're zapping your willpower reserves. When your willpower is fading and your brain is tired of making decisions, it’s easier to make irrational decisions.

In a 2008 American Psychological Association journal their “…present findings suggest that self-regulation, active initiative, and effortful choosing draw on the same psychological resource. Making decisions depletes that resource, thereby weakening the subsequent capacity for self-control and active initiative. The impairment of self-control was shown on a variety of tasks, including physical stamina and pain tolerance, persistence in the face of failure, and quality and quantity of numerical calculations. It also led to greater passivity.”

Think without thinking and make better decisions by making less

What are you to do? Well that’s simple, make less decisions.

By creating a strategy where you can make less decisions and still  guarantee expendable delivery is a no-brainer. You simply automate the procurement process.

A Just In Time Inventory program does most of the heavy lifting for you.

You determine what high usage expendables you use over a 12+ month period and every month a predetermined amount is delivered to you on time. You eliminate the decisions to decide who to send the Purchase Orders to, how and where to ship, when to track your material and call your supplier and how to follow-up with orders.

Your material shows up when and as needed, no more fumbling around with administration tasks and excessive decision making. 

By automating your high usage expandable procurement you’ll cut your decision making fatigue down and make better decisions on higher value projects.

You’ll also reduce your freight costs, reduce your inventory levels, minimize AOGs, guaranteed fixed pricing and availability and significantly reduce administrative tasks.

So remember this, in order to reduce decision making fatigue, make less decisions and automate your expendable procurement process.

P.S. Our Just In Time Inventory saves  thousands of hours every year for relative administrative decisions, click here to request how it can work for you.