Case Study: Component Value Engineering

Airlines often contract with suppliers for long term repair, overhaul and modification of components. This often requires the tracking of modification status, fist time visits and contractually agreed piece parts charges. Complicated further by partial flat rates or power by the hour charges it can become extremely difficult to track from many aspects.

The Scenario

A major airline was in the last few years of a multi year contact with a major OEM and had noted that the costs seem to be rising inexplicably on a major fuel control LRU. Faced with an impending contract renewal EVS was asked to review the history, project likely costs and to recommend an immediate course of action.

The Situation

EVS discovered that a number of items originally covered in the contract were now being handled as exceptions. Further to this a maintenance program change had inadvertently escalated the planned work scope and was driving non-inclusive part replacements. A lack of consistent communications on the part of the OEM and internal barriers at the carrier left much of the invoicing irreconcilable but, with the help of EVS, numerous exceptions and errors were identified. Potential differences between expected and actual invoicing approached 25% on approximately $7m.

The Conclusion

The airline concerned has adopted the EVS recommendations and has asked for a complete review by the OEM and a request for retro-active compensation for estimated overcharges. In parallel, bids are being entertained from independent suppliers for the follow-on contract and are understood to be aligned with the recommendations established by EVS.

Understanding OEM or 3rd party updates to contracts can be daunting. EVS has many years experience in dealing with this scenario. Significant returns can be achieved by regular forensic analysis of data, in this case well over $1.5m was identified.

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