Cathay Pacific faces challenges managing its complex aviation spare parts supply chain due to high costs of delays, expensive and regulated parts, and unpredictable demand. It deals with over 80,000 repair orders annually and maintains $350M in inventory from over 2,300 suppliers. Recommendations include reducing inactive stock, strengthening supplier relationships, and implementing a collaborative IT system to improve coordination. Outsourcing repair management and using third-party logistics could help address issues but also introduce disadvantages like loss of control and unequal benefits.

1. ANAG THE DIGITAL FIRM
December 12, 2013
By: Monzer ALchaikh Warak
Under supervision of Dr. Kanishka Bedi
Consult@MonzerOsama.com
FINAL INTEGRATION PROJECT
Supply Chain Management

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Aviation spare parts supply chain management
optimization at Cathay Pacific airways
Introduction:
Managing spare parts in the aviation industry had always been a challenge for airline operators
because the aviation supply chain was unusually complicated.
The cost of aircraft delays was a key decision making element in
engineering.
Therefore not any vendor allowed to participate in aviation industry, All suppliers of airplane
spare parts required to possess special legal certifications and formal protocols, which were
stipulations that indicated assumption of responsibility in case of an accident.
Turnaround time for repairs was critical, as highlighted by measurable and non-measurable
costs. In addition to standard passenger compensation for flight delays such as hotel
accommodation..
Moreover, there existed a risk that customers might became unsatisfied and shift to other
airlines in case of delay.
Aviation spare parts themselves were also expensive and
complex.
The variability of airplane spare parts, coupled with the
sporadic nature of demand for aircraft maintenance repair
parts, made spare parts demand forecasting more difficult,
necessitating increased labor.
Because of tight regulations and dependence on OEMs,
seeking alternative suppliers was a challenge for Cathay
Pacific.
To alleviate over-dependence upon single source suppliers, airline operators had begun
exploring opportunities of sourcing certain categories of approved parts manufactured under a
regulated program called “PMA” (Parts Manufacturer Approval).
Through the PMA process these categories of part were generally available at more
competitive pricing with reduced lead times.
Some facts related to Cathay Pacific
o Cathay Pacific managed over 80,000 repair orders per year.

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o The total inventory value is 350M $.
o Cathay Pacific deal with more than 2,300 suppliers.
o There are more than 1,000,000 parts on a single airplane.
o More than 380,000 line items in Cathay
Pacific’s database.
o Sixty dollar per minute is the cost to keep
an aircraft on the runway.
o The average cost of an engine was 12M$.
o Each year there is 3% stock accounted
dead and inactive.
Case analyses:
• Cathay’s Engineering Commercial section was made up of mainly three functions,
Procurement, IOPs (Inventory Operations), and Planning.
• For the scope of spare parts management, IOPs was in charge of the day-to-day
operation while Procurement took up the commercial responsibilities with
suppliers.
• IOPs was operating on an annual budget of over US$450 million.
• The status of aviation spare parts market
o Buyer’s Market
The usage pattern of spare parts remained highly unpredictable because of the
high level of demand variability.
It reported that 30% of the inventory of a traditional airline was active,
another 30% was slow moving but necessary to have on hand and the
remaining 40% was dead stock.
Total industry spending more than 10b $/year
Total major airlines spare engines more than 11b $.
Eighty percent of spare parts are owned by airline operators.
Primary target for inventory value reduction.
o Supplier’s Market
Constrained in supplier selection; there were situations that were dominated
by a single supplier.
The limited choice and high concentration of OEMs limited airline operators’
negotiation power.
Because of tight regulations and dependence on OEMs, seeking alternative
suppliers was a challenge for Cathay Pacific
Tight aviation regulations

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Weak negotiation power for airline operators
High switching costs
Regulated joint purchasing activities
To alleviate over-dependence upon single source suppliers, airline operators
had begun exploring opportunities of sourcing certain categories of approved
parts manufactured under a regulated program called “PMA” (Parts
Manufacturer Approval).
Paul and Robert recommendations proposal
Paul and Robert have to address that every airline requires usual maintenance to
ensure operational smoothness and safety.
This maintenance process include regular servicing of aircrafts, change of damaged
parts, repair of damaged parts, etc.
They also consider that:
• The high cost of aviation spare parts thus has very adverse effect on Cathay
Pacific’s balance sheet.
• There is High level of demand variability as well as high level of inventory and its
total value US$350
• Although they have sufficient inventory of these spare parts, but of which
significant percentage of parts are dead and inactive stock.
• Maintenance of adequate inventory level to minimize inventory-holding cost by
keeping right, active stock!
• Reduction of shortage of spare parts in order to enhance service level
• They cannot simply get rid of these parts because for aircraft safety certain parts
are necessary and can be required at any time.
• They cannot ground the plane for long time as costs of aircraft delays and
grounding the plane are very high (60$ per
Min).
• The usage pattern of these spare parts is highly
unpredictable and thus, future demand
forecasting is one of the challenging tasks for
Cathay Pacific.
• The necessary of compliance with required
statutory regulations (FAA (US), EASA (EU)
and CAD (HK) )
• Aviation spare parts are mainly divided into two categories: Critical and non-
critical.

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• The OEM suppliers mainly dominate critical spare parts market where as there are
many suppliers for non-critical spare parts and the switching option is available, for
critical parts they need to consider the option of outsourcing the maintenance of
rotatable or getting service packs where the OEM gives the option of overhauling.
• For non-critical parts, they need to think about reducing their suppliers.
• Comply with different statutory regulations
• Manage the right inventory level
• Minimize inventory holding costs
• Enhance quality level and component performance
• Develop strong partnership with critical and non-critical suppliers, repair shops
and outsourced 3PLs
• Cope with the large amount of repair orders
• Deliver spare parts to designated more cost effectively
Cathay Pacific use IT system (Aeroxchange Supply Chain
Solutions) for spare parts management but they do not
have collaborative IT system that facilitates
communication between Cathay Pacific and their
suppliers.

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Handling shortage management
Shortage management was a process of sourcing parts that, for one reason or another, were
unavailable to meet the expected demands.
Cathay Pacific putted many solutions to handling this shortage
by perform the following options:
The Option The attached problems they
might face
Aircraft-on-ground order.
When an AOG order was placed, the part would be
shipped via same-day express delivery
The transportation cost will be high
Borrowing the necessary spare part from another
airline.
Uncertain stock availability.
High premium cost.
Pool Loan Agreement.
Cathay Pacific granted access to a network of over 100
airlines with which they could share spare parts when in
need without incurring a surcharge.
Timely to source
Unequal benefits
Lack of trust
Problematic cost allocation
Borrowing from its other
aircraft
Unavailable aircraft
Unavailable parts
Disruptive operations

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The advantages and disadvantages for Cathay Pacific to use third party
logistics (3PL) partners for her repair management and logistics
management
Third party logistics is one of the best ways to conduct the logistics activities and an
important factor in the supply chain management process.
As most of the companies can focus on their core business and these third party
logistics (3PL) providers can do the rest. However, these 3PL services have positive as
well as negative sides.
The figure below showing these advantages and disadvantages:

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References
• Presentation: "Aviation Spare Parts Supply Chain Management Optimisation at Cathay Pacific Airways Limited", By: Billy
Leung and others
• GlobalNxt Course Content "Supply Chain Management"
• Website: Aeroxchange Supply Chain Solutions URL:http://www.aircraftit.com/MRO/Vendors/Aeroxchange-
Supply-Chain-Solutions/Modules/Strategic-Tendering-Solutions-Professional-Applications-and-
Support.aspx, accessed at 14/12/2013
• http://russia-ic.com/news/show/15863/#.Uq1ma-KQyBQ accessed at 14/12/2013
• Uncover Aircraft Spare Parts The Quick Way, http://www.steinbergimagery.com/archives/740