Alan Peacock, Flight GSEJohn Nicholson, Aviation NZ

GSB Supplycorp

Thursday 11 November

JOINT PROCUREMENT: SAVING COSTS, IMPROVING PRODUCTIVITY AND INCREASING YIELDS

Recap on Honiara What has happened since thenAn easy win, GSB SupplycorpThe way forward

OVERVIEW

“If you do what you’ve always done, you’ll get what you’ve always got”

The World is changing

“If you can't, you must. If you must, you can.”

Source: Anthony Robbins……

THE ALTERNATIVES

The South Pacific Aviation Market is growing The market is becoming increasingly competitive 100 aircraft, 15 different aircraft types operated Collective approach to development: ‘How can we co-operate to achieve more?’ (Didier Tappero)

RECAP ON HONIARA (1)

The concerns of airlines (Didier Tappero)• Fleet optimisation • Improving revenues• Reducing costs

RECAP ON HONIARA (2)

Can be 40% of total operating costs Long term trend is up Politically, what is being achieved? Commercial market is changing Is sovereignty important? Is a regional approach possible?

FUEL: THE CONUNDRUM

Is security of supply the key Is competitiveness second in importance

• Hedging can be +ve or –ve• At point of sale or point of purchase

Costs under direct control are controlled Costs elsewhere in supply chain an issue If whole of supply chain, where do we start?

FUEL: MORE QUESTIONS?

THE SUPPLY CHAIN

Some NZ companies are already providing part of your solution Oman Airport uses Cavotec Pop-up Pit System Holm Solutions supplies to some of the world’s ‘hot spots’ Superstructure Group supplies safety and risk management systems to 110 customers covering 5000+ aircraft in 50 countries NZ Safety Management Systems has lots of expertise too

FUEL: WHY CAN WE DO IT

“And after a decade of crisis in which airlines lost $47 billion, the outlook is finally more positive.  We expect airlines to deliver a profit of $2.5 billion.  That’s only a 0.5% margin on revenues of $545 billion.  But at least it’s a black number.”

Giovanni Bisignani, 25th August 2010. Speech to the Australian National Aviation Press Club

The concept of an airline joint venture purchasing office mooted in May at Honiara.

A logical step from the ad hoc co-operation already existing between the Engineering Departments of the ASPA Airlines.

Primary function would be to aggregate purchasing requirements, combine purchasing functions and negotiate group or volume discounts by leveraging economies of scale.

It would save airlines money.

PURCHASING OFFICE REFRESHER

Primary function to save money for the airlines by:

combining purchasing functions.developing ‘preferred’ suppliers.negotiating discounts.leveraging the economies of scale that purchasing on behalf of a larger group will permit.creating a registry of equipment owned by airlines that could be rented out to other carriers in the group.

FUNCTIONS OF A PURCHASING OFFICE

Aircraft Operating Costs

Aircraft Spares ( group savings have already been offered for those a/c under 16 seats)Lubrication Fluids & FuelsOutside Engineering ServicesRepair of ULD’sEstablish On-Line Technical Team sharing knowledge among airlines, especially useful for engineering.

WHERE SAVINGS MAY BE POSSIBLE (1)

Ground Services Equipment Costs

Co-ordinate usage of infrequently used items– ie Twin Otter Wing Removal Stand that’s been used once in five years.Bulk purchasing commonly used items such as baggage trolleys and maintenance stands.Standardisation of equipment makes and models will drive down purchase costs. Establish a central ownership register where the central office could purchase and lease back specialist items of equipment – ie bore scopes.Economies of scale will enable cost effective leasing arrangements for GSE and other plant.

WHERE SAVINGS MAY BE POSSIBLE (2)

Back of Office Costs

Combine advertising bookings in single markets to drive down costs – each airline would still create their own advertising but benefit from cheaper booking rate.Combine regularly used items such as copier paper, computer and printer equipment, uniforms, galley consumables.Negotiate “direct to airline” e-purchasing arrangements so all airlines gain a benefit ( ie GSB ).

WHERE SAVINGS MAY BE POSSIBLE (3)

Training and Compliance

Co-ordinate training courses for pilots, engineering and ground staff, and by increasing numbers of trainees at courses, drive down course costsBetter utilise specialist advice from outside experts which can be shared between airlines - ie aero-medical, legal, technical, SMS, Risk and Safety Compliance.Combine issuing of Identify cards through one central office

WHERE SAVINGS MAY BE POSSIBLE (4)

Staff Costs

A group office, utilising internet communications between the different engineering offices, could combine many of the purchasing functions of the airlines, reducing the number of purchasing staff each airline needed, and enabling a worthwhile reduction in wage costs

WHERE SAVINGS MAY BE POSSIBLE (5)

How would this office be funded, once established?

Running costs come out of turnoverSurplus profit over expenditure can then be:

• Reinvested into additional lease equipment to grow the company or

• Paid back to airlines by way of dividend.

The aim – profits returned to the ASPA members

FUNDING

Overcome duplication of equipmentEconomies of scale result in better purchasingPotential to become part of even larger purchasing blocsMore economic orders introduce new leasing optionsGroup purchasing helps you keep products and services up to dateEncourages collaborationIntegrate purchasing but retain sovereigntyReally addresses ‘cost’ consideration

JUSTIFICATION

CEOs agree to progress concept of joint purchasing officeCEOs agree reps from airlines who will progress and set up project teamExisting ASPA purchasing work is absorbed into this project teamWork team develop agreed areas of focus, operating procedures, structure, funding model and implementation process for presentation to ASPA 54th session. We volunteer involvement.

THE WAY FORWARD

Fuel is a crawl, walk run process but we need feedback

Engineering procurement a real possibility GSB Supplycorp presents some easy wins We are keen to work with you

CONCLUSION