This is a term papers I submitted for a class I took at ERAU

1. SHARED AIRCRAFT SPARES HOLDINGS OR POOLING: TO DECREASE AIR
CARRIER OPERATIONAL COSTS
by
Mersie Amha Melke
An Air Carrier Operations Research Paper
Submitted to the Extended Campus
in Partial Fulfillment of the Requirements of
Master of Aeronautical Science
ASCI 620
Embry-Riddle Aeronautical University
Worldwide Online
October 2009

2. ABSTRACT
Researcher: Mersie Amha Melke
Title: Shared aircraft spares holdings or pooling:
To decrease air carrier operational costs
Institution: Embry-Riddle Aeronautical University
Degree: Master of Aeronautical Science
Year: 2009
Air Carriers emerge with the goal of making profit from
selling seats and freight accommodations. The long term
cost of airlines decreases as the airlines dispatch more
revenue generating flights. Aircraft are vital in the
revenue generating process. However, aircraft require a
robust spares availability service to optimize revenue
generation. Currently, the airline industry employs
different methods of maintaining spare parts. The question
of which method is the optimal choice could determine
whether the air carrier gains or looses financially. This
paper addresses the question of how to achieve this robust
spares availability service.
ii

3. INTRODUCTION
Background of the Problem
One of the defining features of the airline industry
is its capital-intensive nature. In fact it had been
described as, “a nasty, rotten business” by former American
Airlines Chief Executive Officer (C.E.O.) Robert Crandall
(Petzinger, 1996, p. ix). Such remarks of disgust generate
from the complexity of the variables that comprise the safe
and efficient operation of air carriers. In addition, these
variables tend to change, thus requiring a vigilant follow
through, without which the demise of the air carrier would
be eminent.
Airlines operate to generate profit from the transport
of people and cargo. In such an endeavor, the air carriers
employ aircraft of different capacity, range and
maintenance requirements. In addition to the initial
investment cost of acquiring these aircraft, airlines face
the cost of ownership of the aircraft.
Cost of ownership of aircraft relates to the
maintainability of the aircraft in the fleet of the air
carrier (Wells & Chadbourne, 2003). Concurrent with this,
maintainability and reliability that are desirable traits
of an aircraft need optimization, in order to have a fleet
of aircraft that is ready to generate revenue. Of the total
1

4. 2
operating cost of an airline, maintenance costs typically
represent a 10-15% portion (Seritso & Vepsalainen, 1997).
Swan and Adler in their paper addressing aircraft trip
costs specify this estimated range, stating the following,
“Maintenance costs for airplanes compose 13% of airline
operating costs, in general. This figure includes direct
overheads associated with the upkeep of maintenance
facilities and tools” (Swan & Adler, 2006, p. 108).
Consequently, due to the technical and mechanical
complexity in engines, avionics, and aircraft systems of
current commercial aircraft, incremental changes in certain
influential factors of the cost of ownership arise. These
factors are the availability of the spare part required,
technical proficiency of maintenance personnel, cost of
maintenance, sophistication of test and maintenance
equipment and overall thoroughness of the maintenance
program (Wells & Chadbourne, 2003).
Statement of the Problem
The factors mentioned above are amongst the ones that
require vigilant follow through. This vigilant follow
through includes studying the industries practices and
appropriate working procedures with regards to these
factors, devising of operating policies and procedures and

5. 3
implementation of these procedures and iteratively
evaluating and upgrading of working policies.
However, the intent of this paper is not to address
the details of the above-mentioned processes. In this
paper, the area of focus would be limited to the research
on one of the factors mentioned above, namely availability
of spare parts. To address the safe operation of aircraft,
manufacturers have defined a customized maintenance
program. Consequently, the implementation of this
maintenance program calls for a robust spares availability
service. However, the answer to the question, which type of
availability service an airline should use could be the
difference between profit and loss for the airline. This
paper analyzes real world spares availability services to
answer this question.
REVIEW OF RELEVANT LITERATURE AND RESEARCH
Economics of Airlines
Economists usually describe the certificated airline
industry as closely approximating an oligopolistic market
structure (Wells & Wenseveen, 2004, p. 210). An oligopoly
is an industry composed of a few firms producing either
similar or differentiated products (Wells & Wenseveen,
2004, p. 210). One of the defining characters of such an
industry, relevant to the topic of this research paper, is

6. 4
the economy of scale involved. By economy of scale,
economists mean decrease in a firm’s long-term average
costs as the size of its operation increases (Wells &
Wenseveen, 2004, p. 210).
In the airline industry, the product the air carriers
provide to the public is a seat on a departing flight.
Thomas Petzinger Jr., in his book Hard Landing, vividly
describes this concept as follows,
An airline seat is like fresh food - a grapefruit,
say-in that it spoils after so much time on the shelf.
Every empty seat taking off on every flight is a
spoiled grape fruit and exactly as valueless. Both
required time, effort, and money to create, and both
came to a wasteful, meaningless end. And on an
exceedingly large number of flights, the sale of one
last seat, according to the First Rule of Airline
Economics, could easily decide whether the plane flew
the entire distance in the red or the black.
(Petzinger, 1996, P. 57)
Airlines being oligopolies must be able to sell as many
seats as possible in order to lower their costs.
To achieve economies of scale in production, the
airlines, like other oligopolies, utilize the most
efficient and productive equipment (Wells & Wenseveen,

7. 5
2004). One example of this equipment is the aircraft in the
air carrier’s fleet. Currently aircraft maintenance in an
airline environment is comprised of three steps (Sachon &
Pate-Cornell, 2000). First, the flight crew identifies and
reports a problem by means of a pilot report (“pilot’s
write-up”). Second, once the plane arrives at an airport,
technicians perform troubleshooting (“verification”) on the
reported problem. Third, confirmed problems are repaired
(Sachon & Pate-Cornell, 2000). It is during this last stage
that the resourcefulness of the air carrier is tested. The
resources necessary include but are not limited to the
availability of skilled work force and the availability of
appropriate repair materials or spares. The availability of
these resources determines whether the air carrier will
have an increased economy of scale.
Aircraft Availability
Commercial aircraft are a system with a common goal of
transporting passengers and/or cargo safely and
efficiently. Here a system means a group of aircraft
components, both functional and dormant in flight or on the
ground. Functional components are those components of the
aircraft that actively work every time the aircraft is in
flight or on a ground maneuver. Dormant components are

8. 6
those that function passively during the aircraft flight or
ground maneuver like the aircraft structure.
Consequently, airlines prefer not to have a grounded
aircraft in their fleet because such an aircraft would be a
direct obstacle in achieving their economies of scale.
However, the components comprising these aircraft are life-
limited and require maintenance in order to achieve the
“safe” portion of the common goal described above. In order
to meet this requirement of minimally affecting aircraft
revenue-generating time, aircraft manufacturers have
incorporated a design philosophy that modularizes the
components.
Aircraft components that have such a character are the
ones defined above as functional components. An example of
such a component would be the avionics system installed on
an aircraft. Modularizing such components helps airlines to
replace them immediately from the aircraft with out
affecting the revenue-generating time of the aircraft.
Here, one has to keep in mind that there are other factors
that affect the revenue-generating time of aircraft, but
that is beyond the scope of this paper.
Consequently, the availability service of repairable
aircraft components, secures aircraft utilization by
providing a supply of functional spare units to back up the

9. 7
critical functions of the aircraft (Kilpi, Toyli, &
Vepsalainen, 2009). Availability service is the management
of the number and location of spare components (Kilpi &
Vepsalainen, 2004). The easily replaceable modules of the
aircraft are Line Replaceable Units or LRUs (Kilpi et al.,
2009). Discrepancies related to these LRUs, whether they
happen at the air carrier’s home base or a location at a
point in its network; require readily available spares that
would replace them immediately. Thus, spares availability
links inherently with an aircraft’s availability, making it
one of the focus areas for an air carrier working to expand
its economy of scale.
Spares Availability services
Regardless of the initial quality of material and
workmanship, the product of any manufacturer (aircraft in
this case) eventually ceases to conform to design
specifications and failure occurs (Cohen & Lee, 1990).
Airlines use different techniques in availing the necessary
spare that would support their aging aircraft.
The most commonly used strategy is stocking of spares
by individual airlines depending on their fleet type.
Maintaining in-house capability is an alternative that
sustains sovereignty but also ties up valuable capital in a

10. 8
property that is steadily losing its value (Kilpi &
Vepsalainen, 2004).
A second option used by air carrier’s in providing
spare for their aircraft is by subcontracting the
availability services for one’s fleet to a third party
capable of providing the service. This process is
commercial pooling (Kilpi et al., 2009). Subcontracting
component availability services replaces capital costs with
a constant cash flow, increasing business flexibility
(Kilpi & Vepsalainen, 2004). However, this alternative also
increases transaction costs and possibly lead-time, which
is the amount of time one has to wait before getting the
ordered spare part (Kilpi & Vepsalainen, 2004).
Another option used by airlines for their aircraft
spare need is spare pooling also known as cooperative
pooling (Kilpi et al., 2009). According to Cohen and Lee’s
descriptive paper on pooling as a policy of improving spare
part inventory control, pooling involves the following
Pooling is an important strategy for dealing with
shortages caused by the uncertainty of both the supply
and demand processes. Pooling groups can share supply
and demand on a regular basis. This arrangement can
shorten lead times and use system inventory more
effectively. (Cohen & Lee, 1990, P. 61)

11. 9
Spare pooling is a shared spare part availability service
in which airlines obtain lateral supply of aircraft spares
from spare holdings in the supply chain (Cohen & Lee, 1990).
Airlines use one of these three methods in stocking
their spare parts. As seen in Figure 1, these methods vary
based on the actual contractual agreement involved and the
number of participants. As one goes to the right of the
graph, one can visualize the complexity in the logistics
issues involved between the partners. Consequently, the
left end of the graph signifies the non-existence of the
logistics issues.
However, airlines face an undesignated capital burden
in the left part of the graph. It was estimated in 1995
that the aviation supply chain held US$45 billion in
inventory, nearly 80% of which was owned by the operators
(Flint, 1995). In addition, inventory pooling, an inter-
company cooperation where the cooperating companies share
their inventories, is an effective way to improve a
company’s logistical performance without requiring any
additional cost (Wong, Cattrysse, & Oudheusden, 2005).

12. 10
Figure 1: Framework of cooperative strategies by Kilpi et
al. 2009, P. 362.
In order to have an optimal choice from the above
types of component availability services, a modeling
analysis will be helpful. Kilpi and Vepsalainen (2004), in
their research paper, had presented such a model based on
fictitious air carriers that resembled real-world airlines.
Consequently, the paper concluded that cooperative pooling
is an optimal choice and that even relatively large
airlines should stay away from maintaining their own stock.
The basic model presented by Kilpi and Vepsalainen
(2004) illustrates the relations between the factors of
availability (reliability, turnaround time, service level
and the number of units supported) and the number of spare
units needed. In the aviation industry, the most widely

13. 11
used measure of reliability is the mean time between
unscheduled removals (MTBUR). Repair TAT is the elapsed
time between a failed component removal from an aircraft
and the moment when it is stored after the repair and ready
for use as a spare unit.
The required service level of the spares supply is the
share of the number of times of request fulfillment on a
certain component when there is request for this component
(Kilpi & Vepsalainen, 2004). The measure of number of units
supported is the total number of the components in question
installed in all the aircraft in the airline’s own fleet as
well as in other fleets supported by the inventory (Kilpi &
Vepsalainen, 2004).
A review of the basic calculations that led to an
assertion that cooperative pooling is an optimal choice for
airlines shows the use of Palm’s theorem of theory of
queuing items in demand (Kilpi & Vepsalainen, 2004). The
next section shall review this theorem in relation with
spares availability.
Basics of Spares Availability Service Modeling
According to Palm’s theorem, the stationary
distribution for the number of units to fulfill the demand
of spares is a Poisson process with an assumption that the
interval between the arrivals of units is negative

14. 12
exponentially distributed (Kilpi & Vepsalainen, 2004). The
two defining statistical terms of this theorem are the
usage of Poisson distribution to mimic aircraft spare
requirements and assuming aircraft spares need is a
stationary distribution. Therefore understanding these two
statistical terms is mandatory in visualizing the logic
behind Kilpi and Vepsalainen’s (2004) assertion.
Basics of a Poisson Probability Model
A probability model gives mathematical formulas to
calculate probabilities, determine long-term average
outcomes, and figure the amount of variability one can
expect in the results from one random experiment to the
next. Many different probability models exist for different
types of situations. A Poisson process, named after Simeon
Denis Poisson who is a 19th
century ecologist, is a
probability or a mathematical model used to describe a
random process (Rumsey, 2006).
A Poisson process may fittingly define a random
process if the events occur within a specified time or
space (Rumsey, 2006). Another requirement of a Poisson
model is that the events occur independently of each other
(Rumsey, 2006). A third requirement is that no two events
can happen at exactly the same time (Rumsey, 2006).

15. 13
The Poisson process, like other probability models
work on individual random variables. These random variables
could be the total number of times a coin turns up heads
when flipped 1,000 times (Rumsey, 2006). It could also be
the length of time of a phone call, the measure of which
can technically be to a millionth of a second (Rumsey,
2006). Statistically speaking the former variable is a
discrete random variable because it is enumerable. However,
because the latter is not enumerable (numerous possible
significant digits could quantify its value), hence it is a
continuous random variable.
The difference between these two variables being the
one mentioned above, models like the Poisson distribution
handle the probability of their occurrence over a range of
their own type in two different ways. Continuous random
variables do not actually assign probability in terms of a
point event. Rather it assigns density, which tells how
dense the probability is around a certain value for that
specific value (Rumsey, 2006). Thus, the term Probability
Density function (PDF) is used.
Conversely, the probability mass function (PMF) for
discrete random variables is a function that assigns
probabilities for each random event (Rumsey, 2006). It
shows how much probability, or mass, each value of the

16. 14
random event has. Since in the case of aircraft spares
availability, the random variable is actually a countable
one, the PMF is the appropriate choice.
The PMF of the Poisson process is used by Palm’s
theorem to determine the probability between the arrivals
of units and was described as a negative exponentially
distribution. Kilpi & Vepsalainen (2004) mathematically
modeled it as follows.
Here D equals the expected demand of spare units
during repair turn around time (TAT) of components in
repair; k equals the number of unscheduled removals during
TAT and k! is the product of all the values less than or
equal to k, e equals the base for the natural logarithms
and p(k) equals the probability of exactly k unscheduled
removals to happen during TAT.
A key factor in these types of models is often the
ample server assumption; that is items that require repair

17. 15
never queue up but go in to service immediately (Gross,
1982). Statistically, this means successive order
replenishment times (TAT) are independent (Gross, 1982).
Therefore, the Poisson process will be a good approximation
unless there is dependence among entities that cause the
number of unscheduled removals to be dependent (Crawford,
1981).
Basics of Stationary Distribution
Stationary distribution also referred to as steady-
state distribution is a probability-modeling tool that
assumes that the number of events, in this case the number
of unscheduled removals over a period, does not undergo a
dramatic change from previous experience (Crawford, 1981).
In order to understand this, a typical example of a non-
stationary distribution is helpful. According to Crawford
(1981), the increased firepower available to most of the
world’s forces suggest that if hostilities breakout between
major powers the escalation of combat flying activities
will be abrupt and demanding on spares supply.
This abrupt demand is typical of a non-stationary
event distribution. However, the normal airline operations
covered by Kilpi and Vepsalainen (2004) bases on years of
historical data, which most probably do not have the sudden
demands in aircraft spares mentioned. Consequently, a

18. 16
stationary distribution such as Palm’s theory could be a
fitting probability modeling tool.
Managerial Issues in Spares Availability Service
Another aspect of the choice between independent
spares availability and shared spares availability that
needs due consideration is the managerial one. Managerial
issues encompass but are not limited to availability of
trust between the airlines in the alliance, efficiency of
the issuing and receiving procedure of the logistics
system, maintenance philosophy of the airlines planning to
be part of the alliance etc.
However, one of the determining factors of all the
possible influencing issues (listed or not listed above) is
the commonality of the fleet considered for a shared
aircraft spares holding. Airlines have a long history of
customizing their aircraft (Feldman, 2000), thus providing
the airline industry with a huge variety of differently
configured planes all looking the same from the outside and
almost the same from the inside (Kilpi @ Vepsalainen,
2004).
The author of this paper had been able to participate
in acquisition process of new aircraft. Consequently, the
author had observed vendors that are equally certified and

19. 17
capable of providing the same components for an aircraft.
However, one could have noticed the issue of operating
environment of the airline acquiring the aircraft,
maintenance philosophy of the specific airline and price
concessions from vendors and issues of the like take the
forefront of vendor selection process. Consequent spares
availability from a shared aircraft spares holding vantage
point had less priority as compared to the other points
mentioned.
For instance, one can mention a choice of tire
suppliers for aircraft. In choosing between vendors, the
author had witnessed factors like proximity of the tire
manufacturers supply warehouse, operating environment
issues such as high altitude airport takeoffs and price
concessions offered; take priority over which airline in
the vicinity is using which tires and other pertinent
issues of a shared spares holding.
Maintenance philosophy is also a determining factor.
The authorities overseeing the airline’s operation impose
one of the documents that determine this philosophy. This
document, the master minimum equipment list (MMEL),
provides for the operation of the airplane, approved
provisions with certain instruments and equipment in an
inoperable condition (Holt & Poynor, 2006). Pertinent with

20. 18
this, the document provides the minimum repair time for the
inoperable items. Each airline can prepare its own
customized MEL in a format equal or more stringent to the
one given in the MMEL. In preparing its MEL, the airline
may gather the following inputs under the limitations of
the MMEL.
One input is from the FAA’s maintenance review board
report. This report contains the initial scheduled
maintenance program for U.S. operators and subsequently all
operators that fly commercial aircraft over U.S. national
airspace (Kinnison, 2004). Operators use this document to
develop their own maintenance document. Boeing and Airbus
Industries refer to such customized document as a
maintenance-planning document (MPD) (Kinnison, 2004).
McDonnell-Douglas called it the on aircraft maintenance
planning (OAMP) document (Kinnison, 2004). These documents
contain all the maintenance task information from MRB
report plus additional tasks suggested by airframe
manufacturers (Kinnison, 2004).
In preparing the MPD, operators use their own
experience of aircraft components and associated costs in
determining whether to use the components until failure or
define a removal and repair schedule to have an increased
MTBUR from the component. This choice affects most of the

21. 19
components on the MEL and prioritizes the specific airlines
spares availability. Consequently, considerations of spares
pooling with other airlines will lack synchronization, as
airlines are quite suspicious about each other’s
maintenance philosophy and the quality of their maintenance
work (Kilpi & Vepsalainen, 2004).
SUMMARY
It has been the aim of this paper to address the issue
of air carrier operating cost reduction from the
perspective of shared spare part holding. The paper
identified the relevant cost drivers in order to derive a
related solution. The possible solutions were, owning one’s
spares or sharing them amongst other airlines with
indications that airlines should avoid the former. However,
the author also believes the latter option includes other
variables that need analysis. For example, trust and
logistical proximity between the cooperating airlines are
points of further investigation. In addition,
considerations of a shared aircraft spares holding should
be from the beginning of the aircraft acquisition process.
The airline history has clearly shown that the
industry is competitive and allies at one time could be
competitors at another. The case with British Airways and
United Airlines bares witness to this fact (Petzinger,

22. 20
1996). Therefore, a risk analysis of spare pooling
partnership is in order before becoming part of one. In
addition, the logistics involved of queuing of spare parts
to satisfy demands need to be mathematical analyzed. Here,
the assumptions taken should mimic the operations of the
real world as much as possible.
The mathematical model by Kilpi and Vepsalainen (2004)
cited in this paper, bases on the Poisson distribution
discussed earlier. The author believes one of the defining
characters of this mathematical model namely the assumption
that, “no two events can happen at exactly the same time”
(Rumsey, 2006) is not typical of the real-world aviation
industry. It would not be out of the ordinary to have two
aircraft of the same model requiring a tire change exactly
at the same time. Consequently, in deciding on becoming
part of a shared aircraft spare holding, airlines must
scrutinize managerial considerations like efficiency of the
proposed system, the type of aircraft components the
alliance should be for and questions pertinent to these
issues.

23. 21
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