11/3/2015 Aircraft Maintenance Module1 Aircraft Maintenance Management Module PRINCIPLES OF AIRCRAFT IN- SERVICE PRODUCT SUPPORT AND CONTRACTS MANAGEMENT

a) Aircraft Product Support The product support is defined as a set of aftermarket services, processes and procedures established by the aircraft manufacturers to assist the airline operations and to ensure that the aircraft and its components remain functional during the life time of the aircraft. In order to achieve this sustainable support, the aircraft Manufacturers produce tri-partite Agreement with Airlines and suppliers to define all the terms and conditions that govern such in service support. 11/3/2015 Aircraft Maintenance Module2

The main aspect of product support revolves around materials and airline inventory cost optimisation. In the next few paragraphs, we will shed some light on these Agreements main terms in order to understand these practices within the Aerospace Industry. 11/3/2015 Aircraft Maintenance Module3

A1)Manufacturing Product Support Agreements- Materials Costs The Product Support Agreement (PSA) establishes the OEMs contractual duties, responsibilities and obligations related to components as offered to airlines with the purchase of the aircraft. Therefore, it is a vital tool for DMC significant reduction if it is efficiently used by the airlines. The PSA further illustrates the terms that govern the aftermarket relationship between the Airlines, MROs and the OEMs. The major terms and processes that are directly linked to the DMC reduction are shown in the following paragraphs. 11/3/2015 Aircraft Maintenance Module4

For the sake of illustration Boeing PSA No D and Airbus Supplier Product Support GCP 2000 would be used. The Product Support Terms associated with Inventory Optimisation: 1. Term of Agreement: Is for as long the aircraft remain in revenue service, i.e. through the life cycle of the aircraft. This is quite remarkable as the airline can track their DMC financial matrices through the full aircraft life cycle where they can request the applicable remedies. 2. Continuous Improvement: OEMs commit to continuously exert reasonable efforts to introduce improvement in terms of design and quality to reduce Parts’ DMC element. 11/3/2015 Aircraft Maintenance Module5

3. Technical Field Support: OEMs commit to provide airlines with a no charge field service to address problems associated with their parts’ faults. 4. Parts Obsolescence: OEMs will make their maximum efforts to reduce costs and operational impact in case of Obsolescence introduction to the parts including cost sharing of new replacements. 5. Software and licensing: Is offered at no charge to the airline to enable easy operation and troubleshooting of the parts. 11/3/2015 Aircraft Maintenance Module6

6. Spare Parts Lead times: OEMs have an obligation to deliver spare parts (Purchase or Repair orders) to the airline within the specified contractual TATs. In case they are unable to fulfil their commitment, they have to provide the airline spare parts loaners at no additional charge and pay out a sum of penalties as liquidated damages. Thereby the airline won’t need to buy additional inventory stock of such parts thereby reducing its overall inventory unnecessary investment. 7. Spare Parts Escalation Protection: OEM have an established formula for allowable annual percentage increase in the part price. Should this percentage exceed a certain preset agreed value, then Airlines can rightfully decline to pay this excess amount. 11/3/2015 Aircraft Maintenance Module7

8.Lease items: The airlines are not obligated to procure bulky structural high priced parts as OEMs are required to stock these at their facilities at an agreed distribution sites. These can offered when need to airlines at a reasonable charge thus preventing the airlines from this high investment. 9.Repurchase of IP parts: There are occasions where the airline purchase parts during initial provisioning for a new aircraft but do not use them for few years. Under this term, The OEMs accept back any unused purchased spares for a full refund for a period of five years since EIS. 11/3/2015 Aircraft Maintenance Module8

10. Warranty and Reliability programs: OEMs provides warranty for four years and ten years as reliability guarantees. Due to the significance of both these terms in the DMC reduction for the airline, have dedicated separate sections in below to elaborate further on the offered remedies and processes. 11/3/2015 Aircraft Maintenance Module9

A2)Support Materials Cost reductions- Warranty claims The warranty terms and related contractual remedies are considered for the airline, one of the main sources maintenance costs reduction in case of reported failures. The warranty effect normally extends 48 months out of Aircraft age. The airline incurs only routine maintenance costs during this period if they have introduced efficient processes to capture all warranty opportunities. Some airlines with MRO attachment can also generate some profits from the warranty business where they recover the costs plus a certain margin they made out of manpower either from their own airline or a third party airline customer. 11/3/2015 Aircraft Maintenance Module10

The Introduction of new aircraft received with a comprehensive warranty support normally during the first years of aircraft age hence contributing significantly to maintenance cost reduction. The guarantees last for much longer normally ten years of Aircraft age. It is anticipated that during this period and in case of reliability issues, OEMs will intervene and offer product support which includes free repairs/loaner and modification. 11/3/2015 Aircraft Maintenance Module11

OEMs provide below remedies under the PSA terms: - Free of charge repairs/replacements for parts. - Materials and Labour reimbursement cost for defect corrections. - No charge replacement parts for rogue parts. - Labour reimbursement for inspection man-hours called by OEM as a result of defect. - No Fault found repairs remedies provided Airline provides the supporting documents. - Freight costs reimbursement for both outbound and inbound costs. 11/3/2015 Aircraft Maintenance Module12

- Warranty period extension for unresolved defective condition provided the OEM receives an official claim Notice. This is quite a significant protection for the airline; they need to be efficient in their processes to capture such a discrepancy. - Claim response time is industry standard of 30 days, should the OEM fail to respond within this allowable time, the claim will be deemed as accepted. As we have noticed, vigilant attention while reviewing anomalies for aircraft under warranty can play a significant role in materials costs optimization. 11/3/2015 Aircraft Maintenance Module13

A3)Materials Cost reductions- Reliability Guarantees The reliability program yet provides another umbrella for the airline as term is quite long, ten years and few OEMs offer 15 years from 1 st aircraft induction. The Airline and OEMs agreed to measure the component reliability by a unit called MTBUR which simply means Unscheduled Time between Unscheduled Removals. During the term of the guarantee and in case of component performance issue where by the guaranteed MTBUR is not reached, then the following remedies apply: 11/3/2015 Aircraft Maintenance Module14

- Correction of all failed covered components at no charge - Modify all fleet components in case OEM introduces an improvement SB. - Provision of No charge Loaners for poor performing components, these units compensate airline against repeated removals and stock depletion. - Reimbursement of all incurred transportation charges of all poor reliable units returned back to OEM facility. 11/3/2015 Aircraft Maintenance Module15

In view of the aforementioned, it is quite evident that the inventory costs of such components which are covered under the reliability guarantees would be optimised to the airline desired levels. However, the airline must introduce all necessary automation and processes to track all components performance and work proactively with OEMs to obtain the relevant remedies. 11/3/2015 Aircraft Maintenance Module16

A4)Inventory cost control & optimization In addition to the techniques outlined above, i.e. the Product Support agreements remedies, the following elements can help in Inventory Costs optimisation: -Exchange support schemes, Where the airline can enter in mutual agreements with OEMs or MROs to manage their rotables requirement of a certain fleet when the need arise. This way, the airline does not need to invest highly in the initial provisioning time and focus their efforts into investment with other assets. -Regional Distribution OEM Centres, The airline can drastically reduces its inventory stock levels by means of agreeing with suppliers to set up regional spares centre which grants the airline easy access when needed against an agreed contractual lease or purchase charge. 11/3/2015 Aircraft Maintenance Module17