(AW) Airbus A330-200s are used by Hawaiian Airlines on its new Asian network. Hawaiian Airlines shifts focus to tap into Pacific Rim potential In a U.S. airline industry where capacity constraint is pursued with almost religious fervor, Hawaiian Airlines' double-digit growth rate makes it something of a heretic. But the carrier is not pursuing expansion for its own sake—rather, it is following a deliberate plan to transform its business model and set itself up for long-term success.

Centralized Procurement Key To Hawaiian's Growth

Hawaiian strategy emphasizes streamlined purchasing

A version of this article appears in the May 26 edition of Aviation Week & Space Technology.

When Tom Wessner joined Hawaiian Airlines as its first strategic procurement czar, he knew it meant swapping one form of resistance for another. 

He came to the carrier—and the industry—following 18 months of arm-twisting top-tier automotive vendors to supply a quirky Silicon Valley upstart named Tesla. 

At Hawaiian, he is changing a years-in-the-making purchasing culture by streamlining both the process and the number of suppliers, all in pursuit of improvement through simplification.

Three years into the job, his team is making progress, though he is quick to acknowledge—and even embrace—that simplification is not always simple.

“I like to go into situations where you are in the minority trying to change things,” Wessner says.

Hawaiian recruited him to fill an organizational chart box created by consultants as part of guidance to manage growth. Hawaiian’s 2013 revenues topped $2.1 billion—nearly double from five years ago.  

While centralized procurement is routine for many large companies, it is still maturing in parts of commercial aviation (see page MRO20). The concept is simple: Instead of each department buying what it needs from its own vendors, a centralized team analyzes each internal customer’s needs, looks for synergies across the company, and sets up vendor deals accordingly. Working with the internal customers, the procurement team manages the vendors, from purchase orders to payment.

If everything works as planned, the company ends up with fewer and better vendors, and internal customers get what they need.

Wessner and his team of category managers—the staffers tasked with becoming experts on everything from parts to paper napkins—have spent most of the last three years getting their arms around Hawaiian’s vendors and crunching data. The carrier has about 2,000 suppliers, but the goal is to cut that by about 20% this year and trim even more going forward.

“Churning vendors is the bane of companies when they get to our size, and having that many vendors is too much to manage well,” Wessner says. “You can’t get the economies of scale, and you can’t get the quality.”

Reducing the number of vendors is one of the metrics Wessner users to judge his team’s progress. Others include cutting purchase orders and bottom-line savings through better deals.

An early test case was the 150 vendors Hawaiian used for catering supplies. The carrier found itself running out of things all the time, despite having multiple vendors for the same items—such as three vendors for three functionally identical sets of ice tongs—because the same product came in different sets from different vendors.

Hawaiian cut the vendor list to 16 and kept the same items on its aircraft. Inventory visibility increased and the cost of managing the suppliers—and 90% fewer purchase orders—dropped. Ordering more products from fewer suppliers boosted volumes, which meant lower prices.

Any airline-wide procurement project will touch maintenance, which accounts for 10% of Hawaiian’s operating expenses. Last month, Hawaiian and Delta TechOps announced the MRO provider would add component repair to the Boeing 767 fleet support it already provides the carrier. 

“We were paying to have access to Delta’s 767 inventory, but then for repairs, we were shipping parts out to [various MRO shops],” Wessner says. “Now we just put [a part] in a box and ship it to Delta.”

TechOps also has supported Hawaiian’s Airbus A330 maintenance needs since the carrier put the model into service four years ago. The deal includes setting up line stations at every Hawaiian A330 stop, including Beijing, launched in April.

Hawaiian’s A330 aftermarket needs have been limited to light maintenance and non-routine services, such as airworthiness directive compliance.
TechOps, through its Complete Fleet Services (CFS) offering, has handled them all, and is well-positioned to tackle the next big item on Hawaiian’s list: heavy maintenance.

Hawaiian operates 17 A330s and has five more on order, including three slated for delivery this year. Its first five went into service in 2010 and early 2011, meaning their first 72-month-interval heavy checks are on the horizon. While TechOps is a logical choice and fits into Wessner’s big-picture strategy of tapping existing vendors, the Atlanta-based MRO is no lock.

“Don’t bring a vendor to me,” Wessner tells his internal customers. “Tell me what you want, and I’ll either use a vendor we already have, or find the best vendor for you, and hopefully that vendor will fit into a [future] strategy.”

Hawaiian’s expanding Asian network puts A330s on the doorstep of several MRO providers in the region. The Tech- Ops CFS agreement indirectly connects Hawaiian with Ameco in Beijing, which Delta subcontracted to provide line maintenance services to Hawaiian.

“We’re in the middle of the Pacific, so in terms of distance [to Asia and North America], it almost doesn’t matter where we go,” he says. Underscoring the point, he notes that the carrier’s 767s are maintained by Air New Zealand in Auckland, though that contract expires this year. 

TAGS: Asia Pacific
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