Alan Peacock, Flight GSE John Nicholson, Aviation NZ GSB Supplycorp Thursday 11 November

1. JOINT PROCUREMENT: SAVING COSTS, IMPROVING PRODUCTIVITY AND INCREASING YIELDS Alan Peacock, Flight GSE John Nicholson, Aviation NZ GSB Supplycorp Thursday 11 November

2. OVERVIEW • Recap on Honiara • What has happened since then • An easy win, GSB Supplycorp • The way forward

3. THE ALTERNATIVES “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……

4. RECAP ON HONIARA (1) • 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)

5. RECAP ON HONIARA (2) • The concerns of airlines (Didier Tappero) • Fleet optimisation • Improving revenues • Reducing costs

6. FUEL: THE CONUNDRUM • 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?

7. FUEL: MORE QUESTIONS? • 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?

8. THE SUPPLY CHAIN

9. FUEL: WHY CAN WE DO IT • 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

10. “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

11. PURCHASING OFFICE REFRESHER 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.

12. FUNCTIONS OF A PURCHASING OFFICE • 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.

13. WHERE SAVINGS MAY BE POSSIBLE (1) • Aircraft Operating Costs • Aircraft Spares ( group savings have already been offered for those a/c under 16 seats) • Lubrication Fluids & Fuels • Outside Engineering Services • Repair of ULD’s • Establish On-Line Technical Team sharing knowledge among airlines, especially useful for engineering.

14. WHERE SAVINGS MAY BE POSSIBLE (2) • 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.

15. WHERE SAVINGS MAY BE POSSIBLE (3) • 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 ).

16. WHERE SAVINGS MAY BE POSSIBLE (4) • Training and Compliance • Co-ordinate training courses for pilots, engineering and ground staff, and by increasing numbers of trainees at courses, drive down course costs • Better 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

17. WHERE SAVINGS MAY BE POSSIBLE (5) 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

18. FUNDING How would this office be funded, once established? • Running costs come out of turnover • Surplus 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

19. JUSTIFICATION • Overcome duplication of equipment • Economies of scale result in better purchasing • Potential to become part of even larger purchasing blocs • More economic orders introduce new leasing options • Group purchasing helps you keep products and services up to date • Encourages collaboration • Integrate purchasing but retain sovereignty • Really addresses ‘cost’ consideration

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

21. CONCLUSION • 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