UNITED STATES OF AMERICA NATIONAL TRANSPORTATION SAFETY BOARD WASHINGTON, D.C. ---------------------------------x ) In the Matter of the Public ) Forum for Oversight of ) Aviation Maintenance ) Repair Facilities ) ---------------------------------x Date: Monday, August 30, 1999 9:00 a. m. Location: Sheraton Chicago Hotel & Towers Sheraton Ballroom 1,2, and 3 301 East North Water Street Chicago, Illinois The above-entitled matter commenced at the hour of 9:00 a.m. BOARD OF INQUIRY: ROBERT T. FRANCIS, II, Chairman JAMES ROSENBERG VERNON S. ELLINGSTAD JACK DRAKE TECHNICAL PANEL: FRANK MC GILL DEBORAH BRUCE PARTIES TO THE PUBLIC FORUM: AIR TRANSPORT ASSOCIATION (ATA) REGIONAL AIRLINE ASSOCIATION (RAA) AERONAUTICAL REPAIR STATION ASSOCIATION (ARSA) FLIGHT SAFETY FOUNDATION (FSF) FEDERAL AVIATION ADMINISTRATION (FAA) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ P R O C E E D I N G S CHAIRMAN FRANCIS: Could we get started please. Those of you in the line in back signing up, we appreciate you doing that. You can do that at any point during the hearing. I think maybe if we start on time, perhaps we'll end up on time. Maybe we can get going. I'm Robert Francis. I'm vice chairman of the NTSB. I'm delighted to be here in Chicago. I have some brief overview remarks, a statement that was prepared and I'll read the statement. You can try to follow along because some of you have copies of it. Let me emphasize first that this is a hearing that is not like any of the hearings that the NTSB holds. This is a hearing not tied to any particular accident, but rather a hearing held in conjunction with a study that we're doing, a safety study on the issue of contracting out of maintenance by the air carriers, both for 121 and 135 carriers. When I say oversight, I mean oversight on behalf of those carriers because they ultimately are responsible for the quality control and the maintenance that's done on their aircraft even if they've contracted it out. And also oversight by the Federal Aviation Administration as the regulatory agency. As a lot of you in this room know, we are in the midst of some very major changes in the industry, particularly over the past 15 years or so, in the way in which particularly maintenance of aircraft is done. And this is really why we're here, because this is a change that is occurring and we want to take a look at this in a dispassionate objective way and see if there are issues that are out there that the community and the industry should be looking at. We're talking about a lot repair stations. We're talking about 2,500 repair stations in the U.S. I might emphasize also that we're not dealing here with the issue of foreign repair stations. We're dealing with the issue of domestic U.S. repair stations. There is an estimate by the repair stations, and I think it's probably pretty accurate, that between 1990 and 1996 this kind of maintenance increased by 30 percent. So we're talking about again this type of maintenance being 50 percent done by other than the carrier itself. And that's obviously a substantial amount of work. We're talking about an industry that's in the $3 million a year range. The FAA is responsible for insuring that the carriers maintain their aircraft in an air-worthy manner. Their oversight programs is something that we'll be discussing here today, in addition to talking about how the carriers themselves are working on maintaining the quality control of the work being done on their aircraft. The NTSB is the National Transportation Safety Board. The NTSB is not the National Transportation Accident Investigation Board. I'm not sure how many people understand that, but it's an important distinction. Certainly most of what people in the world see of the NTSB is accident investigation. But the emphasis is on safety and that's whether we're investigating accidents or whether we're doing what we're doing here today, which is part of the safety setting. This is part of the way in which NTSB can be pro-active and try to pre-empt accidents in this industry. So we're talking about looking at, as I said earlier, which is becoming much more widespread, the contracting out of maintenance. We're not looking at it because it is a horrendous problem in terms of safety in this industry. Over the years '87 to '96, we're looking at something in the range of 85 major air carrier accidents in this country. Of those accidents, we're talking about 18 or so that would be considered to be maintenance related. So is this a huge problem at this point? No, it's not. Is it something, given the dynamic of what's going on, that is worthwhile all of us looking at? Absolutely. So that's why we're here today, is to take a look at this in a constructive way with people that know a lot about what is going on. We're talking about people that do this or manage this and we're very appreciative of their being here to help us out. Let me introduce folks that are here at the table with me. Jack Drake, chief of the aviation engineering division for our aviation safety office. To my immediate right is Vernon Ellingstad who is director of our office of research and engineering. On my left, Jim Rosenberg, chief of the safety -- division working for Vern. He is going to serve as our Hearing Officer. We also have sitting back in the second row and with the press row -- who works in our office of public affairs. Let me just emphasize this is fact gathering. What goes into the record here today will become a part of the permanent record held in Washington. We will publish proceedings of the forum. Having said all that, I know these people are anxious to get started. I think we have some folks here that may have not done a lot of public speaking in the past and we appreciate very much you people coming out and giving us insights into this. This people actually know what's going on. Deborah Bruce also works for our firm in safety studies and Frank McGill works in our office of aviation safety. They are the people who are really running the study for the NTSB. So with that, we'll turn this over to Jim and we'll get started. MR. ROSENBERG: Thank you, Mr. Chairman. Just a couple brief administrative matters. As the Chairman indicated, we will be preparing the proceedings of this hearing. The sign up sheet in the back of the room is for the proceedings. If you'd like to obtain a copy of the transcript of the hearing, sometime during the break or lunch time period, or you can also contact the reporter sitting up here at the front of the room to get a copy of the transcript. The first thing I'd like to do this morning is identify the spokespersons for the parties. As I call out the party name, will you please identify the spokesperson. The Federal Aviation Administration. FAA: David Manno, aviation investigator, Washington. MR. ROSENBERG: Flight Safety Foundation. FSF: Bob Vandel, vice president, Flight Safety Foundation. MR. ROSENBERG: Aeronautical Repair Station Association. ARSA: Sara McCloud, executive director. MR. ROSENBERG: Regional Airline Association. RAA: David Lauterer, vice president, technical services with RAA. MR. ROSENBERG: Air Transport Association. ATA: Don Collier, vice president, engineering, maintenance and material, Air Transport Association. MR. ROSENBERG: The first panel this morning will address oversight of repair stations. Starting on your right, please state your full name. MR. QUILLEN: Tony Quillen, director of heavy maintenance, Southwest Airlines. MS. DAVERIN: I'm Yvonne Daverin. I'm director of quality assurance, United Airlines. MR. BASILE: Frank Basile, senior manager of aircraft conversions, Federal Express. MR. ROSENBERG: Thank you. The questioning this morning will begin with Ms. Bruce. MS. BRUCE: Thank you. I thought a nice way to start would be to get each of you to expand on your job title and sort of explain what the function of those jobs are. You each have different aspects that you perform at your corporate level. So Tony, first, just to explain what the title actually means on a day to day basis. MR. QUILLEN: Our responsibility is to cover the heavy maintenance aspect of the maintenance operation -- making modifications to airplanes. I'm responsible for -- plus the on site contracting work that we do which at the present time -- MS. BRUCE: Yvonne? MS. DAVERIN: As director of quality assurance at United my responsibilities include -- function for the company, just to surveil our operations including any work that we have done at our repair stations. MR. BASILE: My primary functions is to convert aircraft, passenger and freight, to transition heavy maintenance on aircraft in our fleet. MS. BRUCE: And that's done primarily how, out of house, in-house? MR. BASILE: (Inaudible). MS. BRUCE: Maybe we'll take a second pass and change the question just a little and ask who else in the corporate structure is intimately associated with contract decisions, contract repair decisions. MR. QUILLEN: In the Southwest operation, we have on-site teams that oversee all our contract maintenance of different companies. Those teams consist of -- The on-site teams report to me with the exception of a -- who reports to -- MS. DAVERIN: At United we also have on-site teams which include emergency, administrative, inspection, quality assurance -- MR. BASILE: We work mostly from the -- the quality control and -- process and also with contracts. MS. BRUCE: Okay. MR. MC GILL: Tony, how you doing? You don't have 145 authority at Southwest, is that correct? MR. QUILLEN: I do not. MR. MC GILL: What would you think is the advantage of a 145, since you do both in-house and you out-source 145 work? What are some of the advantages that you see in doing it that way? Why would you do it that way? MR. QUILLEN: At Southwest Airlines, we're in the business of carrying passengers. The 145 is -- so it's a good source for us -- From the standpoint of what we do within Southwest -- So it gives us a place to go to have -- MS. BRUCE: Sort of by comparison, United has a 145 in-house operation, so how does that serve your interest to do it as providing a core business of maintenance service to other operators? MS. DAVERIN: It allows us to focus on our competencies. The advantages for us of using 145 maintenance is flexibility to respond to -- It allows us to provide a more stable work flow -- MR. MC GILL: How much out-sourcing do you do for other carries? MS. DAVERIN: I didn't bring any figures with me in terms of the volumes. MR. MC GILL: But it's not very much, is it? MS. DAVERIN: I'd say ball park, it's probably less than 20 percent. MR. MC GILL: Why would you think that's the case? Why don't you do more? Why would it not be more? Are you competitive with other 145's if you want to try to perform work for other carriers? MS. DAVERIN: I'm not sure I understand the question. MR. MC GILL: You say you do very little out- sourcing from other carriers or other airlines, yet you have a 145 certificate, right? MS. DAVERIN: Right. MR. MC GILL: You have the ability to do that, if you wanted to? MS. DAVERIN: We work to focus on what we call our -- they do that work for the carriers. If we don't have the work -- MR. MC GILL: Okay. So you out-source some of your work. You take in some work. MS. DAVERIN: That's correct. MR. MC GILL: And then you have your regular 121 certificate. Frank, you don't have a 145 certificate either, so you out-source what portion of your work? MR. BASILE: I would say greater than 80 percent -- MR. MC GILL: What are the advantages; why would you do that? Do you see any advantages of trying to bring it in-house? MR. BASILE: -- carriers such as United -- started years ago -- undertaking of resources of capital and personnel. It's a business decision. We focus on good packages, the relationship with the 145's -- special expertise, technology capable of performing this work. MR. MC GILL: How many different vendors do you use, do you think? MR. BASILE: We try to keep that to a minimum. We try to use four or five vendors that are strategically located in the system that work well in our flight planning, in our scheduling and provide consistent quality product to us. MS. BRUCE: Tony, take this back. We've now gotten through the management structure and down to how we actually are getting the maintenance work done. You have several ways to go into the market and pick a 145 that would do work for you and set up a business relationship. I'd be interested in each of you commenting on the selection process, the work that you go through to identify and select a repair station that you want to establish a business relationship with. MR. QUILLEN: Southwest for years has concentrated on a very few partnership type of relationships with 145's. We have a selection process in house that goes through a board of review, that makes the approval of the final selection. We're not a one person decision making team -- that's not really the case for maintenance. We have a reliability board that makes the decisions on our maintenance program -- the process or we -- So when we go through the process, we evaluate a repair station based on its capabilities, based on its performance and process -- MS. BRUCE: So who's on the selection board? MR. QUILLEN: It's the maintenance directors - - the director of quality and the four other maintenance directors. MR. MC GILL: You said you did some in-house, some outside. You probably do the C-check inspections in house, is that correct? MR. QUILLEN: We do the C-check level in house within the -- production group. Also we do -- in house which is a portion of our heavy maintenance program. That's a two and a half year program in the area. The five year -- inspection is the next level. But the -- we contract out. MR. MC GILL: How many facilities do you do those C-checks in within Southwest? MR. QUILLEN: C-checks, three in Southwest. MR. MC GILL: When you do component repair for most C-checks, do you out-source that out to those facilities? MR. QUILLEN: No, we do not have -- we do minimal -- Probably 90 percent of the components are contracted out. Over that 90 percent, about 60 percent of it is contracted to OBMs. MR. MC GILL: When you do the heavy maintenance elsewhere, what type of representation do you have for its personnel? MR. QUILLEN: Typically the team consists of - - D-check. We have a team of about seven people; technical production type people to oversee the technical aspects, the same for the quality -- MR. MC GILL: How many airplanes at any one given time are D-checked, for instance? MR. QUILLEN: There's -- of D-checks contracted out. MR. MC GILL: When you do your C-checks, that's a progressive C-check, is that correct? So how many do you normally continue those at any one time? MR. QUILLEN: C-check is done in house. MR. MC GILL: Since they're progressive, you're doing so much of it at one time, and then when an airplane goes back on line, you bring it back in, is that correct? How many airplanes do you have done in any one given time for that? MR. QUILLEN: At Southwest Airlines you have the C-checks -- so at any given time we have four airplanes scheduled -- two for heavy maintenance and two outside contractors. MR. MC GILL: Frank, would you kind of tell us a little bit how you do your checks, differentiate between the C and D and what type of representation you have on those airplanes? MR. BASILE: Sure. We do two C-check -- All the other heavy maintenance, C-check -- Our team is very similar to what Tony was saying. We have three maintenance reps, two or three maintenance reps, depending on the size of the operation, a minimum of one, sometimes as many of three QC reps and we have material personnel also on site. MS. BRUCE: Frank, are you doing fragmented C- checks also? Are you breaking them into pieces and doing them progressively or are you taking them down? MR. BASILE: We do not do D-checks. Our D- check is more C-check. -- certain portions of what we would consider a D-check. MS. BRUCE: Okay. Yvonne, do you want to run through the same sort of how you select them and what, sort of in a general sense, goes on for oversight? MS. DAVERIN: Our selection strategy is to use one or two 145 repair station -- to establish a relationship with those. There's a selection process. Once the decision -- is assembling a team, quality assurance, inspection, production, engineering, purchasing -- get together and do -- The team takes a look at previous audits of those facilities, case audits, shop evaluations and we consider things like the facility's capability, product line, -- experience, the location, labor force, their financial condition to insure that we develop a comprehensive report on that facility. MR. MC GILL: Specifically, Yvonne, how would you check the reliability of an aircraft coming out of an out-sourced 145 facility? MS. DAVERIN: We have a team that are inspection personnel who follow every -- First of all, our on-site personnel understands issues that -- and follow the performance of that aircraft. MS. BRUCE: Speaking of reliability, when you take an airplane into that heavy maintenance process, there's a lot of information you'd like to know to drive a reliability program. How do you get that information from your repair station? MS. DAVERIN: We have a requirement for the repair station to send us that information in terms of - - MR. MC GILL: You do the same thing, Tony? MR. QUILLEN: We have liability input directed from the 145 and then we measure and track their liability. MR. MC GILL: You mentioned earlier that you're normally always using OEM type of component specifications on repairs. Do you occasionally pick up other than that type of -- MR. QUILLEN: Yes, we use some other repair station that's sometimes -- MR. MC GILL: Do you do the same thing, Frank? MR. BASILE: Yes. We use both. MR. MC GILL: You use both. And you have people doing both of that? MR. BASILE: Yes. MR. MC GILL: Let's just talk a second a little bit on the reliability aspect of that. We see that we have an industry where there's still many carriers that want to do all of their maintenance in house and they do it. And then we have some that do nearly 100 percent of out-source. And then we have some you all that do a little bit of both. Just generally speaking here, what are some advantage you can see of doing it one way or the other? Yvonne, say at United I know you have to a vast amount of internal work, so you do very little out-sourcing. What kind of advantage is there? What do you see in a quality control area where you're at, what kind of advantages do you see in that? MS. DAVERIN: Doing work in house? MR. MC GILL: Yes. How you're checking the same thing that is out-sourced to a 145, is there any difference in that? MS. DAVERIN: We insure -- of our process in terms of what we do internally and what we're seeing from -- So we have an inspection process, for instance, -- Why we keep it internally, -- over many years we've developed competencies. We feel it provides us with greater flexibility -- MR. MC GILL: You're a major player in the industry. I'm just going to oppose that to, say, a European organization. We'll just pick somebody. Air France. It doesn't matter. But they do an enormous amount of out-sourcing for other carriers in Europe. We don't do that in America. You stick specifically to your airplanes. You have the authority to. I was just wondering, you never try to go out to competitively try to get FedEx to come to your facility or Southwest Airlines to come to your facility; why is that? MS. DAVERIN: We do again, when we have core competencies and -- we will be available for carriers -- But we don't aggressively go out and ask Southwest. First of all, I think we need to focus on our own air carrier. Secondly, we need to understand our capacity. MR. MC GILL: So you actually think it's a reasonable assumption to -- them and that's why we have 145 facilities to be able to do that, the resources, the usage of your resources is better kept on a core basis. MS. DAVERIN: We look for some -- where we have a -- office. We look for others who can produce -- and utilize it. MR. MC GILL: I'll take it right back to Tony again. You say you out-source both. Do you have anything in the future that would say, well, if we're gathering core competencies, sometime in the future could I do my own D-checks? What advantages would that give you or not give you? MR. QUILLEN: We have taken the position, we have a continuous -- process. We have the in house capabilities -- our maintenance program. We have set that from a business side, looking at resources, capital investments, so on and so forth. That comes under the -- before we go out and do it. What we've come to realize is -- our business is passengers. We maintain airplanes in order to provide that service to the passengers. So we think we are doing our best -- our long range plans would continue on -- with keeping a portion of the D- checks in house and contract the rest -- our reliability. The same reliability, part of the process -- in house D-checks versus the ones we contract. So we have a good measure of balance here, to say we're performing up to the maximum level we see from a reliability standpoint -- MS. BRUCE: I'd be interested for a little more discussion about how that evaluation, how that reliability evaluation is done. When you said you look at in house and out of house by the same group, what are they doing? MR. QUILLEN: We monitor the -- routines. We monitor the -- and how everything performs, from the first flight out of the check, if it's a functional check flight, how that performs. Throughout a period of time, for problems that are associated or -- heavy maintenance. MS. BRUCE: So after the heavy maintenance work, you're sort of monitoring the health of the aircraft and you can go back and track that to who did the last big major overhaul on that one? MR. QUILLEN: Yes. MS. BRUCE: Okay. MR. MC GILL: Frank, on third parties, maybe we should call them fourth parties from a heavy maintenance check which we're now calling third parties, but if they out-source certain components, certain areas, some area of specialty, how do you audit this fourth repair facility that is working on components on your airplane? MR. BASILE: We keep -- available, we make that available and they go to our -- There are times when they are allowed to do special processes outside -- special processes such as -- things like that. They come to us and ask for our permission. It's not uncommon to send someone -- MR. MC GILL: Are you a member of the case organization? MR. BASILE: Absolutely. MR. MC GILL: All three of you are? So you send somebody specifically if some component has to be out-sourced? You're going to do your own audit, is that correct? MR. BASILE: (Inaudible) We do our audit against that and we go through that, look at it, monitor it, and any on-site responsibility -- MS. BRUCE: Who puts the list together? I guess what I'm wondering is do you select the second level service that you're getting from a repair station based on the business relationships they've set up in their area in the local geography and all that or is that list existing prior to you setting up an arrangement with the part 145 to do heavy maintenance? In other words, are you picking their subcontractors or are they? Do you ever run into problems where you'd like to more involved in how they've set up their subcontractors out of that facility? MR. QUILLEN: In our particular case it's their list and we go over that list -- and then we give them the permission to go ahead. MS. BRUCE: Okay. How do they inform you that they've taken -- I think it's a given here that we all know that the air-worthiness responsibility remains with you three for your aircraft. As these airplanes and these systems and parts get worked on, how do you know that your part 145 sent something out to a component shop? In other words, what's the traceability that you get for its going there? MR. QUILLEN: In our particular case, that's handled with the on-site -- They go through a process of notification and it goes through their shipping and receiving process. MS. BRUCE: So on site being you have a representative with every aircraft when it's under heavy maintenance process? MR. QUILLEN: That's part of their responsibility. MR. MC GILL: Who does the engineering? What size of engineering do you have, say, at Southwest? MR. QUILLEN: Southwest has a very small engineering department. What we do is we have a -- we utilize their repair engineering group for actually doing the engineering process up to the point of where we do the final approval of engineering -- so we concentrate primarily on our operational requirements of the airline and the repairs done in the airline. MR. MC GILL: So if you needed some sort of an internal interior mod change on a particular airplane, then you just have their DERs work this up? MR. QUILLEN: -- to perform actually -- the on site people and through coordination of our engineering department. MR. MC GILL: I see. Yvonne, do you work much with engines, the reliability and so forth, are you tracking any sort of the air-worthiness portion in your area on engines? MS. DAVERIN: Yes, we track the reliability of engines. MR. MC GILL: But specifically I was just -- when the engines come through, do you have a very deep base, database on a particular engine that you would know and how you perform the maintenance and inspection and whatever you do to this particular engine, that it would create a more reliable engine than, say, somebody else that used a different program? Do you feel that your program is better? Are you measuring it in any way? MS. DAVERIN: We measure reliability of our air frame engines and components. In terms of better -- in terms of looking at reliability and systems associated with those engines. So I think that's probably the standards used. MR. MC GILL: With the manufacturer, are you working in any conjunction with the manufacturer of the particular engine? Do you work with the reliability on the component portion, let's say, -- or whoever is the manufacturer? MS. DAVERIN: Yes. We work closely with the particular manufacturer when we can on reliability not only our own engines but in terms of the industry so that we can stay aware of a failure at another airline, as well as -- detections within our own system. MR. MC GILL: I'm just curious, since you work with Pratt and you work with G.E. and different other manufacturers, do they relate anything specific that says you are doing a better inspection or that the inspection process is creating better results? I was just curious on that. Frank, do you have anything on the engine area? MR. BASILE: From the engineering perspective we do have a pretty substantial engineering department broken down at the system structure which is power frames, all different major -- and they develop most of the engineering, I would say 95 percent of the engineering that we do on the aircraft. If there is an exception to that, it all comes through our engineering department. It has to. MS. BRUCE: That's pretty much detailed but I think probably everyone in the room knows this but all three programs can be different for you. I mean you could run exactly the same airplane, a 737, and have different aspects to your maintenance program for the same airplane. Maybe that's where we're headed here with when you start asking how your reliability program looks to you. You're actually saying from the maintenance program you're running, are you finding that it is returning to you benefits that are different? I guess the point is to sort of go on the record and realize that there are differences by carrier for the programs you're running. And where I wanted to go with that is to ask how you transmit those requirements for your individual maintenance program to the 145 that is doing the work for you, because as these three airplanes that physically look the same arrive at a repair station, they become a Southwest airplane or a United airplane or a FedEx airplane, that they're treated differently based on the program you're running. MR. QUILLEN: You're exactly right. There are maintenance programs of all basic programming and they are usually tailored to fit the operation using that equipment. For instance, Southwest is -- operated and -- So what fits the airplane and the operation -- That's the first piece of that. The second piece is the 145 repair station, even though they're 145, -- basically have to operate at 121 -- the same they do for everyone here. So that those things that are tuned to your maintenance program that fits your operation that's designed and built into it has to be accomplished just as though they were working -- MS. BRUCE: So that's the logic for why you need a customized maintenance program and then the point may be relevant to the issue here, is how do you transmit those individual program requirements to -- MR. QUILLEN: First of all, I think it's plain the reason we need those different kind of programs is to fit the operation -- so there are unique things in the program that dictate how we maintain the airplane. We provide a work package. We provide work -- working structures in detail for each -- There's nothing left to interpretation. If there is a situation -- or from an inspection question that comes up, that's the purpose of the on site people, to make certain that it's interpreted correctly. MR. ROSENBERG: Let's take a break. Let's take five minutes. (Off the record.) MR. ROSENBERG: We've doubled the number of microphones now. So presumably we'll double the quality of the presentations. I think we ended up with Deborah. MS. BRUCE: Maybe it was a good place to sort of switch gears. I wanted to -- the panels today are the operators and then following that, the second panel are repair stations and the third panel is FAA. So looking ahead to those topics, one of the angles I'd like to cover from your point of view is United and Southwest are both ATOS operators, and that's a new change in the way FAA is doing its maintenance inspection program. So the question begs to be asked, how is that difference in program affecting your maintenance operations? So first, to Yvonne. MS. DAVERIN: To clarify, the question is how is the difference in the ATOS surveillance -- MS. BRUCE: Has ATOS impacted your maintenance program? MS. DAVERIN: Our maintenance program continues before and after whatever type of surveillance is done. So in terms of the inherent characteristics of a maintenance program, it's not revised. MS. BRUCE: Are you providing the same type of information? Were you collecting the same information before? Certainly, how you actually work on the airplane is the same, but is your information process that you need to collect to respond to FAA inspections, has that changed any? Is there any impact from ATOS? MS. DAVERIN: There's an impact to the carrier in terms of a new surveillance system. But in terms of the impact that it has on the maintenance program, I can't say that there's been a large impact to our maintenance program due to ATOS. MR. MC GILL: Do you have FAA inspectors that have changed or come into your office and talked to you about different areas that were different prior when had a regular air safety investigator, PMI? MS. DAVERIN: Certainly again, our maintenance program has stayed the same. However, what has changed in terms of the surveillance team, it includes not only the certificate management office, but also flight standard district offices across the country. So we are bringing some FAA inspectors in who aren't familiar with the carrier's operations and briefing them about how our maintenance program works versus those they may be familiar with in terms of other carriers they've surveilled in the past. MR. MC GILL: By the way, I wanted to apologize. A while ago I kept using the term out- sourcing and at one point you were relating that to in- sourcing. So just to kind of straighten it out a little bit, you do both out-source, you in-source and then you do in-house maintenance. MS. DAVERIN: That's correct. MR. MC GILL: So you've got all three of them. Sorry for the confusion in my question. MR. QUILLEN: Basically, again I have to second Yvonne, our maintenance program has not changed. But the process that we're interfacing with the FAA has changed. We have I think have had a little bit of organizational changes to better interface with the ATOS process. I think our inspection force from the FAA has increased. We've had the same kind of frustrations that some of the other operators have had of bringing additional FAA people into the process that were not familiar with our maintenance program and our processes and we've devoted some attention to that, to try to better educate everyone, FAA for us on the ATOS process and us for them on our process. So that has had some changes there. MR. MC GILL: When exactly did that program start with Southwest? MR. QUILLEN: We were one of the kick off ones. They prototyped some with us and we had several meetings. My particular group was not directly involved. Our quality group was the ones that were interfacing but we held some information type meetings right up at the front with the district offices and so on, putting us together trying to see what would work and what wouldn't work and then we did trial and error on some of it. MR. MC GILL: Is there any guidance that you've received yet in the process of this new switch over that would benefit the safety of Southwest Airlines? MR. QUILLEN: I think it's early to tell, that there's been that many changes. We've gone through basically the same process we've had all along. We have daily interaction with FAA and the on site people from both sides. To say there was a major change, I'd have to say I haven't seen that yet. MR. MC GILL: Have they been to your 145 out- sourced people? MR. QUILLEN: Yes, they have. MR. MC GILL: Have they responded with anything at all that might better the reliability of the Southwest program? MR. QUILLEN: We've processed that information the same as we have always. We've got a system that we take the input from any of the FAA inspectors and we go through a process. The recent years with the FAA has been, at least in our experience, has been one of a working together for the safety of the airplanes. I think we've seen -- the process of that has always been a very good working relationship, even though the design of the system sometimes is kind of contrary to that. But we're able to work this both at the repair station level and at the main base. The only thing that we've come up with, and we'll get into that a little bit later, is standardization process. We haven't seen that improve any. MS. BRUCE: So the ATOS team has been to your part 145 that takes responsibility for the heavy maintenance work. How about the outflow of work from that facility as you send components and other things out? I'm interested in whether the ATOS program has some aspects that can be responsive to contract repair stations in general. MR. QUILLEN: Deborah, I don't know how far down that went. MS. BRUCE: Would you know if -- turning the angle back to just a regular inspection process -- if an FAA geographic inspector went to a component shop and found some quality problems they were concerned about and that shop happened to get work from your part 145 heavy maintenance provider, would you have any way to know that? MR. QUILLEN: We'd know that through our PMI. MS. BRUCE: So the geographic inspector would report to everyone who had used that -- MR. QUILLEN: I know that our PMI gives us periodic updates of reports that he's received from geographics. MS. BRUCE: Okay. MR. MC GILL: Frank, on the FedEx, you still have your PMIs. MR. BASILE: Of course. MR. MC GILL: Do they go out individually to the listing that you have? MR. BASILE: Absolutely. Absolutely. More so in the last few years, they've been -- the oversight of the 145 repair station has increased. MR. MC GILL: I was just going to go back just one little second here. You all out-source and so does Southwest because you said you're core competencies are moving people, or in your case moving cargo. So you out-source to someone that can do this work for you as opposed to United, who feels that they do it better in house, not so much on the other way. Since we have two carriers doing it one way, I just wanted to reiterate the rationale again. What do you specifically see, can you see, can you measure, are the standards that you set, can you actually identify that with your quality assurance program that it's better for you to out-source and you not to out-source? MR. BASILE: You're asking me? MR. MC GILL: I'm asking all three of you. Why is it that some carriers do and some do not? MR. BASILE: Again I think it has to do with the philosophy of the company when they started up. I mean United has been in business a lot longer than Southwest and FedEx and they didn't have an alternative when United Airlines started. They had to do their own work, and that continued. MR. MC GILL: So if we were starting a carrier today, you and I, would it be reasonable that we would not then do our maintenance and we would out-source that maintenance? MR. BASILE: That would be entirely up to you. That would be up to you. MR. MC GILL: Because of money, finances? MR. BASILE: I think that you have to look at the way that the aircraft are being built today. They're highly technical. There's a lot of special processes that have to be done. There's a lot of differences in aircraft, in fleet types. There's new avionics equipment coming out every day. And to set up all of that, when you could go to a already existing facility who is a professional and has the capability of doing that, it sure is a better decision to me. MR. MC GILL: Okay. That's sounds right. But let's just say that your maintenance program, you or someone in your organization, has taken the maintenance planning document or whatever for the carrier and you create an individual program specific to you. And then when you take it to a 145 facility, they're going to have to use your program. MR. BASILE: That's correct. Absolutely. MR. MC GILL: So if they're doing that, using your program, or in your case, Tony, the Southwest program, then it's just a maintenance 145 facility interpreting your program under your supervision to do your standards, is that correct? MR. BASILE: That's correct. MR. MC GILL: Do you have a way of measuring those standards, that you feel is better than doing it in house like United Airlines? MR. QUILLEN: Let me pick up where Frank let off. There are decisions you have to make from a business perspective when you're, let's assume, starting an airline. Southwest did this 28 years ago. We elected to do a level of maintenance up to, at that point in time, line maintenance. We evolved into a level of C-check maintenance because that's what we were best performing, we felt we could perform in a very highly reliable fashion. Now, it reached a level beyond that when you get into some of the things that Frank talked about, facilities' equipment wanted to go to the next level of maintenance where you have to have plating shops, machine shops and what have you, to go on. Now, to make that step was a very big business decision, but also the step of saying do we want to bring this in and try to create a repair station to the level of maybe United. The uniqueness of Southwest coming to be in the early 70's, we were going right through this evolving airline through the process of the 145 repair stations being evaluated to a different level. So the decision to go to the out-sourcing was that we had a professional organization and a 145 that could do a level of maintenance that we felt very confident that they could maintain that airplane in a safe manner. The point of measuring that is, yes, I have a unique situation. My particular responsibilities is I don't want -- I'm responsible for two lines of quarter D and half D and basically for people that don't want a quarter and a half D is they're just moving into your heavy maintenance. If you go to the planning document it's the C-7 level of maintenance. So we're doing very similar maintenance as the repair station. So I have a good measure. When I track the aircraft coming out of the two lines at Southwest, and I track the lines coming out of the repair station, I have some very good measures to make sure that we're doing equal work. We go as far as I rotate supervisors from the in house lines to the on site team, so that we can not only make sure that we're doing it the same way, but we learn. We have repair station people sit on our program review and bring up issues and even the mechanics and inspectors from the floor, to bring up suggestions on our airplanes. We carry those back the same as we take suggestions from our mechanics back to our reliability board and say here are things that we need to do. So we've got a very good interface. So we do have the measures in place in our particular operation to monitor this, and we feel we have the best of both worlds. MS. BRUCE: Is it fair to say that from that original business decision that you factored that decision, to contract out maintenance, into the design of your maintenance program? Should a maintenance program from the get-go focus on whether you're going to be doing it in house or not, and what are those considerations? MR. QUILLEN: I think your maintenance program, Deborah, evolves from your operation and from the business economic environment that you're in. What may have been very good decisions 20 years ago, may not be today. So it's a program that evolves, and it's a dynamic program that goes on continually changing. I mentioned earlier, our process of review, of looking at in house possibilities, that's an ongoing business review that you need to do. MS. BRUCE: So the flip side of that, for United, would you be able to customize your maintenance program more because you do it in house than you would if you contracted it out? MS. DAVERIN: Again, I don't think the place - - the place that you go to get maintenance performed doesn't define the maintenance program. The condition of the airplane defines the maintenance program. How you utilize it, the number of hours and cycles you put on it on a daily basis, and again with a new airplane you start with the maintenance planning document. Based on experience you modify the maintenance program again, aligned to the needs of the airplane itself. Where the maintenance gets done doesn't play into the definition of what needs to be done. MS. BRUCE: Well, yes, except take that logic and bring it all the way down to, say, component repair. Component repair in my mind wouldn't seem to necessarily have to differ too much between airplanes. It's not a program level issue and yet, your maintenance program will trail all the way down to that component repair process and will customize that process equally, right? MS. DAVERIN: That's correct. MS. BRUCE: So that is entirely driven by how you use the airplane, that customization? MS. DAVERIN: How you use the airplane, how you use the component, how you use the engine. Certainly, as you have more complex components, you know, as was mentioned earlier, technologies change and that might drive your decision whether to do work inside or to do work outside your facility. So complexity of the airplane will drive where, but the what that needs to be done remains the same regardless of the where. MR. MC GILL: You made the statement that it shouldn't really matter whether you did it inside or out-sourced it or what, the repair, it's the program of the usage of the airplane and you could get the same results, is that correct? MS. DAVERIN: Well, obviously if you have a 145 repair station doing component work or, in our case, as a 121 operator doing the component work you could end up with a serviceable part that meets the specifications and requirements. MR. MC GILL: Let's just take a little part, for instance, whatever it might be. Let's send it out to a 145 facility. The unit that you send out, is that the unit that you're going to get back? MS. DAVERIN: Unless you have a component exchange program set up with that facility. Let's say yes. MR. MC GILL: Depending upon how we qualify, you may or may not get that same component back, is that correct? MS. DAVERIN: It depends again on the nature of what the agreement is that you have set up with the facility. But it is possible not to get that component back, if you have a component exchange program. MR. MC GILL: Okay. But you would get a tear down something, that would tell what was wrong with that particular unit, but not that specific unit would come back into your possession, is that correct? MS. DAVERIN: Again, looking at what United does, I think most of the components, for those that we out-source, we receive those same components back. MR. MC GILL: So you're able to track that unit with whatever repair was done at a particular 145 facility or even in house. You continue tracking that specific thing. Frank, do you do the same thing if you send component repair out? MR. BASILE: It's a requirement that I get the component tear down report with the part. MR. MC GILL: But obviously there are a lot of components that are not brought back in, they're just exchanged out with, you pull a black box out and you get another black box back in, is that correct? You don't get maybe necessarily the one that was sent out? MR. BASILE: That could happen if you have an exchange program set up. But you have to get the tear down report with that component that you get from that approved station. MR. MC GILL: And you're tracking this type of reliability on this? MR. BASILE: We track to very infinite detail, component reliability, to make determinations of whether or not we should modify that part, to improve the reliability of it based upon our operating condition. So that part would have to meet that specification. MS. BRUCE: Back to that, you are providing detail work cards that go along with the job you're requiring a service provider to do? MR. BASILE: Yes. MS. BRUCE: But reliability data that you need back to run your program can sometimes be very different than just the time on the work card. I'm interested in the reporting back of information to feed your reliability program or even, you know, even if it's at the parts level which is the jump off for Frank's question. What do you receive back from the repair station or from the component shop, back through the repair station in the way of data that drives your reliability program? Are they responsible to send you anything other than just the work card performance, the material back? I'm looking for where special notes, any sort of measures that didn't require work on the component, but that you made note of, some notice that there's a difference -- if you go into a replacement piece, some indication about the nature of why that piece had to be replaced. What's the flow back up the chain of information that you need for your reliability program? MR. BASILE: The last overhaul of the part. MS. BRUCE: So it's really just the time and the occurrence of the event? MR. BASILE: It's not the repair data. It's the last overhaul data. So you have to go back to the last overhaul cycle and then any repairs that took place after that. MS. BRUCE: Okay. Let's run down a real quick one. Tony, how many places, you said three places do heavy maintenance for you? MR. QUILLEN: We've got on our D-91 which is our operating spec, we have two major repair stations listed for air frame plus our engine agencies. MS. BRUCE: When was the last time you made a change to who was listed on your D-91? Have you used the same ones? MR. QUILLEN: We've had a relationship with one substantial supplier for 25 years, and the other one was back in business about four years ago. MS. BRUCE: That was the last change you made? MR. QUILLEN: They're not too frequently changed. MS. BRUCE: Could I run the same question past the others? MS. DAVERIN: Sure. On our op spec we have three providers of heavy air frame maintenance, and the last time the op spec was changed for any one of those was probably -- I'm guessing -- it's probably about a year ago. MS. BRUCE: Frank? MR. BASILE: I don't take care of the D-91. I can't tell you exactly when we made a revision to it. I could tell you the last time we made a request was probably three months ago, when we made a request to have someone added. But you know, our gear overhaul vendors and our heavy maintenance overhaul vendors stay pretty consistent. There are changes from time to time. MS. BRUCE: I think we all recognize there are reasons you want that to be the case. But what I'm trying to set up here is what led you to making a change. In other words, you're evaluating the quality of the service you're getting back. Can you give me any examples of why you've changed service providers? MR. BASILE: Sure. We just had a new addition, fleet addition, so of course, we had to have the transition maintenance package in the past year to freighter conversion done by a vendor who was qualified on that specific type of aircraft. MR. MC GILL: You bid those contracts out? MR. BASILE: Sure. Sure do. CHAIRMAN FRANCIS: We're going to start to run into a time problem pretty soon, if we want to give the parties any time at all to question. We're not trying to answer every question in this particular forum. This is part of the study, so I think we better keep our eye it, to make sure everyone gets a chance to participate. MR. MC GILL: That's fine, if you're ready to start the next panel. Fine. CHAIRMAN FRANCIS: Okay. Joe. FAA: I just have one clarification question. I don't believe it was answered. Anyone on the panel can answer this. Can airlines do work for other air carriers without a 145 repair station certificate? MR. BASILE: Sure. They could use their 121, but they still have to use the other air carrier's maintenance program. Yes, sir. FAA: Thank you. That's it. CHAIRMAN FRANCIS: Mr. Vandel. FSF: No questions, Mr. Chairman. CHAIRMAN FRANCIS: Sara? Sara is sitting there with the regulations in her lap. ARSA: Somebody should bring them. Not that we have to read them, Mr. Chairman. But we should have them available to throw at each other every once in a while. I just have a couple of questions. Honest. I just have a couple of questions. The first question that I have is, United has a 145. Is that also because you do work on JA registered aircraft? And are your 145's JA accepted? MS. DAVERIN: We have a 145 that is used as the basis for JA approval for JA 145. ARSA: Because you fly international and you do work on international aircraft, like line maintenance, etcetera? MS. DAVERIN: We do do that, that's correct. ARSA: And I'm guessing that Southwest doesn't and FedEx doesn't. You have to have a 145 in order to be JA certificated or approved. So I think that's one of your drivers also, maybe. With component maintenance, I got a little confused about whether or not you use, as an air frame, when you send your aircraft into an air frame repair station, do you use their approved list or your approved list or vendors? MR. QUILLEN: They have their approved list which we audit and we concur on the stations that they use. They will have some on their listing that we don't. They're allowed to use their list for special processes, with our oversight of course, but as far as the components are concerned, they use our list. MR. BASILE: That's the same for Southwest. ARSA: Okay. So you hand them your approved vendor list and you say, if there's differences you have to come back to us; that's Southwest. MR. BASILE: Exactly. ARSA: And with FedEx, they use that list and that's it? MR. QUILLEN: Yes. ARSA: Except for special processes like plating. MR. QUILLEN: Then they have to come to us. ARSA: And get your permission. MR. QUILLEN: Yes, absolutely. ARSA: And United? MS. DAVERIN: We'll give them our list and then if they have a change to it they have to use our process and we're involved in the approval of that. ARSA: So your process for picking a vendor. MS. DAVERIN: That's right. ARSA: One other question. When you have an exchange program with a vendor on components, do you get the tear down of the unit going out to them or the tear down of the unit that's coming back to you? This is on an exchange. MR. BASILE: Absolutely the one coming back to you. You must have the last tear down, the last complete overhaul of that component. ARSA: I understand that's a requirement under the record keeping requirements, Frank. I'm just asking for your reliability program, the unit that went out to them, it seems like the tear down information from that unit would be important to feed back to you even though you get another unit back. MR. BASILE: Yes. The fault of the component is normally listed on the tag. Yes, of why it was removed. ARSA: The reason that it went out? MR. BASILE: Sure, sure. ARSA: Okay. And when you have it exchanged, United, do you get the information of the unit that went out as well as the unit that's coming back to you? MS. DAVERIN: I believe in the exchange process that the database is kept by the vendor that indicates all that information. But obviously on the units coming back, you'd have that information. In terms of when we get it for the unit sent out, I guess that would be a question I can't answer, the timing. ARSA: Same, Tony? MR. QUILLEN: Basically the same. We have very few exchange programs. Most of ours are closed loop, where we get back the same unit we send out. But we do have an exception program that we keep operating with the unit, but we get the same data they're talking about. ARSA: And your decision of times to use OEMs, I think out of 80 percent of the maintenance you contract out and 90 percent of the maintenance is contracted out, 60 percent went to OEMs. Is one of the reasons you decided to do it that way because of the -- you don't have quite the variety in your fleet that some of the other air carriers do? MR. QUILLEN: That's a big advantage for any operator that has one type of equipment. But the reason we're using OEMs are several fold. One is the fact that they built the part, they have the expertise, the engineering backing it up, plus they have all the material. If you can negotiate the proper price, you've got the best of all worlds. ARSA: That sure helps on that overhaul. Thank you. CHAIRMAN FRANCIS: Is that it? RAA: Just a couple questions. I want a clarification on reasons why you out-source in terms of capacity, that if you -- in order to enable, let's say, a group of dedicated technicians and AMPs to do a D- check, you have to have a certain number of aircraft of the same type generally to maintain that. Can you elaborate in terms of your decision to do it in house versus out-source? Is there a certain point where if you, say, have two aircraft, would it make sense to set up a line, or what's the deep demarcation point or decision point there that you might employ in terms of capacity, in house capacity to do a job? MR. QUILLEN: I'll start off. We do have peaks, I guess you would call them, in our schedule where we have checks going out. I come back to the long term business relationship with a 145 repair station, where we can be confident that we will have people that are trained and have the capability to do these kinds of checks. It is one advantage, and you've been asking the question about an advantage when you have a flexible work force, that's one thing a repair station can have that we don't have the flexibility sometimes, because I think the next segment, when you talk to a repair station about that, that's some of their attractiveness for that business, is they can run multiple lines and they can start up lines and do away with lines by moving that work force around. The decision to go out with that work is based upon a number of factors and one is does the place we want to take that work have the capability. When we've been dealing with the same repair station and we have consistent lines that we can have qualified and trained people that are familiar with our processes already, it's a big advantage. RAA: Okay. Thank you. The other issue had to do with your communication between your PMI and yourself and your staff with respect to making good decisions on selection of vendors and dealing with them. We got into this issue of the repair station out- sourcing as well, and oversight of those. Can you see -- what can you see in terms of the communication between the FAA and the air carrier that would make that a more efficient process? MS. DAVERIN: Speaking on United's behalf, when we do select a vendor, we accomplish a case audit to approve that vendor and the FAA usually goes along on that audit to answer any questions they may have about the vendor as well. RAA: So they physically accompany your team? MS. DAVERIN: Yes. RAA: To even to, say, third party, if a repair station out-sources parts, they will also go to that house as well? MS. DAVERIN: That I'm not familiar with. I can't speak to that. RAA: Is there -- I guess what I'm getting at is in terms of sharing information between the FAA and the air carrier on repair stations and sources of out- sourcing of the repair stations. Can you see, I guess, better ways of communicating that process? MR. BASILE: We have a pretty open file and really close relationship with our FAA office. It's a hot topic and the information flows pretty freely and they spend a great deal of time with us. So I don't if improvements can be made. I don't know. The information certainly flows. I don't have any ideas to make improvement or any suggestions in that manner. MR. QUILLEN: Dave, I know we get feedback, as I mentioned earlier, through the PMI on regional inspections and so on, but I'm not that familiar with the detail. MS. DAVERIN: In terms of United, we have a very open relationship with our PMI and stay aware of things that are happening, not only at the repair stations that we use but the repair stations others use so that the industry -- I think the industry stays aware of developments. RAA: Thank you. That's it. ATA: I have just one question. On the decision between out-sourcing and doing something in house, does the decision ever come to a basic question of logistics? You may be able to build a capability in your maintenance base. CHAIRMAN FRANCIS: Tom, could you take the microphone? ATA: Sure. The question deals with the decision between out-sourcing a maintenance task versus doing it in house. Does that decision ever come out to be one of pure logistics? For example, you build a capability within house but it would be located at a base that is remote from where your real need is. I heard some airlines talking the other day about a decision on doing wheel and tire maintenance at their base and they found that a commercial source which had a better distribution capability was available, so they decided to go with the source outside. MR. QUILLEN: In that case, the logistics does play a big role in that kind of a decision. Other factors also enter into that. I come back to the specialization of a 145 that they specialize in a particular service and the logistics would figure into that, but it's also a business decision and a number of other factors going into it. But logistics would be one of the criteria used. ATA: That's all. Thank you. CHAIRMAN FRANCIS: Jack. MR. DRAKE: I'm wondering what you do when you find a problem with your internal audit or with your teams that go to the repair stations. MR. QUILLEN: You mean with one we're evaluating or one that we're already working with. MR. DRAKE: One that you're working with, if you find in following your parts or following the repair process at a repair station that there's a quality problem, how do you deal with that problem? MR. QUILLEN: We have a formalized process. This works through our on site team, the QA manager has a process, depending on the degree of the find, whatever it is, that we work right through that and have an official investigation, root cause analysis and a final resolution. MR. DRAKE: Do you report back in the form of audit report or anything like that to your repair stations and do you require them to respond to those sorts of comments? MR. QUILLEN: Yes, we do. We have a formal process. I mentioned earlier in the presentation about the monitoring and measuring. This is a formal process that we set up to get feedback and document it and get it in written form. MR. DRAKE: Yvonne, would you add anything to that? MS. DAVERIN: The same process applies at United, where again we have on site representatives who perform continuous auditing. If something is found during an audit, there is a standardized process that we follow in terms of understanding root cause and factors leading to that. In working with the repair station, that representative will review the plan to address that audit finding and corrective action. And then periodically our senior management will meet with the repair station senior management to go over performance, and part of that performance is compliance obviously. MR. DRAKE: That's all I have. Thank you. MR. ELLINGSTAD: Just real quickly, a clarification from each of you. On your contract maintenance, on your heavy maintenance, what is your oversight investment with respect, say, to a D-check, in terms of your personnel on site? MR. QUILLEN: My team consists of seven people full time. Is that what you're asking? MR. ELLINGSTAD: Yes. For a single aircraft for D-check. MR. QUILLEN: That's for a D-check. A single airplane event, we would always have at least two representatives, one from the production or technical side and one from the quality side and then depending upon the magnitude of that job, whether we need material support and all the other things, but at least a minimum of two. MS. DAVERIN: At United we'd have a quality assurance representative, at least one; quality control representatives, usually two or three; and since it was a D-check, there would be three on the QC side and two on the QA side. On the production side we'd have a representative and also a logistics person. In addition, when the aircraft is re-delivered to the operator, we have our flight test engineering group accept that airplane. MR. BASILE: We are very similar. Quality assurance, minimum is one maintenance, one to two. We also have material and for that level of a check, in all likelihood an engineer, structures engineer on site. MR. ELLINGSTAD: Thank you. I have no further questions. CHAIRMAN FRANCIS: Vern pre-empted by question. This is now per aircraft, you're talking about a D-check. So if you had -- MR. BASILE: Not necessarily. No, we wouldn't increase as the line is increased unless there was a need for it. Probably -- it's hard to say. A facility running two D-checks would probably increase their QC and their production oversight as needed, and the engineer. The material rep pretty much stays constant. CHAIRMAN FRANCIS: But you're all pretty comfortable with the numbers of people. This is something when you get out there and you have seven, three in a D-check situation and obviously you can theoretically and probably practically end up with a maintenance facility doing D-checks on three different 737 carriers, which imposes obviously in terms of the maintenance programs a burden on the station and you remain ultimately responsible for the aircraft and its maintenance and air worthiness. If you send those numbers of people, and say, you have three 737's in one, you still are confident that you can watch what's going on. MR. QUILLEN: I'll answer that from a standpoint of what I do. I mentioned earlier about rotating some supervisory technical folks between the in house lines to the contract lines. What we do is depending on the work scope of that particular airplane or airplanes, as that grows, I will supplement that with additional people as necessary. I thought you were asking the minimum a while ago. There are two facilities at the present time and I have staff at both facilities. But I adjust that depending upon the work scope of the aircraft. CHAIRMAN FRANCIS: I just think that given the scale of the work in that particular case and if you have a diversity of carriers using the same facility then obviously you've got to be pretty sensitive to watching what's happening in some detail. MR. BASILE: You have your peak and off peak times, too, and you supplement that from within, from your core groups. CHAIRMAN FRANCIS: Thank you. Jim. MR. ROSENBERG: Just one quick question. Mr. Basile, I think you indicated in response to one of the questions that there had been an increase in oversight by your PMI. MR. BASILE: Yes, yes. MR. ROSENBERG: Can you just give us some sense of what that increase has been? MR. BASILE: Of the numbers of inspectors, the level of detail that they're going into now. Not that we mind. We have an open relationship. But of course, we had pretty substantial fleet growth, but we also had growth of the -- and actually to be honest with you, I think it was a little bit lacking until probably about two years ago. We added quite a bit, and I think it was due. I think it's at a good level. MR. ROSENBERG: So we're actually talking about frequency, increase in frequency in visits to facilities? MR. BASILE: Yes, more spot checks at a 145, more spot checks of the lines and the operations, in the day to day operation as well as the heavy maintenance vendors, international and domestic. MR. ROSENBERG: Mr. Quillen, have you seen similar things? MR. QUILLEN: I've seen similar increase over the last couple of years, the frequency of inspections and to the detail has increased. MR. ROSENBERG: Thank you. CHAIRMAN FRANCIS: I thank the three of you very much. That was very educative. It is with some horror that I noticed that there is no break through the entire morning. So I'm going to take the dictatorial privileges of the Chairman and we will take a 15 minute break here. We may end up having lunch a little later, but I think we've got some time later on that we will be able to use. So if we could be back here at five after, please. (Whereupon, a recess was had.) CHAIRMAN FRANCIS: The next panel is going to be the repair station folks. If we could ask you -- all related to repair stations. If we could ask each of you, perhaps starting with Mr. Horn, to state your name and your organizational affiliation and title for us for the record, we'd appreciate that. MR. HORN: My name is Dick Horn. I'm the vice president and general manager of TIMCO in Greensboro, North Carolina. TIMCO is a series of four different repair stations, Lake City; Macon; Greensboro; and Oscota, Michigan. We employ roughly 3,500 people and do C and D checks and modifications on large commercial aircraft. CHAIRMAN FRANCIS: Thank you, sir. Mr. Fernandez. MR. FERNANDEZ: My name is Jorge Fernandez. CHAIRMAN FRANCIS: Could you pull that microphone a little closer? MR. FERNANDEZ: My name is Jorge Fernandez. CHAIRMAN FRANCIS: A little closer. MR. FERNANDEZ: My name is Jorge Fernandez. I'm with Caribe Aviation. We're a component repair station. We employ 106 people. We're radio instrument and accessories, radio class 1, 2 and 3; accessories class 1, 2 and 3; and instruments 1, 2, 3 and 4. We have, out of 106 people, there's 54 mechanics. We do work for Federal Express, United and American Airlines. CHAIRMAN FRANCIS: Thank you. Mr. Crotty. MR. CROTTY: My name is Bob Crotty. I'm an independent air worthiness and maintenance consultant. I do work for five or six different larger maintenance consulting companies. I do safety and compliance audits on 121 and 135 operators and quite a few JAR ops. One operator is in Europe and others in South America. From this vantage point I get into repair stations, following up contract work which is sent out from 121, 135 operators. I do have to say that I'm not an advocate of the repair stations but I'm sitting on this panel and hopefully my views of their problems and difficulties as I see them in the future can shed some light on this for them. CHAIRMAN FRANCIS: Mr. Hiles. MR. HILES: Good morning. Jay Hiles. I'm with the International Association of Machinists and Aerospace Workers. I'm the senior air safety investigator, primary oversight with U.S. Airways. I get involved with a lot of incident and accident investigations, human factors issues, deal a lot with the FAA and for the purpose of today, we kind of take a look at some of the problems associated with our aircraft once they come out of the 145 station. CHAIRMAN FRANCIS: Let's start with Frank or Deborah. MS. BRUCE: They got the sort of content introduction on this round. Dick, we understood the size of the business. You are a heavy maintenance provider; in other words, the main line of business at TIMCO would be to do C and D checks? MR. HORN: Yes, mainly C and D's for 121 operators, both cargo and passenger. We also have a DAS, as you may know, and do a lot of modification work and a lot of STCs for foreign operators and U.S. operators. We're located in Greensboro, is the main hub, and we also have a 145 facility in Lake City; in Macon, Georgia; and Oscota, Michigan. MS. BRUCE: Pick just one of those. Your largest facility is in Greensboro? MR. HORN: That's correct. MS. BRUCE: How maintenance lines run at one time there? MR. HORN: We work approximately 12 to 15 airplanes at a time, about 225,000 man hours a month. MS. BRUCE: Okay. I'll switch over to you, Jorge. You're in an entirely different business than that, if you would, though you're both holding 145 certificates. But what would be the nature of your work? MR. FERNANDEZ: Component repair of avionics, electro-mechanical accessories. MS. BRUCE: So not necessarily all your work but, for example, it would come from Dick doing a heavy maintenance check, he would run into some component work that needed overhaul and he would send that to you as his subcontractor and you would repair that work and send it back? MR. FERNANDEZ: That's correct. MR. MC GILL: Jay, let me ask a question. MR. HILES: Yes, sir. MR. MC GILL: How many 145 facilities have union representation? MR. HILES: That's a good question. I don't have a firm answer for that. MR. MC GILL: Do you know of any? MR. HILES: Not off the top of my head, no. MS. BRUCE: To the degree that an airline has a 145 certificate they might. MR. MC GILL: Well, yes. MR. HILES: You're talking strictly independent 145 operators? MR. MC GILL: Yes. MR. HILES: I don't know. MR. MC GILL: Then I want to go back, and we'll ask all three or four. What kind of value or is there a value that an airline can give to the customer, by doing maintenance in house? Can you see any of these advantages? MR. HILES: Yes, I do. We don't farm out a lot of 145 work. Primarily right now our aircraft are repaired so we've seen a fair amount of problems there and we've taken a look at a lot of the issues of why these problems started. In house, we certainly have long gone past these initial problems. So I see the value of doing it in house greater than outside. MR. MC GILL: Do you have statistics that could document that from a quality assurance area? MR. HILES: I could supply the Board with documentation of problems, if you want to say, that we've experienced. MR. MC GILL: Could those same problems occur when you do your own maintenance in house? Or do you track them both? MR. HILES: Yes, we do track them both. MS. BRUCE: Maybe a carry off on the same process. Dick, TIMCO is not unionized, is it or is it? MR. HORN: No, we're not. MS. BRUCE: Are 145's -- can you think of any -- you know what I'd rather know? How many 145's of the size and scope of TIMCO -- I don't mean an exact number -- how many places around the country do substantial D- check work, you know, major repair work? MR. MC GILL: Domestically. MR. HORN: Four that are our size. Four that are the size of TIMCO. MR. MC GILL: They're non-union? MR. HORN: Yes. MS. BRUCE: So there are four places that really can handle work at this volume, major substantial D-checks? MR. HORN: There's more than four, but if you look at the four that are comparable to the size of TIMCO, that's what I was basically saying. MS. BRUCE: I realize we are just sort of scaling this, so it's not an exact number I'm after. So there are four really large ones? MR. HORN: Yes, that's correct. MS. BRUCE: Drop down a level. What's the next sort of grouping that you get a feel for? MR. HORN: I think then you go to a tier where there are probably seven or eight, and then you drop down another tier, still in the substantial maintenance, there's probably four or five. So you're probably dealing with substantial maintenance -- this is really a guess -- about 20 nationally. MS. BRUCE: So when I look at numbers of certificates, if I go to the FAA's register of 145 certificates and look at kinds, I'd get a huge number, 2,500 that do, say, maybe air carrier level work, certainly maybe twice that many that do all phases of aviation maintenance work. So there's a large number of certificates. But what I'm after here is how many actually constitute heavy maintenance work. So that's what I'm after, the scaling issue. MR. HORN: I would guess in total there's probably 21 that are doing substantial maintenance as defined by Mr. Hinson's letter. MS. BRUCE: So Jorge, are the bulk of them in your business? MR. FERNANDEZ: Yes. MS. BRUCE: Are they -- do you want to just give me the same sort of feel? Small component repair stations might generally employ how many people? I realize there's a range and they differ. MR. FERNANDEZ: Small component repair shops are running about ten to 12 people, the small ones. The medium size ones are running about 40 to 50. And then the larger ones are in the hundreds. MS. BRUCE: Does the nature of the work they do really differ? I think I understand that you're by and large doing work directly for airlines or for a large repair station. Will I find smaller component shops that do a mix of business? In other words, they do aviation repair business but they might also do some other things in house that are not necessarily aviation related, but by virtue they have a 145 certificate and they do this work but it's broader than that. MR. FERNANDEZ: Not that I know of, no. MR. MC GILL: Jorge, how many people that work in your facility have A & P certification? MR. FERNANDEZ: 14. MR. MC GILL: 14 of how many? MR. FERNANDEZ: 54 mechanics. MR. MC GILL: What kind of training do you have, recurrent training? MR. FERNANDEZ: We train to OEM specs and we also train to customer specs and their policy sheets. Most of our mechanics are either airline experienced or OEM experienced. A lot of them are factory trained. MR. MC GILL: Bart, when you're doing audits of all of these different facilities like that, what kind of training problems have you observed in different types of facilities? MR. CROTTY: I can probably speak to the medium sized air frame repair stations, 33rd Part maintenance facilities. Generally I see a very shallow maintenance training program. Records are often not complete, inaccurate. New personnel aren't always trained on the inspection procedures manual. Again, I'm speaking about the smaller air frame repair stations that are maybe between 100 to 200 people, not the more larger repair stations. They seem to have enough management and supervisory people and internal procedures that they can deliver quality and includes training of work force as well. MS. BRUCE: Let's back up a minute. Set the stage for me as to why you would be at a facility doing an audit. By what mechanisms are you there, either business mechanisms or what situational causes? MR. CROTTY: I think I maybe explained this before, doing the safety, the compliance audit on the 135 or 121 operator. If they do then have contracted maintenance, have a lot of substantial work sent out, then often I would get into that repair station to look at the quality and to see what the finished product is. That's the mechanism that I have. I'm not doing audits of the repair stations where they're paying me for my evaluation. MS. BRUCE: So you're working on behalf of the operator? MR. CROTTY: Looking at the operator to see whether their maintenance program is carried out properly. MS. BRUCE: So they have decided to do an internal audit? MR. CROTTY: No, they have not hired me. I represent four or five other maintenance consulting organizations who then provide advice to people that are contracting for charter work, using large aircraft. In that sense, then I get into the 121, 135 operators and then in the cascade, then I eventually end up in some 145 operators, 145 repair stations. So I'm not doing the work directly for the repair stations. That's the point that I wanted to make. MS. BRUCE: All right. MR. MC GILL: Dick, let's go back to just on 145. You've been in this business a long time. Tell us, from your perspective, we've heard other people talk about core competencies, different objectives. Tell us why a 145 facility such as yours right now is an advantage to a certificate holder. MR. HORN: I think, first of all, Frank, we have a business and that business is obviously to -- I'd be kidding someone if we didn't have a business to make profit; we do. I think we run it a lot more efficiently than what airlines do. First of all, 145 tends to be a bit of a misnomer. Yes, we have a 145 certificate in all of our facilities. But other than a couple of leasing companies, we operate with 121 certificated carriers. We are required by 145.2 to operate under their GMM, their specifications, their inspection requirements, etcetera. So we are really operating under a 121 situation at all times. However, it's our business. The airlines have a business of transporting people and cargo from point A to point B. When they begin to concentrate on that, they become more profitable. The maintenance comes to providers like ourselves. I will add that most of the upper management of our TIMCO companies are ex-airline retired folks. We learn that way, if you will. So most of the TIMCO operation is run by ex-airline maintenance folks, management. MR. MC GILL: Now, you're saying you've got a 145 certificate but you don't really -- it's there but really you're operating under each individual 121 airline that's in your shop. MR. HORN: I'm required to. MR. MC GILL: Okay. Have you noticed -- let's back this up. We've been hearing a lot about standardization of some of this type of work, general work that is performed on a carrier. Do you have any thoughts on that? MR. HORN: There's differences in the maintenance programs, but the differences are really somewhat subtle. It really depends on how that airline operates their airplanes, short cycles, long hours, short hours, short cycles, etcetera. Some carriers do eight C-checks and then do a D-check. Some carriers with the same type airplane will do a progressive D- check, so that when four C-checks are completed, they ultimately have completed a D-check. Some break it in half, as in HMV, four years for an HMV, an odd HMV and then another four years for an even HMV, constitutes a D-check. The content, however, remains the same through those eight years of maintenance. They're different but the differences in some cases are quite subtle and it really is dependent on how that operator operates his airplanes, both in cycles and hours, what he carries. A heavy cargo carrier will do a lot of different things than a package carrier, simply because of what he carries in the upper deck of that airplane. MR. MC GILL: Are we ever going to see with any of set standardization, certain types of areas of work cards? I know the FAA -- we'll talk a little with them. There's been different people, different groups that's talked about it. Every one of your carriers is bringing a separate -- you have to know those very, very well. MR. HORN: That's correct. They're different but they're subtle differences and it's really how the program is set up. We do some maintenance programs ourselves for small carriers, based on the MPD. What suits them, and we go to their FSDO and help them explain it to their PMI. However, I don't think you're ever going to get everybody to maintain their aircraft identically. I don't think it makes any sense. You have a high cycle 737, for instance, which flies 11 cycles a day, and then you take a carrier that flies non-stop across the country with a 737-300. It wouldn't make any sense for those two airlines to have the exact same maintenance program because in one they'd be over-maintaining and the other way, they're reliability would go sour on them. MS. BRUCE: As I listen to you describe subtle differences and sort of the counter to we won't get standardized, we all agree we run different operations, but the question begs to be asked, is there a need to have individually different programs at every operator or could we look at categories of operations, you know, similar types of operations and somehow work that up from that angle? It's really an open question. Do you think we could standardize it some more so that as we progress through this contract repair process that it might not set up the situation where every airplane is under its own separate, its distinctly different program, distinctly rather than subtle? MR. HORN: That's an argument that's been discussed for a long time. Let me take the cargo carriers, for instance. That's a similarity. They all operate the same type of airplanes, either DC-8 61, 62, 63, 71, 72 and 73. Other than the engines, they're all basically identical, other than some STCs on air conditioning systems and that sort of thing. But if you take a package carrier that flies their airplane four hours a day and puts very light articles in the cabin, all palletized, and doesn't have a cargo door, now you go to the heavy operator who has the same identical airplane that came out of Long Beach and probably about the same year, they're hauling all sorts of heavy equipment, etcetera, long range, trans-continental and trans-ocean. I don't know how you would put those together really and come up with the same program, because one is high cycle, low hours and the other is low cycle, high hours and carrying a totally different product and they just don't come together that easy, even though it's the same aircraft, same engines perhaps. MS. BRUCE: You just set me up. The same aircraft, when it was first manufactured had an MPD, a maintenance planning document that was a generic document. MR. HORN: Correct. MS. BRUCE: So each operator is then customizing this based on what they intend to do in their operations. MR. HORN: And what gives them the greatest reliability. MS. BRUCE: Here's why we've gotten this far because I want to ask this one question. Do you think the maintenance planning document is better conceptualized as a base line or as a full blown goal of maintenance? In other words, is it set at the highest level, a general level or a low level? MR. HORN: I think it's probably set at a general level, with some areas which are at the high level. There's some areas that the OEM believes that maintaining that at a higher frequency or lower frequency is going to provide more reliability. Don't forget, when an MPD comes out -- let's take a DC-8, way back in 1968, an MPD came out. Douglas had no idea, I'm sure, that that airplane was going to be flying today, after 30 years. After those 30 years of operation, we learned an awful lot and we know what we have to do and we know how we have to maintain it to get the reliability out of that piece of machinery that every airline needs. So I think when you look at the MPD, it's when the airplane is manufactured and then as we gain experience with that air frame and its engines and components, there are certain things that we want to do more of and certain things that perhaps we want to do less of. We, as a 145, have nothing to do with that, other than some of the maintenance programs we do. MS. BRUCE: It does in that the program you receive to execute differs based on that. MR. HORN: Yes. MS. BRUCE: Whether the operator has added to that set of requirements and said I need to do more of something or whether they, through a formal change in their maintenance program, requested to take away from that original set of requirements. MR. HORN: Okay. That we have some control of, Deborah. We hold what's called an MPD with four out of the six basic customers. That MPD is held 30 days after re-delivery, 60 and 90. And we review the write ups that that airplane had from the day it came out of our facility through the 90 day period. With the DC-8 operators there's a lot of similarities that we started to see, because it's one way of bringing those airlines together. They're competitors, so they're not really trading all sorts of things. We somewhat brought them together through this MPD process. We get 30, 60 and 90 days, where we go over the write ups of that airplane over that period of time, and we found a lot of things that were failing and one that sticks in my mind, for instance, is one of the brake valves. Lo and behold, we found out that the brake valve was going to the same vendor for all three carriers. And we said you got a vendor problem, but we didn't have a vendor problem. What we finally determined -- and I don't think we could have done this without putting our maintenance review board together and going over it with the three carriers. We found out that the overhaul specs did not match the operational specs. So the unit was not being overhauled to the degree that it was being operated at. That was changed and we don't have any more brake control valve problems with those three carriers. Saved them a lot of money and our maintenance review board is most of the maintenance management of the airline, our maintenance management and the FSDOs for our own FSDO plus the operator's FSDO. So everybody knows what's going on. And we looked at the reliability of that airplane when it left. CHAIRMAN FRANCIS: Can I just interrupt for a minute? Do you have a way -- you mentioned there are a big four here -- if one of the other three does the same kind of work on DC-8's do you have a way of not only comparing the three who you work for, the three airlines, but also comparing with them for the kind of things that they're finding of the DC-8's that they're working on? MR. HORN: To some degree. Not formalized. It's not formalized, but to some degree at various meetings such as this to discuss what's happening with your customer, which is the same as ours. That goes on but in an informal basis. CHAIRMAN FRANCIS: I'm a great proponent of this kind of information sharing. I just wonder if there's a reasonable way of encouraging that. MR. HORN: I think there is and I think it would save the operators some money. We've brought together three cargo carriers in a parts pooling. We've seen one carrier looking for a part with a 20 or 30 day lead time and the other carrier had the part, and we finally said, hey guys, why don't you all get together and look at you stock this, you stock that, particularly some expensive structural parts, like landing gear trunyons. CHAIRMAN FRANCIS: I don't mean to interrupt but I do think that that kind of information sharing certainly is not only advantageous economically to all the carriers involved but there's a safety gain as well. Excuse me. MS. BRUCE: That's fine. You sort of led me in to jump over and ask Jorge a question about component work. Are you mostly working to OEM requirements or are you working to the individual airline program requirements or both, and what guidance are you using at the component level? MR. FERNANDEZ: We work to both OEM and to airline specs, depending on their policy sheets and their JDs. MS. BRUCE: One of the things about information sharing, do you run into cases where the original equipment manufacturer is getting feedback from a variety of component shops and they are serving the same function that Dick just described, where they're providing a crossover of information back? In other words, are they finding out there's a problem? MR. FERNANDEZ: We do cross a lot of information back and forth through the manufacturers and through the airlines. We do work real close together in that area. MS. BRUCE: Do you have trouble as a component shop keeping up with the documentation that you would want to have from those manufacturers? MR. FERNANDEZ: In the components that we're doing, no. If you were to go out there and try to do all the different components for all the manufacturers, you would have a problem. Some of the manufacturers are real tight letting that information out. MS. BRUCE: So you've really specialized, even within the range of radio, instrument, accessory type equipment, you've specialized on certain ones that are manufactured by certain companies. MR. FERNANDEZ: That is correct. We've chosen certain part numbers to work on, to make them part of our core units that we're going to do best. On those, then we go ahead and promote them to different airlines to do the same type of units for the airlines. That way all the airlines are sending the same type of components to us. MS. BRUCE: You do parts pooling? MR. FERNANDEZ: Yes. MS. BRUCE: Explain to me how that works. You have parts -- I'd rather you explain to me. For what customers do you do parts pooling or how many would be a better way to phrase that. MR. FERNANDEZ: We do it in a couple different ways. We have an exchange program, as was talked earlier, for just exchanging units out to customers. Those units are all done in accordance with OEMs. We also, in cases like United Airlines and TIMCO, when we do an exchange or unit replacement, we keep a pool just for United Airlines. Then on the contract we go ahead and move that pool into United and that would be come United's property. That way we could keep the same type of units in the system, especially since some of theirs are done to their joint docks and we can't release them to another operator. MS. BRUCE: How do you track the differences? MR. FERNANDEZ: There's differences in our inventory and they're broken down in consignments and they're segregated in areas within our company. MS. BRUCE: Physically how do you track them? Is it just by tag? MR. FERNANDEZ: Physically they're tracked by a bar coding system we have in place, and they're tagged as the units come in. As you do the swaps, it handles the swaps where it will print you a new bar code for the new component coming in, and it tracks it back to the repair order that we received it under. MR. MC GILL: Bart, when you're doing any of these audits in the other smaller 145 facilities, do you see anything, any problem sometimes with the current specifications of an OEM? Do they have all the data that they need to overhaul the components that they're going to be working on? MR. CROTTY: Probably I don't get down to the component accessory level that often, Frank. I do look at the general documentation, their technical library, other things of that nature. I would say they probably are satisfactory in that area. MS. BRUCE: How often would you find an automated tracking system for parts? MR. CROTTY: How often what? MS. BRUCE: How often would you find a bar coding system for parts tracking? Is that common in the industry? MR. CROTTY: Not with the smaller repair stations, no. It's probably almost non-existent. I'm not speaking for Jorge's shop, of course. MS. BRUCE: Is it likely that the size of Jorge's operation has led him to do this? MR. CROTTY: Yes, that's right. MR. MC GILL: Do you see FAA oversight that is adequate in those type of facilities? Is it adequate? Do you see them in there, do you see where they have come, made suggestions -- MR. CROTTY: In relation to bar coding and that sort of thing? MR. MC GILL: No, not bar coding. In general, just the smaller 145's. MR. CROTTY: I generally find it often not satisfactory. And it even occurs at the same airport where there could be a FSDO and that same repair station co-located where there's just a lot of quality problems and a lot of non-conformities that apparently just go unaddressed. This even happens after NASIP and RASAP inspections of going in and finding just, you know, some serious problems. MR. MC GILL: Do you find that since some of these 145's may be, say, the fourth party type, someone like Dick's 145, would sub out or farm out a small percentage to another 145, is that oversight you see at the airline themselves or the other larger 145 repair facilities comes in and adequately oversees the work that is being done for them? MR. CROTTY: Generally if there is adequate oversight, it's performed by the repair station and, as you had said before, the third party on the fourth party. MR. MC GILL: But not necessarily the airlines? MR. CROTTY: Correct. And again, I'm speaking about airlines that have maybe 15 or 20 or 25 aircraft. I'm not talking about the Southwest and United and FedEx people. MR. MC GILL: Are those members part of some sort of a case audit? Are they members of the organization? MR. CROTTY: Case audits is a very interesting thing. In order to use a case audit, a 121, 135 person has to have an ops specs page that says they can use the case audit. Case audits to me are probably good as a general -- or screening out of people that meet a certain standard. But then even the case audits, I've gone into places that have had case audits three, four months before and found lots of discrepancies of 145 operations as well. Although, FAA allows the case audit to be used as a primary tool for their continuing analysis and surveillance program required by the 121 and 135 people. As I said, again, case is probably good up to a point, but I think certain operators rely on it too heavily. MR. MC GILL: Dick, how do you perform an audit, if you out-source some component that some airline brought an airplane into your shop? MR. HORN: We out-source to various 145's. But we do an audit to put that particular 145 on our approved vendor list. We also prefer the customer to the 121 operator to do an audit and put it on their -- put that particular repair station on their approved vendor list as well. So we have two audits, one that satisfies us or dissatisfies us, whichever way it goes, and one that either satisfies or dissatisfies the customer. So we've got a double audit, we as out- sourcing to a 145 component repair station and the customer as accepting that as his approved vendor. You get a double look at it. MS. BRUCE: How many vendors are on your approved list? MR. HORN: Oh, wow. I don't know, Deborah. I'd say probably 25 to 30. We don't like to keep a lot of them. Boeing is one of them. Douglas used to be one of them. They are required to be on our approved vendor list. But of major, I would say probably 15, including some of the metal suppliers such as Cherny. MS. BRUCE: For a major carrier that might run several different types of aircraft, is that a good -- is a dozen a good ball park number? MR. HORN: I would think so. Mainly our approved vendors are some component and sometimes we don't send it out. The customer decides they're going to send it out to their particular vendor. We do a lot of stuff in house of course, flight controls, composite work, etcetera. So that part is pretty much eliminated. So it boils down to raw stock, fasteners, etcetera, that we do audits and put them on our approved vendor list and encourage the customer to do so as well. Most of the time, with the large mega vendors, they're already on the customer's approved list. MS. BRUCE: We heard earlier, we were talking about how many -- when we were talking to the air carriers -- how many people are rep'ing their airplane when it goes into heavy maintenance. Numbers went from like two to four. My question, comparing you to that, you receive those airplanes from a lot of different clients. What's typically the oversight in terms of manpower that is sent with an airplane? MR. HORN: Of our four major customers, it's six. I added them up when you asked the question before and we've got 26 vendor representatives on our facility. MS. BRUCE: Those are for the four largest. You obviously do work for a whole range of clients. What would be the lowest manpower associated with a heavy rep? MR. HORN: Two. That's mainly some scattered aircraft. The steady lines, there's six people, mostly in the QA and a manager. MS. BRUCE: And you're running probably two shift operations, maybe three. MR. HORN: Three, seven days a week. MS. BRUCE: So those two people, when they come with an airplane are covering three shifts, 24 hours a day? MR. HORN: That's correct. MS. BRUCE: Okay. MR. MC GILL: What kind of training, Dick, do you have to train your people to differentiate between these different maintenance programs? MR. HORN: Each airline has a specific requirement. Obviously you have systems training on their particular aircraft. That's a given. Then each airline has a little different paperwork. So we do paperwork training. We do ETOPS training. We do run up training. And we do maintenance manual familiarization training for each customer and each customer requires that. There's a little difference and they're very subtle between customers as to what they require. One particular customer, for instance, for structures people, requires that the person is well qualified in blueprint reading. It's just something that they've put into their requirement. But the basic need and the basic training we do is very similar for each airline, but their paperwork differs, the subject is pretty much the same. We get some differences in the ETOPS requirement. We get some differences in the RII requirements, the required inspection item training. And we have to do that of course for each carrier. MR. MC GILL: What about training as a 145, not so much 121 different types, but just as a 145 for training systems? MR. HORN: We are continuously doing systems training and it's repetitive training. We have not added an airplane to our customer base I guess within about six months. The last airplane we added with the 767-300. We don't do any 747's or L-1011's. So we stick pretty much to some of the customers' multiple fleets. MS. BRUCE: Let me set something up here. Where I'm going is I want to talk about non-routine work. I am an operator and I send you my airplane, and you and I have been in negotiation to try to figure out what you're going to charge me for doing the work package that I've sent you. We've got some history here but you've priced out the hours and you've sent it over and it's based on what I expect to have done to the airplane. But once you're in and working on the airplane, you run into things that are non-routine. Explain to me how that process is identified and costed out and accepted by the buyer. MR. HORN: Okay. Do you have about ten minutes? It's different for every airline. Some customers, routine work is fixed price; in fact, almost all customers' routine inspection is fixed price, plus the NDT plus X-rays. They're all fixed price. In some cases, we have a rate for time and material for non-routine. In some cases we have a time and material for non-routine which non-routine is a fixed price but we have a cap of perhaps 50 hours or 100 hours. When that gets exceeded we use a system called AWR or additional work request. It may be an additional work request for engineering as well, to do some DER work. We've got DERs and DARs in every discipline because of our DAS requirements. But we come to a price for the routine. We come to a price perhaps for the non-routine. Anything that goes above that price is handled with what we call an additional work request. Perhaps the customer will say, hey, wait a minute, why not change both main landing gears? We've got some green time but let's change them while we're here because we found some corrosion that perhaps is going to extend the visit. It makes some sense to change the gear. The gear was never in the original work scope, so it comes under the AWR, perhaps a fixed price. A lot of our customers, we have fixed prices on various functions, landing gear changes, landing gear trunyon changes, engine changes, flight control replacements, because they've got long lines and the experience has been three and four years with that particular customer and we know what it takes and they know what it takes. So you come at a fixed price, therefore, there's not running back and forth to the rep. MS. BRUCE: So the point there is if you have the history on it, you've got it in the contract mechanism and you've priced it out and it's up front. But otherwise, is it the rep on location that's making the decision? MR. HORN: Yes. He's obviously got a cap that he can approve, and may have to go back to whoever he reports to. MS. BRUCE: Okay. MR. MC GILL: Have you ever had an instance, Dick, or has it ever come up that some customer doesn't agree with your analysis of how to make a fix, agree upon something that they feel should be fixed in a different manner, maybe not to your standards, but to their standards? If that has occurred, how is this resolved? MR. HORN: Frank, we've got happy customers. We have those situations but they're resolved very quickly. We have some things -- the last part of your question is if a customer wants to do something that's contrary to the maintenance manual and is an un-air worthy issue, you write a letter to the CEO, and I haven't found a CEO yet that's going to say, oh, by the way, I want to do it the wrong way. There's a nice stop gap and that I learned at my former airline. MR. MC GILL: It stops it right there then? MR. HORN: Yes, sir. It sure does. Our customers and ourselves, we work things out quite well. We've got a long standing list of customers that have been there for a long time and I think that's part of the reason. MR. MC GILL: Anything with parts, the customer supplying their own parts, for instance, for whatever reason? Have you had any problems there? MR. HORN: Several of our customers supply their own parts. We don't have any problem with that. We don't put a surcharge on it either. MS. BRUCE: I'm thinking more not on your large business but maybe on some stepping down in the scale of size here, some that Bart may have seen more recently. The part supply has to keep up with the maintenance line, and it seems to me that the smaller the shop the more likely those two are going to get out of sync. What does an operator do when they're in need of parts, that they don't have an inventory? Where does the repair station go to get them? How does that slow up the maintenance work? MR. CROTTY: I really don't have an adequate answer for that. MR. HORN: I can help you out there. In one respect, structural parts, a lot of the OEMs will give you a 320 day lead time or 200 day lead time and we simply manufacture the part per our 145 agreement and commercially per our licensing agreement with both -- well, it's one these days. MS. BRUCE: So pretend for a minute with me that you're not the size that you are and you had a longer lead time than the job -- you can't hold that airplane while you wait on a part. What are your options to get that work done? If you can, you make it in house; that's what you just told me. MR. HORN: Yes. MS. BRUCE: If you don't have the capability, you what? MR. HORN: You would have to sub it out to somebody who could, and they would have to be on your approved vendor list. MS. BRUCE: Let's say you wouldn't have been able to foresee that because you thought parts would be available. What do you have to do to get that approved vendor? What do you have to do in a short period of time to get that person on your list? MR. HORN: There's two ways. One, perhaps he's already on our approved vendor list or perhaps he's on the air carrier's approved vendor list. If both of those parts fail, we go inspect, into an audit and get them on our approved vendor list or deny them, one or the other. We've denied a few over the past seven years. MS. BRUCE: Okay. MR. MC GILL: Earlier, Dick, you were talking about the organization TIMCO and I noticed you had some extra names in there, Air Corps and something. What is the effect of all of the -- we keep having these different consolidation plans and different companies and they seem to be, in the last couple years, it's quite a big change. What can you tell me about that of why we're doing this? MR. HORN: The TIMCO family, if you will, is made up of Greensboro, which is the largest of the facilities. All the other facilities are basically controlled from Greensboro by officers of TIMCO at Greensboro. There are four different repair station certificates. They don't all come under the Greensboro TIMCO repair station certification. There is a repair station certificate in Lake City, Florida. There's a repair station certificate in Macon, Georgia, as well in Oscota. MR. MC GILL: Why are all these things consolidating like that? MR. HORN: Well, they all come under a vice president of quality which is based in Greensboro. They all come under a vice president of operations based in Greensboro. And they all come under a purchasing vice president and a planning vice president which is also based in Greensboro. And we move people and we move management into these facilities on a daily basis. In fact, we have three vice presidents on the road today as I speak, two of them in Lake City, one in Macon. We have a very close relationship. We all wear these wonderful little things called pocket computers where we can send messages back and forth. So it's pretty good communication within the four repair stations. MR. MC GILL: So you think that's maybe why the industry overall is kind of doing the same thing now? It's consolidating different repair facilities into one larger one? How far is this going to go? How many of them are we going to have like that? MR. HORN: I think you have to look at -- it's called the beach and the sound, where they got together. You have to look at the airlines and the airline mergers to become mega carriers. I think that the repair station business is probably going the same way; in fact, we see that happening. MS. BRUCE: Would that filter down beyond heavy maintenance repair down into component shop, too? Do you see the same sort of consolidation of businesses at that level? MR. HORN: I'm not so sure I can answer that. I've seen some of it but then it was explained earlier when the air carriers were up here, the tire situation. To do your own tire shops these days, there's experts out there that have tires just rolling out and they're experienced at it. Why put a tire shop, with all its bead breakers and inspection requirements in various stations when you can get some of these mega tire, wheel and brake 145's. MS. BRUCE: It's a related problem, but it's a different subject. Do you run into requirements that have changed in the last few years based on EPA requirements that would tend to motivate you to combine businesses? MR. HORN: Oh, yes, for sure. MS. BRUCE: Can you give me any other example? That's just the one that comes to mind. Are there other sort of government drivers that might be pointing to advantageous combinations of business? MR. HORN: I think so. For instance, we do a lot of our paint work in Lake City right now, simply because in North Carolina we're in what we call the Piedmont Triad area, the VOC count that we can use during a given month is extremely low and it's because of the furniture manufacturing business who uses lacquer and lacquer has got the highest VOC count. And they were there a long time before us so they've got some grandfathered rights. So we really can't paint airplanes to the degree we would like to so we moved that to Lake City. It makes for a good marriage. We also move people back and forth. MS. BRUCE: Is Lake City a supplemental certificate, supplemental 145 to you? MR. HORN: No, they have their own 145 certificate reporting to the Orlando FSDO. MS. BRUCE: Okay. MR. MC GILL: Are there any problems with the training of the mechanics or personnel between the different facilities? MR. HORN: No. We're just starting to get into a combined training issue. We've now moved into combined safety issue, ground safety, where we can handle all of the facilities the same way. So if a customer goes from one to the other, there really isn't any difference. As far as the quality system, that's the same now. We've got that totally under control. In terms of the quality requirements, they're the same throughout all our facilities. We're starting to move into the training throughout all the facilities as well. Some of the training we contract out. A320 systems training we contract out. A300 systems training we contract out. Because our training department, with the multiple fleets, gets a little difficult to keep all that under control, so we contract out some training as well to pretty reputable training organizations. MS. BRUCE: Jorge, do you contract out below you? Do you have vendors? MR. FERNANDEZ: We have a very limited vendor list, for like the plating, that we sub that out. Those lists, before we sub, we get it approved through the airlines. MS. BRUCE: So there would be actually in your case for that, it would be -- would you be a fifth party provider? You're receiving, not literally, but you could be receiving components from TIMCO and you would receive them and then you would send them out for additional work? MR. FERNANDEZ: We're using the same vendors the airlines are using. Like in the plating, we're using the same vendor the manufacturer is using, the OEMs. MS. BRUCE: When they make a change, let's say, an OEM makes a procedural change based on some engineering work they've done and they found a change they'd like to make to practices of repair for their part, how do you get that information? MR. FERNANDEZ: We pass that information onto the airline through a quality control department. MR. MC GILL: Can you tell any difference if a carrier is operating under a cash system versus a reliability program? When you do the work, can you report back anything that would differentiate between a true reliability program? MR. FERNANDEZ: The airlines that we're dealing with, they report numbers to us and as far as reliability reports, they come back and report to us. We also report to them if we see a problem with a unit, that we've seen it a couple times and if it's inherent to the unit. We need to pull it out of the system. We do report back to them. On our incoming repair orders, we log all the information into our computer, TSO times and time since last overhaul. We put all that information in the computer so we do report back to the airlines, too, when we do see a problem. MR. MC GILL: What about you, Dick? Do you see if some carriers got more advancement in reliability, do you have any difference in your reporting back to them one way or the other from your perspective? MR. HORN: Not really, Frank. We, of course, go through the SDR programs, service reliability report. MR. MC GILL: Do you fill out that or do the carrier themselves fill out the MRR? MR. HORN: Some customers, we fill it out and send it in and some customers would prefer to send it in themselves. We fill out the SDR and send it to the customer and then he sends it off to their PMI. MS. BRUCE: Do you think it matters as far as what goes in, what actually gets tracked? MR. HORN: I would hope not. We are giving it to the customer and the customer, if they prefer to send it in themselves, it can only do the whole industry some good if we see some specific components or some specific corrosion developing in a specific air frame. That's how really, in some cases, ADs develop or service bulletins develop. MR. MC GILL: Let's just take a slight oversight of your facility or any 145. Do you know of any changes right now, currently the way you do business, that might improve this oversight in a 145 or safety of the contract work? Is there something we maybe need to be doing that we're not? MR. HORN: Audits have obviously increased since Mr. Hinson sent his letter out regarding substantial maintenance. We had 46 audits last year. MR. MC GILL: What are we auditing here? Are we auditing paper or are we auditing quality, quantity? MR. HORN: Auditing paper. Auditing parts handling, auditing work in process. The FAA has gotten very cozy with our people, and we don't care. They'll go up to the mechanic and say what are you doing, and how are you doing it, and where's your license? We get that every day of the week. We probably have one audit a day either by the customer or a regulatory agency. I think the audits have changed considerably from what they used to be. They used to be a paper exercise. Now the audits are getting right down to the work being accomplished and the work in process. Sometimes it helps us. I can remember one where an inspector stopped the work because we were removing an elevator and a horizontal stabilizer on a DC-8. In that case, we educated the inspector a little bit because the OEM in the Douglas maintenance manual permitted that providing substantial shoring was put on the other side which he didn't realize. But we have a lot of in process work audits. MS. BRUCE: If you're getting audited at that level from the FAA and by the clients, do you still have the same motives or reasons to do internal audits on yourself? MR. HORN: We do every day. We do an audit every day on each hangar. One hangar per day. In three days we've gone through the three main facilities. And then every six months we do about a five day total audit. Last year we had 46 audits, 22 regulatory, four of those were JAA or Bermuda CAA and 25 airline audits. MS. BRUCE: If they're internal, are you doing them with your staff? MR. HORN: Yes, our QA staff. We have two auditors on the payroll. MS. BRUCE: How independent do you feel they are at that point? MR. HORN: Very. MS. BRUCE: By virtue of management reporting cycle? MR. HORN: Yes. I think from what I see come out of those audits, they're very independent. MS. BRUCE: Jorge, do you have internal audits? MR. FERNANDEZ: We do the same thing. We do weekly audits and we do them to the FARs and the case standards. We do monthly audits to JA standards and they're segmented. We go in there and audit a section at a time in great detail. And then we also, from time to time, bring in independent auditors to come and audit our facilities and let us know where our deficiencies are since we're in there every day and we live it, we bring these people in. MS. BRUCE: What would be your motive or reason for doing that? Do you have a schedule that I'm going to do independent audits twice a year or is there something that might tie to that? MR. FERNANDEZ: We do it every couple years as we're growing, let them come in and go through our whole facility for a couple weeks. They're usually there for about two weeks. We've seen that it helps us a lot. Also we use independent consultants. We do our own audits on our sub-vendors when we're subbing plating and we also have independent auditors go every couple years to audit them. MS. BRUCE: Bart, for repair stations that you visit, what is the frequency of internal audits that they would have done on themselves? MR. CROTTY: Well, let me switch back first and answer the question from the part of the 121 audits that are required for their major contractors and so forth. I've looked at quite a few of what we call the continuing analysis and surveillance program which they're required to have. I look at their reports of findings of when they audit their 145 contractors, and again, I'm speaking about the air carriers that are the ten and 15 and 20 aircraft fleet size. They seem to be awfully thin on findings. In other words, they never come out and give good detailed written reports in their CASP program reporting as to what they're actually finding at these repair stations, when they're correcting them and how soon the corrections are being made. This really upsets me quite a bit because if there's anything within a 121 or 135 operator's program that you want to depend on is this CASP continuing analysis and surveillance requirement. This is the over-reaching that looks at the whole maintenance, the quality and everything else. Very often I'm finding out that some of these reports which, they say, if they're program is set up that way, they'll meet once a month, they'll issue a report once a month or every two months, depending on what their volume is and so forth. Sometimes these reports aren't made. The meetings aren't held. They go on for two or three months, no meetings. And often the FAA, the PMI is not aware of this. Now, some PMIs do sit in on the CASP reports and some don't. But within the year, I found two 121 operators that the reports of CASP were not made for six and seven months. Another one, the fellow that ran the program quit and he took all the reports with him for the past year, you know. So I just wanted to get that little piece in about the operator's responsibility. As far as the repair stations themselves, they're really not required, if you look at the regulations, to do auditing. They're required to have a quality control program but not necessarily audits. Now, many repair stations do the audits, but lots of people think that they're required to have an audit program. As of now, they're not required to have an audit program. They do have a responsibility of being aware of what's happening within their repair stations, so those repair stations that do have a periodic audit system set up to look at the quality control or the quality assurance, they seem to be doing fairly well in that area, but I could see lots of areas for improvement within there as far as the detail of their findings. MR. MC GILL: Do you think all of the FAA oversight of all of these different facilities, are they held to the same regulatory standards, between a large carrier, a large 145, small carrier; can you notice any differences in that? MR. CROTTY: It seems that for the larger repair stations, the oversight or the surveillance by the FAA is adequate, because consequently they're the better operators, the better repair stations. If you take the top ten, they're well tuned organizations. They have training. They even have sometimes internal safety programs. They have audit programs. I don't see the problems emanating from them. Again, I keep on repeating back to the smaller repair stations and the component people, but the 100 and 200 people that are doing the spot work for the smaller air carriers that are changing repair station contracts over a period of time, this is where I see the real safety implications are there. MR. MC GILL: Dick, do you see any difference in the standards between certain airlines, certain areas? We have, whatever, nine different regions or whatever, airplanes coming in from different areas, do you notice anything in the way you do business with that, from an oversight? MR. HORN: I think you can pretty much -- I can pretty much parrot that the smaller airlines have lesser staffs, lesser experience and do a lesser audit, the small carriers. They really do. We fortunately deal mostly with mega carriers, mostly large 121's with 350 airplanes or more and the leasing company we do a lot of business with has 1,150 airplanes. So we're dealing with some fairly large carriers for the most part. But we see some things in smaller carriers that aren't the audit that the mega carriers do or ourselves for that matter. I think it's probably because of the size and I think it's probably perhaps the experience. CHAIRMAN FRANCIS: Okay. We'll go to the parties here. I'll keep the same order. Joe will be at the ready. FAA: Thank you, Mr. Chairman. Mr. Crotty, you mentioned case audits. Is that normally 121 issues rather than 145 issues, the case audits? MR. CROTTY: Pardon? Say that again. FAA: The case audits, are they normally 121 issues rather than 145? MR. CROTTY: You're talking about the case audits now? Yes. Of the 121 people using the case system to evaluate the 145 people. FAA: Right. MR. CROTTY: Yes. FAA: Are they looking at more 121 issues or 145 issues? MR. CROTTY: 145. FAA: Does your audits address, your company's audits, do they address 145 or 121 or both? MR. CROTTY: 145. FAA: Okay. Thank you. That's all. CHAIRMAN FRANCIS: Bob. FSF: Bart, in your comments, you talked about some of the repair stations having a safety office, safety officer. How prevalent is that? MR. CROTTY: Repair stations having a formal safety program? FSF: Yes. MR. CROTTY: There's very few of them. I know the larger repair stations do have them and have excellent ones, but it's very, very few. I would say less than one in five. FSF: In your experience, who do the safety officers report to in these cases where they have them? MR. CROTTY: The safety officer? FSF: Yes. MR. CROTTY: Reporting? FSF: In the organization structure, if you have a safety office, you've obviously got somebody in charge of that office. Who does that individual report to in the structure? MR. CROTTY: Invariably it's people in quality control or quality assurance. MR. FERNANDEZ: In our facility they report to the director of quality assurance. FSF: Who reports to? MR. FERNANDEZ: Who reports to myself and I report to the president. CHAIRMAN FRANCIS: I think there's an issue here th