Airline CEO's warning

17 September 2009

18 September 2009 | Allie Anderson

Aviation suppliers must work closely with airlines if both are to survive and thrive, experts say.

Speaking at the Asian Aerospace Congress in Hong Kong this month, Tony Tyler, CEO of Cathay Pacific, berated vendors for "making good profits even in these dark recessionary days" while airlines continue to suffer "chronic financial underperformance".

He said the problem is exacerbated by the "insidious effects" of contractual clauses that allow suppliers to impose automatic price increases year on year.

"It's absurd to keep paying higher costs for the same thing. There has to be a closer alignment between the interests of airlines and suppliers," Tyler said.

Craig Cherry, head of group procurement at Monarch Airlines, agreed. He told SM: "Sustainable savings and lower unit costs without detriment to margin are possible as long as everyone works to a common goal.

"Both parties have to have the propensity to challenge everything and spend every single penny as if it was their own on an ongoing basis, not purely at contract renewal time or when the shit hits the fan."

In the past six months, British Airways has identified ways to cut costs while maintaining vendor productivity.

Tim Richardson, head of procurement, told SM: "We have been talking to our top 250 suppliers, which represent about 92 per cent of our total spend. We have been challenging them to work with us to take costs out of the relationship and have had some considerable success."

Tyler concedes that some suppliers "have got the message" and are finding "innovative ways to improve efficiencies and reduce unit costs".

Cherry added: "Ongoing world class contract and supplier management is the key."

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