When airline alliances first were formed in the late 1990s, joint purchasing revolved mainly around the areas of marketing and customer service and rarely produced significant savings. In some cases, the purchases were more trouble than they were worth, alliance executives remember.

But in the post-9/11 era, with high fuel costs and pressure on yields the norm, the focus of joint purchasing has changed. Alliances are beginning to buy big-ticket items collectively, taking advantage of economies of scale. Although these activities are in the early stages of development, the savings are noteworthy. Total savings from joint purchasing of various items at the oneworld alliance, whose members include American Airlines and British Airways, were nearly $300 million in 2006, according to alliance spokesperson Michael Blunt. More recently, oneworld partners combined efforts to buy fuel and maintenance, repair and overhaul services at selected hubs where members are co-located.

Specific information is sketchy, however. As to the challenge of purchasing spare parts and MRO services, Blunt's answer is somewhat cryptic: "We've done a lot of joint alliance activity with various airworthiness authorities on specific certain items." The problem, he says, is that each airline is governed by its own operating certificate.

Where possible, oneworld and other alliances are striving for commonality in spare parts, which can include everything from wheels, brakes and engine parts to avionics, although there is not a lot of evidence of bulk purchases of any of these items.

Oneworld has held several meetings with airframe and engine builders as well as regulatory authorities and leasing companies about joint purchasing of spares. For the most part, the meetings have been about achieving common specifications, not actual en masse buying of spares. The long-term goal is for any of the 10 partners to partake of each other's inventory. This type of purchasing is in the "formative stages," says Blunt, but with the addition to the alliance of Japan Airlines, Royal Jordanian and Malev Hungarian it could take on more importance.

Star Alliance, which has tracked savings from joint purchasing since 2000, signed several framework agreements with various suppliers, from avionics and telecommunications to media and revenue protection. As early as 2002, it signed an accord with Rockwell Collins to provide member airlines with common procurement requirements. Whether this translated into consolidated purchases is unknown, but there is a cost savings applied to individual carriers buying electronics and communications devices from Rockwell Collins, an alliance spokesperson says.


One area of opportunity is the purchase of IT systems. In 2003, Star members selected SITA to create the first IP community network for an alliance. Additionally, San Jose, Calif.-based BEA Systems, an application infrastructure software company, has a five-year agreement enabling each Star Alliance partner to lower its IT cost structure by buying BEA's software. For revenue recovery and protection services, Star and Zero Octa signed a preferred supplier agreement. In 2005, Star chose Amadeus to develop the Common IT Platform based on its Altea system. "Through projects such as the Common IT Platform, the participating carriers will save money in the long run by being able to reduce their IT spending," says Markus Ruediger, director-media relations for Star Alliance Services.

With fuel, Star is taking a two-pronged approach. It is beginning to consolidate fuel purchasing for member carriers at its major hubs where they are co-located while simultaneously working together to ensure a steady supply. "Overall, we estimate that these activities alone can save our member carriers approximately $10 million in fuel costs annually," says Ruediger.

Despite much talk, none of the alliances currently has plans for joint purchasing of aircraft or engines. The thought of navigating through a regulatory minefield to buy planes is too much to bear, various alliance officials agree. There is another barrier. Aircraft sales are private affairs typically between one airline, the OEM and sometimes a lessor. Each sale is different, involving discounts and special considerations. Introducing multiple parties, such as several members of an alliance, muddies the process and can jeopardize a deal.

There is also the problem of information sharing. Having alliance partners sharing proprietary information about themselves with OEMs regarding, say, growth plans makes joint purchasing of aircraft an exercise in futility.

"It's ironic, but an airline gets something from each purchase, but that benefit lessens if there were a massive equipment purchase by an alliance," says Teal Group VP Richard Aboulafia.

Honeywell, a leader in avionics and auxiliary power units, says it has not seen a major trend of joint purchases by alliances. Pratt & Whitney gives the same answer, as do GE Aviation and AAR Corp. Still, Star members have agreed on joint specifications for certain types of aircraft, such as the CRJ family, 787 and A350. Through such specifications, manufacturing and spare parts costs can be reduced and the resale value of the aircraft increases owing to greater commonality, says Ruediger.

There is some serious discussion among alliance boards about aircraft pooling on international flights, although this might run afoul of pilot labor contracts and be subject to bilateral restrictions in air service agreements. But for the most part, alliances remain marriages of convenience, says Aboulafia. Airlines will share information and combine forces when it suits them but are not about to share growth plans, which are reflected in aircraft purchases, he says.


Yet there is some headway in joint purchasing. Through co-location of airport check-in facilities, carriers may realize significant cost savings. SkyTeam, which includes among its membership Delta Air Lines, Korean Air, Northwest Airlines, Continental Airlines and Air France KLM, derives most of its savings from joint purchases of certain items at any one of its 40 co-locations around the world. For instance, it says it reduces ground handling costs through a common contract and the use of shared handlers.

Last June, nine SkyTeam members signed an MOU with BAA to co-locate their facilities in Terminal 4 at London Heathrow by 2008. In October 2006, the alliance announced that four partners serving Brazil will be co-located at Sao Paulo Guarulhos. It also signed an agreement with Tokyo Narita to move all SkyTeam members to Terminal 1, from which Northwest already operates (all but one Star member are co-located at Narita's T1 South Wing.). Plans for relocating or co-locating are in the works at Madrid and Warsaw. Joint purchasing revolving around these co-locations remains a primary goal.

A lot more joint purchasing could be accomplished "if the CEOs of the [member] carriers were willing to give up some of their independence," jokes SkyTeam's Giorgio Callegari, corporate VP-alliances for Alitalia. He and others say it's a question of surrendering power and independence to achieve an overall benefit, but that is easier said than done.

There are smaller joint purchases worth noting. SkyTeam has an exclusive contract with Coca-Cola to use its beverages throughout the alliance system. It also is negotiating joint marketing agreements with various credit card providers. But finding synergies at airports, such as in catering, security, cleaning and other services, will remain the underpinning of joint purchasing.

As for massive fuel buys, SkyTeam looked at purchasing fuel but backed away because "each airline has different fueling policies," says Callegari. And while joint purchasing of labor-intensive MRO services seems logical, "The bugaboo is the issue of standardization," says Kevin Michaels of AeroStrategy, which tracks the MRO business. "We haven't seen a lot of alliances buying maintenance."

Callegari's answer is a variation on the same theme: "SkyTeam is not engaging in any maintenance contracts on an alliance-wide basis."

Sarah MacLeod, executive director of the Aeronautical Repair Station Assn., says alliance purchasing of MRO services is "doable, but very challenging. The regulations don't change because our business relations change." A huge educational process and greater involvement of the OEMs relating to maintenance programs for aircraft would be required, she says.

Marketing remains a staple of joint purchasing. Most alliances, AP found, are buying advertising jointly in cities where their members have a strong presence. They also say they are escalating joint purchasing of items such as pillows, earphones, food and blankets.

Perhaps the biggest challenge to increasing joint purchasing is overcoming the regulatory and institutional barriers on the operational side. That would explain why the biggest joint projects involve IT systems, typified by Star's Common IT Platform, where regulatory burdens are far less and the organizations already are comfortable with concepts such as outsourcing and shared networks.