Abstract

Maintenance is key to business continuity since this activity is required for the proper functioning of engineering assets. Maintenance involves a wide range of activities and many organizations choose to outsource this function to focus on core business. For leased equipment, maintenance may be included in the contract, and thus bargaining the rates becomes crucial for the business success of both, the customer and contractor. However, how may this contract negotiation be affected by options of disagreement such as aircraft purchase (instead of leasing) and performing maintenance in-house (instead of subcontracting)? This paper presents an original model to optimally negotiate the contract price for aircraft in which heavy maintenance is bundled with leasing (product-service system or PSS). The authors consider a service provider evaluating two PSS contract options for airlines to operate leased aircraft. The main objective of the research is to investigate how the alternatives of aircraft purchase and in-house maintenance (as opposed to lease contract agreement) influence the lessor's decision-making regarding contract pricing, the number of airlines to serve, and contract preference to be offered. A sensitivity analysis is carried out regarding the contractor's risk aversion and bargaining power. A numerical example is shown using data from the airline industry to better understand the model.