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Korean Air is South Korea’s national airline and its largest carrier. Its fleet of 140 planes flies to 13 cities domestically and 105 cities in 40 other countries. In 2010, the airline transported 22.74 million passengers and 1.8 million tons of cargo. In addition to passenger and cargo transportation, Korean Air provides aerospace services, accommodations, catering, in-flight sales, and limousine services.
Korean Air has been acknowledged in Korea and internationally as one of the world’s best airlines. In 2011, Travel + Leisure magazine ranked Korean Air as the world’s eighth-best airline, and the Korea Management Association Consultants voted Korean Air at the top of its K-Brand Power Index (which measures an airline’s brand image) for the 12th year in a row. The airline has also been ranked first in Japan Management Association Consulting’s Global Customer Satisfaction Competence Index for six consecutive years. In addition, Korean Air is recognized as a leading air cargo transporter, having been ranked by the International Air Transport Association as the world’s top commercial airline cargo operator for six consecutive years.
In 2004, Korean Air undertook an Enterprise Architecture Planning (EAP) study to review its systems and establish a master plan for optimizing business processes and standardizing data. The EAP study revealed inconsistencies in master data for accounting and income management and a lack of integration between activities, such as account settlement, passenger and cargo bookings, and aircraft maintenance. This made it difficult to complete financial tasks quickly and efficiently, which meant managers could not access critical information, such as airline income and expenditures, in a timely manner.
To address these issues, in October 2007 Korean Air engaged Oracle Consulting to project manage and implement a global enterprise resource planning (ERP) system, based on Oracle E-Business Suite Release 12.1.2. The scope of the ERP project was the most comprehensive attempted in the airline industry to date. Korean Air was aiming to integrate every aspect of its back-end operations, including finance and accounting; procurement; material and facilities management; spare parts manufacturing; and commercial and military aircraft maintenance. The only areas the project did not cover were reservations, ticketing, and shipping.
Korean Air automated a number of accounting processes in the finance division to cut monthly account closing time from 15 days to 5 days. It also improved fund management processes, such as interfacing the financial system with bank statements, so staff could quickly determine the amount of available cash and reduce the financial closing time.
Korean Air was the first airline to deploy revenue and managerial accounting using Oracle Business Intelligence Enterprise Edition and Oracle E-Business Suite Release 12.1.2. Revenue accounting in the airline industry involves a range of activities, including analyzing ticketing and booking information, overseeing a complex seasonal pricing system, settling accounts between affiliate airlines, and reviewing information about in-house and external transportation. Korean Air processes an average of 5 million transactions every month, with electronic tickets accounting for more than 99% of these. By linking its e-ticketing system with the Oracle ERP platform, Korean Air can confirm and analyze ticket sales—its revenue—in real time. It was the first airline in the industry to realize this achievement.
Accurate managerial accounting is another complex task in the airline industry, as it requires collaboration between regions, countries, airline companies, and branch offices. Korean Air’s managerial accounting system comprises a single Oracle Database to store information, such as numbers of crew, travel distance, destination airports, and operating costs. It is linked with the financial, revenue accounting, and other related systems, enabling the airline to calculate and analyze revenue generated by each flight upon its departure. It also provides estimations for those sections where invoices could not be issued within the accounting closing period, further enhancing the reliability of financial information.
Also, having implemented an integrated, standardized database with key airline transportation information, Korean Air can now maximize its use. The revenue management system calculates the revenue cost within two hours of a flight’s departure. The managerial accounting system, which gathers data from the revenue management and other systems, allows Korean Air to analyze the profitability of each flight in three hours to support management decision-making. The ability to analyze route profitability in such a short amount of time enables Korean Air to quickly decide whether or not to increase or decrease flight schedules for certain routes.
Other benefits arising from the Oracle ERP implementation include increased procurement efficiency and reduced purchasing costs. This includes the ability to purchase materials for catering, aircraft maintenance, and spare parts manufacturing—functions that were previously executed separately. Korean Air also created a supplier evaluation form to improve overall quality, and it automated order placements and purchasing analysis to increase efficiency and improve communication between departments.
The airline also improved manufacturing workflows and facilities management. More efficient production scheduling and resource utilization ensure Korean Air continues to manufacture spare parts for the aerospace industry in an efficient and profitable manner. The airline can also simulate production schedules to ensure it has the necessary resources to meet manufacturing deadlines and monitor information on its domestic and international properties.
Korean Air implemented additional E-Business Suite Release 12.1 modules to manage catering costs, a world-first for the airline industry. The catering solution included Oracle Bills of Material, Oracle Work in Process, Oracle Inventory Management, Oracle Order Management, Oracle iSupplier Portal, Oracle Cost Management, Oracle Engineering, and Oracle Advanced Supply Chain Planning. These are integrated with the passenger reservation system to improve in-flight meal production planning.
Work orders are finalized one day prior to takeoff, and, based on the work orders, the appropriate in-flight meals are prepared and loaded on planes. For example, the catering department can create route-specific menus based on the demand of specific routes and regions. Menus and bills of material are automatically readjusted every three months. Costs are finalized the moment in-flight meals are stored on board the aircraft, compared to taking 15 days in the past. This has helped Korean Air reduce catering and inventory costs, and minimize waste.
Korean Air entered the aerospace market in 1976 to enable South Korea to realize independent national defense capabilities and help foster developing an advanced aerospace industry. Since its foundation, the Korean Air Aerospace & Defense (ASD) division has produced civilian aircraft; maintained and modified civilian and military aircraft; and developed manned and unmanned aircraft and satellites.
The management and distribution of aerospace resources is critical to ASD’s efficient operations. Previously, this task was completed manually, using disparate data management systems. The introduction of the Oracle ERP and maintenance systems has enabled real-time resource management and distribution, ensuring ASD can use resources and allocate maintenance and other associated tasks more efficiently.
Having equipped itself with an efficient ERP system to manage passenger and cargo operations, Korean Air turned its attention to aircraft maintenance. Its aim was to link flight and maintenance plans to create accurate maintenance schedules.
Since its privatization in 1969, Korean Air has been committed to improving the on-time performance of its aircraft. The airline has four maintenance and engineering divisions in Gimhae, Bucheon, Gimpo, and Incheon. Its expertise in maintaining B747-400, A330, and A300-600 aircraft has been recognized by Airbus and Boeing. Korean Air also complies with the maintenance certification requirements of aviation authorities, such as the Federal Aviation Administration, European Aviation Safety Agency, Civil Aviation Administration of China, and the Korean Government’s Ministry of Land, Transport and Maritime Affairs.
Korean Air has used a legacy maintenance system named KALMES since 1980 to plan and manage aircraft maintenance. The system was not easy to integrate with newer solutions and was increasingly expensive to operate. When the B777 and A330 planes were introduced into the Korean Air fleet, the KALMES system could not support the graphics, digital information, and XML data associated with these aircraft. In addition, the slow calculation of maintenance costs was holding up the completion of other financial tasks, such as month-end account settlement.
Finally, the system did not provide detailed information on the materials required for maintenance at the time the materials were requested, since purchase requests were completed using a system that was not connected to the maintenance plan, resulting in a large number of inaccurate purchase requests.
To ensure it could improve its aircraft maintenance efficiency, Korean Air decided to replace its legacy maintenance system with Oracle Complex Maintenance, Repair, and Overhaul Release 12.1.2, integrating it with the Oracle E-Business Suite ERP system.
The aerospace and aircraft maintenance divisions held a joint workshop to analyze business issues, as these two divisions are responsible for research and development, production, resource management, and procuring spare parts needed to maintain and repair aircraft. Korean Air then worked with Oracle Consulting over four months to define the goals for the new system.
The airline implemented 27 Oracle modules to support aerospace and aircraft maintenance divisions’ activities. Using Oracle E-Business Suite Release 12.1.2, Oracle Complex Maintenance, Repair, and Overhaul was deployed to manage the most essential production and maintenance tasks. Oracle Advanced Supply Chain Planning was installed to help optimize production schedules and material consumption plans, ensuring efficient resource utilization. Oracle Purchasing and Oracle Inventory Management were implemented to manage aircraft parts and materials. A third-party product―Matrix 2B, a customs support system―linked the Oracle systems to the Korea Customs Office to allow the airline to file mandatory customs reports. Solutions for eight areas, including maintenance planning, were designed at Oracle’s head office, and developed and implemented by the Oracle Solution Support Center.
The Oracle Complex Maintenance, Repair, and Overhaul system enables Korean Air to plan yearly, quarterly, monthly, weekly, and daily aircraft and engine maintenance against flight schedules. Maintenance at the right time enhances the safety of its fleet and ensures passenger comfort and security.
Integration of flight schedules and maintenance planning data also provides Korean Air with maintenance costs per flight in real time, enabling the airline to analyze ingoing and outgoing maintenance costs within three hours.
Oracle Complex Maintenance, Repair, and Overhaul Release 12.1.2 is integrated with the airline’s Enigma technical documentation system, enabling the Korean Air engineering department to create nonroutine maintenance requests and to issue job cards with maintenance instructions to aircraft maintenance technicians. Maintenance tasks are completed on time, resulting in fewer disruptions to flight schedules and more on-time departures. In 2011, Korean Air received the Top Operational Excellence award from European aircraft manufacturer Airbus as the #1 airline for most on-time departures. Korean Air has received similar awards every year since 1984 for its operational efficiency.
The Oracle system can also complete tasks, such as scheduled maintenance checks more efficiently. This is achieved by supplying aircraft maintenance staff with near-real-time information regarding maintenance planning, resource supplies, actual costs, and profits.
One of the special features of Korean Air’s maintenance system is its ability to estimate the time needed to dismantle aircraft engines and components and the volume of resources needed. It can also calculate the usage life of individual aircraft parts. This enables the airline to accurately budget for the time and cost of maintaining and repairing aircraft, in addition to improving the accuracy of the maintenance plan. The estimation feature was developed in collaboration with researchers at the Reliability Laboratory, a third-party organization contracted by Oracle Consulting.
To enhance the accuracy of resource supply forecasting, Korean Air implemented Oracle’s Demantra Demand Management. The solution incorporates a multilateral demand forecast model that converts resource consumption data into usable statistics, and takes maintenance plans into consideration when developing material consumption plans.
As a result, Korean Air can see well in advance the types and volume of resources it needs to maintain its fleet of aircraft. Staff also has access to an application that searches maintenance work orders and provides materials in advance, which ensures mandatory components and parts can be secured ahead of time and are always available for repair work. This has optimized resource use and reduced inventory for maintenance.
The Oracle maintenance system can report the details of possible faults that occur during an aircraft flight via the wireless aircraft communications addressing and reporting system. The messages are registered in the Oracle ERP system. An aircraft mechanic will review a message and create a nonroutine maintenance work order. By issuing repair instructions to a service team even before the plane has landed, Korean Air has shortened the lead time for identifying the cause of the fault and performing the repair work.
“The reduction in fault identification and repair time has improved efficiency and contributed to the stability and safety of Korean Air’s fleet,” said Sang-man Lee, CIO, Korean Air.
The establishment of a digital library to store technical documents, such as aircraft and engine maintenance manuals, has created a near paperless work environment. These manuals are available on the airline’s intranet, reducing the need to print costly hard copies and ensuring engineering staff have access to information about the company’s fleet at any time.
Korean Air is considering implementing an electronic records and electronic signature (ERES) system to automate the issuing and approval of work orders for aircraft spare parts for maintenance and repair work. The system has significantly reduced the volume of paperwork that passes between departments, saving costs by reducing the need to produce and print hard copies.
Optimizing Maintenance Plans to Improve Maintenance Productivity and Efficiency
Korean Air will focus on ways to double the value from its Oracle ERP and maintenance system, which will help make rapid decisions, improve productivity, reduce costs, contribute to operational efficiency, and boost profits. The maintenance department, in particular, expects to benefit from lower inventory holdings, shorter lead times for spare parts, more efficient workshop operations due to shorter repair times, and labor efficiency, with the ability to plan and forecast the human resources needed for maintenance jobs.
The majority of ERP solutions tend to focus on financial, materials, and manufacturing processes and normally lack the features required to support the aviation industry’s unique needs, such as developing flight schedules or aircraft repair and maintenance programs.
“Most ERP solutions only cover up to 70% of an airline’s maintenance requirements,” said Sang-man Lee. “This makes replacing legacy systems with a new ERP system difficult and risky.”
To avoid the implementation issues that other airlines have faced, Korean Air realized it needed an ERP solution that was highly flexible and expandable. After considering proposals that addressed common implementation issues such as cost, timeline, and vendor co-development, Korean Air selected Oracle E-Business Suite Release 12.1.2 as the solution that best met its business and technical requirements.
Korean Air has worked with Oracle Consulting since 2007 on all aspects of the EAI project, from the Implementation Planning Study to the development and deployment of the ERP system based on Oracle E-Business Suite Release 12.1.2. Staff from Oracle Consulting familiarized themselves with the needs and processes of the aviation industry then established a detailed project plan and followed a systematic methodology to complete the four-year project on time and within budget.
The project’s main challenges were the involvement of multiple stakeholders across countries and up to 12 business units; the need to manage data across finance, procurement, and different sales channels; the lack of skilled resources in niche areas such as airline mechanical and electrical engineering; and language and cultural barriers.
To overcome these challenges, an executive-level steering committee comprising Oracle and Korean Air executives was formed to own and steer the project, and solve issues that could not be addressed at the working steering committee level. The working steering committee consisted of senior executives from Oracle and Korean Air. A separate project team was created within Oracle to manage the vendor’s global support teams.
Oracle reached out to internal resources globally, engaging four Oracle Complex Maintenance, Repair, and Overhaul experts with knowledge of the aerospace and transportation sector, and 10 Oracle Complex Maintenance, Repair, and Overhaul experts from Global Sourcing, a partner organization. These experts understood airline technicalities and language, and had extensive mechanical and electrical engineering experience.
Korean Air and Oracle Consulting are continuing to work together to expand the Oracle Complex Maintenance, Repair, and Overhaul system, where the airline provides ideas and requirements and Oracle Consulting incorporates these into the system. To streamline this process, Oracle has set up a new body―the Aviation Industry Strategic Council (AISC)―with the U.S. Air Force. AISC will hold two annual meetings with C-level executives to analyze client requirements and guide the strategic direction of the Oracle Complex Maintenance, Repair, and Overhaul system.
The Oracle Solution Support Center also continues to support the Oracle ERP system and helped stabilize the Oracle Complex Maintenance, Repair, and Overhaul system by handling enhancement and support requests following the implementation.