An Interactive Decision Making Framework Design for the Outsourcing Cooperation between the Service Provider and the Airline: an Exact Bilevel Method

In reality, more and more airlines outsource maintenance tasks to the maintenance, repair, and overhaul (MRO) service provider to achieve cost-effective operational planning. However, the existing literature mainly focuses on the optimal decisions from the perspective of the airline, which usually ignores the resource scarcity of the maintenance service provider (MSP) and provides “virtual optimal” solutions for aircraft maintenance routing problem (AMRP). In actual operations, the MSP may not be able to provide “mutually beneficial” maintenance services to its customers due to its resource scarcity and the lack of information sharing. Therefore, in this paper, based on industry practices we model an aviation service supply chain consisting of one MSP and one airline, in which the MSP may provide maintenance services to multiple airlines with limited spatiotemporal resources with different prices. A bilevel mixed integer programming (MIP) model is formulated to characterize the interactive decision-making structure between the MSP and the airline that aims to help increase the operational efficiency of both the MSP and the airline. An exact bilevel solution framework is developed which is verified to achieve convergence and obtain the bilevel optimality. Through the proposed algorithm, the computational study is further conducted based on the actual operational data from one of the biggest Chinese airline companies. The results verify that, compared to the benchmark, the proposed bilevel model can achieve Pareto improvement. In addition, the sensitivity analyses regarding pricing, flexible maintenance resources and opportunity cost coefficients verify the effectiveness and robustness of the proposed bilevel model, and further derive some useful managerial insights for both the MSP and the airline at strategic and operational levels.