Financing, Managing & Maintaining Engines: Roundtable ... · PDF file– Fuel & Oil...

How to compare two engines ?

March 27h, 2008

Financing, Managing & Maintaining Engines:

Roundtable Summit for Financiers

Cost of Ownership

• Engine Acquisition– Price

• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management

• Engine Resale– Residual Value

EASY TO COMPARE

Should I really care about this ???

Aren’t all engines the same ???

Cost of Ownership




M A I N T E N A N C E

Time on wing avoids Shop visitBecause all “unnecessary” Shop Visits are expensive …


Shop Visit Rate Reports

0,02

0,04

0,06

0,08

0,1

Sep-02

Nov-02

Jan-03

Mar-03

May-03

Jul-0

3Sep

-03Nov-0

3Ja

n-04Mar-

04May

-04Ju

l-04

Sep-04

0.072

0.022

Engine B SVR

Comparable Fleet (Experience, Size, Age and Operations)

should have Comparable SVR

⇒Longer Current and Expected Lives for Engine A⇒Fewer Shop Visit

Engine A’s SVR & UER are more than

3 times* lower compared to Engine B's

bette

r

Engine A UER 0.008

Engine A SVR 0,02

0,04

0,06SVR

Rate/1000 EFH

UERRate/1000 EFH

Engine B UER0.027

Rates are on 12 months rolling average


* Including dilution effect

Operating Cost - Cost Generated by Shop VisitsAssumptions

• Operating conditions:–42 A/C–3000 hours / year–Flight leg 2.0–Derate 15%

• Shop visits:–25% shorter lives for engine B, due to worldwide fleet dilution effect (conservative approach)

–350,000 $ advantage on shop visit average cost for engine A vs engine B(excluding LLP’s)


Operating Cost - Cost Generated by Shop Visits – 10 years

Maintenance Cost Model Analysis Engine A Engine B

Number of SV for 42 A/C within 10 year 50 80Average Cost of a SV 1.2M$ 1.55M$Average Total Cost Base +64M$

Maintenance cost savings of 1.5 M$ per A/C

Over 10 years of operation($ constant & no inflation)


Operating Cost - Cost Generated by Shop Visits – 15 years


Number of SV for 42 A/C within 15 year 117 167Average Cost of a SV 1.2M$ 1.55M$Average Total Cost Base +118M$

Maintenance cost savings of 2.8 M$ per A/C

Over 15 years of operation($ constant & no inflation)


Operating Cost - Cost Generated by Spare Engine


# Spare Engine Recommendation 6 7Cost for spare engines Base ~ 7 - 8 M$

Spare engine savings of ~ 180 K$ per A/C($ constant & no inflation)


Cost of Ownership




L L P

Life Limited Parts Advantage

20

25

30

20

20

20

0 10 20 30

LPT

Core

Fan

x1000 cycles

$0 $20 $40 $60 $80 $100

Lower LLP CostLower LLP Cost

QTY of QTY of LLPsLLPs Ultimate LivesUltimate Lives

CostCost / / cyc cyc * : $ 105.7 * : $ 105.7 ($2007)($2007)

CostCost / / cyc cyc * : $ 79.7 * * : $ 79.7 * ($2007)($2007)

* w/o stub life* w/o stub life

LLP Set PriceLLP Set Price

18

25

0 10 20 30Number

1 830 090

2 114 300

0 1 000 000 2 000 000

Engine AEngine B

$

For Budgetary Purpose Only

Engine A LLP Cost Advantage: $26 / Cycle / Engine=> 780 K$ advantage per A/C over 10 years (3000 hrs/year & flight leg 2.0)

($ constant & 0% inflation)

L L P

Cost of Ownership




R E L I A B I L I T Y

* Rate per 1,000 EFH - 12 month rolling average - engine caused

Engine In Flight Shut Down Trend **

0.000

0.002

0.004

0.006

0.008

0.010

2003 2004 2005 2006 2007

0.002

0.0030.002

0.001

IFSD:

Delta of 0.001/1000 EFH @ Engine A advantage

Engine B (June 2006 / AI March 2007)


Reliability Trend

Engine Dispatch Reliability Trend

99.85

99.90

99.95

100.00

2003 2004 2005 2006 2007

99.98

Engine B (June 2006 )

99.93

(1) Powerplant rate

D&C:

Delta of more than 0.03/100 departures @ Engine A advantage

99.96

Cost of IFSD, D&CEngine A Engine B

IFSD rate / 1000 EFH 0.002 0.003Number of events over 10 years 5 7.5

Average Cost of an IFSD 100K$10 year Average Total Cost for 42 A/C (*) Base +250 K$

D&C rate / 100 departures 0.02 0.05Number of flight impacted per year for 42 A/C (*) 13 32

Cost of one delay (66% of the D&C) 20 K$

Cost of one Cancellation (33% of the D&C) 50 K$10 year Average Total Cost for 42 A/C (*) Base +5.6 M$

(*) based on an annual utilisation of 3000 hours and a flight leg of 2.0

IFSD & D&C cost savings of about 140 K$ per A/COver 10 years of operation

($ constant & 0% inflation)


Cost of Ownership




F U E L

&

O I L

F U E L

&

O I L

Fuel Burn ComparisonFuel Burn starts at the gate …

BIG NEWS!!!!!!!!!!!

Oil Consumption Comparison

F U E L

&

O I L

Oil Consumption comparison …

Easy !!!

… but also reliability of oil system and impact on SV and D&C

Cost of Ownership




E M I S S I O N S

Gatwick airport NOx charges for A320 Family

Thrust (kN)

Char

ges p

er la

ndin

g ($

) E M I S S I O N S

Engine A Engine A upgraded Engine B

Cost of Ownership




F L E E T

M A N A G E M E N T

Engine commonality for the entire A/C family

Excellent Marketability – Extensive CommonalityReduced cost through commonality for Spares/ Training/ Fleet Management/ …

Engine Rerating :1 – Change the engine rating plug2 – Engrave the name plate

CFM56-7B for the B737NG family CFM56-5B/P for the A320 family

F L E E T

M A N A G E M E N T

Shop Visit Benefit

A321 A319

28 Shop Visits

40 Shop Visits

65 Shop Visits

With EMO

23 Shop Visits

42 Shop Visits

68 Shop Visits

No EMO

5 transfers 5B3 5B6

0 Swap

A319A321

F L E E T

M A N A G E M E N T

Cost of Ownership




V A L U E

Base data source: Engine Yearbook 2007, published by the Aviation Industry GroupReduced asset value based on CFM estimate

Aircraft/Engine value relationship

Perc

ent o

f Airc

raft

Valu

e

Airframe

Engine

Aircraft/Engine Age

On older Aircraft, engines maintained with OEM parts & repairs hold the value

~ scrap value for the Aircraft

Aircraft Residual Value depends mostly on engines

V A L U E

Market Share Number and location of A/C in service

Source: ACAS January 2008

Engine A powered A/C

Engine B powered A/C

EUROPE & CIS

AFRICA & MIDDLE EAST

ASIA PACIFIC

N & S AMERICA 2260

341

2256

587

1425

456

318106

Marketability & Liquidity

V A L U E

CFM & IAE Engine DepreciationInformation from appraisers:• Engine resale value stay constant until the end of production• CFM engine at half life is about 70 to 80% of new engine’s priceMarket demand can make these trend vary

Base Values, from Avitas BlueBook (Constant $), 2007

3.0 M$

3.5 M$

4.0 M$

4.5 M$

5.0 M$

5.5 M$

6.0 M$

2006 2008 2010 2012 2014 2016 2018

Year

CFM56-5B4/PV2527-A5

CFM higher resale value: +7.5%

Base Values, from IBA Engine Values Book (constant $), 2007

3.0 M$

3.5 M$

4.0 M$

4.5 M$

5.0 M$

5.5 M$

6.0 M$

2006 2008 2010 2012 2014 2016 2018

Year

CFM56-5B4/PV2527-A5

CFM higher resale value: +9.1%

Higher resale value for CFM56 engines: for one engine at half life CFM56-5B4/P vs V2527-A5:

+ $360,000 from Avitas+$470,000 from IBA

V A L U E

CFM56 Residual Value AdvantageHigher market value, from different appraisersHigher market value, from different appraisers

CFM56 engine market value advantage: up to +9%

Base Values, from Avitas BlueBook, 2007

3.5 M$

4.0 M$

4.5 M$

5.0 M$

5.5 M$

6.0 M$

22k 23.5k 27k 30kThrust rating

CFM56V2500

Base Values, from IBA (Engine Value Book), 2007

3,5 M$

4,5 M$

5,5 M$

6,5 M$

22k 23.5k 27k 33kThrust rating

CFM56V2500

6978 CMP-5B M0907

V A L U E

Upgrade Kits improve the asset value

• IBA and ASCEND each performed an independent assessment of the Tech Insertion Upgrade

• Small differences are explained by the use of slightly different assumptions

• Report represents the opinion of IBA and ASCEND and is intended to be advisory only 0

50100150200250300350400

$K

ASCENDIB

A

5B/37B/3

V A L U E

OEM

Non-OEM ?

Engi

ne P

roje

cted

Val

ue

Acquisition Maintenance Disposition

Engine valuation life cycle Estimated by independent appraisors* between 10% to 26% on a mid-life CFM56-3 engine …

* IBA & Ascent

… and up to 65% if the whole engine need to be put back to the OEM standards

Potential impact of non OEM materials on residual value

V A L U E

CFM genuine parts

OEM support

PMA blades Source 1

CFM genuine parts

PMA blades Source 1

OEM support

PMA blades Source 2

CFM genuine parts

PMA blades Source 1

PMA blades Source 2

OEM support

STCH Spool Source 3

CFM genuine parts

PMA blades Source 1

PMA blades Source 2

STCH Spool Source 3

No One has the Data to Support this Configuration

OEM support

When comparing engines, see global !

Don’t hesitate to ask questions …

Can’t see the forest for the trees ?

Financing, Managing & Maintaining Engines: Roundtable ... · PDF file– Fuel & Oil...

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