financing, managing & maintaining engines: roundtable ... · pdf file– fuel &...
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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
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
M A I N T E N A N C E
Time on wing avoids Shop visitBecause all “unnecessary” Shop Visits are expensive …
M A I N T E N A N C E
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
M A I N T E N A N C E
* 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)
M A I N T E N A N C E
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)
M A I N T E N A N C E
Operating Cost - Cost Generated by Shop Visits – 15 years
Maintenance Cost Model Analysis Engine A Engine B
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)
M A I N T E N A N C E
Operating Cost - Cost Generated by Spare Engine
Maintenance Cost Model Analysis Engine A Engine B
# Spare Engine Recommendation 6 7Cost for spare engines Base ~ 7 - 8 M$
Spare engine savings of ~ 180 K$ per A/C($ constant & no inflation)
M A I N T E N A N C E
Cost of Ownership
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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)
R E L I A B I L I T Y
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)
R E L I A B I L I T Y
Cost of Ownership
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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
• Engine Acquisition– Price
• Engine Operation– Maintenance– Life Limited Parts– Reliability– Fuel & Oil– Emissions– Fleet Management
• Engine Resale– Residual Value
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 ?