royalinsight - royal aero

Royal Aero Magazine // Autumn/ Winter 2016

ROYALINSIGHT More and more transitions every year"

// Airbus' Vice President Asset Management Andreas Hermann

provides insight into the secondary aircraft market

MIDAS-severityTM mobile app

// First independent aero engine

life calculator at your fingertips

"

// 32 //

// Content The Topics

// Editorial Calum M. MacLeod, CEO Royal Aero

// Partner Interview Comments and Suggestions

// Insight Royal Aero Employees Interview

// Market Inside MIDAS-severityTM mobile app

// NewsAround Royal Aero

Recently, I read an article on the subject of life perception. It brought up that as people become older, they hark back to the days of old, when life was better, things were cheaper, politicians were hon-est, selfie wasn’t even a word, and Trump was a card game. The writer examined the truth behind these beliefs and knocked each one down to prove that life has never been so good in almost every way and on every continent.

I must admit that I do believe life has never been so good, in many ways, for each succes-sive generation. I was born in the 1950s and watched the first black and white televisions and the first telephones be installed in our village. Now, living in the foothills of the Alps, I like modern technology, but I also en-joy the local traditions that keep us ground-ed. I love vintage machinery, but don’t take away my high-tech car!

One of the greatest developments in our life-time has been air travel, and more recently, the growth of low cost carriers and general airline cost management have enabled the

masses to travel to places they could have only once dreamed of.

However, will low cost travel be the same for my grandchildren? I am not so sure. With the gradual demise of independent engine MRO’s and the manufacturers taking control of maintenance supply for the next genera-tion of engines, this will lead to higher ticket prices. This will be an inevitable development.

In every other area of our lives we are gain-ing greater choice. Banking, health care, flex-ible working, mobile phones, superfoods and start-ups like Uber and Airbnb all offer us a choice through competition. In aviation you have the opposite.

It seems that all of the OEMs are endeavor-ing to restrict and control the future mainte-

// “A team with strong consultancy expertise” Andreas Hermann, Vice President Asset Management at Airbus, highlights the secondary aircraft market. When managing the portfolio, the engine status is a decisive factor.

Inside ROYALINSIGHT nance options of airlines and owners on their new engine products. Even those engines that are not signed up to manufacturers total care products will have the same parts input and cost, so there will be no cheaper option than those dictated by the manufacturers.

To sustain the image of providing independ-ent choice and keep the monopolies commis-sions at bay, the manufacturers create joint ventures and licence independent shops. Under the surface this does not provide any real choice.

You will be able to take your engine to mul-tiple MRO’s but the pricing will be the same, save for any regional differences in man-hour rates. These license agreements are being es-tablished today but the customer will not be aware until it is far too late to change... The smartest engine manufacturer will be the one that decides to avoid the monopolis-tic route. If they can resist temptation, cus-tomers will eventually flock to their products. //

ROYALINSIGHT

// Design/Layout: Popp + PschorrProduktinnovation GmbHThomas-Wimmer-Ring 1280538 München, Germanywww.popp-pschorr.de

// Printed by: Offsetdruck Schwarz GmbHRohrauerstraße 7081477 München, Germanywww.offsetdruck-schwarz.de

// Published by:Royal Aero GmbHCalum M. MacLeodMaxlrainer Straße 1283714 Miesbach, Germanywww.royalaero.com

Pictures by: // designed by vexels.com (p. 1, 2+7), // AirteamImages (p. 2+8), // Airbus Media (p. 2+ 4),// Dreamstime (p. 2+6), // Royal Aero (p. 3), // Itochu Corp. (p. 8) Illustrations by: // C. Dekelver // A. Pschorr

// Concept/Editing:Sprachperlen GmbH Helena PröpsterEhrengutstr. 1080469 München, Germanywww.sprachperlen.de

is Royal Aero's company magazine

// Calum M. MacLeod // CEO Royal Aero

// page 4/5

// page 6

// Short news around Royal Aero: Japan's 2nd largest sogo shosha says "Yes"; Fleet size increases as more aircraft "FLY" in; A sack full of assets: Engines available for lease, sale or exchange; Additional Powerplant Engineers and Sales Staff.

// page 8

// Insight Royal Aero Valdemar Osipovic moved with his family from Lithuania to Germany to strengthen Royal Aero's engine parts sales team. What is it like to become a Bavarian?

// page 7

// First independent aero engine life calculatorHow long will my engine last on wing and how much will it cost when my engine needs to be fixed? MIDAS-severityTM has the answers at your fingertips in a matter of seconds.







Avoid...

...the monopolistic route

// 54 //

// Andreas Hermann// Vice President Asset Management, Airbus







// Royal Insight: Andreas, how did you get to the aviation industry?// Andreas: I think my career started early. Like many others I was already fascinated by aircraft and engineering when I was a young boy. Even after many years I'm still excited about the industry, working in a global envi-ronment contributing to connect people from all over the world.

// How did the cooperation start between Airbus Asset Management and Royal Aero?// The relationship with Royal Aero goes back about four years and began rather unspectacu-larly. We had a couple of engines, and we did not know what to do with them. Royal Aero took over and everything went very smooth-ly. So we decided to expand business and we got to know the strong consultancy expertise the Royal Aero team has acquired over the years.

// What exactly is your job at Airbus?// My division takes back used aircraft as trade-ins and sells them to operators. Even though we are no classical trading company – our main objective is to support the core business of Airbus, producing and selling new aircraft – we face the same challenge: managing the commercial and financial risks of the portfolio. That's where Royal Aero comes into play consulting us and supplying all kinds of data about forecasting of shop vis-its, green time and thus the value of the en-gines. And the older the aircraft is, the higher is the relevance of the engines; and the more valuable becomes Royal Aero's expertise.

// What is special about the asset aircraft when compared with other asset classes?// The most important thing is that aircraft

are a highly mobile asset, for example when compared with real estate. Regarding used aircraft you have to take into account so many different factors that influence the value of the asset. Most of all the different environments in which an aircraft has oper-ated. In extremely hot ambient conditions or from airfields with a high volume of airborne particles? Furthermore the secondary mar-ket for aircraft is highly regulated, therefore safe, and transactions are very tailored. That's what makes every deal unique.

// What trends do you see in the second-ary market for aircraft?// Well, the aircraft market is growing steady since 50 or 60 years. Not everybody is buying

new aircraft, thus we have a healthy secondary market. In conjunction with the currently low interest rates, the market is highly liquid and we will see more and more transitions every year. Besides that, more passenger-supplied consumer digital hardware and Internet connectivity in the airline cabin will bring a leaner in-flight entertainment system. This will lead to much lower reconfiguration costs on the secondary market, which will give a further boost to used aircraft sales.

// What has been the most memorable mo-ment in your career?// There are many! The aviation industry gave me the possibility to travel the world, bringing me together with fantastic people in extraordinary places. I once had a meeting with Niki Lauda in the pit lane at the Singa-pore Formula 1 Grand Prix. I think it was all about distracting me from the negotiation :-) As a new father I do believe the best is yet to come. Bringing me back to the childhood enthusiasm for aviation: I am really looking forward to sit with my daughter at the airport and tell her "Look, daddy sold this and that aircraft to connect people around the world".

// Thank you for talking to us, Andreas. //

Andreas Hermann, Vice President Asset Management at Airbus, is responsible for trade-ins, selling and leasing used Airbus aircraft to operators around the globe. When managing the portfolio, the engine status is a decisive factor.

Royal Insight // Partner Interview

A team with strong consultancy expertise”

“

Airbus’ Asset Management division trades in used Airbus aircraft and sells or leases them to operators around the globe. Its primary responsibilities include commercial, financial and risk manage-ment of the company’s portfolio, as well as the enhancement of all Airbus products’ residual value.A full range of related services can be arranged through the Asset Management division, from assistance with service entry and interior reconfiguration, to main-tenance support and more.This division leverages the skills and experience of dedicated team members that are based at Airbus’ Toulouse, France headquarters. The overall goal is to support Airbus with the core business, designing, producing and selling new aircraft.

About Airbus Asset Management

The best is yet to come

We have a healthysecondary market

// 76 //

Valdemar Osipovic joined the Miesbach Royal Aero team from Lithuanian aircraft maintenance, repair and overhaul com-pany FL Technics in 2015 to strengthen sales efforts, focusing on engine parts trading activity. He moved with his fam-ily from Lithuania to Germany and in this interview he gives some insight into his background, his daily work and what it's like to become a Bavarian.

// Royal Insight: Valdemar, what was your way to Royal Aero?// Valdemar: In 2014 there have been many personal and occupational changes in my life. Foremost I got married. Furthermore I ad-vanced professionally and went to the large MRO events around the world. At this time I came into contact with Royal Aero and they asked me to join the engine parts sales team in Miesbach, Germany. I received the offer with great pleasure but also considerable re-spect for the challenges of living in a foreign country and culture. It was a big step for me.

// How did your career begin?// I developed a deep passion for engineering already in my early years at school and so I started to study aeronautical engineering. During my studies I did an internship at FL

Technics and worked for several months as an aviation mechanic. There I learned eve-rything about engines from the bottom up. After graduating I started working at FL Technics as a sales manager for about three years before joining Royal Aero.

// What is the major challenge in pro-viding engine parts?// Customers often seek best price at best

technical quality. My main challenge is fin-ding the answer to the question: "How can my offer be better than others". However, in many cases, when dealing with engine parts, there is not one simple solution. Replacing additional parts can be easier and cheaper, for example to restore the correct balance and avoid vibrations. My prime objective is to offer the solution that is best for the clients instead of only discounting – to really add va-lue to their business. // How do you start your workday?// The first thing I normally do is to greet all my colleagues, share news and then head

straight to the coffee machine. In the mean-time, while the coffee is brewing, I start my computer. I like being efficient.

// If you compare yourself to an aircraft part, what would it be?// Definitely a fan blade. In a typical modern turbofan, about 80 per cent of the thrust co-mes from the fan. Every fan blade is part of a perfectly arranged team to bring the aircraft to flying. That's the way work is supposed to be.

// How was it moving from your homeland Lithuania to Bavaria?// It was easier than I thought. Royal Aero helped me to find a place to stay and after some time my wife came to Miesbach, too.

The team at work welcomed me with open arms and also the residents are incredibly ac-commodating and friendly. It is easy to get into conversation with people at the bakery or in the local supermarket. And we have a newborn child: everybody loves little kids.

// And something you have not got used to so far?// The opening hours! They are so different than in Vilnius in Lithuania. In the beginning I had a hard time making it to the barber, as he closes so early. But if you are flexible, you get used to it.

// What do you do in your leisure?// My wife and I love to make small excur-sions and discover new places. And here in Miesbach the surroundings are spectacular: the Alps within a short distance, lovely villa-ges and other sights. I remember well when we went for our first day trip to the famous Neuschwanstein Castle; and we knew that the decision to move here was right.

// Thank you for talking to us, Valdemar. //

For more information, please contact Valdemar at [email protected].

It’s not often that one is able to offer something unique to the market. How-ever, in early 2016 Royal Aero launched its first mobile app, an independent aero engine life calculator. MIDAS-severityTM is the app designed to give users the power to instantly calculate the predicted life of Western manufactured commercial aero engines from the palm of their hand, from anywhere in the world.

This concept follows on from the thoughts posed in our article featured in Royal Insight Summer/Autumn 2014 edition when we dis-cussed our search for meaningful relationships from the data we gather to answer two of our clients most frequently asked questions: 1) How long will my engine last on wing? 2) How much will it cost when my engine needs to be fixed? Until now these questions took clients some considerable time and manual calculus to answer. However, with MIDAS-severityTM, the answers are at their fingertips in a matter of seconds.

Royal Aero is using data in a sophisticated way to assist clients in their quest for greater intelligence to better understand and pre-dict the world of aero engine operation, management and finance. This application demonstrates, through its embodiment, fur-ther advancement in both how Royal Aero successfully corrals “big data” and uses it to better inform clients and further highlights its keenness to embrace and use new and dif-ferent ways and technologies to communicate

this knowledge including the use of mo-bile devices. We believe in the necessity to keep moving forward and to meeting the challenges that befall us; we welcome new ideas and courageously step outside of the norm to question the status quo. One does not have to look very hard to see evidence of this, such as when, in March 2014, Royal Aero became the first aero engine parts sup-plier to open an e-shop, enabling trading cli-ents to search, review and purchase material faster and more efficiently than ever before.

MIDAS-severityTM has been some time in the making and is the culmination of over nine years’ research. We recognised early on, as Royal’s engineering department began to develop, the importance of dedicating time and resource to the analysis of data points provided to us and to look for the essence of those data relationships so to be able to express them in mathematical terms. This process is both time consuming and more complex than it might at first appear. This is due, in part, to the multitude of variables that require consideration. Royal Aero’s engi-neering team has been collecting; analysing and profiling data for almost ten years and currently manages a combined fleet of ap-proximately six hundred aircraft, consisting

Royal welcome with Neuschwanstein Castle

// Valdemar Osipovic// Sales Executive - Engine Parts Trading

of both wide and narrow body aircraft; larger in size than many single leasing entities.

Now that MIDAS-severityTM is mobile it has also found use with our clients as an inde-pendent dispassionate point of reference when negotiating lease rates and discussing expected performance and repair costs with their potential customers. It acts as a silent partner in the room presenting predictions based on known and verified operational data. So how does the MIDAS-severityTM app work?

Firstly, the user selects:- specific aero engine type and model;- the region of operation; where the engine is based, and depending on whether the engine is classed as either a new or mature asset,- the anticipated level of repair at next shop visit (Core or LP + Core), together with- the anticipated flight sector length (Hr:Cy ratio)

Once the user has made these selections, MIDAS-severityTM calculates:- the selected engine's expected time on wing;- its anticipated repair cost at next shop visit, excluding LLPs, and- the blended maintenance reserve rate using new and mature engine profiling

So why not check it out for yourself. Go to ei-ther Apple iTunes or Google Play and search for "Severity" to download your free trial now.



// Customer Interview Comments and Suggestions




Valdemar Osipovic was born in Vilnius, Lithuania. After graduating he worked as aviation mechanic and sales manager for FL Technics. He joined the Royal Aero engine parts team in 2015 and moved to Miesbach together with his wife. His son was born this year and is becoming a real Bavarian.

The Person

Royal Aero develops the first independent aero engine life calculator

We are currently developing a second mobile app again tailored to meet the specific needs of the leasing community. This time the focus is aircraft contrac-tual health and its name is MIDAS-burnTM. Stay tuned as its launch is expected in the Q1 of 2017.

Coming soon...

That's the way...

...work is supposed to be

Believe in the necessityto keep moving foreward

Culmination of over nine years’ research

// 8

Short News // 3

Additional Powerplant Engineers and Sales StaffRoyal Aero has hired four additional power-plant engineers and added two additional staff to the sales team. We are currently looking for more engineers and airframe parts sales staff to join the growth at Royal Aero. //







Short News // 1

Fleet size increases as more aircraft "FLY" inFLY Leasing Limited (“FLY”), listed on the New York Stock Exchange, acquires and leases aircraft to a diverse group of airlines worldwide. It has entered into agreement with Royal for its fleet of 81 aircraft, valued at in excess of $2.5 billion, to be added to Royal’s MIDAS-severityTM asset management platform. Royal Aero is providing this sup-port through BBAM, one of the world’s largest aircraft lease managers. //

Short News // 2

Japan's 2nd largest sogo shosha says "Yes"Royal Aero reached an agreement with the Plant Project, Marine and Aerospace Division of Itochu Corporation, part of the second largest Japanese sogo shosha (general trading company), to manage its aircraft portfolio, consisting mostly of commercial narrow-body aircraft. This decision reflects Itochu’s continued growth in the aircraft leasing market. Royal’s portfolio manage-ment duties include asset tracking, fleet forecasting and the undertaking of specific and specialized engine related projects. //

Short News // 4

A sack full of assets: Engines available for lease, sale or exchangeRoyal Aero recently added one CFM56-3C1, two CFM56-3B2’s and one CFM56-5A3. The CFM56-3C1 and CFM56-5A3 bought in unser-viceable condition and underwent full per-formance restorations at TAP Maintenance & Engineering and Lufthansa Technik AG. Both were placed on lease immediately. The two CFM56-3B2’s were also placed on lease. One more PW121 for ATR42 is undergoing a performance restoration in Lufthansa Aero Alzey GmbH. Furthermore Royal Aero sold one serviceable PW4062-3 to an operator in Eastern Europe, one serviceable PW4056-3to an aircraft lessor, two serviceable CFM56-5C4’s to an Aviation Investor with long term lease in place and one unserviceable CFM56-5C4 to a major independent MRO for part out and modular exchanges. //

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