Financing, Managing & Maintaining Engines: Roundtable Summit for Financiers

How to Compare Two Engines ?

May 1, 2008

Cost of Ownership
Maintenance

E RE A R ? PA ?? ? M P ? OM s? CO hiis t Engine Acquisition C h O t TO ut t o T u Y b SY abo Price AS e a E r A are E ca ? y c l ?? lly ? a ? l ea e? re I e m r Engine Operation a dI sam ulld e s o u h ho the Maintenance Sh s t e S nes in g i Life Limited Parts n eng le l a l Reliability tt al n e Arren Fuel & Oil A
Emissions Fleet Management

Engine Resale
Residual Value

Cost of Ownership
Maintenance

Engine Acquisition
Price

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

Engine Resale
Residual Value

Shop Visit Rate Reports

Maintenance
SVR Rate/1000 EFH UER Rate/1000 EFH

1,0
Engine B SVR

0,06

0,8 0,6 0,4 0,2

Engine A UER
0,04

0.072 0.072 0.027 0.027 0.022 0.022 0.008 0.008

Engine B UER
Engine A SVR
0,02

Engine Engine As As SVR SVR& &UER UER are aremore more than than 3 3times* times* lower lower compared compared to to Engine Engine B's B's

Sept 2002

Jan 2003

Sept 2003

Jan 2004

Sept 2004

Comparable Fleet (Experience, Size, Age and Operations) should have Comparable SVR Longer Current and Expected Lives for Engine A Fewer Shop Visit

Time on wing avoids Shop Visits

Operating Cost - Cost Generated by Shop Visits

Maintenance

Assumptions 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 LLPs)

Operating Cost
Maintenance

Cost Generated by Shop Visits 10 years

Maintenance Cost Model Analysis Number of SV for 42 A/C within 10 year Average Cost of a SV Average Total Cost

Engine A
50 1.2M$ Base

Engine B
80 1.55M$ +64M$

Maintenance cost savings of 1.5 M$ per A/C

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

Operating Cost
Maintenance

Cost Generated by Shop Visits 15 years

Maintenance Cost Model Analysis Number of SV for 42 A/C within 15 year Average Cost of a SV Average Total Cost

Engine A
117 1.2M$ Base

Engine B
167 1.55M$ +118M$

Maintenance cost savings of 2.8 M$ per A/C

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

Operating Cost
Maintenance

Cost Generated by Spare Engine

Maintenance Cost Model Analysis # Spare Engine Recommendation Cost for spare engines

Engine A
6 Base

Engine B
7 ~ 7 - 8 M$

Spare engine savings of ~ 180 K$ per A/C

($ constant & no inflation)

Cost of Ownership
LLP

Engine Acquisition
Price

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

Engine Resale
Residual Value

Life Limited Parts Advantage

LLP Engine A Engine B

QTY of LLPs
25 18

LLP Set Price

2 114 300 1 830 090

Ultimate Lives
20 Fan Core LPT 20 20 20 25
0 10 20 x1000 cycles 30

30

10 20 Number

30

1 000 000

2 000 000

Lower LLP Cost For ForBudgetary Budgetary Purpose PurposeOnly Only

Cost / cyc * : $ 105.7 ($2007) Cost / cyc * : $ 79.7 * ($2007)

$0

$20

$40

$60

$80

$100

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

Cost of Ownership
Reliability

Engine Acquisition
Price

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

Engine Resale
Residual Value

Reliability Trend
Reliability

Engine in Flight Shut Down Trend

0,010 0,008

Engine B (June 2006 / AI March 2007)

IFSD: IFSD: Delta of of 0.001/1000 0.001/1000 EFH EFH @ @ Delta Engine A A advantage advantage Engine

0,006 0,004 0,002 0 2003 2004 0,001 0,001 2005 2006 2007 0,003 0,003 0,002 0,002 0,002 0,002

Engine Dispatch Reliability Trend

100,00

Engine B (June 2006 )

99,96 99,96

D&C: D&C: Delta of of more more than than 0.03/100 0.03/100 Delta departures @ @ departures Engine A A advantage advantage Engine

99,98 99,98

99,95 99,90 99,85 2003 2004 2005 2006 2007 99,93 99,93

Cost of IFSD, D&C

Reliability

Engine A IFSD rate / 1000 EFH Number of events over 10 years Average Cost of an IFSD 10 year Average Total Cost for 42 A/C (*)
Base 0.002 5 100K$

Engine B
0.003 7

+64M$

D&C rate / 100 departures

Number of flight impacted per year for 42 A/C (*) Cost of one delay (66% of the D&C) Cost of one Cancellation (33% of the D&C) 10 year Average Total Cost for 42 A/C (*)

0.02 13 20K$ 50K$ Base

0.05 32

+64M$

(*) 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/C

Over 10 years of operation
($ constant & 0% inflation)

Cost of Ownership
Fuel & Oil

Engine Acquisition
Price

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

Engine Resale
Residual Value

Fuel Burn Comparison

Fuel & Oil

BIG BIG NEWS NEWS !! !!

Fuel Fuel Burn Burn starts starts at at the the gate gate

Oil Consumption Comparison

Fuel & Oil

Oil Consumption comparison Easy !!!

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

Cost of Ownership
Emissions

Engine Acquisition
Price

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

Engine Resale
Residual Value

Gatwick airport NOx charges for A320 Family

Emissions

Charges Charges per per landing landing ($) ($)

35

Engine A

Engine A upgraded

Engine B

30

25

20

15

10 90 100 110 120

From the ICAO certification data sheets

130 140 150

Thrust Thrust (kN) (kN)

Cost of Ownership
Fleet Management

Engine Acquisition
Price

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

Engine Resale
Residual Value

Engine commonality for the entire A/C family

Fleet Management

CFM56-7B for the B737NG family

CFM56-5B/P for the A320 family

Engine Rerating :
1 Change the engine rating plug 2 Engrave the name plate

Excellent Excellent Marketability Marketability Extensive Extensive Commonality Commonality Reduced Reduced cost cost through through commonality commonality for for Spares/ Spares/ Training/ Training/ Fleet Fleet Management/ Management/

Shop Visit Benefit

Fleet Management

No EMO 28 28 Shop Shop Visits Visits 68 68 Shop Shop Visits Visits 40 40 Shop Shop Visits Visits

With EMO 23 23 Shop Shop Visits Visits

5 transfers transfers 5B3 5B3 5

5B6 5B6

42 42 Shop Shop Visits Visits

65 65 Shop Shop Visits Visits

Cost of Ownership
Value

Engine Acquisition
Price

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

Engine Resale
Residual Value

Aircraft Residual Value depends mostly on engines

Value

Aircraft/Engine value relationship

Percent Percent of of Aircraft Aircraft Value Value

Scrap value value Scrap for the the Aircraft Aircraft v v for

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

Engine
Aircraft/Engine Aircraft/Engine Age Age

Market Share
Value

Number and location of Operators in service

Engine A powered A/C

Europe & CIS 341

Engine B powered A/C

2260 587 456 2256 106 318 N&S America Africa & Middle East Asia Pacific 1425

Marketability & & Liquidity Liquidity Marketability

CFM & IAE Engine Depreciation

Value

Information from appraisers:

Engine resale value stay constant until the end of production CFM engine at half life is about 70 to 80% of new engines price Market demand can make these trend vary
6.0M$ 5.5M$ 5.0M$ 4.5M$ 4.0M$ 3.5M$ 3.0M$ 2006 4.5M$ CFM56-5B4/P V2527-A5 Year 2008 2010 2012 2014 2016 2018 4.0M$ 3.5M$ 3.0M$ 2006 CFM56-5B4/P V2527-A5 Year 2008 2010 2012 2014 2016 2018 Base Values, from Avitas BlueBook (Constant $), 2007 6.0M$ CFM higher resale value : +7.5% 5.5M$ 5.0M$ CFM higher resale value : +9.1% Base Values, from IBA Engine Values Book (Constant $), 2007

Higher resale resale value value for for CFM56 CFM56 engines engines : : Higher for one one engine engine at at half half life life CFM56-5B4/P CFM56-5B4/P vs vs V2527-A5 V2527-A5 : : for
+ $360,000 $360,000 from from Avitas Avitas + +$470,000 from from IBA IBA +$470,000

CFM56 Residual Value Advantage

Higher market value, from different appraisers
Base Values, from Avitas BlueBook, 2007
6.0 M$ 5.5 M$ 5.5 M$ 4.5 M$ 4.0 M$ 3.5 M$ 22k 23.5k 27k 30k

Value

CFM56 V2500

Thrust Thrust rating rating Base Values, from IBA (Engine Value Book), 2007
6.5 M$

5.5 M$

CFM56 V2500

4.5 M$

3.5 M$ 22k 23.5k 27k 33k

Thrust Thrust rating rating

CFM56 engine market value advantage: up to +9%

Upgrade Kits improve the asset value

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

$K $K
400 5B/3 350 300 250 200 150 100 50 0 7B/3

ASCEND

IBA

Potential impact of non OEM materials on residual value

Value

Engine valuation life cycle

Acquisition Maintenance Disposition

Engine Engine Projected Projected Value Value

OEM

Estimated Estimated by by independent independent appraisors appraisors between between 10% 10% to to 26% 26% on on a a mid-life mid-life CFM56-3 CFM56-3 engine engine

Non-OEM

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

OEM support

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

CFM genuine parts PMA blades Source 1 PMA blades Source 2 STCH Spool Source 3

STCH Spool Source 3

No One One has has the the Data Data to to Support Support this this Configuration Configuration No

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