Salomon Serfaty

Engine Operating Cost Reduction
An OEM Perspective S. Serfaty, CFM Marketing
IATA Executive Financial Summit 2007

CFM International Proprietary Information subject to the restrictions on the cover of this presentation CFM, CFM56, and the CFM logo are trademarks of CFM International, a 50/50 joint company between Snecma and General Electric Company
How can engine operating costs be reduced? Agenda Cost of Ownership Overview Engine Design: The OEM contribution The Customer and Operator contribution

Engine Cost Of Ownership Cost Distribution Theoritical example

150 SEATER --Range 500 Nm --10 A/C Fleet 150 SEATER Range 500 Nm 10 A/C Fleet
TOTAL YEARLY COST ( M$)
ACQUISITION
FUEL MAINTENANCE
0 0 0 0 0 0
Years
0 0

The Engine : a Large Part of the Operating Expense

+25% COC Barrel:60$ Fuel: 1,6$/gal
Fuel cost : 36%
Landing fees : 4% Navigation fees : 4% Handling cost : 4% Airframe maintenance : 10% Cabin crew : 10% Cabin crew : 13%
Barrel:100$ Fuel: 2,7$/gal
Landing fees : 3% Navigation fees : 4% Handling cost : 4% Airframe maintenance : 8%
Fuel cost : 48%
Cockpit crew : 19% Cockpit crew : 24%
Engine maintenance : 5%
CFM International Proprietary Information subject to the restrictions on the cover of this presentation
Engine maintenance : 4%
CFM, CFM56, and the CFM logo are trademarks of CFM International, a 50/50 joint company between Snecma and General Electric Company
Engine Maintenance Cost Distribution Theoritical example

150 Seater -- Range 500 Nm 10 A/C Fleet 150 Seater Range 500 Nm 10 A/C Fleet
Yearly Maintenance Cost ( K $)
2 SPARE ENGINES
SHOP LLPs (Life Limited Parts)
SHOP VISITS LINE Maintenance
ENGINE LEASE
10
Years Since EIS
20

How can engine operating costs be reduced?
Engine Design: The OEM contribution

Engine Design : a Multi-Constraint Optimisation Process

Cost Performance
Environment
Reliability
O C
X E L P M
Durability
Weight
Computational modelling is key

Engine fuel consumption reduction

Fuel burn Index 100% 90% 80% 70% 60% 50% 40% 30% 20% 1955 5 4 3 2 1965 1975 1985 1995 2005 2015 Fuel burn (l/100 km/PAX) 9 8 7 6
Between 1960 and 2000, technological progress led to 70% reduction of aircraft fuel consumption Modern aircraft fuel consumption is between 3 and 5 l/100 km/PAX
Engine Shop Maintenance Cost Evolution

On-Wing Life Improvement 25,000
CFM 15 year Cumulative Engine Shop Cost 110 150 Pax Aircraft Constant Value
CFM56 1990's technology Direct Maintenance Cost Level
120% 100% 80% 60% 40% 20%
First On-wing Life (hours)
20,000
15,000
10,000
CFM56 1980's technology Low by-pass ratio technology
- 40%
5,000
0 70's 80's 90's
1990
1995
2000
Years
2005
2010
Design improvements, a big contributor to Direct Maintenance Cost reduction

Intelligent Engine Technology
Dia Pr gno og sti no cs sti & cs
Reliability A/C productivity Lower costs
Fuel burn Emissions Acoustics
on n ssi tio Mi miza ti Op
Intelligent Engine
Maintenance Optimization
Maintenance procedures Inventory Product improvements

CFM Product Strategy

Short Term (In service product improvement) KITS
CFM56-3 time on wing
Medium Term (New technology/ New Product or upgrade) TECH 56

CFM56 Tech Insertion
Long Term (Future products/ Technology Jump) LEAP 56 TM

How can engine operating costs be reduced?
The Customer and Operator contribution

Engine Operation
Effect of Takeoff Thrust
Benefits of Reduced Thrust and De-rate Lower Takeoff EGT Fewer operational events due to high EGT Lower fuel burn over on-wing life of engine 10% Takeoff derate Lower maintenance costs EGT Margin decrease slowly -SFC kept at low rate Better Engine performance retention -Longer engine life on wing Shop Visit rate decrease 20% Takeoff derate Improved flight safety -For a given Take Off, engine stress decreasing, probability of engine failure decreases
Right rating and right takeoff derate Are key to longer on-wing lives and lower cost
CFM International Proprietary Information subject to the restrictions on the cover of this presentation CFM, CFM56, and the CFM logo are trademarks of CFM International, a 50/50 joint company between Snecma and General Electric Company 6604H COSALLM1101
Engine Fleet Management
Engine trend monitoring. Avoid failure through early problem detection. Define timing for water wash. EMO - Engine Management Optimization application. Engine removal planning. Workscope definition and SB incorporation.
Proper engine management is key to optimize engine onwing life

EMO Engine Management Optimization is a trade mark of Snecma Moteurs CFM International Proprietary Information subject to the restrictions on the cover of this presentation
Engine Fleet Management - Staggering

Using a spare engine to dilute utilization of installed engines permits to avoid that several shop visits occur simultaneously.
Without Staggering
Several Shop visits occur simultaneously 2 spares minimum required
With Staggering
No overlap of Shop visits 1 spare sufficient
Installed engine Spare engine Shop Visit
Engine Staggering: Postpone Shop Visits and Reduce Spare Requirement

Maintenance Providers
CFM56 Worldwide Support
Maintenance Capability
Competition
Limited Inventory THREE ITEMS TO KEEP LOW SHOP COSTS
Adapted Contract
Shop Maintenance Workscope optimisation

CFM engines provide flexible cost management Work scoping decisions a key factor
Maintenance Cost TOW focus.Longer cycle
-24% -14%
Workscope to maximize TOW LLP build optimization TOW upgrade incorporation Results in increased asset value Lower overal cost of ownership
$/SV focusShorter cycle

$/SV Focus $/EFH, TOW Focus $/EFH, With Upgrade
Repair, used serviceable parts, and new parts Targeted workscope Lower shop visit cost
Based on a CFM engineering study 150 million EFH 1000+ engines 4 of largest CFM56-3 operators
Consequences of Non-CFM parts

PMA parts & DER repairs are moving from low-tech to high-tech, safetycritical parts
Significant potential to impact engine reliability and operability Instructions for Continued Airworthiness do not apply CFM is working with FAA/EASA to address approval, certification & continued airworthiness requirements
Engine valuation life cycle

Acquisition Maintenance Disposition
OEM
Residual Value affected (Recent appraisal evaluation)
Non-OEM
~ $200-600K, or ~ 10-26% of CMV

Source: Independent appraiser (IBA and Ascend) 2007 assessment of CFM56-3 CMV with PMA/DER material
Non OEM parts technical and financial risk to be considered

Shop maintenance Upgrade option

Example of the CFM56-3 Core Upgrade
$/Yr/Eng
Improves fuel burn 1.6%: Improves Time On Wing 25-40%: Reduces HPT material cost 50%: Improves engine residual value
Adds $330-$600k residual value
(based on CFM estimate and Appraisers valuation)
$ estimates are savings per engine per year based on 5 year ownership for typical operator flying 20.5K thrust, 3000 hours per year, 1.4 hr flight leg, 14% derate, optimized LLP; $1.80/gal fuel
$ 25K $180K $ 30K $ 60K

Conventional Design 3D Aero Design
Materials, coatings, durability improvements
CFM56-3 upgrade kit provides significant savings

CFM56-5-7 Tech Insertion Upgrades

Fuel Burn HPC Kit TOW Durability Emissions Intermix DMC
HPT Blade Kit
LPTN1 Kit
Full /3 Upgrade
Operators Can Choose Optimum Configuration for Their Fleet

Customer Business Case Fleet Example

Customer Benefit Analysis
Customer 10-year IRR "Do Nothing" Customer Spend NPV Customer Spend Upgrade NPV Customer Net Spend NPV DMC Improvement without Fuel Savings DMC Improvement WITH Fuel Savings Single Engine Break-Even Years w/ Upgrade Fleet Break-eEven Years w/ Upgrade 14.52% $102.144 $100.557 ($1.587) $150 11.1% 14.2% $100 3.4 5.5 $50 $200 $250
Customer Cumulative Fleet SV Cost ($M)
Do Nothing Upgrade
Upgrade Results in 14.62% Customer IRR

$0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Do Nothing Stream SV0 (upgrade SV) SV1 SV2 Upgraded Fleet Stream
2007 16 16
2008 16 16
2009 16 16
2010 17 1 0 1
2011 16
2012 16
2013 16
2014 16
2015 16
2016 17
Total 162 49 49 30 128
11 11
16 16
16 16
6 6 14 14 16 16
16
16
16
Upgrade Results in 34 Fewer SVs Over 10 Years

How Costs Will continue to be Reduced in the Future?
COST
THREE PLAYERS, ONE AIM: REDUCE COST


Salomon Serfaty

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Salomon Serfaty

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Engine Operating Cost Reduction

An OEM Perspective S. Serfaty, CFM Marketing

IATA Executive Financial Summit 2007

IATA Executive Financial Summit 2007

Engine Cost Of Ownership Cost Distribution Theoritical example

IATA Executive Financial Summit 2007

The Engine : a Large Part of the Operating Expense

Barrel:100$ Fuel: 2,7$/gal

Landing fees : 3% Navigation fees : 4% Handling cost : 4% Airframe maintenance : 8%

Fuel cost : 48%

Cockpit crew : 19% Cockpit crew : 24%

Engine Maintenance Cost Distribution Theoritical example

Yearly Maintenance Cost ( K $)

SHOP LLPs (Life Limited Parts)

SHOP VISITS LINE Maintenance

Years Since EIS

IATA Executive Financial Summit 2007

How can engine operating costs be reduced?

Engine Design: The OEM contribution

IATA Executive Financial Summit 2007

Engine Design : a Multi-Constraint Optimisation Process

Computational modelling is key

Engine fuel consumption reduction

IATA Executive Financial Summit 2007

Engine Shop Maintenance Cost Evolution

First On-wing Life (hours)

CFM56 1980's technology Low by-pass ratio technology

0 70's 80's 90's

Design improvements, a big contributor to Direct Maintenance Cost reduction

Intelligent Engine Technology

Dia Pr gno og sti no cs sti & cs

Reliability A/C productivity Lower costs

Fuel burn Emissions Acoustics

on n ssi tio Mi miza ti Op

Maintenance procedures Inventory Product improvements

CFM Product Strategy

Medium Term (New technology/ New Product or upgrade) TECH 56

Long Term (Future products/ Technology Jump) LEAP 56 TM

How can engine operating costs be reduced?

The Customer and Operator contribution

IATA Executive Financial Summit 2007

Engine Fleet Management

Proper engine management is key to optimize engine onwing life

IATA Executive Financial Summit 2007

Engine Fleet Management - Staggering

Several Shop visits occur simultaneously 2 spares minimum required

Engine Staggering: Postpone Shop Visits and Reduce Spare Requirement

Limited Inventory THREE ITEMS TO KEEP LOW SHOP COSTS

Shop Maintenance Workscope optimisation

$/SV focusShorter cycle

IATA Executive Financial Summit 2007

Consequences of Non-CFM parts

Engine valuation life cycle

Residual Value affected (Recent appraisal evaluation)

~ $200-600K, or ~ 10-26% of CMV

Non OEM parts technical and financial risk to be considered

Shop maintenance Upgrade option

$ 25K $180K $ 30K $ 60K

Materials, coatings, durability improvements

CFM56-3 upgrade kit provides significant savings

CFM56-5-7 Tech Insertion Upgrades

HPT Blade Kit

Operators Can Choose Optimum Configuration for Their Fleet