Financing, Managing & Maintaining Engines: Roundtable Summit for Financiers. How to compare two engines?

Transcription

1 Financing, Managing & Maintaining ngines: Roundtable Summit for Financiers How to compare two engines? March 27h, 2008

2 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value SY TO COMPR Should really care about this??? ren t all engines the same???

3 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value M T C

4 Time on wing avoids Shop visit Because all unnecessary Shop Visits are expensive M T C

5 better Shop Visit Rate Reports 0,1 0,08 0,06 0,04 0,02 SVR Rate/1000 FH Sep-02 ov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 ov-03 Rates are on 12 months rolling average Jan-04 UR Rate/1000 FH ngine B SVR ngine UR ngine B UR ngine SVR Mar-04 May-04 Jul-04 Sep-04 0,06 0,04 0, Comparable Fleet (xperience, Size, ge and Operations) should have Comparable SVR ngine s SVR & UR are more than 3 times* lower compared to ngine B's onger Current and xpected ives for ngine Fewer Shop Visit M T C * ncluding dilution effect

6 Operating Cost - Cost Generated by Shop Visits ssumptions Operating conditions: 42 /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 vs engine B (excluding P s) M T C

7 Operating Cost - Cost Generated by Shop Visits 10 years Maintenance Cost Model nalysis ngine ngine B umber of SV for 42 /C within 10 year verage Cost of a SV 1.2M$ 1.55M$ verage Total Cost Base +64M$ Maintenance cost savings of 1.5 M$ per /C Over 10 years of operation ($ constant & no inflation) M T C

8 Operating Cost - Cost Generated by Shop Visits 15 years Maintenance Cost Model nalysis ngine ngine B umber of SV for 42 /C within 15 year verage Cost of a SV 1.2M$ 1.55M$ verage Total Cost Base +118M$ Maintenance cost savings of 2.8 M$ per /C Over 15 years of operation ($ constant & no inflation) M T C

9 Operating Cost - Cost Generated by Spare ngine Maintenance Cost Model nalysis ngine ngine B # Spare ngine Recommendation 6 7 Cost for spare engines Base ~ 7-8 M$ Spare engine savings of ~ 180 K$ per /C ($ constant & no inflation) M T C

10 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value P

11 ife imited Parts dvantage QTY of Ps umber P Set Price $ Fan Core PT Ultimate ives x1000 cycles P For Budgetary Purpose Only ngine B ngine ower P Cost Cost / cyc * : $ ($2007) Cost / cyc * : $ 79.7 * ($2007) * w/o stub life $0 $20 $40 $60 $80 $100 ngine P Cost dvantage: $26 / Cycle / ngine => 780 K$ advantage per /C over 10 years (3000 hrs/year & flight leg 2.0) ($ constant & 0% inflation)

12 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value R B T Y

13 0.010 Reliability Trend ngine n Flight Shut Down Trend ** ngine B (June 2006 / March 2007) FSD: * Rate per 1,000 FH - 12 month rolling average - engine caused ngine Dispatch Reliability Trend Delta of 0.001/1000 ngine advantage R B T Y ngine B (June 2006 ) (1) Powerplant rate D&C: Delta of more than 0.03/100 ngine advantage

14 Cost of FSD, D&C ngine ngine B FSD rate / 1000 FH umber of events over 10 years verage Cost of an FSD 100K$ 10 year verage Total Cost for 42 /C (*) Base +250 K$ D&C rate / 100 departures umber of flight impacted per year for 42 /C (*) Cost of one delay (66% of the D&C) 20 K$ Cost of one Cancellation (33% of the D&C) 50 K$ 10 year verage Total Cost for 42 /C (*) Base +5.6 M$ R B T Y (*) based on an annual utilisation of 3000 hours and a flight leg of 2.0 FSD & D&C cost savings of about 140 K$ per /C Over 10 years of operation ($ constant & 0% inflation)

15 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value F U & O

16 Fuel Burn Comparison BG WS!!!!!!!!!!! Fuel Burn starts at the gate F U & O

17 Oil Consumption Comparison Oil Consumption comparison asy!!! but also reliability of oil system and impact on SV and D&C F U & O

18 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value M S S O S

19 Gatwick airport Ox charges for 320 Family ngine ngine upgraded ngine B Charges per landing ($) M S S O S Thrust (k)

20 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value F T M G M T

21 ngine commonality for the entire /C family CFM56-7B for the B737G family CFM56-5B/P for the 320 family F T ngine Rerating : 1 Change the engine rating plug 2 ngrave the name plate M G M T xcellent Marketability xtensive Commonality Reduced cost through commonality for Spares/ Training/ Fleet Management/

22 Shop Visit Benefit o MO Shop Visits 68 Shop Visits 40 Shop Visits F T With MO transfers 5B3 5B6 0 Swap 319 M G M T 23 Shop Visits 65 Shop Visits 42 Shop Visits

23 Cost of Ownership ngine cquisition Price ngine Operation Maintenance ife imited Parts Reliability Fuel & Oil missions Fleet Management ngine Resale Residual Value V U

24 ircraft Residual Value depends mostly on engines Percent of ircraft Value ircraft/ngine value relationship irframe ngine ircraft/ngine ge value Base data source: ngine Yearbook 2007, published by the viation ndustry Group Reduced asset value based on CFM estimate ~ scrap value for the ircraft On older ircraft, engines maintained with OM parts & repairs hold the V U

25 Market Share umber and location of /C in service 341 & S MRC 2260 UROP & CS ngine powered /C ngine B powered /C V U FRC & MDD ST S PCFC Source: CS January 2008 Marketability & iquidity

26 CFM & ngine Depreciation nformation from appraisers: ngine resale value stay constant until the end of production CFM engine at half life is about 70 to 80% of new engine s price Market demand can make these trend vary 6.0 M$ 5.5 M$ 5.0 M$ 4.5 M$ Base Values, from vitas BlueBook (Constant $), 2007 CFM higher resale value: +7.5% 6.0 M$ 5.5 M$ 5.0 M$ 4.5 M$ Base Values, from B ngine Values Book (constant $), 2007 CFM higher resale value: +9.1% V U 4.0 M$ CFM56-5B4/P 3.5 M$ V M$ Year M$ CFM56-5B4/P V M$ Year 3.0 M$ Higher resale value for CFM56 engines: for one engine at half life CFM56-5B4/P vs V2527-5: + $360,000 from vitas +$470,000 from B

27 CFM56 Residual Value dvantage Higher market value, from different appraisers 6.0 M$ 5.5 M$ 5.0 M$ Base Values, from vitas BlueBook, 2007 CFM56 V2500 6,5 M$ 5,5 M$ Base Values, from B (ngine Value Book), 2007 CFM56 V2500 V U 4.5 M$ 4.0 M$ 3.5 M$ 22k 23.5k 27k 30k Thrust rating 4,5 M$ 3,5 M$ 22k 23.5k 27k 33k Thrust rating CFM56 engine market value advantage: up to +9% 6978 CMP-5B M0907

28 Upgrade Kits improve the asset value B and SCD each performed an independent assessment of the Tech nsertion Upgrade Small differences are explained by the use of slightly different assumptions $K Report represents the opinion 50 of B and SCD and is intended to be advisory only 0 SCD B 5B/3 7B/3 V U

29 Potential impact of non OM materials on residual value ngine Projected Value ngine valuation life cycle cquisition Maintenance Disposition OM on-om? stimated by independent appraisors* between 10% to 26% on a mid-life CFM56-3 engine V U and up to 65% if the whole engine need to be put back to the OM standards * B & scent

30 OM support CFM genuine parts

31 OM support PM blades Source 1 CFM genuine parts PM blades Source 1

32 OM support PM blades Source 2 CFM genuine parts PM blades Source 1 PM blades Source 2

33 OM support CFM genuine parts PM blades Source 1 PM blades Source 2 STCH Spool Source 3 STCH Spool Source 3 o One has the Data to Support this Configuration

34 When comparing engines, see global! Can t see the forest for the trees? Don t hesitate to ask questions

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