2017 FINANCIAL ANALYSIS

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Magdalene Green
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1 2017 FINANCIAL ANALYSIS KING AIR B200 SERIES WITH THE BLACKHAWK XP52 ENGINE PERFORMANCE UPGRADE PROVIDED BY CONKLIN & DE DECKER Conklin & de Decker 62B Cranberry Highway Orleans, MA Phone (508)

2 INTRODUCTION Blackhawk Modifications, Inc. has an engine upgrade program replacing the PT6A-42 engine of the stock King Air B200 with a PT6A-52 engine. This engine upgrade offers several advantages: More power at altitude Faster cruise speed at altitude Potential for enhanced resale value Note: The costs and assumptions used are typical estimates based on known costs and market conditions. These calculations do not represent any financial guarantee of return. With the Blackhawk XP52 ENGINE+ UPGRADE, the King Air B200 cruises 27 knots faster compared to a standard King Air B200. ENHANCED PERFORMANCE At cruise, the PT6A-42 produces the maximum 2,230 ft/lbs of torque up to 16,000 feet and 1,708 ft/lbs of torque at 26,000 feet(1). The PT6A-52 engine generates the maximum 2,230 ft/lbs of torque up to 26,000 feet(2), a 31% increase of available horsepower at cruise altitudes. The added torque manifests itself in faster climbs, higher cruise speeds and better take-off performance on significantly warmer than standard days. We calculated a 800 NM trip with four passengers and NBAA IFR fuel reserves for a 200 NM alternate. Cruise altitude was 28,000 feet at 1800 RPM. The trip was calculated based upon the standard operating performance of the King Air B200. The PT6A-52 powered King Airs, with their more powerful engines, can easily fly the trip at 28,000 feet with a power setting of 1800 RPM. At this altitude and power setting, the B200 is flying at almost its M mo speed. With the Blackhawk XP52, there is a 31% increase in available horsepower at cruise altitude. The cost per nautical mile with the Blackhawk XP52 is 45 cents less when compared to a stock King Air B NM Trip Stock King Air B200 Blackhawk King Air B200 XP52 Engine PT6A-42 PT6A-52 Altitude FL 280 FL 280 Temperature ISA ISA Power Setting Max Max RPM 1800 RPM 1800 RPM Cruise Speed at Altitude (KTAS) Fuel Flow at Altitude (GPH) Trip Time 2 hr 54 min 2 hr 43 min For 100,000 NM Utilization per Year Flight Hours per Year Gallons Fuel Used per Year 33,280 37,336 Cost per NM $4.62 $ Beechcraft Super King Air B200/B200C performance, page Engineering data for Maximum Cruise, 1800 RPM, ISA conditions. Conklin & de Decker Aviation Information Page 1

3 OPERATING COSTS The PT6A-52 engines offer more power while decreasing the nominal Hot Section Inspection and Overhaul budget. ENGINE SET-ASIDE PT6A-42 Cost Interval Mid-life $50, hrs Overhaul $350, hrs Total for two engines $810,200 $ per hour set-aside Blackhawk XP52 Cost Interval Mid-life $41, hrs 1st Overhaul $300, hrs Total for two engines $683,600 $ per hour set-aside Using the Conklin & de Decker Life Cycle Cost data, we calculated the average hourly costs for a King Air B200 with and without the upgrade using hourly set aside above. This then assumes the PT6A-42 engines have been accruing for their LLP since new. The costs calculated were 10-year averages for the following items: Fuel. Fuel burn was calculated for a 800-nautical-mile trip using the manufacturer s aircraft performance manuals. It was assumed that four passengers plus bags (200 lb each) were on board, fuel reserves were based upon an NBAA IFR 200 NM alternate. Standard conditions (ISA), no-wind were used. Maintenance Labor. This is the labor required to accomplish scheduled and unscheduled maintenance on this aircraft. Parts. This is the cost of parts required to accomplish all unscheduled and minor scheduled maintenance on this aircraft. Inspections. This covers set-asides for the estimated cost of major airframe inspections. Engine Restoral. The hourly set-aside allowance for the engine Hot Section Inspection and Overhaul at TBO. Parts Guaranteed Mx Plan. N.A. Airframe Guaranteed Mx Plan. N.A. Avionics Guaranteed Mx Plan. N.A. Component Overhaul (All). This covers set-asides for the estimated cost of major component overhauls. This includes the propellers. Life Limited Components (All). This covers set-asides for the estimated cost of major life limited components. Conklin & de Decker Aviation Information Page 2

4 The average Non-fuel Variable Costs were calculated, and then the fuel savings were calculated separately. The non-fuel variable costs are detailed in Appendix A and are: Stock King Air B200 Blackhawk XP52 Non Fuel Cost/Flight Hour $ $ REDUCED OPERATING COSTS Stock King Air B200 NM Flown/Year Hours Variable cost/hr no fuel (Maintenance reserves, misc. costs) 100,000 NM hrs $ Fuel cost/gallon $4.00 Fuel cost/hr (92 GPH) $ Average variable cost/hr $1, TOTAL variable cost/year $461, King Air B200 Blackhawk XP52 NM Flown/Year Hours Speed Advantage at Cruise Variable cost/hr no fuel (Maintenance reserves, misc. costs) 100,000 NM hrs 18.6 KTAS $ Fuel cost/gallon $4.00 Fuel cost/hr (110 GPH) $ Average variable cost/hr $1, TOTAL variable cost/year $416, Annual Operating Cost Savings Stock vs. Blackhawk XP52 $45, With the Blackhawk XP61 on a King Air B200, expected annual operating cost savings is $45, WHEN TO DO THE CONVERSION? The typical cost of the Blackhawk XP52 conversion is $1,014,000. This price also includes the trade-in value of the PT6A-42 engine cores. The $700,000 overhaul expense of the PT6A-42 engines would be avoided. Conversion at Overhaul (2) PT6A-42 overhaul avoided ($700,000) (2) PT6A-52 conversions $1,014,000 Net Cost $314,000 When upgrading engines at overhaul, the net cost to the King Air B200 owner is $314,000. If done prior to overhaul, Blackhawk offers a $60 per engine hour credit for the time remaining until overhaul. Assuming the conversion is done at mid-life: Conversion at Mid-life (2) PT6A-42 mid-life avoided ($101,200) $60/hr Engine credit ($216,000) (2) PT6A-52 conversions $1,014,000 Net Cost $696,800 If done at mid-life, the net cost to the King Air B200 owner, $696,800, is significantly less than the eventual PT6A-42 overhaul cost. Plus, the PT6A-52 engines come with the full new warranty. While the cost seems substantial compared to waiting until the PT6A-42 overhauls are due, these costs and savings ignore the added value in the market of a PT6A-52 powered King Air B200 and substantial yearly operational savings. POTENTIAL FOR ADDED RESALE VALUE The Blackhawk XP52 has established a record of increased value after the conversion. A popular aircraft value reference, Vref, in their appraisal points for the King Air B200 adds $1,014,000 to the aircraft value for Blackhawk conversion 3. It is doubtful to assume that an operator will perform the conversion simply to sell their King Air immediately afterwards. However, if required, there is a very high likelihood of enhanced value should that occur. 3 Vref for Windows Conklin & de Decker Aviation Information Page 3

5 But what about over a period of time? Return on Investment has a number of ways to be calculated. In this analysis, we used the following considerations: Conversion at mid-life with a net conversion cost of $696,800 Four years operation at 100,000 NM per year with operating cost savings. A reduction in the enhanced value of the King Air B200 s added value of 5% per year estimated market depreciation (i.e. the added value of the conversion declines at 5% per year). After four years operation, there is still a net excess return over the initial investment of the Blackhawk XP52. RETURN ON INVESTMENT IF CONVERTED AT MIDLIFE Return on Investment Enhanced value King Air B200 Blackhawk XP61 Total Operating Cost Savings Return At Conversion $1,014,000 $1,014,000 After Year 1 $963,300 $45,017 $1,008,317 After Year 2 $915,135 $90,034 $1,005,169 After Year 3 $869,378 $135,051 $1,004,429 After Year 4 $825,909 $180,068 $1,005,977 Initial Investment ($696,800) Added Residual Value After 4 Years $825,909 Operating Costs Saved After 4 Years $180,068 Excess return over initial investment if converted at mid-life $309,177 With the Blackhawk engine conversions on the King Air B200, expected annual operating cost savings is $45, It is not reasonable to assume that an operator will perform the conversion just to sell their King Air immediately afterwards. However, if required, there is a high likelihood of enhanced value should that occur. CONCLUSION Our analysis shows that for a King Air B200 operator whose next engine overhaul is due, an engine upgrade to the PT6A-52 is the preferred alternative in terms of aircraft performance and cost. The operator need not wait until that overhaul to reap the financial advantages of this program, which are significant. Conklin & de Decker Aviation Information Page 4

APPENDIX A - STOCK KING AIR B200 VS. BLACKHAWK XP52 Direct Cost (average) Used Stock King Air B200 King Air B200 Blackhawk XP52 Fuel - - Fuel Additives/Lubicants - - Maintenance Labor $152.60 $152.

6 APPENDIX A - STOCK KING AIR B200 VS. BLACKHAWK XP52 Direct Cost (average) Used Stock King Air B200 King Air B200 Blackhawk XP52 Fuel - - Fuel Additives/Lubicants - - Maintenance Labor $ $ Parts $ $ Inspections $ $ Engine Restoral $ $ Engine Guaranteed Mx Plan - - Parts Guaranteed Mx Plan - - Airframe Guaranteed Mx Plan - - Avionics Guaranteed Mx Plan - - Component Overhaul (all) $23.22 $23.22 Life Limited Components (all) $20.46 $20.46 Other Services - - Flight HourCost - - Fixed Cost - - Landing/Parking Fees - - Crew Expenses - - Small Supplies - - Total Direct Cost per Hour/10 yr. avg. $ $ Calculated with Conklin & de Decker Aircraft Cost Evaluator Type of Operation: Corporate; Program Length: 10 years Conklin & de Decker Aviation Information Page 5

More power at altitude Faster cruise speed at altitude Potential for enhanced resale value

More power at altitude Faster cruise speed at altitude Potential for enhanced resale value INTRODUCTION Blackhawk Modifi cations, Inc. has an engine modifi cation program to upgrade the PT6A-42 engine of the to a PT6A-61 engine. This engine upgrade offers several advantages: More power at altitude