Life Cycle Analysis - Case Study Examples. Fleet Management Passenger Boarding Bridge - Repair vs. Replace Decision

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1 Life Cycle Analysis - Case Study Examples Fleet Management Passenger Boarding Bridge - Repair vs. Replace Decision

2 Cost / Year Financial and Service Performance Considerations Optimal replacement age Total Cost O & M Costs Financial: Total Life Cycle Cost considers the ongoing O&M costs and the annualized cost of the initial purchase. When the sum of these two cost streams is at its minimum is the optimal replacement year. Age (years) Annualized Capital Cost Service Performance: The analysis needs to consider the service performance of the asset and impact to customer service.

3 Case Study 1: Light Duty Fleet Management Some Context: Light Duty Fleet: Units: 160 Vehicles 2013 Replacement Value: $5.2M Heavy, Electric & Ancillary Fleet: Units: 501 Vehicles 2013 Replacement Value: $78M Life Cycle Analysis Replacement Business Case Tool Uses historical and expected acquisition and maintenance costs to determine optimum age to replace equipment. Used for fleet planning & capital budgeting Uses expected costs to help decide: keep unit in service versus replacement Used to determine the business case for replacing individual units and prioritizing replacements and support capital requests

4 Life Cycle Analysis: The Prerequisites Data Used for LCA % Veh Age Maint $/Yr #WO/Yr Residual 1 $ % 2 $1, % 3 $2, % 4 $2, % 5 $2, % 6 $2, % 7 $2, % 8 $2, % 9 $2, % 10 $3, % 11 $4, % 12 $4, % 13 $3, % 14 $4, % 15 $5, % Estimated Data is needed from your Asset Management System: Maintenance events i.e. Work Orders per year Maintenance costs Utilization Data for at least the life cycle expectation i.e. 8 to 30 years Veh Purch Price $23,000 Cost of Capital 6% Discount Rate 6% Inflation Factors Maintenance Cost 2.5% Driver Labour Rate 0 Hours Lost Per Touch 0 Loaded Labour Rate 0 Vehicle Replacement Price Cost of Capital Inflation

5 Life Cycle Analysis: Other Considerations Inventory Number Vehicle Class 53 - Maintenance Trucks Passenger Vehicles, Utility 4x2s, 4x4s, Pick-ups, General Duty - Vehicle Class Description Owned Make GMC TBD Model Sierra TBD Year Acquisition Cost $27,680 $30,000 Fuel Type Gas Gas Life Cycle (yrs) 10 Est. Market $ Value in 10 year(s) $3,500 Meter Reading 202,283 Meter Units (Km or Hrs) Km Utilization (Km/Yr) 15,560 Utilization Factor Medium 1.1 Fuel Consumption (L/Year) 3,659 3,275 Fuel Efficiency Improvement (%) 10.5% Fuel Consumption (L/100Km) Outsource Recovery ($/Yr) $0 Other Considerations: Future fuel efficiency Specific vehicle condition Projected Refurbishment Costs Projected Life Extension Refurbish Cost Reburbish Description: Battery and Starting System Brakes $1,200 Charging System Based on vehicles age of 13 years and Engine or Transmission (overhaul) 200,000 km's, this vehicle is Engine/Electric Motor Systems $500 structurally failing and is in an unsafe HVAC System state of repair. Body requires cab floor Lighting System replacement to return this vehicle to a Steering and Suspension safe standard. The vehicle will require Tires some maintenance, brake and seat Body $3,000 replacement. Other $1,200 Total $5,900

6 Annual Equivalent Cost $/Yr Maint $/Veh Light Duty Fleet: Life Cycle Analysis Approach to Determine Planned Life # WO/Yr 53 - Light Duty Maint. Vehicle Maint. $ & Reliability vs Veh Age $5,000 $4,000 $3,000 $2,000 $1,000 $ Maint $/Yr $98 $1, $2, $2, $2, $2, $2, $2, $2, $3, $4, $4, #WO/Yr Maintenance cost includes total direct cost to maintain: Labour, Parts and Materials. Ownership cost includes the cost to purchase depreciated to a residual value. A discounted cash flow analysis determines the total life cycle cost for vehicle replacement at different ages. The optimal life cycle is when the total life cycle cost is minimized. In this example years $10,000 $8,000 $6,000 $4,000 $2, Light Duty Mtce Historical Vehicle Life Cycle Cost Replacement or Refurbish 6 $ Ownership $/Yr $7,820 $6,050 $5,058 $4,533 $4,004 $3,642 $3,377 $3,107 $2,914 $2,791 $2,628 $2,493 $2,378 $2,280 $2,195 Maint. $/Yr $980 $1,410 $2,046 $2,175 $2,818 $2,259 $2,640 $2,868 $2,978 $3,755 $4,272 $4,718 $3,875 $4,270 $5,500 Total $/Yr $8,800 $7,460 $7,104 $6,708 $6,822 $5,901 $6,017 $5,975 $5,892 $6,546 $6,900 $7,211 $6,253 $6,550 $7,695

7 Light Duty Fleet: Specific Equipment Analysis Replacement Business Case Tool Positive NPV s represents costs Negative NPV s represent revenue or savings Replacing vehicle in 2012 costs $6,119 more than deferring replacement Replacing in 2012 with a more efficient vehicle saves $829 in fuel. Replacing in 2012 will save $5,770 in maintenance cost Replacing in 2012 will save $5,565 in refurbishing cost The total NPV for deferring replacement is $98,231 or 6.2% higher than replacement The current vehicle is deemed to be safe if it is refurbished. Overall recommendation is to replace. 7

8 Why the approach, what is the value Fleet Management - Acquisition and Replacement is based upon good business principles ---- manage the airport like a business Consistent approach enables more effective capital planning and prioritization, while meeting service commitments. Improved technical performance, improved use of OPEX and CAPEX resources Cultural shift employees are engaged in the reviews and understand principles

9 Challenges and Successes Challenges Extracting historical data from CMMS and estimating missing data is difficult and time consuming Updating Life Cycle Analysis data and each individual business case is time consuming Successes The results produce clear economically based answers Consistent way to prioritize and assign CAPEX Employees find process and results easy to understand and accept Quality of information is improving which has additional benefits improved understanding of business

10 Passenger Boarding Bridges (PBB) Rebuild or Buy New A Developing Story

11 Context Total of 102 PBBs at Toronto Pearson. Majority are Thyssen Krupp and 10 to 12 years old, installed as part of the Airport Development Program. 27 FMC Jetway bridges are year old. Installed as part of the T3 Development Program. The goal of this exercise is to determine the best asset management strategy for these 27 Jetway bridges.

12 Life Cycle Analysis Information Required Initial cost of acquisition Replacement cost ~ $500,000 Residual (salvage) value Limited market for 25 years old PBBs (Salvage value ~ $5,000) Annual maintenance cost 17 years of maintenance records, of varying quality, in multiple formats. Total of about 65,000 records (Estimated annual cost of maintenance ~ $9,500) Timing and cost of major component replacements A preliminary life cycle study was performed in 2009 to establish a life cycle model for the PBBs Useful life estimated at 25 years

13 Other Considerations A 1991 Jetway is solid foundation Heavy steel frame, thick metal walls and roof. Operation of a 1991 PBB requires a bit more human input. no pre-positioning; no return to circle. New PBBs available now are designed differently Lighter construction. Body flexes in use. Corrosion moves quickly from being an aesthetic issue to a structural issue. Pre-positioning and return to circle features available. Might result in less operator error calls.

14 Option 1 Replace with new PBB Original Jetway 25 years Replacement PBB 20 years Item Complete Bridge Rotunda side curtain Repaint Exterior Replace Carpet Ramps (and floor repairs) Internal finishes Heaters Electrical fixtures Signage Canopy Weather seals Curtain w all at Canopy Doors and locks Roll up door Stairs Gutters Replace Tires Lift Column pm year ttl. Rep ~ Cost 493,500 13,231 25,779 9,975 4,200 4,536 5,250 3,150 2,100 10,500 1,575 13,231 4,095 7,350 2,100 5,167 10,500 47,250 9,500 ~ 1 493,500 9, , ,500 9, ,500 9,500 4 New 9,500 9, ,500 9, ,500 9, , ,500 9, ,779 9,975 4,200 4,536 10,500 1,575 9,500 66, ,500 9, ,500 9, ,500 9, ,500 9, ,231 5,250 3,150 2,100 13,231 4,095 7,350 2,100 5,167 12,600 47,250 9, , ,500 9, ,500 9, ,779 9,975 4,200 4,536 10,500 1,575 9,500 66, ,500 9, ,500 9, ,500 9, ,500 9,500 Maintenance and 20 Year Cost in $ 2013 repairs cash flow for new 2013 PBB NPV ~ $732, ,154

15 Option 2 Refurbish Existing Original Jetway 25 years Life Extension 20 years Note: Some investments made during the original life of the Jetway bridges will have an impact on future maintenance costs of the refurbished bridge. Those include: Horizontal drive Programmable Logic Control Upgrade Investment in central PCA plant Item Cost Rotunda side curtain/cover 12,600 Repainting Exterior 34,552 Replace Carpet/flooring 9,500 Ramps 4,000 Internal finishes 4,320 Heaters 5,000 Electrical fixtures 5,000 Canopy Replacement 10,000 Weather seals 1,500 Curtain wall at Canopy 12,600 Doors and locks 3,900 Roll up door 7,000 Access stairs 7,000 Gutters 4,921 Change to solid tires 12,000 Ball screws/column 15,000 New interior wall panels TOTAL 170,544

16 Option 2 Refurbish Existing (cont d) Item Complete Bridge Rotunda side curtain Repaint Exterior Replace Carpet Ramps (and floor repairs) Internal Electrical Weather Heaters Signage Canopy finishes fixtures seals Curtain w all at Canopy Doors and locks Roll up door Stairs Gutters Replace Tires Lift Column Rust repair Wall panels pm year ttl. Rep. Year ~ Cost 493,500 13,231 25,779 9,975 4,200 4,536 5,250 3,150 2,100 10,500 1,575 13,231 4,095 7,350 2,100 5,167 10,500 15,750 10,000 22,731 9,500 ~ 1 13,231 25,779 9,975 4,200 4,536 5,250 5,250 10,500 1,575 13,231 4,095 7,350 7,350 5,167 12,600 15,750 10,000 22,731 9, , ,500 9, ,500 9,500 Refresh $179K 4 9,500 9, ,100 9,500 11, ,500 9, ,500 9, ,779 9,500 35, ,975 4,200 4,536 10,500 1,575 9,500 40, ,500 9, ,000 9,500 19, ,167 9,500 14, ,231 12,600 9,500 35, ,231 4,095 7,350 2,100 15,750 9,500 52, ,250 9,500 14, ,779 9,500 35, ,975 4,200 4,536 10,500 1,575 9,500 40, ,500 9, ,500 9, ,500 9,500 Maintenance and repairs cash flow for refreshed 1991 PBB 20 Year Cost in $ ,575 NPV ~ $416,000

17 Cost Summary Year Replace Refresh 1 503, , ,690 9, ,884 9, ,081 10, ,283 12, ,489 10, ,699 10, ,888 40, ,131 47, ,353 11, ,580 23, ,812 18, ,561 44, ,289 67, ,535 19, ,915 47, ,041 55, ,302 13, ,568 13, ,840 13,840 Assumptions: Inflation: 2% Discount Rate: 6% Option 1 Replace Option 2 Refresh NPV $732,500 $419,000

18 Non Financial Factors Items to consider: Refurbished Jetways will lack some features of new PBB s, most notably the ability to pre-stage automatically and to return to circle automatically. The control system in the existing Jetways is still supported by Jetway and parts are readily available. There is the risk that this will not still be the case in 10 years time.

19 Challenge: Information Gaps History Historical data was not of consistent quality Different Asset Management Systems were used over the years Bridges were originally owned by a airline consortium and were purchased in 1998 by the GTAA. Information collected prior to 2006 was in excel files dumped from a discontinued Asset Management System. Information limited: labour hours only; no parts or materials. No data at all prior to 1995