Elements Of Aircraft Maintenance Reserve Development Iata Mcc

Presented By:Shannon AckertVice President, Capital MarketsOctober 20th, 2010

Maintenance Cost Conference

1IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation

Elements of Aircraft Maintenance Reserve Development

Jackson Square Aviation, LLC Overview

Jackson Square Aviation is a global commercial aircraft lessor headquartered in San Francisco, California


Current satellite offices : London, Seattle, Miami & Buenos Aires. Opening Asia office in 2010. The company has a $500 million commitment from Oaktree Capital, which has financed the management team since the mid 1990’s with a high degree of success. Jackson Square Aviation is focused on acquiring – primarily through Sale & Leaseback (SLB) :

Narrowbody & widebody Passenger & freighter


Agenda

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1. Significant Maintenance Events2. Maintenance Reserve Parameters3. Maintenance Reserve Escalation4. Maintenance Reserve Development

I. Appendix A – Maintenance Reserve Information ResourcesII. Appendix B – Maintenance Costs & Reserve Rates

IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation


• Heavy Structural Inspection (HSI)• C-Checks

• Performance Rest• LLP Replacement

Mtx Events Equipment

• APU Restoration• Landing Gear Overhaul

Airframe

Engine

Components

Hard-TimeMtx Interval Process

Condition-MonitoredHard-Time

Condition-MonitoredHard-Time

1.0 – Significant Maintenance Events



Variable Cost

Fixed Interval

Airframe HSILanding Gear Ovhl

Fixed FC IntervalFixed Cost Engine LLP

Replacement

Event Application

Engine Module &APU Restoration

Reserve Equation Comments

• Variability in costs, which can be difficult to predict if equipment is new or ageing

• Predictable, very little variability in both costs and time on-wing

• Variability in both costs and time on-wing• Often difficult to quantify if equipment is new or ageing• Time on-wing heavily influenced by operation

2.0 – Maintenance Reserve Parameters



Variable Cost

VariableFH Interval

Source : Boeing

3.0 – Maintenance Reserve Escalation



ECI - Aircraft Mfg, Wages & Salaries PPI - Industrial Commodities

I.Annual Escalation Policies – Varies By Lessor, But Typically:1. Fixed (i.e. 3%)2. Indexed to Core Producer Price (CPI) Index3. Computed Using OEM escalation formula – weighted using labor &

material Indices (ECI – Labor & PPI - Material)

I.Airframe Heavy Structural InspectionCosts Factors

I. Airframe Age (First, Mature, & Ageing Runs)• Costs are escalated to account for

airframe ageing, which results in higher non-routine tasks.

• General “non-routine” factor escalations: 10% - 15% per phase.

II.Flight Cycles• Cost may be increased to

account for high cycle operation.

Routine

NonRoutine

Newness< 6 Years

Maturity6 – 15 Yrs

Aging> 15 Years

NonRoutine

NonRoutine

Routine Routine

4.0 – Maintenance Reserve Development



I.Airframe Heavy Structural InspectionCosts Factors - continued

III. Scope of Work Not driven by the aircraft operation, instead Policy established by Lessor Generally Falls Under Two Structures:

Structure A - Scope of work includes reimbursement for material and routine & non-routine labor for systems, structural & zonal tasks.

Structure B - Scope of work includes reimbursement for material and routine & non-routine labor for structural & zonal tasks.




I.Airframe Heavy Structural Inspection Interval Factors

Two Types of Calendar Interval Structures:

Structure A : Calendar interval based off the OEM generic and/orsample block program.

• Example Generic Block : A320 / A330 Family : 4C/6Yr & 8C/12Yr Structural Inspection Checks @ 6 & 12 Yr Intervals,

• Example Sample Block : 737NG Family : @ 8 Yr Intervals

Structure B : Calendar interval based on timing of majority of zonal /structural tasks. Reflective of a customized maintenance program.

• Example : 737NG Family – 8, 10, & 12 Year Intervals• Example : 747-8 Family – 8 Year Intervals




I.Airframe Heavy Structural Inspection Example : A330-300 HSI Costs

Scope of work assumption: includes routine & non- routine labor for systems, structural & zonal tasks, and material.

A. First-Run Phase - New - 6 Yr• 4C/6Yr SI Cost : $1.75M• 8C/6Yr SI Cost : $1.50M

B. Mature-Run Phase - 6 Yr - 12 Yr• 4C/6Yr SI Cost : $2.01M• 8C/6Yr SI Cost : $1.50M

C. Ageing-Run Phase - > 12 Yr• 4C/6Yr SI Cost : $2.20M• 8C/6Yr SI Cost : $1.65M



4C/6YR Check Escalated15% off First-Run Costs

Both 4C/6YR & 8C/12YR ChecksEscalated 10% off Mature-Run Costs


4.0 – Maintenance Reserve DevelopmentII.Landing Gear Overhaul

Cost Factors - generally impacted by:• Supply & demand of exchange unit cost plus removal and

installation labor costs.

Interval Factors – generally consisting of two limiter:

I. Calendar time (i.e. 10 years)II. Flight cycles (i.e. 20,000 flight cycles)Timing of event: “whichever is more limiting”.



II. Landing Gear Overhaul Notes:• In cases where there is a calendar limiter, this establishes

the minimum monthly rate required.• Some models have different limiters for main and nose gear assemblies.

Example : 737NG Landing Gear Reserve Exchange Cost Assumption : $320,000Limiters: 10 Years / 18,000 FC




Scenario 1 - Annual FC = 1,250 FCCyclic limiter = 16 Yr(18,000/1,250)TOW Limiter = 10 Yr = 120 MoMo Rate :(320,000/ 120) = $ 2,666

Scenario 2 - Annual FC = 2,250 FCCyclic limiter = 8 Yr (18,000/2,250)TOW Limiter = 8 Yr = 96 MoMo Rate: (320,000/ 96) = $ 3,333

4.0 – Maintenance Reserve DevelopmentIII. Auxiliary Power Unit (APU) Restoration Cost Factors• Material driven – 70% - 80% of cost is material,• Minor variance between first & mature-run costs.• Scope of work : Rework of the power section, load impeller & gearbox

modules according to OEM’s performance restoration and full gas path overhaul criteria.

Time On-Wing Factors• If new generation APU :

Use of empirical Mean-Time Between Unscheduled Removal (MTBUR) from similar in-production APU model.

• If mature APU : OEM Published Mean-Time Between Unscheduled Removal (MTBUR)

Metrics.



Mea

n-Ti

me

Betw

een

Rem

oval

s

5,945 FH - MTBUR5,495 FH - MTBR

6,450 FH - MTBCR12-Mo Rolling Averages

4.0 – Maintenance Reserve DevelopmentIII. Auxiliary Power Unit (APU) Restoration Time On-Wing Factors – OEM MTBUR Metrics

Example : 737-800 APU (GTCP 131-9B)• MTBUR = 6,500 APU FH• Average Cost = $235,000• APU Reserve Rate = $36 / APU FH




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IV. Engine Performance RestorationCost Factors

I. Engine Build Goals - Tend be influenced by business decisions, and based on:a) Maximizing usage of LLP hardware, which often leads to lower

shop visit costs but higher DMC ($ / FH), orb) Building for minimum number of shop visits, which allows one

to achieve lower shop DMC ($ / FH) but higher shop visit costs.

Notes• Many lessors are now imposing “minimum build goals” in their

leases to prevent short building.




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IV. Engine Performance RestorationCost Factors



Restoration $ 1,650,000LLP Removed $ 0---------------------------------------------------------Total Shop Visit $ 1,650,000 Restoration $/FH 117.85 $/FH

Restoration $ 1,800,000LLP $ Removed $ 1,000,000---------------------------------------------------------Total Shop Visit $ 2,800,000Restoration $/FH 90.00 $/FH

Replace No LLPsBuild to 7,000 FC

Replace Core LLPsBuild to 10,000 FC17 7 7 12 17 20 20 12

I. Engine Build Goals – ExampleFirst Run TOW = 13,000 FC / 26,000 FH 30 20 20 25

At Shop Visit :Maximizing usage of LLP hardware Minimize Number of Shop Visits

Engine LLP Status @ EIS


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IV. Engine Performance RestorationCost Influencing Factors – continued

II. Age – rates reflective of first & mature-run status


As Engine Ages

Hardware DeteriorationRate Increases

Higher Maintenance Costs

1st SV2nd SV

3rd SV

20,000 FH 16,000 FH 15,000 FH


EGTMarginLoss(˚C )

2,000 4,000 6,000 8,000 10,000

Flight Cycles

2,000 4,000 6,000 8,000 10,000

Flight Cycles

Same Engine Goes Into Shop

EGT Limit

EGT Limit

Time On-Wing – High Thrust Rating Time On-Wing – Low Thrust Rating

Flight Cycles Flight Cycles

Same Engine Goes Into Shop

Time On-Wing High Thrust Time On-Wing Low Thrust

EGT LimitEGT Limit

10,000 FC

EGTMargin

Loss

8,000 FC

4.0 – Maintenance Reserve DevelopmentIV. Engine Performance RestorationTime On-Wing Factors

I. Engine Thrust Rating - Increasing Thrust > Higher EGT Deterioration > Lower Time On-Wing



4.0 – Maintenance Reserve DevelopmentIV. Engine Performance RestorationTime On-Wing Factors - continued

II. Engine Flight Leg



Cruise

1 FH

Cruise

3 FH

Flight Profile = 1.0 Flight Hour per Flight Cycle

Flight Profile = 3.0 Flight Hours per Flight Cycle

1 FH 1 FH

Take

-off

& C

limb

Descent &

Landing

Descent &

LandingTake

-off

& C

limb

Flight Leg (Hours)

Cost

$ /

FH

Greater Flight Leg

LowerDMC

Increasing Flight Leg

Lowers EGTDeterioration

Higher Time On-Wing


II. Engine Flight Leg

Increasing Flight Leg

Lowers EGT Deterioration

Greater Flight LegLowerDMCCo

st $

/ F

H

Flight Leg (Hours)

Higher Time On-Wingand Lower Cost $ / FH




1.0 2.0 3.0 4.0

Flight Leg (Hours)

0%

10%20%

Increasing Derate = Lower Thrust

1.5 2.5 3.5

Cost

$ /

FH

Increasing Derate

Lowers Thrust &EGT Deterioration

Higher Time On-Wing

Increasing Derate

Lowers Thrust andEGT Deterioration

Higher Time On-Wingand Lower Cost $ / FH

Cost

$ /

FH

Flight Leg (Hours)

5% Derate10% Derate

Increasing Derate = Lower Thrust

15% Derate

IV. Engine Performance RestorationTime On-Wing Factors - continued

III. Engine Derate




IV. Environment - Engines operated in dusty, sandy and/or erosive-corrosive environments are exposed to higher blade distress and thus greater performance deterioration.

Notes:• Lessors are now adjusting their reserve rates to account for

region of operation. • Generally applies to narrow-body aircraft operating within

distressed environments.



LowestMedium / LowMediumHighHighest

Colors highlight severityand rate of occurrence ofdistress



IV. Engine Performance RestorationTime On-Wing Factors - continued


Engine - Environmental Distress Chart

1.0 1.5 2.0 2.5 3.0

1.010% DerateSe

verit

y Fa

ctor

2.2

1.7

Flight Leg

$72$122$158 $70 $6815% Matrix =

5% Derate

15% Derate

$80$136$176 $78 $76

5% Matrix =

10% Matrix =

Base Flight Leg (2.0)Base Rate = $80 / FH

$88$150$194 $86 $84



IV. Engine Performance RestorationExample – Severity Curve



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IV. Engine Performance RestorationExample – CFM56-7B26 Restoration Calculation Base Operation : 2.0 Flight Leg / 10% Derate / Temperate Region Base Rate : $80 / FH

IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010

Operating Scenario 1:1.5 FL / 10% Derate / TemperateFL Factor = 1.7Derate Factor = 1.0Region Factor = 1.0Composite Factor = 1.7*1.0*1.0Composite Factor = 1.70Adjusted Rate = 80 *1.70Adjusted Rate = $136 / FH

Operating Scenario 2:2.5 FL / 5% Derate / Hot-DryFL Factor = 0.98Derate Factor = 1.1Region Factor = 1.2Composite Factor = 0.98*1.1*1.2Composite Factor = 1.30Adjusted Rate = 80 *1.30Adjusted Rate = $104 / FH

Jackson Square Aviation


4.0 – Maintenance Reserve DevelopmentV. Engine Life Limited Parts (LLP) ReplacementCost Factors

• OEM piece part escalation – currently averaging over 5% per year.

• Inclusion of Static LLPs - Although these parts are not classified to be critical they do fall under the category of parts whose failure could create a hazard to the aircraft i.e. shrouds and frames.




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V. Engine Life Limited Parts (LLP) ReplacementPiece Part Life-Limit Factors

Life limits tend to range between 15,000 – 30,000 flight cycles, however LLPs can have shorter lives imposed on them by airworthiness

directives (ADs). Lessor imposed stub factor on life limits – typically:

10% for narrowbody engines 5% for widebody engines

Some manufacturers certify ultimate lives of LLPs at the time they certify an engine model. Other manufacturers certify the lives as experience is accumulated. In these scenarios, ultimate lives are reached after one or several life extensions.




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V. Engine Life Limited Parts (LLP) ReplacementStack Cost



1 30,000 180,000 6.00 6.672 27,600 120,000 4.35 4.833 30,000 100,000 3.33 3.704 20,000 50,000 2.50 2.785 20,000 80,000 4.00 4.446 20,000 110,000 5.50 6.117 20,000 30,000 1.50 1.678 20,000 240,000 12.00 13.339 20,000 200,000 10.00 11.1119 20,000 180,000 9.00 10.0011 20,000 90,000 4.50 5.0012 20,000 60,000 3.00 3.3313 25,000 100,000 4.00 4.4414 25,000 150,000 6.00 6.6715 25,000 70,000 2.80 3.1116 25,000 90,000 3.60 4.0017 25,000 80,000 3.20 3.5618 25,000 70,000 2.80 3.11

LLP FC Limit Cost $ $ / FC 10% Stub

2,000,000 88.00 98.00

10% Stub = Cost $ / (90% * FC Limit)

Lessors often assume that each LLP will retain 5% - 10% of its stub life before being replaced.

4.0 – Maintenance Reserve DevelopmentVI. Lessor’s Perspective:

Many lessors base their costs to be reflective of costs negotiated from either a U.S. or European based MRO facility.

Consequently, their reserves rates are normally ranked as “market-based to above market-based”.Ultimately, reserves are heavily negotiated and are often “marketing” driven.



Appendix A – Sources of Maintenance Reserve Metrics1. Maintenance Reserve Claims – Example Performance Restoration



Appendix A – Sources of Maintenance Reserve Metrics


2. OEM Conferences & Publications


3. Commercial Publications

Aircraft Check Phase Interval Costs - 2010 $ Rates ($ / Mo)

A320-200 4C / 6Y SI First-Run 72 Months $750K - $850K $10,400 - $11,800

A320-200 8C / 12Y SI First-Run 144 Months $850K - $900K $5,500 - $5,900

A330-300 4C / 6Y SI First-Run 72 Months $1.4M - $1.6M $19,500 - $22,200

A330-300 8C / 12 Y SI First-Run 144 Months $1.5M - $1.7M $10,400 - $11,800

B737-800 C6-C8 Equivalent First-Run 120 / 144 Mo $1.3M - $1.5M $9,000 - $12,500

B747-400 C4 / D-Check Ageing 72 Months $4.0M - $4.5M $55,500 - $62,500

B757-200 S4C Ageing 72 Months $1.5M - $1.7M $22,200 - $23,600

B767-300ER S4C Ageing 72 Months $2.0M - $2.3M $27,800 - $31,900

B777-300ER C4 / SI First-Run 96 Months $2.5M - $2.8M $26,000 - $29,100

E190 C4 / SI First-Run 96 Months $475K - $575K $4,900 - $5,900

CRJ-700 HSI First-Run 96 Months $425K - $525K $4,400 - $5,400

Appendix B - Maintenance Costs & Reserve Rates


1.0 Airframe Heavy Structural Inspection Costs & Reserve Rates Assumes full workscope (systems, structures & zonal & material)


2.0 Engine Performance Restoration Costs & Reserve Rates

Engine Thrust Phase Fl Leg Time On-Wing (FC) Costs 2010 $ Rate ($ / FH)

CFM56-5B6/P 23,500 First-Run 1.7 15,500 -16,500 $1.8M - $2.2M $68- $78

CFM56-5B4/P 27,000 First-Run 2.0 11,000 -12,000 $1.8M - $2.2M $86 - $96

CFM56-5B3/P 33,000 First-Run 2.0 7,500 – 8,500 $1.8M - $2.2M $124 - $134

CFM56-7B24/P 24,000 First-Run 1.7 15,500 – 16,500 $1.8M - $2.2M $68- $78

CFM56-7B26/P 26,300 First-Run 2.0 12,500 – 13,500 $1.8M - $2.2M $78- $88

CFM56-7B27/P 27,300 First-Run 2.0 11,000 – 12,000 $1.8M - $2.2M $84 - $94

V2524-A5 24,000 First-Run 1.7 15,000 – 16,000 $1.8M - $2.2M $72 - $82

V2527-A5 27,000 First-Run 2.0 10,000-11,000 $1.8M - $2.2M $92 - $102

V2533-A5 33,000 First-Run 2.0 6,500 – 7,500 $1.8M - $2.2M $135 - $145

Trent 772 71,200 First-Run 6.0 3,500 – 4,000 $3.6M - $4.0M $175 - $185

PW4068 68,000 First-Run 6.0 3,000 – 3,500 $3.2M - $3.6M $180 -$190

CF6-80E1A4 70,000 First-Run 6.0 3,000 – 3,500 $3.0M - $3.4M $165 - $175

GE90-115B 115,000 First-Run 8.0 2,250 – 2,750 $4.4 - $4.8M $250 - $260




Aircraft Interval Costs - 2010 $ Rates ($ / Mo)A320 Family 10 YR / 20,000 FC $380K - $420K $3,160 - $3,500

A330 Family 10 YR $875K - $925K $7,300 – $7,700

B737NG Family 10 YR / 18,000 FC $320K - $380K $2,650 - $3,166

B757 Family 10 YR / 18,000 FC $425K - $475K $3,540 - $3,950

B767 Family 10 YR $550K - $600K $4,580 - $5,000

B747 Family 10 YR / 6,000 FC $750K - $800K $6,250 - $6,660

B777 Family 10 YR $1.0M - $1.2M $8,333 - $10,000

E190 Family 10 YR / 20,000 FC $325K - $350K $2,700 - $2,900

CRJ 700 Family 10 YR / 20,000 FC $180K - $220K $1,500 - $1,800



3.0 Landing Gear Overhaul Costs & Reserve Rates Assumes cost for exchange unit plus removal/installation labor


Aircraft Interval - APU FH Costs - 2010 $ Rates ($ / APU FH)A320 Family 6,000 – 7,000 $210K - $240K $33 - $38

A330 Family 6,000 – 7,000 $350K - $375K $40 - $45

B737NG Family 6,000 – 7,000 $210K - $240K $33 - $38

B757 Family 5,000 – 6,000 $200K - $225K $37 - $42

B767 Family 5,000 – 6,000 $200K - $225K $37 - $42

B747 Family 8,000 – 9,000 $425K - $475K $48 - $53

B777 Family 7,500 – 8,500 $425K - $475K $50 - $55

E190 Family 5,000 – 6,000 $160K - $180K $31 - $36

CRJ 700 Family 4,000 – 5,000 $130K - $160K $30 - $35



4.0 APU Performance Restoration Costs & Reserve Rates


Elements Of Aircraft Maintenance Reserve Development Iata Mcc

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