JETRADER June - July 04 - ISTAT

I N T E R N A T I O N A L S O C I E T Y O F T R A N S P O R T A I R C R A F T T R A D I N G

June | July 2004

ISTATJetrader

FLEET MAINTENANCE

Shifting the risk to

third party providers

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BitsPiecesAircraft are gracefuland exciting monu-ments to the genius ofthe world’s manufac-turers and testimonyto their engineeringtalents.Today’s power-plants, whenuncowled, offer an

amazingly complex dynamic of plumbing,electronics, and metallurgy, which whenproperly combined, move from whisperpurr to significant release of thrust andmeasurable horsepower?

What would the old ScotsmanJames Watt have thought about hisdefined term and measurement of horse-power (the work of ponies lifting coal wasthought to equal 33,000 lbs of work inone minute, thus one horsepower) if hecould have foreseen today’s mammothhigh-bypass-engines and their appropriatethrust to horsepower ratings.

But at the end of the day it’s the less imposing butintrinsically necessary “Bits & Pieces” of these mag-nificent airplanes and engines that keep the

machinery of aviation commerce viable on a day-to-daybasis.

More importantly, it’s the “Maintenance-RepairOrganizations” (MRO) who manage these bits and piecesmaking air transportation not only one of the world’ssafest modes of travel, but also offering our industry anenhanced opportunity for economic profit and viability,which must command our instant attention.

Therefore, we thematically dedicate this editionof the JETRADER to a look at the Maintenance and RepairOrganization participants in the global aviation market-place, and particularly to those ISTAT members who sosuccessfully play in this complex but necessary arena ofcommercial endeavor.

At one time in my aviation career, I was privi-leged and honored to be a part of the AAR Corporationof Chicago, Illinois, one of the larger MRO, parts, engine,and aviation services companies. In those years that I was with AAR, I learned a great deal about the parts, over-haul, and MRO industry and had the utmost appreciationand admiration for those people who daily deal in the

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:: In This Issue

President’s Letter Salute to maintenanceand repair

Chairman’s Column John Keitz ofISTAT’s International Appraisers Board ofGovernors discusses the ISTAT InternationalAppraisers Program

Industry Trends Back Aviation Solutions

FEATURES ::Rotable Support ProgramsNew standards in inventory managementby The Memphis Group

TotalCare from Rolls-Royce Mark Kerr, Total Solutions Manager, CivilAerospace, describes its aftermarket servicesfor civil aero-engines

2004 Commercial Aircraft TradingMarket Recovery - What went wrongVentura Aviation Group asks, “Is this therecovery?”

Did You Know? Aviation HistoryBill Bath presents early efforts to keep us inthe air

INTERVIEW ::Wolfgang DrieseISTAT Board Member Connie Laudenschlagerin conversation with DVB chairman | CEO

REPORT ::An Economist’s View a.k.a. GurududeSayeth :: Dr. Adam Pilarski explains oil pricesin bold and simple terms

ISTAT FOUNDATION:: Scholarships Available

11th European ConferenceInformation and Registration

Michael A “Mike” MetcalfPresident . ISTAT

see Metcalf page 4

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President’s Letter

& September 12-14, 2004 11th European Conference

The Gleneagles Hotel, AuchterarderPerthshire, Scotland

The Road to RecoverySponsored by Boeing Capital

Chateauroux Air Center - FranceCFM International . Embraer . Lufthansa/GOAL . Odgers Ray

& Berndtson . Republic Financial Corporation . Rolls-Royce . Sage-Popovich .

June|July 04 3

minutiae of parts numbers, overhaul procedures andrecordkeeping. Further, I learned to appreciate the factthat a simple omission of an esoteric act such as improper“non-destructive testing,” or lack of a critical MinimumEquipment List (MEL) item can ground a flight, cancelingflight revenue and/or even potentially forcing a fine fromaviation regulatory authorities.

ISTAT’S-MRO members have long been support-ers of the Society and the ISTAT Foundation, rememberthat it was Roy Rimmer of TIMCO who offered the win-ning bid for the Herb Kelleher autographed Southwestnose cone at last year’s annual conference. So to ourISTAT-MRO members, “this JETRADER is for you.”

Next on the calendar of ISTAT member eventswill be our always much anticipated cocktail reception atthe Farnborough Air Show. This annual event has grownto become perhaps, the largest non-denominationalreception and event at the Paris and Farnborough venues,attracting well over six hundred attendees last year inParis. This year’s event will be held at London’s ScienceMuseum on Monday, July 19, 2004. We will convene inthe “Making the Modern World” Room at 6:30 P.M.

We greatly appreciate the continuing sponsor-ship of the Royal Bank of Scotland, which has so gener-ously contributed to make this gathering the signatureevent it has become at the annual Air Shows. ISTAT wouldparticularly thank Mr. Dick Forsberg and Ms. NodlaighGoss of Royal Bank of Scotland for their on-going helpwith the presentation of this meaningful event.

During the month of September, specificallySeptember 12-14, 2004, ISTAT’s 11th Annual Europeanconference will be held at the fabulous and world-renowned Gleneagles Hotel, Auchterarder, Perthshire,Scotland. The ambiance and pageantry of this Conferencewhen held at this site, is rapidly becoming legend with itsgracious hotel setting on the moors, and grand displays offalconry and the pipers and marching bands.

Further, the speaker line-up and informationalcontent make this rapidly growing event a must attendsession for those who truly want to see where aviation isgoing in the “European Union” and on the rest of theEuropean continent.

For those who truly plan ahead, next year’s ISTAT22nd Annual Conference will be held inPhoenix/Scottsdale, Arizona at the Westin Kierland Resort& Hotel during the dates of March 6-8, 2005. Fred Klein,22nd Annual Conference Chairman has promised tooutdo his stellar performance of last year at this upcom-ing event. It will be ISTAT’s great honor to award “TheISTAT Award” for 2005, to Mr. Fred Smith Chairman andFounder of Federal Express. The ISTAT Award will be for-mally presented to Mr. Smith as part of The President &Chairman’s Gala Dinner & Awards program to be held onTuesday evening March 8, 2005.

With the into service introduction of theEmbraer 170, the nearing of the mammoth Airbus A380,and the formal introduction of the landmark Boeing 7E7,there will be much to discuss at the ISTAT FarnboroughAir Show cocktail reception, I look forward to seeing allISTAT members and their guests in London, and thenreconvening to further the exchange of ideas atGleneagles in September.

Jetrader is a bi-monthly publication of ISTAT, the InternationalSociety of Transport Aircraft Trading. ISTAT was founded in 1983to act as a forum and to promote improved communicationsamong those involved in aviation and supporting industries,who operate, manufacture, maintain, sell, purchase, finance,lease, appraise, insure or otherwise engage in activities relatedto transport category aircraft.

Michael A Metcalf President

Bill Cumberlidge Immediate Past President

John F Keitz Chairman

William Bath Administrative Director

John W Vitale Vice President | Secretary

Thomas W Heimsoth Vice President | Treasurer

Michael Platt Vice President

Alan C ColeColin M Davis

Dr Dinesh A KeskarFred Klein

Connie LaudenschlagerIsrael Padron

Gregory A MayNick PopovichGary J Spulak

Eric G AllredJack F Arehart

Richard M BaudouinFred E Bearden

Stephen C BienemanSkip ClemensAlison MasonClive Medland

Thomas Hiniker Chairman

Roland H MooreImmediate Past Chairman

Thomas W Heimsoth Secretary | Treasurer

Michael A MetcalfISTAT President

Bill CumberlidgeISTAT Immediate Past President

TrusteesRobert M BrownLaurie HatcherWayne LippmanChris PartridgeDavid P SuttonDavid Treitel

ISTAT International Society of Transport Aircraft Trading

Dawn O’Day Foster Executive Director5517 Talon Court . Fairfax Virginia 22032-1737 USA

T +703 978-8156 F +703 503-5964 E [email protected] www.istat.org

A ADVERTISING Ajax Newservice Inc 219 939 9581 [email protected]

JetraderMetcalf continued

Board of Directors

Officers

ISTAT International Appraisers Board of Governors

Governors

ISTAT Foundation

cover :: Pratt & Whitney PW4000 112-inch fan

Chairman’s Columnby John F Keitz

F IRST, congratulations to our three new certifiedappraisers. Tom Burke of AVMARK, MartinO’Hanrahan of AVITAS and John Trevitt of IBA

Group passed their exams at this year’s conference andachieved ISTAT Certified Appraiser status. We now have28 certified appraisers and fourteen Senior Appraisers orFellows. We are down to only three candidates remainingwho have not yet passed their exams. However, I haveheard from several of our colleagues that some potentialcandidates are thinking of joining the ISTAT program. Thisshould not be surprising. I would imagine that during thepoor market of the last few years with few transactions,and fewer still that required appraisals, the last thing onthe mind of a young aviation professional would be toconsider a career as an aircraft appraiser. Now that thingsare looking up, it might appear to be more appealing.

Our working group that addressed the questionof “Certified Engine Appraisers” has finished its work andhas done an excellent job. Bill Bath, Fred Bearden, PhilSeymour, Mark Calver and Oliver Stuart-Menteth deliber-ated via e-mail to evaluate the proposal that we create acategory of certified engine appraiser. Bill Bath dutifullykept copies of all the exchanges and the final reportincluded 17 pages of e-mails. It is not surprising, in viewof the overwhelming opposition, that the group recom-mended that we not establish a separate category forengine appraisers.

As you may recall, the main reason for the proposalwas to recognize that some qualified engine experts didnot meet the requirement of two years of full time aircraftappraisal experience to become candidates for certifica-tion. The working group now recommends that “theISTAT Appraisers’ International Board of Governors be per-mitted by majority vote to relax existing AppraiserProgram enrollment criteria and qualification requirementsfor potential candidates with such exceptional qualifica-tions. Such candidates would be required to take and passthe standard ISTAT Appraiser’s technical and ethics exami-nations whereupon they would be become ISTAT certifiedappraisers without limitations.” This recommendation willsoon be put before the membership for any further com-ments and then before the IBG for formal approval andincorporation into the program.

The working group also recommended that weimprove the appraisers’ continuing education program byproviding more effective and formal sessions on valuationtechniques and technical issues. Further, they would liketo see ISTAT expand upon the current appraiser programhandbook and possibly produce other “textbooks” andprovide training classes on topics that would enhance theknowledge of our appraisers and candidates, which inturn would be attractive to potential new candidates inthe program. Bill Bath will pursue both of these sugges-tions with the intent of having a more intensive programat next year’s continuing education session and, hopefully,some other training alternatives even before that.

Finally, the working group again suggested that, aswe have been doing for some 12 years now, we seek todevelop an ISTAT sponsored transaction database.

ISTAT International Appraisers Board of Governors

In the Press | June + July 2004

The Air Atlanta Aviation Group (AAAG) has unveiledtheir new aircraft maintenance facility, Air Atlanta AeroEngineering (AAAE) opened at Shannon Airport, Co. Clare,Ireland.The aircraft maintenance company performs heavymaintenance on B727 and 737 aircraft and will add B757,767 and 747 capability over the coming months.

Air Atlanta Aero Engineering was formed with thepurchase of Shannon MRO by the Air Atlanta AviationGroup from UPS in February 2004. Originally founded in1962, the company employs 160 staff at its new state-of-the-art facility at Shannon. Following the purchase, thecompany announced a major expansion plan. In addition tothe new aircraft types, up to 30 new staff will be employedduring 2004 and a similar number in 2005, with the poten-tial for further jobs over the next several years.

The company will provide maintenance services toAir Atlanta Aviation Group companies and third party air-lines. Group companies include: Air Atlanta Icelandic oper-ating B747, 757 and 767s; Air Atlanta Europe (UK) operat-ing B757, 767, 747; and Islandsflug (Iceland) operatingB737s. Associate company Excel Airways (UK) operates afleet B737 aircraft and a number of B757 and 767s from AirAtlanta. In addition, the company will continue to providesupport to UPS on their B727 fleet for the next two years.Air Atlanta Aero Engineering is approved by the JAA andFAA to perform heavy maintenance on B727 and B737 air-craft. The company will add B757, 767 and 747 capabilityin the coming year. Based at Shannon Airport, the companycurrently employs 160 staff and plans to add up to 60 newstaff over the next two years.

Air Exchange is pleased to announce delivery of an addi-tional B737-200 aircraft [msn 20583] by TACA INTERNA-TIONAL AIRLINES, El Salvador, to SKY AIRLINE, Chile. Theaircraft, which will be subleased to AERO CONDOR, Peru, isthe last in a series of transactions arranged by AIREXCHANGE. AIR EXCHANGE provides a full range of trans-port aircraft brokerage services to airlines and aircraft own-ers worldwide, including the remarketing of surplus [email protected]

Ansett Worldwide has delivered the final Boeing 737-300aircraft (MSN 24025) of a four aircraft deal, to FlyMe ofSweden. Ansett Worldwide has supplied all four of FlyMe’sB737-300 aircraft, which FlyMe operates on its value-basednetwork across Sweden and into Finland. Mr FredrikSkanselid, Managing Director of FlyMe noted:”FlyMe hasenjoyed a very successful launch, with our customers appre-ciating the new low cost services that we are providing.Ansett Worldwide has proven to be a valued partner inbuilding our network, and the delivery of this fourth aircraftwill allow us to offer even more services to our passengersand the Baltic market”

AvAero is pleased to announce the successful completionand certification of its innovative fuel burn reduction modifi-cation on Boeing 737-200 and 737-300 aircraft. AvAero’s

CHAIRMAN continued page 10 PRESS continued page 20

June|July 04 5

6 JETRADER

Rotable SupportPrograms by The Memphis Group

If there has ever been a quantum leap in the

aviation industry, the past three years have

proven that traditional airline support infra-

structures are undergoing radical change.

Low cost startups are creating a new para-

digm almost everyday. One of the new stan-

dards is the need not to own and manage

inventory.

C ARRYING INVENTORY was once considered the way tosupport flight operations and maintenance events.This is just not the practical approach anymore.

Inventory means carrying costs, resources to manage, infra-structure to warehouse, systems to track, accountants toaccount, disposal costs, obsolescence costs, upgrade costsand on and on. Legacy operators are looking for alternativesto reduce costs and startup carriers to avoid costs, andinventory reduction is certainly on the radar screen.

Legacy operators have indicated for years thatthere is a cost equation both for maintenance and inventoryownership and that at a certain growth curve it is more eco-nomical to perform maintenance in house and own andcontrol all inventory assets including components, spareengines, nacelles and even some insurance items. The prob-lem with the cost analysis is that the infrastructure nevergoes away even after employee retirement and both mainte-nance and inventory organizations prove to be self-serving.Everyone hears about the airline that has billions in invento-ry, but we don't hear about the hundreds of employeesrequired to manage and provide logistical support.

The startup carriers of today are quite differentfrom existing carriers in that they appear to be focused on

segments or specific lanes versus the traditional hub andspoke trunk carriers. Many of the startup carriers are alsoapproaching the business as a low cost carrier. Their focus is on core business, filling the aircraft to capacity with pas-

sengers and flying aircraft.The Memphis Group (TMG) and its joint

venture with One Equity Partners (Rotable AssetManagement) has witnessed first hand the dra-matic shift in the approach start up carriers havetaken in defining their requirements. TMG haslong served the industry in providing re-certifiedparts to major airlines, both as provisioning andreplacements.

John Temple, Executive Vice Presidentstated, “Although we certainly continue to sup-port major airlines by providing replacement com-ponents, we see startups asking for componentprograms that minimize their upfront invest-ment.”

Rotable Support Programs are not new tothe industry as OEMs have provided rotable poolsfor quite some time. (Rotable Pools are estab-lished to replace a removal in return for the repairwork). Although still utilized today, many otherprograms are being instituted with great success.

Base Kit and Line Station Provision1 | A program designed to provide RSPL itemsthat ensure dispatch certainty and both mainte-nance and marketing provisions. An operator

would ask for either a financial lease or some form of accessfees over an extended period. Deferred capital outlay andexpense spread out over a finite period.

Rotable Replacement Pool2 | A program established to replenish specific removal com-ponents. The operator sends the removal to a repair stationand serviceable units are sent to them as an exchangedreplacement. An operator would pay an access fee and insome cases an exchange fee. Deferred payments in lieu ofprovisioning for safety stock on the front end.

Power by the Hour Support3 | A program designed to charge a fixed fee for componentsupport based on flight hours and aggregate repair cost.Deferred Capital outlay and expense fixed and spread outover the period of the agreement.

Supply Chain Solutions4 | A varied menu of options an airline can select fromincluding purchasing, expendable parts management, repairsmanagement, vendor managed programs, resource manage-ment, warehousing, logistics and transportation.

Each and every one of the above programs havebeen requested, proposed and are in use today. The materi-als industry outside of aviation has been very successfulimplementing supply chain solutions and pushing the own-ership and management of inventory to the supply chainprofessionals. The airline industry has taken the first quan-tum leap and don’t be surprised to see more responsibilitiesshift to the experts.

The experts in providing these supply chain solu-tions allow airlines to reduce capital investment and operat-ing expenses while providing streamlined supply solutions fortheir fleet. Total Solution offerings to airlines is the future ofaviation supply chain management, enabling airlines to havea comprehensive service program, that offers low predictablecosts, high service levels and focus on their core business.

June|July 04 7

QQ : What is your current outlook on the industry?

The outlook for our activities in the commercial aviationmarket remains positive, despite the fact that only veryfew commercial airlines can be called financially sound.We expect that with currently high fuel prices andstrong competition - from amongst others the low costcarriers - airline profitability will remain “modest”. DVBtypically pursues an anti-cyclical policy, heavily relying onthe strength of the underlying asset. Because DVB hasbeen very selective during the boom of the mid-nineties, our portfolio stood up very well to the chal-lenges of the 2001-2003 crisis.

With improving industry performance and thereturn of a number of mainstream banks, the challengewill be to remain critical on the quality of new business,despite competitive pressure. As commercial aviationwill remain a cyclical business, every new transactionhas to be “stress-tested” for a potential new crisis bylet’s say 2010/11. As demonstrated in the past, even“darling” aircraft will drop significantly in value as anegative business cycle and availability of new technolo-gy coincide. Although the new A380 will have a signifi-cant impact on commercial aviation, we believe that thenew technology incorporated in the 7E7 may have aneven greater effect on values of current generationtwin-aisle aircraft by the time the cycle turns downagain. If successful, the 7E7 technology will find broad-er application in all market segments, accelerating thereplacement cycle.

Another development we carefully follow is thefurther increase in the share of operating leasing as afinance instrument. Although DVB is unlikely to becomea true operating lessor, we plan to take advantage ofthis development by closely cooperating with lessorsand further developing structured operating lease prod-ucts. As I said before, with an improving industry thechallenge will be to continue building a solid portfoliowhilst avoiding becoming too euphoric.

Q : What are the main challenges facing DVB?

I would like not to mention all the threats, which we con-stantly hear about possible external factors like terrorism. Ithink a well-balanced business model can sustain a numberof these kinds of challenges. I am happy that we are sofocused and have now realized a very successful businessmodel. There is a challenge of mainstream banks returning

to the market with lending margins not fully reflecting theliquidity of the industry. Our response is deep expertise andthe enlargement of our offering around long-term assetinvestments. We are just starting a new activity in NewYork for Capital Market products, and we will in duecourse enter the aero engine finance market, which wefeel is an interesting challenge to expand our services forthe whole industry.

Q : Can you tell us about one high point or memorable event in your career?

The most important point was the acquisition of the avia-tion portfolio from the Long Term Credit Bank of Japan(“LTCB”). This was the first step to realize the vision,which I had about how the bank should look like in thefuture. Here it was not a matter of price that we were ableto finally acquire the portfolio but a matter of a convincingbusiness model, which we were able to present. Our busi-ness model not only convinced the seller but in particularthe aviation team, which joined DVB and still feels DVB astheir home, as a unique, transport finance organization.

Q : Can you share with us your thoughts onbeing part of the ISTAT Annual Conference? Didyou enjoy yourself? Was it worthwhile?

It was my first visit and participation as a speaker of theconference. I was very much impressed not only by therecord number of participants but of the high level anddiversification of the members and the high level of thespeakers being present on CEO level. What was the mainfeature for me were the opportunities which I took myselfof meeting directly main participants out of the industryand discuss further projects which made it an good invest-ment to be as a participant there.

“WITH IMPROVING INDUSTRY PERFORMANCE AND THE RETURN

OF A NUMBER OF MAINSTREAM BANKS, THE CHALLENGE WILL

BE TO REMAIN CRITICAL ON THE QUALITY OF NEW BUSINESS,

DESPITE COMPETITIVE PRESSURE.” - Wolfgang Driese

8 JETRADER

Interview with Wolfgang Driese, Chairman and CEO of DVB Bank AG

Interview conducted by Connie Laudenschlager, ISTAT Board Member and SVP with DVB’s New York office

An Economist’s View …. a.k.a. Gurudude Sayeth by Adam Pilarski, SVP AVITAS, ISTAT member

T HE MOST DIFFICULT PART ofexplaining long term predictionsis the short term focus of the

audience. When oil prices reach $42 abarrel and readers (in the US) are pay-ing over $2 a gallon it is difficult toget people to adopt a longer termview and accept what I am about tosay. It is my job, though, as a forecast-er, to take a more balanced, dispas-sionate and analytical view to explainthe future.

Current Realities

At present oil prices are the villain ofthe aviation industry. Most airlinespurport the sudden hikes in fuel pricesare the reason why they will not beprofitable this year. Oil prices arebecoming a convenient scapegoat forthe industry and estimates rangeupwards of a $5 billion delta in costsbecause of theirsudden increase.No doubt higherfuel prices are aserious handicapto the recovery inour industry.

Before we entertoo deep a periodof melancholy weshould put thingsin proper perspec-tive. 1 | High oilprices are notreally that high inreal terms. By realterms economistsmean inflationadjusted. Yes, gasoline prices were 16cents a gallon the year I was born butat the same time average annualincome was below $3000 and anaverage house cost below $8000.Even the record high price of $42 abarrel of a few weeks ago is equal tothe inflation adjusted levels in 1985and is actually only two thirds of the(real) level of 1981. 2 | Short term oilprices were always very volatile. In thebeginning of 2000 they were $25 abarrel, towards the end of same yearthey increased 50% to over $37, in alittle over one year (end of 2001) fellto half the previous level (circa $18), a

Oil price future explained in simple and bold terms

see Oil page 11

June|July 04 9

little than a year later around April of2003 they doubled again, then fell inabout 2 months from $38 to $25 andthen rose again. Such movements area historical reality and can be docu-mented over many years. 3 | Politicalelements are critically important inshort term price volatility. Since mostof the world reserves of oil are foundin the Middle East, a region prone topolitical uncertainty, huge price fluctu-ations existed for a long time. As amatter of fact, right now the politicaluncertainty is estimated to contributea circa $10 premium to the price ofoil. 4 | To determine the long termfuture of oil prices we must look ateconomic realities. The fact is thatthere are no real economic reasons forhigh prices. Current high prices arethe result of speculation and politicalfactors, not a scarcity of oil.

Is Oil Really An ExhaustibleResource?

Paul Krugman, an eminent economist,and many others are predicting a longterm continuation of oil price increas-es. They argue that no more new bigoil fields will be found and thatdemand for oil, especially in China (abillion Chinese will all move from bicy-cles to cars) is soaring. Since oil is anexhaustible resource we will eventuallyrun out of it and oil prices will sky-rocket. This is a story we have heardbefore. In 1981, when real oil priceswere at record levels equivalent to a

price of circa $66 in today’s terms,some believed the price would contin-ue rising forever. The arguments wereas they are now, limited supply of anexhaustible resource and soaringdemand. I was at that time involved ina new jet project called the UHB andargued strenuously that economicreality will eventually prevail and priceswill fall. High oil prices curtaileddemand by greater stress for efficien-cies while at the same time stimulatedexploration. It took some time but in1986 prices fell from a nominal $24 to$12 and stayed below $20 until 2000.

What gave me the confidence toargue that prices will eventually fall?The reason is the same as it has beenfor centuries. The Krugman typeanalysis is incorrect and static. Malthusfollowed similar logic claiming morepeople and limited resources must

lead to disaster. What he forgot toaccount for was the change in humanbehavior and technological improve-ments. Stanley Jevons made similararguments in the late nineteenth cen-tury in his famous book “The CoalQuestion” in which he argued thatdemand for coal is continuously risingbut is confronted with a limited sup-ply; hence an impending disaster thatcannot be avoided.

Last time I checked we were not run-ning out of coal. As a matter of fact,not many people look for coal. WhatJevons failed to account for were

$

change our industry forever. Sure, every manufacturer isdeveloping something new and exciting but this is special.

Airbus has their A380 which is exciting and they arerightfully proud of it. However, it is a big, but convention-al, aircraft. It appears the 7E7 is most unconventional. Itwill have many revolutionary interior passenger appealfeatures and technical innovations. The most exciting ofwhich is the extensive use of composite construction.Boeing believes that the aircraft, partly due to the com-posite construction will have a useful life of 50 years.

A client recently requested that we give our prelimi-nary forecast of delivery date value and future values forthe 7E7 aircraft. It reminds me of when I was a youngweather officer in the U.S.A.F. (about the time we put ourfirst American human being into orbit.) The commanderof the Air Weather Service was giving a speech. He said,“If someone comes into your weather station and asks fora forecast of the solar wind between Mercury and Venus,you give it to him. Let’s see him get there to prove youwere wrong.”

I don’t expect to get there to see my 7E7 residualvalue forecast. In fact, its not likely my client will see it,either. There is a statistically reasonable probability thatmy sons will not see it. You will have to complain to mygrandsons if my forecast is wrong. It really boggles one’smind to consider where our industry will be in 50 years.

With modest inflation for 50 years the residualvalue of the dreamliner may be as high as the originalprice. That should make the investors happy, although,they also will not likely be around to collect the residualvalue.

The latest proposal includes several provisions whichshould make it more workable and desirable than previ-ous proposals. One suggestion is that access would berestricted to ISTAT certified appraisers. This would be afurther incentive for candidates to join our program.Also, several steps were suggested that would insure theanonymity of the organizations that provide the data. Asin the past, information such as serial numbers, modeldesignation, operator, date of transaction, etc. would allbe redacted so that confidential information could not bededuced from the database.

It was further suggested now that a time delayof three to six months be built into the system and thatthe transaction would only be identified as havingoccurred sometime in that six month period. Maybe withthese protections we can convince some of the entitiesthat have the data share it with the rest of us so that wecan serve them better.

Now on a completely different subject, I wish onbehalf of all appraisers to thank the Boeing Company fortheir recent Appraiser’s Forum that was held in Seattle.(Certainly, I do not mean to slight Airbus, Embraer,Bombardier and Pratt and Whitney who have each heldsimilar presentations within the past year and continue tosupport our appraisal efforts with timely updates on theirproduct lines.)

However, I sense the Boeing presentation wassomewhat special, even though I was unable to attendmyself. Obviously, there was some degree of concentra-tion on the 7E7. From what I have heard from those whoattended and seen on the CD of the presentations, I’mconvinced that this is truly a “Dreamliner” that may

Chairman’s Column continued10 JETRADER

CURRENTREALITIES

At present oilprices are thevillain of the

aviation indus-try. Most air-lines purportthe sudden

hikes in fuelprices are the

reason why theywill not be prof-itable this year.Oil prices are

becoming a con-venient scape-

goat for theindustry and

estimates rangeupwards of a $5billion delta incosts because of

their suddenincrease. Nodoubt higher

fuel prices are aserious handi-

cap to the recov-ery in ourindustry.

changes, in part induced by prices. Ascoal became scarcer, we found analternative (oil). The arguments bythose who love to panic are always ofthe sort: tell me where the next big oilfind will be or tell me what the newsource of energy will be? Such ques-tions of course cannot be answered.They are the same as the ones thatsay tell me what new inventions willoccur and led to a famous statementby the US commissioner of patents in1899 who said “Everything that canbe invented has been invented”. Priceincreases in the early 1980s led to

Oil continued

reduced demand and increased supply.A more dramatic price increase maylead to a more revolutionary change ala cold fusion.

Future

In the short term political events in theMiddle East can cause oil prices to risesubstantially. In the longer term eco-nomic realities will prevail. We actuallyhave plenty of oil. In 1954 geologistsestimated we had enough provenreserves to last us 32 years. Thirty twoyears later the supposedly exhaustible

resources increased to 37 years of pro-duction available. Current estimatesare that the world holds enoughreserves to last us 48 years. Short termoil price disruption may prove fatal tosome players in aviation. In the longterm we will have plenty of oil avail-able at reasonable prices. If I were abetting man I would bet prices in afew years will be much lower thanthey are today. All this has profoundimplications on aircraft values and forthe value of fuel efficiency of new air-craft.

June|July 04 11

TotalCare from

Rolls-Royce

TotalCare from Rolls-Royce – an introduction

TotalCare is the brand name used by Rolls-Royce to describeits aftermarket services for civil aero-engines. There havebeen similar brands developed to cover corporate and mili-tary aero-engines, called CorporateCare and Mission ReadyManagement System (MRMS) respectively, and each ofthese follow similar principles.

With TotalCare Rolls-Royce has found a way of aligning itsbusiness objectives with those of its customers - zero oper-ational surprises and an increase in the time engines are onwing through a controlled and planned programme gener-ating maximum return on investment.

Rolls-Royce Trent 900 112” swept fan

12 JETRADER

through the Operations Room) backed up by its uniqueproduct knowledge, and world-wide repair and overhaulfacilities.

Since introducing TotalCare to customers in thelate 90s, Rolls-Royce has seen a rapid uptake in the mar-ketplace, particularly in its latest large engine family, theTrent. More and more customers are changing their phi-losophy regarding engine maintenance activity, and see-ing the benefits of not only purchasing a world leadingproduct from Rolls-Royce, but also buying a world lead-ing service. What does TotalCare cover? The range ofservices provided by TotalCare is comprehensive, and canbe tailored to suit a particular airlines operation.

Typical services covered are:Incorporating all Airworthiness Directives

(ADs), and Mandatory, Reliability and Durability Service Bulletins (SBs) into the engines

The scope of hardware covered can include Life Limited Parts, as well as major refurbishments, check and repair activity, unscheduled maintenance

Foreign Object Damage replacement/repairState-of-the-art predictive maintenance using

EHM outputs, assisting in planning engine maintenance activity and avoiding unscheduled events

24/7 reports and alertsEngine performance trends and operating

marginsOn-line technical recordsAccess to EMPs and maintenance workscopesManagement of Line Replacement Units

(LRUs) through repair/overhaul cyclesManagement of LRU stock levels and availabilityTransportation of engines to and from the

overhaul facilitiesProvision of spare engines and a "remote site

rescue" serviceAccess to data on-line through the Rolls-Royce infor

mation portal "aeromanager"

The list of services provided by TotalCare is constantlybeing evolved, driven primarily by discussions with ourcustomers. Rolls-Royce is currently trialing services inaddition to those listed previously, thus keeping its serv-ice provision up to date and in line with our customersneeds. An example of these additional services is settingup a localised fully comprehensive on-wing support activ-ity, designed to bridge the gap between flight line main-tenance and the overhaul shop. This service will keepengines on the wing longer by finding and repairingfaults at the flight line that would normally cause theengine to be removed and sent to the overhaul shop. Ifthe repair cannot be carried out on the flight line, theworkscope and turn-round-time will be carefully con-trolled and expedited through the overhaul shop.

see TotalCare page 14

In simple terms, TotalCare provides

customers with a suite of services to select from, cover-ing many aspects of maintaining aero-engines in an air-lines operation. The customers pay for the services by anagreed $/Engine Flying Hour ($/EFH). Typicalactivities/items fall into four categories:

In-Service SupportTechnical AssistanceSpare EnginesSpare PartsTools

Inventory ManagementLogisticsEngine Transportation

Off-Wing SupportRepair & OverhaulVendor Management

Information & ManagementTechnical Records ManagementEngine Health Monitoring (EHM)Engine Management Plan (EMP)TotalCare Programme Management

You will see from the services provided that TotalCare ismore than "just an engine maintenance payment plan".In fact, the maintenance activity is only a small elementof the scope of TotalCare.

The key deliverables to a customer of TotalCareare reliability of product, predictability of operation, andrisk management at the right point in the supply chain.Rolls-Royce, as the OEM, can address all these issues andhas invested in the infrastructure required to deliverthese services, and created a powerful data collection,processing and dissemination resource (which safeguardsTotalCare customers 24 hours a day, seven days a week

June|July 04 13

TotalCare business modelproven across all airlinebusiness models

3,ooo engines and $15bncontracted value underTotalCare

Trent TotalCare forecastto grow to 75% by 2008

90% of regional fleetunder TotalCare

photo source: Rolls-Royce

How does TotalCare fit intoleasing activities?

The operating model between an aircraft lessor and alessee contains specific nuances that TotalCare can sim-plify.

An airframe, its systems and powerplants are required tobe maintained to regulatory authority airworthiness stan-dards by the operator (lessee). However, the owner ofthe aircraft (lessor) will often need to be satisfied that allrelevant maintenance, checks and airline operations arebeing carried out to the required standard. The paymentof maintenance reserves (coincidentally also usuallybased on a $/EFH calculation) from the lessee to the les-sor acts as a balance, or provides a degree of risk mitiga-tion, against the product being used inappropriately bythe lessee. However the process of drawing downagainst maintenance reserves, or the undercalling/over-calling of the size of the reserve can act as a source ofconflict between the lessor and the lessee.

Rolls-Royce TotalCare continued

In reality, what the lessor and lessee are more likely to beseeking is a qualified, independent third party that isincentivized to actively manage the asset with least dis-ruption and at an agreed rate. This is what TotalCare canachieve for both lessor and lessee on the aircraftengines.

The engines will be maintained and overhauled by theOEM, TotalCare will have effectively monitored theusage and condition of an engine through the EHM datagathered. The components replaced or repaired in over-haul shop visits, or on the flight line, will be certified byRolls-Royce. The latest ADs/SBs will be included, makingsure the engines are maintained to a modern andhealthy standard. The technical records for the enginecan be presented as a continuous and complete history.The lessor can have confidence in the condition of theengine that it is passing on to the next lessee, even if theengine is returned under default conditions. And this canbe achieved without having to spend any effort within itsown organisation. The next lessee can have similar confi-dence that it is getting an asset that has been "lookedafter".

An additional benefit being realised in the marketplace isan improvement in residual value and an increase in thesaleability of assets maintained under TotalCare-styleagreements. Already, aircraft in the Corporate sectorwhich have engines covered by CorporateCare agree-ments are attracting premiums of around +$0.5m overconventionally managed assets, and are considered asthe preferred option to purchase given a choice.

Wouldn't you rather buy a second-hand car that hasbeen maintained from new by the OEMs shop, andcomes with a full service history and a certificate of road-worthiness? As the market coverage and familiarity withTotalCare grows, Rolls-Royce anticipates assets underTotalCare will deliver similar benefits.

by Mark KerrTotal Solutions Manager, Civil Aerospace Rolls-Royce plc

14 JETRADER

2004 Commercial Aircraft Trading MarketRecovery - What went wrong

2004 Commercial Aircraft TradingMarket - Is this the Recovery?

This year was expected by many inthe commercial aircraft trading mar-ket to be the long awaited year ofrecovery. Not unlike the US econo-my, many aircraft traders arescratching their heads and asking -Is this recovery we have all beenwaiting for? Historically, the markethas operated in an eight-year cycleof activity with the last "market bot-tom" occurring in 1994-1995 withan expected market bottom andsubsequent recovery forecast for2002 -2004. Unlike the marketrecovery in 1995, the current periodtrading activity has been quite dif-ferent and certainly not what wouldbe defined as a normal marketrecovery.

What's different this time?

The old adage in the forecastingbusiness is that extrapolating pasttrends to predict future events is likedriving a car by looking in the rearview mirror - you have great view ofthe road behind you, but you missthe curve that sends you over thecliff. Despite this caution, it can beuseful to analyze past marketbehavior to determine what underly-ing factors are different during thismarket cycle that is creating such ananemic recovery. Clearly major dif-ferences exist in the global econom-ic and political environment todayversus the mid-1990s. In 1995 noone knew or was fully aware ofOsama Bin Laden and the massivedamage that terrorism can inflict onthe world economy. The scope ofanalysis required to understand theimpact of such "big picture" eventsis not under consideration here.Instead, a review of some underlyingdifferences specific to the aircrafttrading market as it existed in themid-90s and today is useful inunderstanding why the currentrecovery is less robust.

The first underlying differ-

ence is the productivity of the activefleet. One measure of productivity isthe fleet wide utilization. As indicat-ed in Figure (A), aircraft utilization,measured as annual fleet wide aver-age block hours, is significantlylower in 2003 as compared with1995. An element of this decrease,particularly in older aircraft typessuch as the DC8 and B727, is aresult of the aging of the fleet.However, in the case of the B747-400, B737 (CFMI), which wereextensively in operation in 1995 andremain active today, this decline inutilization represents available

unused capacity. It is natural toexpect that as traffic grows opera-tors will seek to increase the utiliza-tion of their existing assets beforebringing aircraft out of storage oradding additional aircraft to theirfleet. In contrast, during 1995,operators were already fully utilizingtheir existing assets and addingstored or used aircraft was theimmediate solution to accommodategrowth.

In addition to an underuti-lized fleet, the desert parking lotsare overflowing with perfectly use-able commercial aircraft. While anincrease in the number of parked

aircraft is to be expected during amarket downturn, the size of theparked fleet has remained stubborn-ly high as compared to a similartime period in the 1990s marketcycle. Despite the fact that the fleetis one-third larger today than it wasin 1995, the number of stored air-craft as a percentage of the totalfleet is above 12% or more thandouble the similar point in the1990s cycle (see Figure B). The num-ber of Western built jet aircraft (100seats or more) in storage as ofJanuary was almost two thousandaircraft.

It would be easy to con-clude that the reason these storagefigures are so high is the large num-bers of older technology (pre-1980)that are parked and unlikely toreturn to service. Unfortunately thefacts do not support this conclusion.In 1995 only 13% of the fleet repre-sented post 1980 technology air-craft, while in 2004 that figure is58% or almost 1,200 aircraft. In thelast few years the market has actual-ly been quite efficient at permanent-ly retiring older technology aircraft,leaving behind a parked fleet of air-craft fully capable of re-enteringproductive service.

As was the case in 1995,this large fleet of aircraft probablywill eventually represent an attrac-tive target of opportunity for specu-lative investors. Once again howev-er, market characteristics havechanged and made the speculator'schallenge much greater during thecurrent market recovery. For exam-ple, the number of leased aircraft asa percentage of the fleet hasincreased by forty percent. In the"good old days", the operator whohad debt financed an aircraft andchosen to take it out of serviceprobably had either paid off thedebt and/or had a low book valuethereby providing the operator withacceptable options in dealing with asignificant reduction in the marketvalue of its aircraft. In contrast, anoperating lessor, who is continuing

see 04 CAT Market page 16

June|July 04 15

by Ventura Aviation Group LLC

16 JETRADER

to receive rent from an operator,even though the asset may be idle,has little incentive to accept a bar-gain purchase from a speculativeinvestor. Even if the lessor has beenforced to take the aircraft back fromthe lessee and has been unable tofind a new customer, the motivationto sell and recognize a loss wouldonly occur if the lessor has conclud-ed (or been forced to conclude byits auditors) that a market recoveryis unlikely to occur. Given the youngage of the parked fleet, manylessors have concluded that they arebetter off retaining their assets andwaiting for a market recovery. Theunwillingness of financial owners tosell in a down market is furthercompounded by the complex air-craft financings at carriers that haveor are going through reorganization,such as US Airways and UnitedAirlines.

Should a speculativeinvestor be successful in obtaininggood aircraft at a bargain price,where are the customers? In previ-ous downturns good second handaircraft were placed with start-upcarriers hoping to capitalize on the

market recovery. Fast-forward to2004 and we find that these startup carriers are now called low costcarriers ("LCCs") who are orderingbrand new equipment from themanufacturers. In fact, two thirdsof all new orders for aircraft with100 seats or more in the last twoyears have been placed by LCCs.

Today in the US commercial aircraftmarket, the legacy carriers struggleto survive and add capacity byreturning aircraft (mostly likelyleased) to service, while the tradi-tional secondary market has shiftedgears and is predominately orderingnew equipment.

Finally, there is the last,best home of many used aircraft -

the freighter market. Market down-turns have traditionally been anactive buying period for speculatorsand operators interested in addingconverted aircraft to their fleets.Several factors in this market cyclehave limited the opportunities forthese types of transactions. In addi-tion to the reluctance or inability ofthe current financial owners to dis-pose of over valued assets and takea loss, the size of the storedfreighter fleet is substantially greaterduring this market downturn.

As indicated in Figure C,both older narrowbodies as well aswidebody freighters have storagerates that are more than double thecorresponding market period in the1990s. While it is reasonable toassume that many parked older nar-rowbodies will be scrapped, the sur-plus in widebody freighters remainsan impediment to investment inadditional passenger to freighterconversions.

Freighter demand in the UShas fundamentally changed sincethe last downturn further dampen

04 CAT Market continued

04 CAT Market continued page 18

by Bill Bath

Do you know . . .of the simple but elegant way the Wright Brothersdoubled the effective strength of the vertical strutsbetween the upper and lower wings? The ingenuoussolution to avoid making them broader and thusheavier was to stretch a thin wire from wing tip towing tip, passing it through the center of each strut’schord and fastening it on each side of the strut.

In early 1903, the Wright brothers conduct-ed wind tunnel tests on a variety of strut cross sec-tions and found to their surprise that a rectangularstrut with just the corners rounded off had notice-ably less drag than a teardrop streamline form. Theirwhole approach in their endeavors to produce a suc-cessful flying machine was to carefully analyze eachproblem, then by experiment and precise measure-ments of their observations, engineer the solution. Byusing this approach there were usually few trial-and-error adjustments required after the part wasinstalled. The major exception to the foregoing wasin determining the correct curvature of the wing ribson the early gliders.

To understand how they overcame a prob-lem for which there was little information available atthe time, we have to look briefly at the work of fourearly pioneers, Benjamin Robins (1707-1757); JohnSmeaton (1724-1792); George Cayley (1773-1857);and a German contemporary of the Wrights, OttoLilienthal (1848-1896).

Benjamin Robins, a British military engineer,was the inventor of the whirling arm around 1746 tomeasure the aerodynamic force acting on a bodymoving through air. He also invented a device todetermine the aerodynamic characteristics of a bodyat high speeds, establishing that drag increased rap-idly at transonic speed and varied with the velocitycubed, whereas at lower subsonic speeds drag varieswith the velocity squared. There will be more on thiswhen we do a column on the Bell X-1 rocket plane,the first manned vehicle to officially fly faster thanMach 1, (October 14, 1947).

The Wrights of course were not interested inthe latter invention of Robins, but they certainly werein the first one, as Robins found that different shapeswith the same projected frontal area had differentvalues of drag. He also found that the drag wasquite different if a rectangular plate set at a 45degree angle of attack and the long dimension fac-ing the airflow had a lower drag than when theplate was rotated 90 degrees so that the short edgefaced the airflow. In other words he discovered theeffect of a wing’s aspect ratio on drag. (The aspect

AV I AT I O N H I S T O R Y

ratio is the wing span divided by its width).The whirling arm was used for a hundred

and fifty years until it was gradually replaced by thewind tunnel in the late nineteenth century. The prob-lem was, as the decending weight P spun the arm R,the disturbed air would also start to rotate and makeit difficult to determine the velocity of the test objectrelative to the air, rather like stirring a cup of coffee.Lilienthal built a 23 foot diameter one in his gardenin 1888 and conducted thousands of tests with vari-ous cambered airfoils. Later the Wrights were to usedata from some of these published tests for theirglider wings, but the discrepancies between their cal-culations using these data and the poor performanceof the gliders led them to build a wind tunnel andstart afresh in determining the correct airfoil shape togive the required lift.

Eight years after Robins died, an English civilengineer, John Smeaton, used a whirling arm inexperimenting with models of windmill blades, therebeing some 10,000 windmills in England at thattime. From those experiments he arrived at the for-mula:

F = kSV2

Where F is the force in pounds exerted on a plateperpendicular to the air flow, S is its surface area insquare feet and V the velocity of the wind in milesper hour.

see History page 18

Benjamin Robins’ Whirling arm ca. 1746

George Cayley’s concept for a fixed-wing aircraft ca. 1799

June|July 04 17

ing market activity. Since 1995, themajor express carriers have greatlyincreased the size and efficiency oftheir trucking networks. Truckshave now supplanted aircraft inmany express markets resulting inzero or negative growth rates fordomestic US air express. Rather thanreplacing a retiring aircraft asset, anexpress carrier can shift the load toan efficient ground network, whichcarries the load at a fraction of thecost. In addition, FedEx was suc-cessful in winning the contract tocarry a large portion of the US Mail,thereby supplanting several smallercarriers who would have been cus-tomers for converted freightersFedEx was largely able to absorb theadditional business by increasing theutilization of their existing assets.

While nothing is constantexcept change, the basic laws ofsupply and demand will eventuallyprevail. The airline industry is clearlyin a period of unprecedented tur-moil and restructuring and, since air-craft are the principal revenue-earn-ing asset in this industry, it is naturalthat the aircraft markets will bedirectly impacted. Given that pas-senger travel and airfreight willremain a critical element in theinternational and most domesticeconomies, the market will resolveitself and the cycle will continue.For the commercial aircraft tradingmarket, patience and more impor-tantly economic staying powerremain the order of the day.

Ventura Aviation Group LLC is

a unique aircraft investment firm offer-

ing financial investors and lessors the

tools needed to achieve superior returns

in the freighter and pax-to-freighter

("P2F") conversion market, while provid-

ing airline customers specialized market

and technical skills in fleet optimization,

modification and aircraft disposition VA

offers vertically integrated, value added

advisory and transaction execution serv-

ices with a focus in the air freighter mar-

ket.

From this he calculatedthe numerical value of the con-stant k as 0.005, which becameknown as Smeaton’s coefficient.Unfortunately this turned out tobe inaccurate and had a majoradverse impact on the earlyWright designs, although anoth-er Englishman, George Cayley,had already challenged the figureas early as 1809. Nowhere in theWright brother’s notes is thereany mention of George Cayley,the experimenter whose modelgliders had tails like those on allof our commercial aircraft today.

In the British ScienceMuseum there is a silver disc thesize of a quarter. In 1799 Cayleyengraved on it his concept for afixed-wing aircraft, the first inhistory. On the reverse is the firstlift-drag diagram in the history ofaeronautical engineering derivedfrom using a whirling arm tomeasure the variation of lift withangles of attack from -3 degreesto +18 degrees. He also meas-ured the aerodynamic drag on aflat plate oriented perpendicularto the airflow and used theresults in 1849 to calculate thatSmeaton’s coefficient should be.0037, which is close to today’s.003. Using a ten year old boy as

a pilot, he launched a tri-planeon a short down hill flight, andin 1853 his monoplane gliderflew 500 yards across a small val-ley with his coachman as a veryreluctant pilot.

In his spare time in 1825he invented the caterpillar trackvehicle, followed by the artificialhand to replace the hook.

References:John D. Anderson Jr., TheAirplane, A History of itsTechnology, American Institute ofAeronautics and Astronautics,2002.Peter L. Jakob, Visions of a FlyingMachine, Smithsonian Institution,1990.American Society of MechanicalEngineers, October 14, 1981,Rotating-Arm Test Facility.U.S. Centennial of FlightCommission: Smeaton’s coeffi-cient.

F = kSV2

History continued

18 JETRADER

04 CAT Market continued

Cayley’s glider

The ISTAT Foundation is morethan pleased to assist CaptainMawangi complete his education andwe wish him great success in his careerin the air transport community.

The Farnborough RaffleThe ISTAT Foundation is pro-

moting a fundraiser at this year’sFarnborough Reception, to be held July19 at the Science Museum in London.Attendees will have the chance to pur-chase raffle tickets for the prize of aSegway Human Transporter. (For thoseof you unfamiliar with the Segway,please take a look at their website atwww.segway.com.) The Segway to beawarded has a retail value of approxi-mately $4,500 and will be shippeddirectly from Segway to the winner.The prize also includes a ½ hour train-ing session to be furnished by Segwayat a location to be determined.

The Segway is one of themost exciting innovations introducedto the transportation world in the pastseveral years. It has won awards andacclaims from inventors worldwidewho have marveled at its technicalcapabilities. The Segway will be ondemonstration at the Science Museumso that you can see this fascinatinghuman transportation machine live.Raffle tickets will be available for $50USD, 3 for $100 USD; 40 euros, 3 for80 euros; and 25 pounds, 3 for 50pounds. I am certain that some of yousharp-eyed money traders will be ableto arbitrage the currencies to minimizeyour purchase price of the three tick-ets. If you are not attending ISTAT, raf-fle tickets can be purchased directlyfrom Dawn Foster.

Evergreen Air CenterIn all of the kudos given last

month to those who helped make ourfundraising at the annual meeting asuccess, I overlooked Evergreen AirCenter who generously donated half ofthe cost of the Harley which was raf-fled and then auctioned.

Thanks Evergreen Air Center!

Chris Partridge, Director of DeutscheBank and ISTAT Foundation Trustee,presents Scholarship Award to CaptainPaul Mawangi, Fleet Manager of KenyaAirways.

[email protected], for additionalinformation.

The Scholarship Program hasbeen made specifically available to ISTATmembers though non-ISTAT members

and individuals not associated withISTAT may also apply.

First Scholarship AwardedThe ISTAT Foundation is pleased toannounce the first scholarship award.The $5,000 granted by the ISTATFoundation to City University, London isbeing utilized as a scholarship forCaptain Paul Mawangi, Fleet Managerof Kenya Airways. The scholarshipaward will be utilized by CaptainMawangi to assist in his completing aMaster of Science Degree in AirTransport Management at CityUniversity.

His thesis for his MastersDegree is related to establishing an ab-initio pilot training program for KenyaAirways, who is very short of pilots andface increasing competition for suitablyqualified individuals both in-country andregionally. He is looking to establish adomestic training centre to generate 20co-pilots per year for deployment intothe junior ranks of Kenya Airways andother regional airlines. He plans todevelop this program utilizing the natu-ral cost and climate advantages of sub-saharan Africa.

The ISTAT Foundation

Scholarships AvailableTom Hiniker, Chairman

The ISTAT FOUNDATION

SCHOLARSHIP PROGRAM announced

at the ISTAT Annual Meeting is

now in the process of soliciting

applications, including applica-

tions from ISTAT members,

employees, and families.

S cholarships are available inamounts from $1,000 to $5,000 and can be used at any

accredited aviation school, college oruniversity. The criteria established forscholarship winners is that the appli-cant has a financial need and is enter-ing a program that promotes theadvancement of commercial aviation.This means that the scholarship appli-cant can be pursuing a pilot career, aflight attendant career, a commercialaircraft mechanic’s career or studyingin the field of aeronautics or airlinemanagement. Applicants should con-tact the Chairman of the ScholarshipCommittee, Mr. Roland Moore at

June|July 04 19

debis AirFinance delivered the firstof three Fokker 100 aircraft on anoperating lease to Mandarin Airlinesof Taiwan. The two remaining aircraftwill be delivered in the next couple ofmonths. Mandarin Airlines will wet-lease two of the aircraft to its parentcompany, Taiwan’s flag carrier ChinaAirlines (CAL), for the Taipei-Kaohsiung domestic route as a con-necting service to CAL’s internationalflights. The third aircraft will operateon Mandarin Airlines’ own domesticand international network in theregion.

DVB Bank AG, the Frankfurt-basedbank which specialises in transport

finance, today reported a significantincrease of 40.3% in Operating profitbefore loan loss provisions toEUR11.84 million. Indications are thatthe level of improvement achieved inlast year’s operating profit (+ 44%)could be successfully maintained forthe current year. The completion ofDVB’s restructuring process has trans-formed the Bank into a pure transportfinance specialist: a unique businessmodel with significant profitpotential.

JetX, Reykjavik, Iceland(http://www.jetx.it) took delivery oftheir second MD82 (S/n 49909) fromScandinavian Airlines System (“SAS”),the Scandinavian flag carrier. Thelease from SAS to JetX was arrangedby Sigma Aircraft Management, LLC(“SIGMA”).

Sigma Aircraft Management,LLC (“SIGMA”) Rico LinhasAereas (has taken delivery of athird B737-200A aircraft (S/n21000) from PLM WorldwideLeasing. The aircraft, as well asthe former two purchased, wasformerly leased to Varig S.A.,Brazil. The sale was arranged bySigma Aircraft Management, LLC(“SIGMA”).

SIGMA: JetX, Reykjavik,Iceland (http://www.jetx.it) hastoday taken delivery of oneMD82 (S/n 49555) fromScandinavian Airlines System(“SAS”), the Scandinavian flagcarrier. The lease from SAS toJetX was arranged by SIGMA.This is the first of two aircraftSAS is delivering to JetX.

R&D company, AeroTech Services, iscurrently amending the STC to add theBoeing 737-400 and 737-500 seriesaircraft.

Appropriately called“FuelMizer”, AvAero engineeringdesigned, developed, flight tested andmanufactured a modification that willsave operators tens of thousands ofdollars a year. The FuelMizer’s patent-ed aerodynamic system is designed toassist our industry’s financial recoveryand operators can expect to saveapproximately 100,000 gallons of fuelper year per aircraft. The FuelMizermodification does not require structur-al alterations. There are no systems,maintenance, or operational changes;and is penalty free. By changing specif-ic parts and repositioning certain wingflight controls, AvAero is able to offera modification that can be installed in200 – 250 man-hours. FAA approvedflight tests have verified an averagefuel savings of 4% [email protected]

Back Aviation Solutions announcedthat Mr. Gueric Dechavanne has joinedthe company as Manager, ValuationServices. He was previously with CITAerospace in New York.

Chautauqua Airlines a U.S. basedregional airline has leased twoEmbraer ERJ 145 aircraft under a longterm lease arranged by SkywaysAviation (UK). The airline has takendelivery of one of the ERJ 145 aircraftfrom Skyways Express AB of Swedenand the second is due to be deliveredin late 2004. The aircraft (serial num-ber 145185) (SE-DZD) was ferried on15 April 2004 to the Embraer AircraftMaintenance Facility in Nashville,Tennessee where the aircraft is current-ly undergoing a work package prior toentering scheduled service withChautauqua Airlines. ChautauquaAirlines now operates a fleet of 84Embraer Regional Jets offering over525 flights daily to 66 cities across 27states in the U.S. The Bahamas andCanada. All flights are operated undercode share agreements with AmericanAirlines, Delta Air Lines, United Airlinesand US Airways and are operated

under the namesAmericanConnection, DeltaConnection, United Express or USAirways Express.

debis AirFinance delivered anAirbus A320-200 on a three-year-operating lease to Wind Jet. The air-craft, equipped with CFM56-5Aengines, has brought Wind Jet’s fleetto a total of five A320s. Wind Jetbegan services in mid-2003 and oper-ates scheduled flights from Cataniaand Palermo, Sicily/Italy, to domesticdestinations such as Rome, Milan,Forlì (Bologna) and Venice, and char-ter flights. Klaus Heinemann, ChiefExecutive Officer of debis AirFinance,commented on the transaction: “TheEuropean low-cost market is one ofthe most promising growth sectors inthe aviation industry and we arepleased that, with Wind Jet, we havewon a new customer from thisexpanding market. We wish Wind Jetgreat success as they continue toexpand their operations.”

debis AirFinance Wizz Air celebrat-ed delivery of its first Airbus A320 atthe ILA air show in Berlin Aircraft pro-vided by debis AirFinance,Maintenance by Lufthansa Technik.József Váradi, Chief Executive Officerof Wizz Air, the new European low-fare airline, today took official deliveryof the company’s first A320 aircraft atthe ILA air show in Berlin at theLufthansa Technik hangar. The officialhand over of the brightly colored air-craft, which will make its maidenflight from Katowice to London on

19th of May, was made by KlausHeinemann, Chief Executive Officer ofdebis AirFinance, Europe’s largest air-craft leasing and asset managementcompany. debis Air Finance providesthe aircraft to Wizz Air on operatinglease, with five more A320s to followover the next two months. The cere-mony took place in the presence ofAugust Wilhelm Henningsen,Chairman of the Executive Board,Lufthansa Technik AG, which willmanage the transition of six aircraftfor debis AirFinance during the nextweeks at its facilities in Berlin-Schönefeld, Budapest and Shannon(Ireland). The fleet will be expandedby about 10 new aircraft each year.With 20 aircraft and 10 millionoffered seats, Wizz Air will becomethe largest operator in the region byend of 2005.

In the Press | June + July 2004 continued

20 JETRADER

AWAS helps Air Plus Comet gain altitudeAWAS has delivered a Boeing 737-300 aircraft to Spanish airline Air Plus Comet,reinforcing the commitment of AWAS to airlines in the Iberian Peninsula.

With the delivery of this aircraft (MSN 24027) to Air Plus Comet, AWASnow has aircraft on lease to six Spanish and Portuguese airlines.

Current AWAS customers in the region include; Air Plus Comet (1 x B737-300) | Air Europa (1 x B767-300 and 1 x

B737-400) | Air Luxor (2 x A320) | Hola Airlines (3 x B737-300) | PullmanturAir (1 x 747-300) and EuroAtlantic (1 x B767-300)

Air Plus Comet will operate the B737-300 as part of its European net-work, which supports the airline’s international network serving destinations inNorth and South America. AWAS Worldwide Regional Sales Director Tracy Taylorstated, “We are delighted to count Air Plus Comet among our customers, we viewthe Iberian Peninsula as a strategic market for AWAS, and look forward to a longand fruitful relationship with Air Plus Comet and Grupo Marsans.”

debis AirFinance Has Closed Purchase and Leaseback forTwo New Airbus A321s with Asiana Airlines debis AirFinance, one of the world’s largest aircraft leasing and asset managementcompanies, announced today that it has signed an agreement with South-KoreanAsiana Airlines to purchase two new Airbus A321-200 and lease them back to theairline on operating lease. Asiana Airlines, a member of the Star Alliance networkof airlines, took delivery of the first aircraft on 25 June 2004. The second plane isscheduled for delivery in September 2004. Including the two aircraft now con-tracted with Asiana Airlines, debis AirFinance will have a total of three AirbusA321 aircraft on lease to Asiana.

Klaus Heinemann, Chief Executive Officer of debis AirFinance, said, “Wehave a long-standing relationship with Asiana Airlines dating back to the early1990s through our servicer function for the aircraft securitisation vehicle AerCo.We are happy to have the opportunity to continue our support of Asiana Airlinesand assist them in their fleet modernisation programme.” Chan Bup Park,President of Asiana Airlines stated, “Since we made our first business transactionwith debis AirFinance, through AerCo, in the early 1990s, debis AirFinance andAsiana have enjoyed a mutually beneficial business relationship, and it is my hope

that we may con-tinue to expandthis relationship inthe future.”

MeridianAerospaceGroup Ltd.Royal andSunAllianceInsuranceCompany(Bermuda) soldDC-10-30F,N308FE. S/N48297 (-50CZ) toFederal Express.MeridianAerospace Group(NC) was theexclusive agent ofthe seller.

June|July 04 21

Reception in Conjunction withFarnborough Air ShowMonday, July 19, 2004Science Museum, London, EnglandBy Invitation

11th European ConferenceSeptember 12-14, 2004The Gleneagles HotelAuchterarder, Perthshire, Scotland

The 10th Annual Aircraft Symposium- Cargo Facts 2004Loews Miami Beach, Florida, October 19-21, 2004 Details can be found at www.cargofacts.com

The 11th Annual Aircraft Symposium- Cargo Facts 2005Sheraton Seattle Hotel & Towers, Seattle, Washington, September 21-23, 2005

Calendar of EventsDon't Miss Anything!

To get up-to-date event list-

ings, the latest in ISTAT

Conferences and links to rel-

evant industry information

visit www.istat.org

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Fees Conference Member Fee @ USD $ 950Airline personnel Fee @ USD $ 550Conference Non-Member Fee @ USD $ 1,500Spouse Fee @ USD $425 (social events and tours to Edinburgh & Stirling)Spouse Fee @ USD $150 (social events only)Golf - Sunday @ USD $200 (incl greens fee; trolley; lunch; prizes)Spouse Golf - Sunday @ USD $200 (same as above)Golf Club Rental - @ USD $ 65 __ R__ L ; __ Mens __Ladies

Amount Enclosed/charged to credit card below USD $____________(must complete)

Payment Method: Check Bank Wire MasterCard VISA American Express

Credit Card or Check Number: _______________________________________ Exp. Date:___/___ (MM/YY)

Cardholder Name:__________________________________________________

Cardholder Signature:_______________________________________________

Bank Wiring InstructionsBank Name: Wachovia Bank, 5703 Burke Centre Pkwy, VA4089, Burke, VA 22015, USARouting Code: 051-400-549 ¨ Swift Code: PBNPUS33Account Name: International Society of Transport Aircraft TradingAccount Number: 201-841-771-5402Reference: YOUR NAME/European Conference

Registration will be confirmed with 24 hours of receipt of payment. All Registration Fees must be paid in advance to gainentrance to the Conference. Membership dues must be current to receive member rate. Must be listed on corporate membershipto receive member rate.Substitutes must be members to receive member rate.

CANCELLATION: No refunds for registrations canceled after 5:00 p.m. EDT September 6, 2004. Cancellations must be faxed oremailed for refunds to be issued.Telephone cancellations NOT accepted for refunds.

Complete and fax this form with payment information to: ISTAT in the USA Fax 1-703-503-5964

Or mail with payment toISTAT, 5517 Talon Court, Fairfax, VA, 22032-1737, USA

Telephone 1-703-978-8156 Fax 1-703-503-5964 email [email protected]

22 JETRADER

September 12-14, 2004 . 11th European ConferenceThe Gleneagles Hotel, Auchterarder . Perthshire, Scotland

The Road to RecoverySponsored by Boeing Capital . Chateauroux Air Center - France

CFM International . Embraer . Lufthansa/GOAL . Odgers Ray & Berndtson . Republic Financial Corporation . Rolls-Royce . Sage-Popovich

REGISTRATION

The Road to RecoverySponsored by Boeing Capital . Chateauroux Air Center - FranceCFM International . Embraer . Lufthansa/GOAL . Odgers Ray &

Berndtson . Republic Financial Corporation . Rolls-Royce Sage-Popovich

Sunday 12th September11:00 - 17:00 Golf Tournament, Queen's Course . Tee times 1:20 until 13:4018:00 Beating the Retreat by the 1st Battalion the Argyll and Sutherland

Highlanders. To be confirmed.18:00-20:00 Reception20:00-23:30 Dinner

Monday 13th September08:45-08:50 Welcome . Bill Cumberlidge, Conference Chairman 08:50-09:00 Welcome . Michael A. Metcalf, ISTAT President09:00-09:30 Guest Speaker. Opening Address . Maintaining equilibrium in

a downturn, the successful Formula. Keija Suila,President & CEO, Finnair09:30-10:30 Analyst view of the market. Past, Present and Future: World

Growth, Traffic Recovery, Airline Profitability, Airline consolidation, Future Trends, Low Cost carriers. Peter Morris, Chief Economist, Airclaims Group, & Chris Tarry, CTAIRA

10:30-11:00 Coffee Break in Sponsors Exhibit Room11:00 -12:00 Manufacturers Market Forecast: Commercial Markets,

Freight Markets, Passenger Growth, Future requirements. Airbus, Adam Brown, VP Forecasting & Strategic Planning . Boeing, Randy Basseller, VP Market Forecast & Planning

12:00-12:30 Freighter Conversions: Is the famine going to turn into the feast? Is it the right time to convert? Which aircraft models will be the candidates? Will the market turn against the conversion Programs as it did in 992-94? What are the future Markets? Who will finance the programs? Conversion Pricing. Stephen J. Fortune, President, Ventura Aviation Group, LLC

12:30-14:00 Lunch14:00-14:30 A380 Update . Overview of the current status of the first produc

tion aircraft. What problems if any has been uncovered. Current order book. Overview of the Aircraft. Aircraft support. Colin Stuart, Vice President Marketing, Airbus

14:30-15:00 B7E7 Update . Future customer base. Interchangeability of engines. No bleed air. Is this the real key to future travel? Generic Aircraft. Revolutionary concept. John Feren, Senior Vice President, Boeing Commercial Airplane Company

15:00-15:30 Powering the B7E7 . Will engine interchangeability work? Productsupport, will it be a common product. Who will carry the spare engines? Reliability - will there be guarantees given? What will the projected on wing life be. Ewen McDonald, Product Marketing Manager, Rolls-Royce Derby

15:30-16:00 Coffee Break in Sponsors Exhibit Room16:00-17:30 Aircraft Finance Panel: What issues face the banking community?

Will confidence ever return. Will some banks exit the industry? How will they protect against other potential USAir / United/ Air Canada situations? Will the banks return to asset risks? Michael Davis, SeniorDirector Aircraft Finance, HSBC. Michael Kramer, Managing Dir., Head of Lease & Transportation Asia/Pacific, West LB, Jose Abramovici, Head of Transportation, Credit Lyonnais, Chris Partidge Director, Deutsche Bank, Siggi Kristinsson, Senior Vice President, Aircraft Finance. PK Airfinance.

18:30-20:00 Reception - Falconry Demonstration20:00-23:00 Gala Dinner

Tuesday 14th September09:00-09:30 Keynote address: Jason Bitter, Vice President Commercial, VBird

Airlines09:30-09:50 Aircraft Operational Environment: How serious is it? How is legis

lation policed? Will the industry respond quickly enough? Will good aircraft eventually be grounded? Bergt Olof Nas, Director Aircraft Evaluation & Environment, S.A.S.

09:50-10:20 Russian Civil Aviation: The Future. Will it modernize quickly enough? Legal acceptance. Finance required to fund growth. Where will it come from? How many additional aircraft will be required? Will there be a secondary home for fairly modern western jets? Will the regional jet market expand? Will the A380 / B.7E7 end up in Russia? Dr. Svetlana Y. Issaeva, Executive Vice President, Sukhui Civil Aircraft

10:20-10:40 Coffee Break in Sponsors Exhibit Room10:40-12:00 Engine Leasing and Valuation Panel: Will there be consolida

tion? Will the engine manufacturers dominate this market? Have values recovered and to which engines. Engine Values and lease rates.Robert James, Operations Director & OO, Total Engine Support, Ltd.,Charles F. Willis, President & CEO, Willis Lease Financial Corp., ELF speaker TBA, Aeroturbine speaker TBA

12:00-12:30 How to protect assets in a downturn. Are we really prepared? Portfolio Management. Inspections. Records review. Repossessions. Remarketing.Aircraft ferry and positioning, Import / Export. Nick Popovich, Executive Vice President, Sage- Popovich

12:30-14:00 Lunch14:00-14:30 Fleet planning for a major consolidated Carrier. Air France / KLM

Fleet commonality. Aircraft Standardization. Purchasing power.Intermixability of Fleets. Future requirements. Mark Verspyck, V.P. Fleet Planning and Treasury.

14:30-15:40 Aircraft Valuation Panel: Market Values. Distressed Values.Future Values. Lease Rates. Projected Aircraft Usage. Les Weal, ChiefAnalyst, Airclaims, Richard Forsberg, Head of Strategy, Royal Bank ofScotland, Russ Hubbard, Head of Consulting, IBA, Bryson, P. Monteleone, VP-CFO Morten Beyer & Agnew, Stephen Jarvis, Managing Director, Avitas Europe

15:40-16:10 Third Party Maintenance and its Future. Jack Arehart, Senior Vice President/Business Development, TIMCO Aviation Services

16:10-17:00 Conclusion and refreshments on the lawn of Gleneagles.

September 12-14, 2004

11th European ConferenceThe Gleneagles Hotel, Auchterarder, Perthshire, Scotland

June|July 04 23

See you in ScotlandSeptember 12-14, 2004 . 11th European Conference

The Gleneagles Hotel, Auchterarder . Perthshire, Scotland

The Road to RecoverySponsored by Boeing Capital . Chateauroux Air Center - France

CFM International . Embraer . Lufthansa/GOAL . Odgers Ray & Berndtson . Republic Financial Corporation . Rolls-Royce . Sage-Popovich

11th European Conference