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Elements of Aircraft Maintenance Reserve Development. Maintenance Topics Conference. Presented By: Shannon Ackert Vice President, Capital Markets November 10 th , 2010. Elements of Aircraft Maintenance Reserve Development. Jackson Square Aviation, LLC Overview.

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slide1

Elements of Aircraft Maintenance Reserve Development

Maintenance Topics Conference

Presented By:

Shannon AckertVice President, Capital Markets

November 10th, 2010

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

jackson square aviation llc overview

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

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

agenda

Elements of Aircraft Maintenance Reserve Development

Agenda
  • Significant Maintenance Events
  • Maintenance Reserve Parameters
  • Maintenance Reserve Escalation
  • Maintenance Reserve Development
    • Appendix A – Maintenance Reserve - Information Resources
    • Appendix B – Maintenance Costs & Reserve Rates

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

1 0 significant maintenance events

Elements of Aircraft Maintenance Reserve Development

1.0 – Significant Maintenance Events

Equipment

Mtx Events

Mtx Interval Process

  • Heavy Structural
  • Inspection (HSI)
  • C-Checks

Hard-Time

Airframe

Condition-Monitored

  • APU Restoration
  • Landing Gear
  • Overhaul

Components

Hard-Time

Condition-Monitored

  • Performance Rest
  • LLP Replacement

Engine

Hard-Time

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

2 0 maintenance reserve parameters

Elements of Aircraft Maintenance Reserve Development

2.0 – Maintenance Reserve Parameters

Reserve Equation

Event Application

Comments

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

Fixed Cost

Engine LLP

Replacement

Fixed FC Interval

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

Variable Cost

Airframe HSI

Landing Gear Ovhl

Fixed Interval

  • 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

Variable Cost

Engine Module &

APU Restoration

Variable

FH Interval

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

3 0 maintenance reserve escalation

Elements of Aircraft Maintenance Reserve Development

3.0 – Maintenance Reserve Escalation
  • Annual Escalation Policies – Varies By Lessor, But Typically:
      • Fixed (i.e. 3%)
      • Indexed to Core Producer Price (CPI) Index
      • Computed Using OEM escalation formula – weighted using labor & material Indices (ECI – Labor & PPI - Material)

ECI - Aircraft Mfg, Wages & Salaries

PPI - Industrial Commodities

Source : Boeing

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
  • Airframe Heavy Structural Inspection
  • Costs Factors
    • 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.
    • Flight Cycles
        • Cost may be increased to
        • account for high cycle operation.

Aging

> 15 Years

Maturity

6 – 15 Yrs

Non

Routine

Newness

< 6 Years

Non

Routine

Non

Routine

Routine

Routine

Routine

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development1

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
    • Airframe Heavy Structural Inspection
    • Costs Factors - continued
  • 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development2

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
  • Airframe Heavy Structural Inspection
  • Interval Factors
  • Two Types of Calendar Interval Structures:
  • Structure A : Calendar interval based off the OEM generic and/or
  • sample 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

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development3

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
    • 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.
  • First-Run Phase - New - 6 Yr
    • 4C/6Yr SI Cost : $1.75M
    • 8C/6Yr SI Cost : $1.50M
  • Mature-Run Phase - 6 Yr - 12 Yr
    • 4C/6Yr SI Cost : $2.01M
    • 8C/6Yr SI Cost : $1.50M
  • Ageing-Run Phase - > 12 Yr
    • 4C/6Yr SI Cost : $2.20M
    • 8C/6Yr SI Cost : $1.65M

4C/6YR Check Escalated

15% off First-Run Costs

Both 4C/6YR & 8C/12YR Checks

Escalated 10% off Mature-Run Costs

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development4

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
    • 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:
    • Calendar time (i.e. 10 years)
    • Flight cycles (i.e. 20,000 flight cycles)
    • Timing of event: “whichever is more limiting”.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development5

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
    • 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 : $320,000
  • Limiters: 10 Years / 18,000 FC

Scenario 1 - Annual FC = 1,250 FC

Cyclic limiter = 16 Yr(18,000/1,250)

TOW Limiter = 10 Yr = 120 Mo

Mo Rate :(320,000/ 120) = $ 2,666

Scenario 2 - Annual FC = 2,250 FC

Cyclic limiter = 8 Yr (18,000/2,250)

TOW Limiter = 8 Yr = 96 Mo

Mo Rate: (320,000/ 96) = $ 3,333

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development6

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
    • III. 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development7

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
  • III. 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

12-Mo Rolling Averages

6,450 FH - MTBCR

5,945 FH - MTBUR

5,495 FH - MTBR

Mean-Time

Between Removals

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development8

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Cost Factors

I. Engine Build Goals - Tend be influenced by business decisions, and based on:

      • Maximizing usage of LLP hardware, which often leads to lower shop visit costs but higher DMC ($ / FH), or
      • 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development9

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Cost Factors

Engine LLP Status @ EIS

30

20

20

25

Engine Build Goals – Example

First Run TOW = 13,000 FC / 26,000 FH

At Shop Visit :

Maximizing usage of LLP hardware

Minimize Number of Shop Visits

17

7

7

12

17

20

20

12

Replace No LLPs

Build to 7,000 FC

Replace Core LLPs

Build to 10,000 FC

Restoration $ 1,650,000

LLP Removed $ 0

---------------------------------------------------------

Total Shop Visit $ 1,650,000

Restoration $/FH 117.85 $/FH

Restoration $ 1,800,000

LLP $ Removed $ 1,000,000

---------------------------------------------------------

Total Shop Visit $ 2,800,000

Restoration $/FH 90.00 $/FH

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development10

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Cost Influencing Factors – continued

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

As Engine Ages

20,000 FH

16,000 FH

15,000 FH

Hardware Deterioration

Rate Increases

2nd SV

3rd SV

1st SV

Higher Maintenance

Costs

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development11

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors
  • Engine Thrust Rating - Increasing Thrust > Higher EGT Deterioration > Lower Time On-Wing

Same Engine Goes Into Shop

EGT Limit

EGT Limit

EGT

Margin

Loss

8,000 FC

10,000 FC

Time On-Wing High Thrust

Time On-Wing Low Thrust

Flight Cycles

Flight Cycles

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development12

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued

II. Engine Flight Leg

Flight Profile = 1.0 Flight Hour per Flight Cycle

Cruise

Take-off & Climb

Descent & Landing

1 FH

1 FH

1 FH

Flight Profile = 3.0 Flight Hours per Flight Cycle

Cruise

Descent & Landing

Take-off & Climb

3 FH

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development13

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued

II. Engine Flight Leg

Increasing Flight Leg

Greater Flight Leg

Lower

DMC

Cost $ / FH

Lowers EGT Deterioration

Higher Time On-Wing

and Lower Cost $ / FH

Flight Leg (Hours)

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development14

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued

II. Engine Flight Leg – 777 Average Utilization

Source : Boeing Cumulative Statistics

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development15

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued

III. Engine Derate

Increasing Derate

Lowers Thrust and

EGT Deterioration

Cost $ / FH

Increasing Derate = Lower Thrust

5% Derate

10% Derate

15% Derate

Higher Time On-Wing

and Lower Cost $ / FH

Flight Leg (Hours)

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development16

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued
  • 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

slide24

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Time On-Wing Factors - continued

Engine - Environmental

Distress Chart

Lowest

Medium / Low

Medium

High

Highest

Colors highlight severity

and rate of occurrence of

distress

  • Jackson Square Aviation

24

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development17

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Example – Severity Curve

2.2

Base Flight Leg (2.0)

Base Rate = $80 / FH

1.7

Severity Factor

5% Derate

1.0

10% Derate

15% Derate

Flight Leg

1.0

1.5

2.0

2.5

3.0

5% Matrix =

$194

$150

$88

$86

$84

10% Matrix =

$176

$136

$80

$78

$76

15% Matrix =

$158

$122

$72

$70

$68

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development18

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

IV. Engine Performance Restoration

  • Example – CFM56-7B26 Restoration Calculation

Base Operation : 2.0 Flight Leg / 10% Derate / Temperate Region

Base Rate : $80 / FH

Operating Scenario 1:

1.5 FL / 10% Derate / Temperate

FL Factor = 1.7

Derate Factor = 1.0

Region Factor = 1.0

Composite Factor = 1.7*1.0*1.0

Composite Factor = 1.70

Adjusted Rate = 80 *1.70

Adjusted Rate = $136 / FH

Operating Scenario 2:

2.5 FL / 5% Derate / Hot-Dry

FL Factor = 0.98

Derate Factor = 1.1

Region Factor = 1.2

Composite Factor = 0.98*1.1*1.2

Composite Factor = 1.30

Adjusted Rate = 80 *1.30

Adjusted Rate = $104 / FH

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development19

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

V. Engine Life Limited Parts (LLP) Replacement

  • Cost 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development20

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

V. Engine Life Limited Parts (LLP) Replacement

  • Piece 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development21

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development

V. Engine Life Limited Parts (LLP) Replacement

  • Stack Cost

LLP

FC Limit

Cost $

$ / FC

10% Stub

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

1

30,000

180,000

6.00

6.67

2

27,600

120,000

4.35

4.83

3

30,000

100,000

3.33

3.70

4

20,000

50,000

2.50

2.78

5

20,000

80,000

4.00

4.44

6

20,000

110,000

5.50

6.11

7

20,000

30,000

1.50

1.67

10% Stub =

Cost $ /

(90% * FC Limit)

8

20,000

240,000

12.00

13.33

9

20,000

200,000

10.00

11.11

19

20,000

180,000

9.00

10.00

11

20,000

90,000

4.50

5.00

12

20,000

60,000

3.00

3.33

13

25,000

100,000

4.00

4.44

14

25,000

150,000

6.00

6.67

15

25,000

70,000

2.80

3.11

16

25,000

90,000

3.60

4.00

17

25,000

80,000

3.20

3.56

18

25,000

70,000

2.80

3.11

2,000,000

88.00

98.00

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

4 0 maintenance reserve development22

Elements of Aircraft Maintenance Reserve Development

4.0 – Maintenance Reserve Development
  • VI. 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.

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix a sources of maintenance reserve metrics

Elements of Aircraft Maintenance Reserve Development

Appendix A – Sources of Maintenance Reserve Metrics

Maintenance Reserve Claims – Example Performance Restoration

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix a sources of maintenance reserve metrics1

Elements of Aircraft Maintenance Reserve Development

Appendix A – Sources of Maintenance Reserve Metrics

2. OEM Conferences & Publications

3. Commercial Publications

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix b maintenance costs reserve rates

Elements of Aircraft Maintenance Reserve Development

Appendix B - Maintenance Costs & Reserve Rates
  • 1.0 Airframe Heavy Structural Inspection Costs & Reserve Rates
    • Assumes full workscope (systems, structures & zonal & material)

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix b maintenance costs reserve rates1

Elements of Aircraft Maintenance Reserve Development

Appendix B - Maintenance Costs & Reserve Rates
  • 2.0 Engine Performance Restoration Costs & Reserve Rates

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix b maintenance costs reserve rates2

Elements of Aircraft Maintenance Reserve Development

Appendix B - Maintenance Costs & Reserve Rates
  • 3.0 Landing Gear Overhaul Costs & Reserve Rates
    • Assumes cost for exchange unit plus removal/installation labor

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010

appendix b maintenance costs reserve rates3

Elements of Aircraft Maintenance Reserve Development

Appendix B - Maintenance Costs & Reserve Rates
  • 4.0 APU Performance Restoration Costs & Reserve Rates

Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010