1600-1630 mtu impact of restrictive end of lease conditions
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The impact of restrictive end of lease conditions on engine maintenance cost
Leo Koppers, SVP Marketing & Sales
IATA 7th Maintenance Cost Conference,
Singapore, October 19th, 2011
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______ 19 October 2011 __ __________ ___ _________ __ ______ __ ___________ ___ __ _____ __________ __ ______ ____IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 2
MTU Aero Engines business segments
MTU Group: Sales 2,707 M2
Commercial MRO
World's largest independent engine MRO provider
Global network
Integrated repair solutions
Key programs: V2500, PW2000, CFM56, CF34, CF6, GE90, PW&C engines & IGT
1,074 M (39%)11,178 M (43%)1
Commercial OEM
RRSP with all major OEMs
Complete thrust range; 30% of active fleet with MTU participation
Focus on LPT and HPC
Key programs: V2500, CF6, PW2000, PW1000G, GEnx, GP7000
486 M (18%)1
Military OEM/MRO
Capability to develop and manufacture entire engines
Participation in key European programs with systems design responsibility, and US market
Partner to the German Armed Forces for almost all engines
Key programs: EJ200, RB199, TP400, F414, GE38
1 Unconsolidated; 2 Consolidated
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 3
MTU Maintenance business segments at a glance
Supporting services
Industrial gas turbine MRO
Small aero engine MRO
Large commercial engine MRO
V2500 CFM56-3/-5B/-7 CF6-50/-80C2 PW2000/PW6000 GE90-110B/-115B GP70001
CF34-3/-8/-10E PW 200/300/500 PT6A
LM2500/2500+ LM5000 LM6000 ASE Series2
TF Series2
Development of MTUPlus repairs; 3rd Party component/accessory/LRU repairs
AOG/on-wing services
Spare engines LRU management etc.
Integrated solutions: Total Engine Care (TEC) & Total Part Care (TPC)
1 LPT MRO; 2 Vericor Power Systems
Maintenance, Repair & Overhaul services
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 4
e.pool services
Service portfolio
Engine leasing
Dedicated engine operating lease
Financial support for spare engines
Engine stand-by agreements
CFM56-3/-5B/-7
CF34 LM Series
Engine types*
V2500-A1/A5/D5 PW2000 CF6-50/-80C2 GE90-115B
Pool solutions
Access to MTUs e.pool via membership
Guaranteed engine availability Solutions for planned and unplanned/
AOG needs
*All other engine types can be supported on request
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 5
Increasing share of engine OEM long-term
contracts and total care support packages
with new engine sales
Growing influence on spare parts supply, e.g.
Traditional long-term contracts
CFM56/CF6 TRUEngineTM concept
Engine upgrades included in total care
package (e.g. V2500 Select)
Aircraft OEMs aim to penetrate the aftermarket
(e.g. Boeing GoldCare, Airbus MRO Network)
Trends in engine MRO
Increasing role of OEMs (1/2)
Both engine and aircraft OEM aim at increasingly controlling the aftermarket
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 6
Increasing role of OEMs (2/2)
Source: Various estimates are forecast from MTU, The Canaan Group, Aerostrategy & PA Consulting; * Incl. Joint Ventures >50%
Commercial engine MRO accessibility market share by provider type
OEMs will further penetrate the aftermarket thanks to long-term service agreements
Airline 3rd Party/Service expanderOEM* Airline in-house Independents
0%
20%
40%
60%
80%
100%
1993/95 2005/07 2015/172010/12
13-16%
54-56%
13-15%
13-15%
20-26%
43-46%
14-16%
16-18%
18-20%
14-18%
48-50%
15-17%
50-55%
10-16%
14-20%
15-20%
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14 September 2011 Reducing engine maintenance costs Airline Engineering & Maintenance Asia Pacific Conference 7
MRO cost breakdown
Engine MRO is largest MRO cost driver with material representing 63% of the total
Sources: AeroStrategy CAMRO 2009 / Aeroengine Parts Repair & Material Forecast (2009 values)
Total MRO
Fees
2%
In-
house
repairs11%
DAT**
11%
OV*
13%
Material
63%
Engine MRO
LLP
27%
New
60%
Used/
serviceable
11%
PMA
2%
Material costs
Line 20%
Components22%
Modifications7%
Airframe15%
Engine
36%
* Outside vendor (outsourced repairs); ** Disassembly, Assembly & Test (other labor)
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 8
Parts repair trends
2009 2018
DAT1: 11%
Repairs 23%
Material
64%
DAT1: 12%
Repairs
26%
Material
61%
Engine MRO15.9 b$
Engine MRO21.4 b$
Key growth drivers
New parts CLP escalation
Airline cost pressure
Parts availability issues
In-depth engineering know-how at reputable MRO providers and specialist repair companies
Repair certification process
(regulatory environment)
DER ~25%
DER ?
Source: 2009 AeroStrategy Aeroengine Parts Repair & Material Forecast (2009 values); MTU analysis
1 Disassembly, Assembly & Test
Key barriers
New highly-complexmaterials & technology
Phase-out of older repair-
intensive platforms
New engine models with
limited repair (access)
DER counter-strategies
- OEM-LTSA penetration
- Upgrades (new hardware)
- protectionism (TRUEngine)
- network of licensed shops
Lease company DER repair
acceptance
Increase in parts repair anticipated, but how large will the DER portion be?
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 9
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
50.000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
New Mature Sunset
Active engine fleet 2010
World market development
Strong shift to new engine models
Active fleet development 2000-2010
Source: ACAS as per 26.11.2010 @ 31st December each year except 11/2010 (WB/NB/RJ >20 seats)
New: +17.9%
V2500-A5
8%
JT8D-all
8%
Other
35%
CFM56-7
16%
CFM56
-5B
8%
CF34-8
4%
CF34-3
4%
PW4000-94
4%AE3007
5%
CFM56-3
7%
# eng
Mature: 1.3%
Sunset: -8.4%
20
00
20
10
eg. CFM56-5B/-7, V2500-A5, CF34-8/-10
eg. CFM56-3CF6-80C2,CF34-3,AE3007
eg. JT8D, TAY
Matu
re/s
unset
11%
42%
47%
38%
47%
15%
CAGR 2000-2010: 2.3% eng.: 44,516
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 10
Amount of non-OEM competition including repairs decreasing with each generation
Engine cost levers by technology generations
Acquisition cost
Fuel consumption
Maintenance cost
SV cost vs. OWT
Repair % of material
DER/PMA availability
Surplus/used parts
MRO competition
Engine complexity
Co
st
ove
rvie
w1
CFM56-3* PW1000G*V2500-A5
CFM56-5B/-7*
Sunset NewMature Future
+ + + ++ + + +
+ + + ++ + + ++ + + +
+ + + ++ + + ++ + + ++ + + +
Repair status
JT8D*
+ + + ++ + + +
+ + + ++ + + ++ + + +
+ + + ++ + + ++ + + ++ + + +
+ + + ++ + + +
+ + + ++ + + ++ + + ++ + + ++ + + ++ + + ++ + + +
+ + + +
+ + + ++ + + +
+ + + ++ + + ++ + + +
+ + + ++ + + ++ + + ++ + + +
* Illustrative narrow-body examples
Repair substitutionby used material
Strong repair capa-bility & alternativematerials
Existing (DER)repairs counteredby OEM measures
Ltd. competition and complexity;only OEM repairs?
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 11
Best engine
maintenance
strategy ?
Operator / MRO provider perspective: Influencing factors towards value-optimized maintenance cost
DER acceptance
Lease return conditions
Lessor
Noise restrictions
Emission requirements
Local authorities
AD requirements
Regulator
Operations
Maintenance philosophy
Contract type
Fleet age
Airline
Experience
Flexibility
Repair vs, replace
Technology
MRO provider
Repair/material availability
Engine upgrade policy
Design
OEMValuators
Perception towards high-
tech repair solutions
Lessors & valuators can have a strong influence on engine MRO philosophy/strategy
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14 September 2011 Reducing engine maintenance costs Airline Engineering & Maintenance Asia Pacific Conference 12
Goal Measures
MRO influence: Maintenance policy/strategy
1 Reduce # of engine removals1
Build-up for optimized cost-effective OWT
Predictive maintenance (ECM)
On-site/on-wing maintenance
In-house repair s (repair vs. replace)
Used material availability (used vs. new)
LLP optimization (return conditions)
DER usage/approval
Reduce shopvisit costs
4
Optimize workscope
2 Customized workscope-to-cost
Balance cost vs. operational performance
Fleet management solutions
1 Mature/new engines only vs. sunset
3 Reduce fuel burn
SFC reduction programs (e.g. HPC coatings)
Engine on-wing cleaning
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 13
Leasing trends
Leased fleet increasing in both absolute and relative numbers
Collaboration between all involved parties therefore growing in importance
Engine is most important aspect of aircraftresidual value
Residual value concerns need to be alignedwith cost pressure on operator side
Source: Airfinance Journal 09/2008
30%
0%
25%
50%
75%
100%
New Mature
Micro level: Engine share of asset value
Engine value as % of total a/c asset valuedepending on a/c age
90%
Macro level: Share of leased fleet
Source: Frost & Sullivan 2010
2008
owned69%
2015
owned64%
leased31%
leased36%
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 14
Typical end of lease conditions & related issues
Same condition at redelivery as at
delivery - less wear and tear
Minimum hours & cycles remaining
since new last shop visit
Engine condition Engine performance
General Material & parts
EGT margin in line with the lessees
or world fleet deterioration
Full serviceability
Full documentation incl.
back to birth*
No carry over items like re-
inspections etc.
No/limited DER content
(uncritical parts)
Residual value concerns
Re-marketability issues
* Wherever applicable
AD & SB compliance
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 15
Lessor
MRO
Lessor
Operator
Potential areas of conflict
Maintaining residual value, often driven by owners/investors, insurers and valuators
Manage and optimize maintenance reserves
Influence on shop visit and timing(e.g. workscoping, material, )
Driven by re-marketability and residual value concerns (e.g. DER acceptance)
Improved cooperation will require concepts beyond traditional thinking
Shop visit cost containment
Avoid double-payment (impact: rise of Payment-per-Event contracts)
Contractual relationship withoperator only (caught in between)
Drive repairs as added value
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 16
Potential fields of cooperation (1/2)
LessorMRO
Provider
Operator
Workscope optimization(RoL requirements; technical considerations)
Repair acceptance
Payment coordination
Exchange of technical know-how
Workscope optimization
Agreement on RoL
conditions, workscoping, payment terms etc.
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 17
Potential fields of cooperation (2/2)
Tripartite arrangements between lessor,
MRO provider and operator:
Agreements on workscopes (levels,
SBs, repairs, etc.)
Possibility for next operator/lessee to
take over the maintenance/total support
agreement
Credits from MRO provider to lessor
against next engine refurbishment at
lease termination
etc.
LessorMRO
Provider
Operator
Improved cooperation will require concepts beyond traditional thinking
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19 October 2011 IATA 7th Maintenance Cost Conference - The impact of restrictive end of lease conditions on engine MRO cost 18
OEMs will continue to penetrate the market on engine MRO
Leasing has an increasing importance and has a large impact
on maintenance practices, especially lease return conditions.
Lessors want to maintain the asset value: no DERs?
MROs wish to repair rather than replace, however this is
restricted by the OEM and/or lessor regarding DER
Each of the parties involved (lessor, lessee, MRO) has
differing interests
An improved cooperation will require concepts beyond
traditional thinking to manage maintenance reserves and
preserve residual values. New products are being designed by
MROs to address the tri-party relationship and accommodate
the needs of each of the other parties
Summary
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Thank you for your attention!
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