elements of aircraft maintenance reserve development · source : boeing 3.0 – maintenance reserve...
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1Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010Jackson Square Aviation
Presented By:Shannon AckertVice President, Capital MarketsNovember 10th, 2010
Elements of Aircraft Maintenance Reserve Development
Maintenance Topics ConferenceMaintenance Topics Conference
Jackson Square Aviation, LLC Overview
Jackson Square Aviation is a global commercial aircraft lessor headquartered in San Francisco, California
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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
Elements of Aircraft Maintenance Reserve Development
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
Agenda
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1. Significant Maintenance Events2. Maintenance Reserve Parameters3. Maintenance Reserve Escalation4. Maintenance Reserve Development
I. Appendix A – Maintenance Reserve ‐ Information ResourcesII. Appendix B – Maintenance Costs & Reserve Rates
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Elements of Aircraft Maintenance Reserve Development
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• Heavy StructuralInspection (HSI)
• C‐Checks
• Performance Rest• LLP Replacement
Mtx EventsEquipment
• APU Restoration• Landing Gear Overhaul
Airframe
Engine
Components
Hard‐TimeMtx Interval Process
Condition‐MonitoredHard‐Time
Condition‐MonitoredHard‐Time
1.0 – Significant Maintenance Events
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Variable Cost
Fixed Interval
Airframe HSILanding Gear Ovhl
Fixed FC IntervalFixed Cost Engine LLP
Replacement
Event Application
Engine Module &APU Restoration
Reserve Equation Comments
• Variability in costs, which can be difficult to predict ifequipment is new or ageing
• Predictable, very little variability in both costs and time on‐wing
• Variability in both costsand time on‐wing
• Often difficult to quantify ifequipment is new or ageing
• Time on‐wing heavily influenced by operation
2.0 – Maintenance Reserve Parameters
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Variable Cost
VariableFH Interval
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
Source : Boeing
3.0 – Maintenance Reserve Escalation
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ECI ‐ Aircraft Mfg, Wages & Salaries PPI ‐ Industrial Commodities
I. Annual Escalation Policies – Varies By Lessor, But Typically:1. Fixed (i.e. 3%)2. Indexed to Core Producer Price (CPI) Index3. Computed Using OEM escalation formula – weighted using labor &
material Indices (ECI – Labor & PPI ‐Material)
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
I. Airframe Heavy Structural Inspection Costs Factors
I. Airframe Age (First, Mature, & Ageing Runs)• Costs are escalated to account for
airframe ageing, which results in higher non‐routine tasks.
• General “non‐routine” factorescalations: 10% ‐ 15% per phase.
II. Flight Cycles• Cost may be increased to
account for high cycle operation.Routine
NonRoutine
Newness< 6 Years
Maturity6 – 15 Yrs
Aging> 15 Years
NonRoutine
NonRoutine
Routine Routine
4.0 – Maintenance Reserve Development
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I. Airframe Heavy Structural Inspection Costs Factors ‐ continued
III. Scope of Work Not driven by the aircraft operation, instead Policy established by Lessor Generally Falls Under Two Structures:
Structure A ‐ Scope of work includes reimbursement for material and routine & non‐routine labor for systems, structural & zonal tasks.
Structure B ‐ Scope of work includes reimbursement for material and routine & non‐routine labor for structural & zonal tasks.
4.0 – Maintenance Reserve Development
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I. Airframe Heavy Structural Inspection Interval Factors
Two Types of Calendar Interval Structures:
Structure A : Calendar interval based off the OEM generic and/orsample block program.
• Example Generic Block : A320 / A330 Family : 4C/6Yr & 8C/12Yr Structural Inspection Checks @ 6 & 12 Yr Intervals,
• Example Sample Block : 737NG Family : @ 8 Yr Intervals
Structure B : Calendar interval based on timing of majority of zonal /structural tasks. Reflective of a customized maintenance program.
• Example : 737NG Family – 8, 10, & 12 Year Intervals• Example : 747‐8 Family – 8 Year Intervals
4.0 – Maintenance Reserve Development
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I. Airframe Heavy Structural Inspection Example : A330‐300 HSI Costs
Scope of work assumption: includes routine & non‐routine labor for systems, structural & zonal tasks, and material.
A. First‐Run Phase ‐ New ‐ 6 Yr• 4C/6Yr SI Cost : $1.75M• 8C/6Yr SI Cost : $1.50M
B. Mature‐Run Phase ‐ 6 Yr ‐ 12 Yr• 4C/6Yr SI Cost : $2.01M• 8C/6Yr SI Cost : $1.50M
C. Ageing‐Run Phase ‐ > 12 Yr• 4C/6Yr SI Cost : $2.20M• 8C/6Yr SI Cost : $1.65M
4.0 – Maintenance Reserve Development
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4C/6YR Check Escalated15% off First‐Run Costs
Both 4C/6YR & 8C/12YR ChecksEscalated 10% off Mature‐Run Costs
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4.0 – Maintenance Reserve DevelopmentII. Landing Gear Overhaul
Cost Factors ‐ generally impacted by:• Supply & demand of exchange unit cost plus removal and
installation labor costs.
Interval Factors – generally consisting of two limiter:
I. Calendar time (i.e. 10 years)II. Flight cycles (i.e. 20,000 flight cycles)Timing of event: “whichever is more limiting”.
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II. Landing Gear Overhaul Notes:• In cases where there is a calendar limiter, this establishes
the minimum monthly rate required.• Some models have different limiters for main and nose gear assemblies.
Example : 737NG Landing Gear Reserve Exchange Cost Assumption : $320,000Limiters: 10 Years / 18,000 FC
4.0 – Maintenance Reserve Development
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Scenario 1 ‐ Annual FC = 1,250 FCCyclic limiter = 16 Yr(18,000/1,250)TOW Limiter = 10 Yr = 120 MoMo Rate :(320,000/ 120) = $ 2,666
Scenario 2 ‐ Annual FC = 2,250 FCCyclic limiter = 8 Yr (18,000/2,250)TOW Limiter = 8 Yr = 96 MoMo Rate: (320,000/ 96) = $ 3,333
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
4.0 – Maintenance Reserve DevelopmentIII. Auxiliary Power Unit (APU) Restoration Cost Factors• Material driven – 70% ‐ 80% of cost is material,• Minor variance between first & mature‐run costs.• Scope of work : Rework of the power section, load impeller & gearbox
modules according to OEM’s performance restoration and full gas path overhaul criteria.
Time On‐Wing Factors• If new generation APU :
Use of empirical Mean‐Time Between Unscheduled Removal (MTBUR) from similar in‐production APU model.
• If mature APU : OEM Published Mean‐Time Between Unscheduled Removal
(MTBUR) Metrics.
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Mean‐Time
Betw
een Re
movals
5,945 FH ‐ MTBUR5,495 FH ‐ MTBR
6,450 FH ‐ MTBCR12‐Mo Rolling Averages
4.0 – Maintenance Reserve DevelopmentIII. Auxiliary Power Unit (APU) Restoration Time On‐Wing Factors – OEM MTBUR Metrics
Example : 737‐800 APU (GTCP 131‐9B)• MTBUR = 6,500 APU FH• Average Cost = $235,000• APU Reserve Rate = $36 / APU FH
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4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Cost Factors
I. Engine Build Goals ‐ Tend be influenced by business decisions, and based on:a) Maximizing usage of LLP hardware, which often leads to lower
shop visit costs but higher DMC ($ / FH), orb) Building for minimum number of shop visits, which allows one
to achieve lower shop DMC ($ / FH) but higher shop visit costs.
Notes• Many lessors are now imposing “minimum build goals” in their
leases to prevent short building.
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4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Cost Factors
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Restoration $ 1,650,000LLP Removed $ 0‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐Total Shop Visit $ 1,650,000 Restoration $/FH 117.85 $/FH
Restoration $ 1,800,000LLP $ Removed $ 1,000,000‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐Total Shop Visit $ 2,800,000Restoration $/FH 90.00 $/FH
Replace No LLPsBuild to 7,000 FC
Replace Core LLPsBuild to 10,000 FC17 7 7 12 17 20 20 12
I. Engine Build Goals – ExampleFirst Run TOW = 13,000 FC / 26,000 FH 30 20 20 25
At Shop Visit :Maximizing usage of LLP hardware Minimize Number of Shop Visits
Engine LLP Status @ EIS
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4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Cost Influencing Factors – continued
II. Age – rates reflective of first & mature‐run status
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As Engine Ages
Hardware DeteriorationRate Increases
Higher Maintenance Costs
1st SV2nd SV
3rd SV
20,000 FH 16,000 FH 15,000 FH
Elements of Aircraft Maintenance Reserve Development
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
EGTMarginLoss(˚C )
2,000 4,000 6,000 8,000 10,000Flight Cycles
2,000 4,000 6,000 8,000 10,000Flight Cycles
Same Engine Goes Into Shop
EGT Limit
EGT Limit
Time On-Wing – High Thrust Rating Time On-Wing – Low Thrust Rating
Flight Cycles Flight Cycles
Same Engine Goes Into Shop
Time On‐Wing High Thrust Time On‐Wing Low Thrust
EGT LimitEGT Limit
10,000 FC
EGTMargin
Loss
8,000 FC
4.0 – Maintenance Reserve DevelopmentIV. Engine Performance Restoration Time On‐Wing Factors
I. Engine Thrust Rating ‐ Increasing Thrust > Higher EGT Deterioration > Lower Time On‐Wing
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4.0 – Maintenance Reserve DevelopmentIV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
II. Engine Flight Leg
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Cruise
1 FH
Cruise
3 FH
Flight Profile = 1.0 Flight Hour per Flight Cycle
Flight Profile = 3.0 Flight Hours per Flight Cycle
1 FH 1 FH
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
Flight Leg (Hours)
Cos
t $ /
FH
Greater Flight Leg
LowerDMC
Increasing Flight Leg
Lowers EGTDeterioration
Higher Time On-Wing
4.0 – Maintenance Reserve DevelopmentIV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
II. Engine Flight Leg
Increasing Flight Leg
Lowers EGT Deterioration
Greater Flight LegLowerDMCCo
st $ / FH
Flight Leg (Hours)
Higher Time On‐Wingand Lower Cost $ / FH
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4.0 – Maintenance Reserve DevelopmentIV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
II. Engine Flight Leg – 777 Average Utilization
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Model Series Utilization Fl Leg777 200 8.4 2.50777 200ER 11.6 5.90777 200LR 12.9 9.00777 300 9.3 2.70777 300ER 13.2 7.30
Source : Boeing Cumulative Statistics
4.0 – Maintenance Reserve Development
1.0 2.0 3.0 4.0Flight Leg (Hours)
0%10%20%
Increasing Derate = Lower Thrust
1.5 2.5 3.5
Cos
t $ /
FH
Increasing Derate
Lowers Thrust &EGT Deterioration
Higher Time On-Wing
Increasing Derate
Lowers Thrust andEGT Deterioration
Higher Time On‐Wingand Lower Cost $ / FH
Cost $ / FH
Flight Leg (Hours)
5% Derate10% Derate
Increasing Derate = Lower Thrust
15% Derate
IV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
III. Engine Derate
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4.0 – Maintenance Reserve DevelopmentIV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
IV. Environment ‐ Engines operated in dusty, sandy and/or erosive‐corrosive environments are exposed to higher blade distress and thus greater performance deterioration.
Notes:• Lessors are now adjusting their reserve rates to account for
region of operation. • Generally applies to narrow‐body aircraft operating within
distressed environments.
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LowestMedium / LowMediumHighHighest
Colors highlight severityand rate of occurrence ofdistress
4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Time On‐Wing Factors ‐ continued
Elements of Aircraft Maintenance Reserve Development
Engine ‐ Environmental Distress Chart
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
1.0 1.5 2.0 2.5 3.0
1.010% DerateSe
verity Factor
2.2
1.7
Flight Leg
$72$122$158 $70 $6815% Matrix =
5% Derate
15% Derate
$80$136$176 $78 $76
5% Matrix =
10% Matrix =
Base Flight Leg (2.0)Base Rate = $80 / FH
$88$150$194 $86 $84
4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Example – Severity Curve
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4.0 – Maintenance Reserve Development
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IV. Engine Performance Restoration Example – CFM56‐7B26 Restoration Calculation
Base Operation : 2.0 Flight Leg / 10% Derate / Temperate RegionBase Rate : $80 / FH
Operating Scenario 1:1.5 FL / 10% Derate / TemperateFL Factor = 1.7Derate Factor = 1.0Region Factor = 1.0Composite Factor = 1.7*1.0*1.0Composite Factor = 1.70Adjusted Rate = 80 *1.70Adjusted Rate = $136 / FH
Operating Scenario 2:2.5 FL / 5% Derate / Hot‐DryFL Factor = 0.98Derate Factor = 1.1Region Factor = 1.2Composite Factor = 0.98*1.1*1.2Composite Factor = 1.30Adjusted Rate = 80 *1.30Adjusted Rate = $104 / FH
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Elements of Aircraft Maintenance Reserve Development
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
4.0 – Maintenance Reserve DevelopmentV. 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.
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4.0 – Maintenance Reserve Development
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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.
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4.0 – Maintenance Reserve Development
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V. Engine Life Limited Parts (LLP) Replacement Stack Cost
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1 30,000 180,000 6.00 6.672 27,600 120,000 4.35 4.833 30,000 100,000 3.33 3.704 20,000 50,000 2.50 2.785 20,000 80,000 4.00 4.446 20,000 110,000 5.50 6.117 20,000 30,000 1.50 1.678 20,000 240,000 12.00 13.339 20,000 200,000 10.00 11.1119 20,000 180,000 9.00 10.0011 20,000 90,000 4.50 5.0012 20,000 60,000 3.00 3.3313 25,000 100,000 4.00 4.4414 25,000 150,000 6.00 6.6715 25,000 70,000 2.80 3.1116 25,000 90,000 3.60 4.0017 25,000 80,000 3.20 3.5618 25,000 70,000 2.80 3.11
LLP FC Limit Cost $ $ / FC 10% Stub
2,000,000 88.00 98.00
10% Stub =Cost $ /(90% * FC Limit)
Lessors often assume that each LLP will retain 5% ‐ 10% of its stub life before being replaced.
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
4.0 – Maintenance Reserve DevelopmentVI. Lessor’s Perspective:
Many lessors base their costs to be reflective of costs negotiated from either a U.S. or European based MRO facility.
Consequently, their reserves rates are normally ranked as “market‐based to above market‐based”.Ultimately, reserves are heavily negotiated and are often “marketing” driven.
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Appendix A – Sources of Maintenance Reserve Metrics1. Maintenance Reserve Claims – Example Performance Restoration
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Appendix A – Sources of Maintenance Reserve Metrics
Elements of Aircraft Maintenance Reserve Development
2. OEM Conferences & Publications
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3. Commercial Publications
Boeing Maintenance Topics Conference, Miami, Fl November 10th, 2010
Aircraft Check Phase Interval Costs ‐ 2010 $ Rates ($ / Mo)
A320‐200 4C / 6Y SI First‐Run 72 Months $750K ‐ $850K $10,400 ‐ $11,800
A320‐200 8C / 12Y SI First‐Run 144 Months $850K ‐ $900K $5,500 ‐ $5,900
A330‐300 4C / 6Y SI First‐Run 72 Months $1.4M ‐ $1.6M $19,500 ‐ $22,200
A330‐300 8C / 12 Y SI First‐Run 144 Months $1.5M ‐ $1.7M $10,400 ‐ $11,800
B737‐800 C6‐C8 Equivalent First‐Run 120 / 144 Mo $1.3M ‐ $1.5M $9,000 ‐ $12,500
B747‐400 C4 / D‐Check Ageing 72 Months $4.0M ‐ $4.5M $55,500 ‐ $62,500
B757‐200 S4C Ageing 72 Months $1.5M ‐ $1.7M $22,200 ‐ $23,600
B767‐300ER S4C Ageing 72 Months $2.0M ‐ $2.3M $27,800 ‐ $31,900
B777‐300ER C4 / SI First‐Run 96 Months $2.5M ‐ $2.8M $26,000 ‐ $29,100
E190 C4 / SI First‐Run 96 Months $475K ‐ $575K $4,900 ‐ $5,900
CRJ‐700 HSI First‐Run 96 Months $425K ‐ $525K $4,400 ‐ $5,400
Appendix B ‐Maintenance Costs & Reserve Rates
Elements of Aircraft Maintenance Reserve Development
1.0 Airframe Heavy Structural Inspection Costs & Reserve Rates Assumes full workscope (systems, structures & zonal & material)
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2.0 Engine Performance Restoration Costs & Reserve Rates
Engine Thrust Phase Fl Leg Time On‐Wing (FC) Costs 2010 $ Rate ($ / FH)
CFM56‐5B6/P 23,500 First‐Run 1.7 15,500 ‐16,500 $1.8M ‐ $2.2M $68‐ $78
CFM56‐5B4/P 27,000 First‐Run 2.0 11,000 ‐12,000 $1.8M ‐ $2.2M $86 ‐ $96
CFM56‐5B3/P 33,000 First‐Run 2.0 7,500 – 8,500 $1.8M ‐ $2.2M $124 ‐ $134
CFM56‐7B24/P 24,000 First‐Run 1.7 15,500 – 16,500 $1.8M ‐ $2.2M $68‐ $78
CFM56‐7B26/P 26,300 First‐Run 2.0 12,500 – 13,500 $1.8M ‐ $2.2M $78‐ $88
CFM56‐7B27/P 27,300 First‐Run 2.0 11,000 – 12,000 $1.8M ‐ $2.2M $84 ‐ $94
V2524‐A5 24,000 First‐Run 1.7 15,000 – 16,000 $1.8M ‐ $2.2M $72 ‐ $82
V2527‐A5 27,000 First‐Run 2.0 10,000‐11,000 $1.8M ‐ $2.2M $92 ‐ $102
V2533‐A5 33,000 First‐Run 2.0 6,500 – 7,500 $1.8M ‐ $2.2M $135 ‐ $145
Trent 772 71,200 First‐Run 6.0 3,500 – 4,000 $3.6M ‐ $4.0M $175 ‐ $185
PW4068 68,000 First‐Run 6.0 3,000 – 3,500 $3.2M ‐ $3.6M $180 ‐$190
CF6‐80E1A4 70,000 First‐Run 6.0 3,000 – 3,500 $3.0M ‐ $3.4M $165 ‐ $175
GE90‐115B 115,000 First‐Run 8.0 2,250 – 2,750 $4.4 ‐ $4.8M $250 ‐ $260
Appendix B ‐Maintenance Costs & Reserve Rates
Elements of Aircraft Maintenance Reserve Development
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Aircraft Interval Costs ‐ 2010 $ Rates ($ / Mo)
A320 Family 10 YR / 20,000 FC $380K ‐ $420K $3,160 ‐ $3,500
A330 Family 10 YR $875K ‐ $925K $7,300 – $7,700
B737NG Family 10 YR / 18,000 FC $320K ‐ $380K $2,650 ‐ $3,166
B757 Family 10 YR / 18,000 FC $425K ‐ $475K $3,540 ‐ $3,950
B767 Family 10 YR $550K ‐ $600K $4,580 ‐ $5,000
B747 Family 10 YR / 6,000 FC $750K ‐ $800K $6,250 ‐ $6,660
B777 Family 10 YR $1.0M ‐ $1.2M $8,333 ‐ $10,000
E190 Family 10 YR / 20,000 FC $325K ‐ $350K $2,700 ‐ $2,900
CRJ 700 Family 10 YR / 20,000 FC $180K ‐ $220K $1,500 ‐ $1,800
Appendix B ‐Maintenance Costs & Reserve Rates
Elements of Aircraft Maintenance Reserve Development
3.0 Landing Gear Overhaul Costs & Reserve Rates Assumes cost for exchange unit plus removal/installation labor
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Aircraft Interval ‐ APU FH Costs ‐ 2010 $ Rates ($ / APU FH)
A320 Family 6,000 – 7,000 $210K ‐ $240K $33 ‐ $38
A330 Family 6,000 – 7,000 $350K ‐ $375K $40 ‐ $45
B737NG Family 6,000 – 7,000 $210K ‐ $240K $33 ‐ $38
B757 Family 5,000 – 6,000 $200K ‐ $225K $37 ‐ $42
B767 Family 5,000 – 6,000 $200K ‐ $225K $37 ‐ $42
B747 Family 8,000 – 9,000 $425K ‐ $475K $48 ‐ $53
B777 Family 7,500 – 8,500 $425K ‐ $475K $50 ‐ $55
E190 Family 5,000 – 6,000 $160K ‐ $180K $31 ‐ $36
CRJ 700 Family 4,000 – 5,000 $130K ‐ $160K $30 ‐ $35
Appendix B ‐Maintenance Costs & Reserve Rates
Elements of Aircraft Maintenance Reserve Development
4.0 APU Performance Restoration Costs & Reserve Rates
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