1. ©2003 Rolls-Royce plc
The information in this document is the property of Rolls-Royce plc and may not be used for any purpose other than that for which it is supplied
without the express written consent of Rolls-Royce plc.
This information is given in good faith based upon the latest information available to Rolls-Royce plc, no warranty or representation is given
concerning such information, which must not be taken as establishing any contractual or other commitment binding upon Rolls-Royce plc or any of
its subsidiary or associated companies.
Title - Arial 28pt
State of the US Airlines
Industry
November 2004
Michael Davies – Account Manager

2. 2
The State of the US Airline Industry
Summary
Overview of Key Issues
Impact on RR
Challenges

3. 3
The State of the US Airline Industry
Overview of Key Issues
 Still in the midst of a fundamental restructuring
 Continuing growth of low cost carriers (LCCs)
threatens network carriers in the domestic market
 Losses as high as $5 ½ bn expected this year in a
growing economy
 Traffic strong but yields very weak with little
seasonal gain
 Capacity still being added
 LCCs adding a/c
 Network carriers adding seats
 Fuel is hurting operating costs and the expense is
not recoverable through pricing

4. 4
The State of the US Airline Industry
Q2 2004 CASM Breakdown
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
American
Continental
Delta
Northwest
United
US Airways
AirTran
America West
ATA
Frontier
Jet Blue
Southwest
Spirit
CASM
Ads
Commission
Landing Fees
Food
Interest
Property & Facilities
Aircraft Cost
Maintenance
Fuel/ Oil
Labor

5. 5
The State of the US Airline Industry
Real Yield in 1978 cents (1980-2004)
2
3
4
5
6
7
8
9
10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
20022003P
Cents

6. 6
Exposure
TCA reduction requested. Resolving
commercially
Hawaiian – Filed Chapter 11
No TCA payments received for 2nd half
2004. Possible merger with AmWest.
£25m profit exposure
ATA – Filed Chapter 11
Continental - Requested the deletion of
escalation from their TCAs
Not budgeted. Yet to respond.
Avoided by resolving commercial issues
with no budget impact
AirTran – requested a 5% reduction in their
rate in Q4
Response formulated. Yet to be submitted
American - Requested deletion of escalation
from their TCAs. Cancelled 18 Emb145
Not currently budgeted. Have rejected
initial request. Can terminate TCA for
convenience
£20m profit exposure
Delta - Requested 8% reduction in spend
with R-R for years 2005-07 ($4.5m)
Loss of TCA revenue in 2005 if fleet
grounded ($18m). Not budgeted
nil profit exposure
US Airways - Filed Chapter 11. No reductions
requested yet
The State of the US Airline Industry

7. 7
The State of the US Airline Industry
Regional Strategy
 Challenge
Labour costs/capacity vs supply chain
 Condition
Demonstrate airline viability and support of
other suppliers
 Prioritise RR assistance
additional margin generating services which
lower costs (e.g. Engineering Care);
Self-help such as TCP rate reductions which
are self funded
Reduced or avoided costs through an
improved Rolls-Royce product/service
Simple price reductions.

8. 8
The State of the US Airline Industry
Will US Airways Survive?
 Second visit to Chapter 11
 LUV expanding further in their core markets
 Fares have fallen dramatically
 Seeking labor concessions again from
unwilling workforce including court imposed
cramdown
21% interim pay cuts for union workers
18% pilot wage reduction approved on Oct. 26
 Possible liquidation?

9. 9
The State of the US Airline Industry
Will Delta Avoid Chapter 11?
 New management team determined to do
what it takes for long term survival
 Following the AA roadmap and will file if
they cannot reach a consensual settlement
 The pilots union are the key, but Delta has
other cost issues as well
$1 billion tentative settlement effective Dec. 1
 Approaching other stakeholders (i.e. us) for
contribution

10. 10
The State of the US Airline Industry
How will ATA’s restructuring play out?
 ATA filed for Chapter 11 on Oct. 26
 Intent is to use Chapter 11 to strip out the unwanted
assets/contracts.
 Tentative sale of Midway operation to Air Tran
 Uncertain future for B757 fleet
 ATA is seeking DIP financing commitments from
OEMs and lessors
 Need for Rolls-Royce to protect its TCP contract
through the bankruptcy process, but
 AWE wants the B757s, but will they want TCP
support.
?
?

11. 11
The State of the US Airline Industry
Will the low cost business model go international?
 LCCs are still a domestic phenomena
 Primaris and others looking to take it
international
 Could be an opportunity for B7E7
 If successful, it could be the start of
the end for the legacy network carriers

12. 12
The State of the US Airline Industry
Challenging Marketplace
 The decline of the legacy carriers
 The rise of the “low cost carriers”
 Labor costs
 Fuel prices
 Too much capacity
 Loss of control over revenues
 The result:
 Huge losses
 Bankruptcy
 The search for a new business model