Aviation MRO IT: Emergence of SaaS and Convergence of BPO


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White paper presentation on the current state, trends and future scenarios for aviation maintenance technologies, taking into account disruptive technological trends in Autonomics, Diagnostics, Prognostics, virtualization, SaaS, Web 2.0 collaboration.

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Aviation MRO IT: Emergence of SaaS and Convergence of BPO

  1. 1. Blue Water Solutions Aviation, Aerospace & Defense Presented to: SVP Operations, XX Airlines MRO Technologies & Services Point of View Presented by: Michael Wm. Denis, Senior Associate, Blue Water Solutions, Inc. 8 September, 2008 CONFIDENTIAL Copyright © 2005-2008 Blue Water Solutions, Inc. (BWSI). Confidential Proprietary Trade Secrets & Know How Copyright © 2005-2008 Blue Water Solutions, Inc. (BWSI). Confidential Proprietary Trade Secrets & Know How
  2. 2. Aviation MRO: Non-Defense Industry Size and Growth ~ 4.0% CAGR to $62B 2 Five & Ten Year Compounded Annual Growth Rate Projections $62B 70 Airframes & Mods = 4.7% slowing to 3.6% CAGR Engines = 4.7% moderating to 4.5% CAGR $58B Components = 4.1% moderating to 4.0% CAGR Line = 4.2% moderating to 4.0% CAGR 60 $51B 10.9 11.3 50 $41B 9.0 $42B 11.8 $41B $40B $38B $37B 12.7 $36B 40 9.2 9.7 8.6 9 8.5 8.5 8.4 8.1 7.4 30 7 8.6 7.4 26.9 6.9 6.9 7.1 22.2 21.6 11.5 11 20 13.0 10.4 11.1 14.3 11.1 10 14.1 14 13.0 12.1 12 11.0 11.0 10.9 9.8 9.4 0 2000 2001 2002 2003 2004 2005 2006 2012 2016 2017 Airframes & Mods Engines Components Line Blue Water Solutions CONFIDENTIAL
  3. 3. Aviation MRO: Industry Structure / “Eco-System” 3 Regulatory Services FAA, JAA/EASA, CAA, NTSB Engineering Services Maintenance Planning / Packaging / Scheduling, Regulatory Compliance, Tech Docs, Reliability Engineering Other Segments: Commercial Aircraft BizJet / Corporate Defense Operators & Depots Fleet Operators Air Taxi / VLJ Total Technical Services Airframe, Engine, Component & Total Touch Services GA: General Aviation Country USAF/USN UK MoD Maintenance Services LCC Net Out Legacy Out Legacy In X Military Fleet 1 Fleet 2 Fleet 1 Fleet 2 ... ... ... ... Forces 3PMP & 3PL Engine OEM Component OEM Airframe OEM Logistics Services Sourcing, Provisioning, Procurement, Warehousing, Distribution, Transportation, 3PL Technology Services Infrastructure Products / Services, SaaP (On-Premise, EAI, Application Management), System Integration, SaaS (On-Demand) Financing & Leasing Power x Hour Engine Bundling, ACMI Wet Lease, Performance Driven Outcomes Blue Water Solutions CONFIDENTIAL
  4. 4. Aviation MRO: Core Business Processes 4 Engineering, Maintenance Programs & Regulatory Flight Operations Maintenance Airframe & Engine Maintenance Shop, Tool & GSE Maintenance Supply Chain Management Customer Relationship Management Reservations, Airport Pricing, Marketing Airport Flight Finance & Human Capital Operations, Finance & & Sales Operations Operations Accounting Management Human Capital Blue Water Solutions CONFIDENTIAL
  5. 5. Aviation MRO: Core Business Processes vs. Industry Structure: Collaboration Capabilities and Technologies are no longer an option! 5 EASA, FAA, ICAO, ATA, IATA, ASD, AIA Blue Water Solutions CONFIDENTIAL
  6. 6. Industry Structure & Synchronization vs. Nature of Demand & Supply of Services 6 As the Nature of Demand & Supply of Services Nature of Demand & Supply (Services) increases so does: Increasing Breadth or Depth of Services Demanded Increasing Breadth or Depth of Services Demanded Decreasing Sources of Supply Provided Decreasing Sources of Supply Provided Increasing Likelihood of Proprietary Standards s Increasing Likelihood of Vertical Monopolies Increasing Risks to Margins n gi ar M ng i as e cr As the Structure and Integration of Services In increases so does: Increasing Complexity to Execute Increasing Barriers to Competitor Entry Increasing Barriers to Customer Exit Increasing Margins of Return Increasing Likelihood of Cartels / Dominant Exchanges Increasing Likelihood of Horizontal Monopolies Structure of Industry & Synchronization Increasing Complexity to Execute Increasing Barriers to Competitor Entry and Customer Exit Increasing Margins of Return Blue Water Solutions CONFIDENTIAL
  7. 7. Aviation MRO Industry Structure vs. Demand & Supply of Services 7 Engine Power X Hour Airframe Performance Mgt Performance Services Bundled Acq + Eng + Mtc + Log PBL, PDO, Goldcare, TTS+ ns gi ar M Nature of Demand & Supply (Services) g in as re Engineering Services Knowledge Management Fleet Management Knowledge Increasing Breadth or Depth of Services Demanded nc I Services PMA, Mods, XML Task Cards MRO SaaS + CASS Reliability / BI Reg, Mx Program, Pln, MOC/MCC Decreasing Sources of Supply Provided Increasing Risks to Margins 3rd Party Logistics Leasing Utility Computing Business Process Outsourcing Business Services Engine, Airframe, ACMI Hosting, Grid H/W, WAN/Comms FI, HR/Payroll, Call Ctr, CRM VMI, Warehousing, Dist / Trans Engine Maintenance Airframe Maintenance Component Maintenance Line Maintenance Maintenance Services Hangar / Heavy Check / RON Avionics, LRUs, Subs, Fab Infrastructure Management Application Management System Engineering Technology Services H/W, LAN/WAN, Communications On-Premise Management Implementation, Integration Technology Consulting Strategy Consulting Advisory Process, Human Capital Consulting σ Services Application & Infrastructure Financial, Marketing, M&A Org Design, Skills, Training, LEAN/6σ, Metrics Structure of Industry & Integration Increasing Complexity to Execute Increasing Barriers to Competitor Entry and Customer Exit Increasing Margins of Return Blue Water Solutions CONFIDENTIAL
  8. 8. Software as a Service / On Demand has two key differentiators: 8 Source: Marc Benioff, CEO, salesforce.com, Tour de Force Atlanta, Apr. 2008, “The Future of Cloud Computing” Blue Water Solutions CONFIDENTIAL
  9. 9. Just as Applications evolved via Abstraction, Virtualization and Outsourcing… 9 Source: Marc Benioff, CEO, salesforce.com, Tour de Force Atlanta, Apr. 2008, “The Future of Cloud Computing” Blue Water Solutions CONFIDENTIAL
  10. 10. … so too are Platforms moving to the SaaS / On Demand business model … 10 Source: Marc Benioff, CEO, salesforce.com, Tour de Force Atlanta, Apr. 2008, “The Future of Cloud Computing” Blue Water Solutions CONFIDENTIAL
  11. 11. … a business model that originated in the airline / aerospace industry. 11 CRS / GDS Catering SCM MRO MRO IT Blue Water Solutions CONFIDENTIAL
  12. 12. The three waves of adoption of a Disruptive Value Innovation in any industry are: 12 The focus of SaaS shifts over time from cost-effective delivery of stand-alone applications (Wave I), to integrated business solutions enabled by web services and ESBs (Wave II), then to human workflow and collaboration based business transformation (Wave III). Evolution of Software-as-a-Service SaaS 2.0 SaaS 1.0 SaaS 2.0 High Wave III: 2008-2014 Wave I: 2001-2006 Wave II: 2005-2010 Workflow-enabled Cost-effective Integrated Business Transformation Software Delivery Business Solutions Ubiquitous Adoption • Optimized Business Ecosystems • IT-targeted Ecosystems Mainstream Adoption Adoption • Inter-enterprise Collaboration • Integrated w/ Business Portfolio • IT Utility / SaaS Infrastructure • SaaS Integration Platforms • Customized, Personalized Workflow • Business Marketplaces Early Adoption • Focus on Business Transformation and SaaS ecosystems • Stand-alone Apps • Customization Capability • Multi-tenancy • Focus on Integration • Limited Configurability • Focus on TCO / rapid deploy SaaS Tipping- Point Low 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Saugatuck Technology, 2007, “SaaS Beyond the Tipping Point” Blue Water Solutions CONFIDENTIAL
  13. 13. SaaS and Business Process Outsourcing are on a collision course … 13 By 2010, a new SaaS business services provisioning model emerges, combining pure-play SaaS solutions with business services from both next-generation and traditional infrastructure, application hosting, Managed Service Providers and Business Process Outsourcing (BPO). While many SaaS vendors desire to remain pure-play application solution providers, customers and industry specific trends in addition to Wall-street economic valuation metrics will decide how far into business services SaaS must go to effectively compete with traditional software vendors. New Collaboration Services Models Business Infrastructure, Process Hosting & Outsourcing Application (BPO) Management SaaS CSP SaaS BPO SaaS SaaS ASP 1.0 2.0 SaaS Infrastructure / SIPs Pure Play Infrastructure / Communications Source: Saugatuck Technology, 2007, “SaaS Beyond the Tipping Point” Blue Water Solutions CONFIDENTIAL
  14. 14. … to create new business models around Collaboration Services Providers (CSP). 14 From tactical to strategic From 1:1 to 1:N From commodity to industry specialized From client site to web site From cost-reducing to profit-enhancing From SMB to global 1000 Strategic Increasing ROIC for an Value Industry Collaborative System Shared Service Collaboration Systems Collaboration Integration Services Management Provider Operational Optimal Single Company Business Processes Value Risk / Return Proposition Business Business Process Management Services Provider Business Applications Application Software Management as a Service Increasing Propensity to Tactical Technology Infrastructure Outsource Infrastructure Hosting Value Management Services Commodity Activities On-Demand Delivery On-Premise Delivery Configurable Solutions Shared Fixed Solutions Utility Pricing Fixed Cost Plus Pricing Transaction Oriented Event / Workflow Oriented 1:1 Company Standards 1:N Industry-standards 1:N Industry-specific 1:1 Client-specific Ubiquitous Delivery Dedicated Delivery Blue Water Solutions CONFIDENTIAL
  15. 15. Point of View: The Strategic Positioning of select Aerospace & Defense MROs 15 System Economics Strategy Increasing Bonding Quotient Microsoft Wal-Mart Southwest Total Solution Strategy Best Product Strategy Source: “The Delta Project: Discovering New Sources of Profitability in a Networked Economy”; Arnoldo Hax, Ph.D., MIT Sloan; Dean L. Wilde II, Dean & Company Blue Water Solutions CONFIDENTIAL
  16. 16. Aviation MRO Trends: Supply Chain Management Business Process Outsourcing (BPO) and Software as a Service (SaaS) are merging into Collaboration Services. 16 Customers: Air Canada, American Airlines, Air India, PIA, Singapore, US Airways, KLM, Cathay Pacific, ANA, JAL, FedEx, Air New Zealand, Austrian, Lufthansa, China Airlines, Northwest, Egypt Air, Gulf Air, Icelandair, Kuwait Airways, Mexicana Airlines, Qatar Airways, Saudi Arabian Airlines, Royal Jordanian, Thai Airways, Virgin Atlantic & United. Technology Partners: EDS (Hosting), AMOS, Lawson, Mxi, Oracle, SAP, TRAX, Quantum Control and Ultramain Services: AeroBuy - a comprehensive, catalogue-based procurement system with full electronic connections to the aviation supply chain. AeroRepair - a solution that seamlessly enables end-to-end business process automation of the entire repair order lifecycle. AeroAOG - a comprehensive, e-commerce application used to mitigate the impact of AOG situations and to more efficiently manage the airline's loan/borrow/exchange business. AeroSourcing - a negotiation platform with full electronic connections to the aviation airline supply chain. AeroConsignment - a complete solution used to optimally manage consignment stocks between multiple trading partners. AeroComponent - a comprehensive, online application used to manage all components under quot;Support Contractsquot; with a single or multiple Component Providers. AeroDex - a business intelligence tool that enables you to make better decisions in order to manage your aviation company. Sourcing Process Management Services - a world-class team of sourcing experts who recognize the airline industry procures a variety of commodities and services that are critical to their daily operations. Equity Owners of AeroXchange identified in BLUE. NWA’s equity will transfer to Delta Air Lines upon completion of the merger in late 2008. Airlines in BOLD are implementing or evaluating Mxi’s Maintenix solution. Blue Water Solutions CONFIDENTIAL
  17. 17. Aviation MRO Trends: Bundled MRO Business Process Outsourcing (BPO) and Software as a Service (SaaS) are merging into Collaboration Services. 17 HAECO is pleased to offer Fleet Technical Management (FTM) and Inventory Technical Management (ITM), two comprehensive total support packages that provide cost-effective, customized engineering and maintenance solutions. Airlines have recognized, in a highly competitive environment, they need to focus on their core competence of flight operations, maximizing revenue/yield and driving out costs by allowing HAECO to provide technical management services through a dedicated team of professionals that covers all aspects of airline engineering functions to ensure fleet operational safety and airworthiness requirement are totally complied with, to the satisfaction of operators' QA and regulatory authorities. HAECO selected and implemented Russell Adams enterprise:airline to provide the Fleet Technical Management (FTM) capability. Lufthansa Technik’s unique Technical Operations web suite, manage/m™, allows commercial aircraft operators to manage all core functions of their fleet’s regulatory, engineering, maintenance and supply chain operations as a completely web-based system. All they need is access to the Internet. Rounding out Lufthansa Technik’s Total Technical Services all-encompassing portfolio of maintenance, repair and overhaul (MRO) services, the modules of manage/m™ comprise a complete range of airline proven support functions that permit operators to live up to their responsibilities to the aviation authorities. manage/m™ improves effectiveness and efficiency offering real added value. manage/m™ is powered by Swiss Aviation Software’s AMOS solution. Lufthansa Technik is proud to sponsor the official READI – web suite application! The purpose for the Reliability Exchange of Airline Data International (READI) is to provide a forum for the exchange of operational benchmark data, establishing the performance metric fleet Mechanical Scheduled Performance (MSP). READI is hosted by FedEx and currently comprises 30 airlines and OEMs. Boeing CAS, Boeing IDS, Lockheed Martin Aeronautics, Rolls Royce DS&S, Bombardier, Embraer, Delta TechOps, KLM / AFI all have similar offerings in place or in some stage of realization Blue Water Solutions CONFIDENTIAL
  18. 18. Lufthansa’s corporate strategy and execution already includes SaaS capabilities. 18 Lufthansa AG Airlines Cargo Catering Maintenance Technologies Finance & Investing Lufthansa Airlines Lufthansa Cargo LSG SkyChef Lufthansa Technik Lufthansa Systems LH Holdings LHT Logistics Passenger Cargo Carrier Catering Customized Finance & Investing LHT Philippians, Services Freight Forwarding proprietary version Leasing Sofia, Malta, Tulsa, 3PL Services of SAP A&D IS 3.0 Consulting Alitalia, Budapest, Travel Mgt Shannon, AMECO, Airliance, Amadeus Shenzhen, CSA LHT Airline Customers Swiss International Blue Water Solutions CONFIDENTIAL
  19. 19. Aviation MRO Trends: Total Services Business Process Outsourcing (BPO) and Software as a Service (SaaS) are merging into Collaboration Services. 19 Dubai Aerospace Enterprise has an amazing business vision Behind the $15 billion Dubai Aerospace Enterprise is a very shrewd appreciation of business trends and a clear strategy to put Dubai at the head of the next big thing – aviation services. The business concept here is to create a center of innovation for aviation, from the leasing and maintenance of planes to training personnel at a new aviation university to operating private airports and even manufacturing aircraft components. Leveraging the fact that the Middle East and North Africa region will take 58% of wide bodied aircraft deliveries between 2005 and 2025, and 50% of recent new narrow body aircraft orders have been in the Middle East as the regional carriers are in the process of doubling their fleets. DAE has a phased business plan to create an aviation center of excellence at the new Jebel Ali airport complex, and has established six operational subsidiaries across 14 industry segments. Further announcements are to follow for each business sector as this bold business plan is transformed into reality. DAE Capital Aircraft leasing, Financing and Insurance with value-added services and a global presence. DAE Manufacturing Delivering cutting-edge research & development, manufacturing and assembly. DAE University An aviation campus for all levels of education, attracting both national and international students. DAE Airports Airport development and operations that lead the world in reputation and returns. DAE Engineering The global centre for aviation maintenance and support through acquisitions and partnerships. DAE Services An emerging world class solution provider in the aviation industry, focusing on offering technology based products, business services and outsourcing. By 2015, DAE is expected to employ 30,000 people and to have 8,000 students a year passing through its university This is yet another example of Dubai Inc. spotting a new opportunity through global business and technology trends and mobilizing its immense resources to capitalize at the opening. Blue Water Solutions CONFIDENTIAL
  20. 20. Aviation MRO Trends: Engineering Business Process Outsourcing (BPO) and Software-as-a-Service (SaaS) are merging into Collaboration Services. 20 Boeing signs Long Term Agreement with Mxi Technologies Ottawa, Canada (July 8th, 2008) – The Boeing Company has named Mxi as a partner for GoldCare, Boeing's comprehensive life-cycle management service developed for the 787 Dreamliner. Boeing has selected Mxi to supply Maintenix®, an integrated, intelligent software solution that will serve as the maintenance management portion of a comprehensive suite of enabling technologies for GoldCare. Under GoldCare, Boeing leads and integrates a global team to deliver maintenance, engineering, and materials management tasks within a predictable per-flight hour cost. Goldcare offers two levels of service, GoldCare and GoldCare Integrated Materials Management Service; both of which include new enabling technologies that turn airplane operating data into actionable information and knowledge. Ottawa, Canada (July 23rd, 2008) – The Boeing Company, the world's largest manufacturer of commercial jetliners and military aircraft, has signed a quot;Software License Distribution Agreementquot; with Mxi Technologies, a leader in aviation maintenance management software. Under terms of the agreement, Mxi Boeing’s Global Operations Center. will supply Maintenix®, an intelligent, integrated software solution that will provide Boeing with meaningful © The Boeing Company improvements to their labor productivity in after-sales product support. Information technology is central to Boeing’s corporate strategy of creating value for their aircraft customers and their passengers. This is a global strategy that leverages advanced networks, communications and applications to share information digitally amongst all stakeholders. This initiative is shared across all Boeing business units and extends from onboard technology enhancements to lifecycle information management tools. Maintenix® is central component of this strategy for the 787 aircraft as it provides the information hub for managing data and integrating these diverse technologies and services for the Boeing GoldCare offering. The objectives of the initiative include: Leverage Boeing’s engineering knowledge and fleet-wide perspective to improve resource planning and maintenance execution activities Automate traceability from maintenance activities back to compliance with source documents for maintenance requirements Leverage fault information being captured onboard the aircraft to streamline line maintenance planning and execution activities Set industry standards to facilitate closer integration between the airline community and the manufacturers and maintainers Blue Water Solutions CONFIDENTIAL
  21. 21. Aviation MRO Trends: Engineering Business Process Outsourcing (BPO) and Software-as-a-Service (SaaS) are merging into Collaboration Services. 21 Goldcare Network Partners Americas Europe / MENA AsiaPac ? OR Maintenance Back Office (MIS) (ERP) OR OR “Technology is the key enabler of this kind of collaboration, which involves a significant amount of product lifecycle management across multiple countries. Boeing requires all its partners on the 787 to use an application called Catia, made by Dassault, and the plane is designed at a special online site, maintained by Boeing, called the Global Collaboration Environment. Goldcare customers, will also benefit from advance engineering, maintenance and supply chain management collaboration technologies that will significantly reduce and predictably smooth lifecycle costs.” Source: Boeing Co. as reported in CIO Insight magazine, 6 March, 2007 Blue Water Solutions CONFIDENTIAL
  22. 22. Aviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and Software-as-a-Service (SaaS) are merging into Collaboration Services. 22 Blue Water Solutions CONFIDENTIAL
  23. 23. Aviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and Software-as-a-Service (SaaS) are merging into Collaboration Services. 23 Maintenance information system linking the seven global F-35 operators is activated for flight test Lockheed Martin is getting a head start on plans for a global Joint Strike Fighter sustainment system by switching on the information network that will collect, analyze and communicate maintenance data for F-35 flight testing. The autonomic logistic information system (ALIS) will begin collecting data from the first F-35, which had completed 17 flights by the end of April. Initially data will be entered by maintainers, but an upgrade is planned to enable the aircraft to downlink data in flight, The global sustainment operations centre in says Kevin LeBeau, ALIS integrated product team director. Fort Worth, Texas, USA. © Lockheed Martin ALIS provides 38% of the functionality needed to support the 14 development flight-test aircraft planned, says LeBeau, enabling maintainers to isolate faults and trigger the supply chain to deliver replacement parts. Functionality is based on commercial software, including the Maintenix maintenance management system developed by Canada's Mxi Technologies. LeBeau says the ALIS team is developing shippable code every 30 days. When the second F-35 flies in May 2008 maintainers will be able to run checks and access status on the flight line using laptops and handheld portable maintenance aid. Lockheed has established an operations control centre at its Fort Worth, Texas facility that includes sustaining engineering in order to develop repair tasks, improve component reliability and optimize the maintenance program against key performance parameters of aircraft availability, sortie generation rate and the performance based logistics contract, which shares risks and costs between the US DoD and Lockheed. The international program team includes the United States, United Kingdom, Italy, Netherlands, Turkey, Canada, Australia, Denmark and Norway with Singapore and Israel participating through a non-program Security Cooperative Participation agreement. Blue Water Solutions CONFIDENTIAL
  24. 24. Capability Sourcing Framework 24 Increasing Business Agility to Respond to Change Decreasing Risks (Operational, Financial & Technology) Managed Leased Decreasing Cost per Unit Capability-Maturity On-Call On- On-Demand On- Structure of Capability Delivery Fixed S/W & Processes (BPO / MBS) Configurable S/W & Processes (On-Demand/SaaS) (On- Demand/SaaS) 1:N Industry & Function-specific Solution Function- 1:N Industry & Client-specific Solution Client- Fixed Version Capability Maturity Agile & Continuous Capability Maturity External Infrastructure (Grid Computing) External Infrastructure (Utility Computing) Dedicated Delivery Ubiquitous Delivery Process Pricing / Shared Cost Subscription Pricing / Shared Cost Buy Build On-Premise On- On-Premise On- COTS S/W (BoB or Suite) (BoB Custom S/W (SDLC) 1:1 Industry or Function-specific Solution Function- 1:1 Client-specific Solution Client- Fixed Version Capability Maturity Ad Hoc Capability Maturity Internal Infrastructure (Data Centers) Internal Infrastructure (Data Centers) Specialized Delivery Customized Delivery Capital + Operations Pricing / Customer of 1 Cost Capital + Operations Pricing / Customer of 1 Cost Structure, Agility & Functional Fit of Solution Product / Service Decreasing Cost per Unit Capability-Maturity Increasing Business Agility to Respond to Change Decreasing Risks (Operational, Financial & Technology) Blue Water Solutions CONFIDENTIAL
  25. 25. Aviation MRO Trends: LCCs are transitioning to more Managed or Leased Services. 25 Increasing Business Agility to Respond to Change Decreasing Cost per Unit Capability-Maturity Decreasing Risks (Operational, Financial & Technology) Managed Leased Off-Premise On-Demand Air Asia Capability Orientation & Outcome Centric Thinking Effects Orientation & Causality Centric Thinking Fixed S/W & Processes (BPO / MBS) Custom / Configurable S/W (BoB: ASP or SaaS) 1:N Function-specific 1:N Client / Industry-specific Structure of Capability Delivery Bundled Infrastructure (Grid Computing) Bundled Infrastructure (Utility Computing) Dedicated Delivery Open / Services Oriented Delivery Virgin America LHT manage/m (AMOS) Sabre / Mxi eMergo Air Arabia Skybus Boeing / Mxi Goldcare Boeing Ops Center (Mxi) US Airways Airbus Airman Lockheed ALIS (Mxi) Ryan Air LHT / AMOS HAECO FTM (RA) New US Airways Southwest AMOS Sceptre Mxi Technologies Merlin Singapore Russell Adams MEMIS AA Lufthansa TRAX TPF Alitalia America West Buy Build On-Premise On-Premise Process Orientation Functional Orientation United Delta Output Centric Thinking Input Centric Thinking Fixed / Configurable S/W (Suite + BoB) Custom S/W (SDLC) 1:1 Industry-specific 1:1 Client-specific Hosted Infrastructure (Data Centers) Internal Infrastructure (Data Centers) Standardized Delivery Customized Delivery Structure, Agility & Functional Fit of Solution Product / Service Decreasing Cost per Unit Capability-Maturity Increasing Business Agility to Respond to Change Decreasing Risks (Operational, Financial & Technology) Blue Water Solutions CONFIDENTIAL
  26. 26. Aviation MRO Trends: Legacy carriers and MROs have a chokepoint to collaboration. 26 BOEING AIRBUS Cabin eLogbook / EFB Flight Deck Collaboration Global Ops AIRTAC Network MIS S1000D MIS Centre Avioniques AIRLINE Goldcare AirPl@n S4000M S4000M Engineering & Maintenance Flight Operations AIRMAN Aircraft In-service Reliability Data Mgt Management PHM AirN@v IETM / IETP CREW FOS AHM S5000F S1000D S5000F Integrated AirSpares Airline MIS Materials Services (Maintenance Management S2000M S1000D Information System) S2000M Collaboration Chokepoint Airbus MRO Network Boeing Goldcare Network Blue Water Solutions SX0001 CONFIDENTIAL
  27. 27. Aviation MRO Trends: ASD SX0001 is the new standards for aviation MRO. 27 The Office of the Secretary of Defense, NATO, and ALL leading members of the AIA, ASD and ATA have signed an agreement to converge on the ASD SX0001 standards. Aviation Sustainment Lifecycle Management (SLM) Blue Water Solutions CONFIDENTIAL
  28. 28. Aviation MRO Trends: Collaboration architecture will be based on SX0001 and SOA. 28 ISO 10303 S5000F Flight SCORM ERP ERP S1000D S2000M International International International Finance, Human Capital Operations International International Specification for Specification for Specification for Accounting & Management – Specification for Specification for Systems Product Data Service Data Advanced Controlling via Recruiting, Technical Materiel Management Capture & Operations Control Distributed SAS 70 processes Succession, Publications Management (PDM) & Computer Management / Maintenance Learning using and procedures On-Boarding, (IETP / IETM) (SCM) using Aided Design, using ISO 13374 Control, Air Traffic the Shareable compliance Talent, Training using a EDI / XML Engineering & OSA-CBM, Control, Weight & Content Object and Learning Common Source Automated Manufacturing ACARS, On-Board Balance and Reference Model Management Data Base (CSDB) Processing (CAD, CAE, CAM) Systems & FOQA Dispatch LDAP & PKI J2EE Web Service Universal Adapter (ESB / SOA) Security Services Device, Printer & Wireless ISO 10303 S4000M S3000L AP 239 Services International International Specification for MIS Application and Specification and Product Life Cycle Procedures Procedures Management Handbook for Handbook for (PLCS) & Multi- MRO Information System RCM / MSG3 Logistics Support Dimensional Scheduled Analysis (LSA) Configuration Maintenance and Management Reliability Analysis (MDCM) Blue Water Solutions CONFIDENTIAL
  29. 29. Aviation MRO IT Market Segments Comparison 29 Aviation MRO COTS Software Products Evaluation Criteria A B C D E F G H I J A Airlines B Defense C Third Party MRO D Airframe OEM E Engine OEM F Biz Jet / GA G Helicopter H SaaS / On Demand = Market Presence of 2 or more customers with full running implementations Blue Water Solutions CONFIDENTIAL
  30. 30. Point of View: The Strategic Positioning of select Aviation IT Vendors 30 System Economics Strategy Increasing Bonding Quotient Microsoft Wal-Mart Southwest Total Solution Strategy Best Product Strategy Blue Water Solutions CONFIDENTIAL
  31. 31. Software as a Service dominates growth stocks and Wall Street IPOs. 31 Fortune: Hot IPOs of ’08, “If 2007 was a good indicator, the kinds of private tech companies that will make it into the public markets this year feature either a technological innovation or a business model innovation or both that give customers lower costs and flexibility. On-demand software companies like Success Factors (SFSF), K12 (LRN) and more recently NetSuite (N) managed to get out the IPO door on the back of their business model innovation. In the wings are SugarCRM, PeopleClick, BlueRoads, BlueTie, Cloud9 and Dave Duffield’s Workday. Open-source (Red Hat, mySQL) is another category being welcomed by the Street, as is virtualization (VMware & XenSource.” Goldman Sacks: Getting SaaS savvy is On-Demand in 2008, “Software-as-a-Service (SaaS) is one of the most important trends in business at present, and will become pervasive over the next several years. We expect SaaS to expand the total addressable market for enterprise software, with growth in SaaS outpacing growth of the overall software market for the next three to five years. Large on-premise only application vendors such as Microsoft, Oracle, and SAP will embrace the trend. Despite this, small and pure-plays should continue to dominate in the near term, with an ongoing rapid entry of new companies into the market, and a healthy IPO market. Blue Water Solutions CONFIDENTIAL
  32. 32. Services based companies deliver higher Economic Value Add (EVA) … 32 IATA / McKinsey Aviation Eco-System Value Analysis 20 15 15 1996-2000 vs 10.5 2000-2004 Return Weighted Spread (ROIC - WACC) % % 10 Weighted EVA (ROIC - WACC) 5.1 4.4 5 3.7 2.8 2.2 0.5 0.3 0 -0.2 -0.4 -1.1 -1.2 -1.6 -1.8 -5 -5.5 Freight Airframe MRO Travel CRS/GDS Forwarders Leasors OEM Services Agencies Airports Airlines -10 Source: IATA and McKinsey & Co. “Aviation Value Chain Profitability – IATA Economics Report 2004” Blue Water Solutions CONFIDENTIAL
  33. 33. … and higher EVR multiples due to predictableMultiples cash flows and locked in EPS. 33 Enterprise Value to Revenue 12.00 10.00 Enterprise Value per dollar Revenue (EVR Multiple) 8.00 5.90 EOY 2005 6.00 EOY 2007 4.10 4.00 2.80 S&P Avg 2.8 1.85 2.00 0.91 0.81 0.45 0.13 0.00 ARBA WEBX TLEO KNXA RNOW ULTI CNQR VSCN CRM SAAS SEG S&P EU US EU US US / Avg Top-10 1000 LCC LCC Legacy Legacy LCC Avg Avg Avg Avg Avg Avg Source: Capital IQ Data Services (a Division of Standard & Poor’s) dtd 8 January, 2008 Blue Water Solutions CONFIDENTIAL
  34. 34. Delta’s Billion Dollar Value Innovation: The Story 34 On 20 December, 2007, open source technology leader Red Hat announced the election of James M. Whitehurst, as President, Chief Executive Officer and a member of the Board of Directors. Mr. Whitehurst was most recently Delta Air Lines’ Chief Operating Officer, responsible for Flight and Technical Operations, Marketing and Sales, Customer Service, Network and Revenue Management and Corporate Strategy. Prior to joining Delta in 2002, Mr. Whitehurst served as Vice President of The Boston Consulting Group (BCG). Between 1998 and 2002, Jim lead Delta’s eCommerce group, which planned IT strategy and evaluated IT investments for Delta Air Lines, Delta Technologies, DL’s wholly owned subsidiary, and collaborated with Worldspan, DL’s joint venture with Northwest Airlines and Trans World Airlines. It was during this period that Jim and Vince Caminiti, SVP Sales for Delta, identified direct online marketing and sales channels as a value innovation for DL to simultaneously reduce the cost of sales by bypassing the monopolistic CRS/GDS vendors and travel agent commissions and increase load factors, reduce excess capacity and increase customer intimacy by demonstrating that DL was a fair value fare provider. Included in the agreement to open DL’s inventory to Priceline.com was a $18M warrant for 1.86M shares at $0.93 per share. Between 1999 and 2003, DL exercised warrants and options returning $1.134B in pre-tax cash to shareholders at a five year IRR(5) of 129%. It could be said that timing was everything in that DL luckily liquidated 62.7% of their investment in 1999 near the peak of the dot-com bubble. A downwardly adjusted post dot-com bust average price of $29/sh would still have yielded $199M in pre-tax cash to shareholders at a five year IRR(5) of 61.7%. Priceline.com was one of several equity, debt and cash IT investments Delta Air Lines made over the past decade which, like American Airlines, the old US Airways and Lufthansa, yielded higher Economic Value Add than traditional IT sourcing methods and significantly higher Total Shareholder Return than other direct reinvestments in operations. Source: Delta Air Lines annual reports FY2000, CY2000, 2001, 2002, 2003. Blue Water Solutions CONFIDENTIAL
  35. 35. Delta’s Billion Dollar Value Innovation: The Results 35 $1,200 $1134 IRR(5) = 129% $1,000 $800 $ in Millions $600 $1,134 Investment (Net Cash) Return (Net Pre-Tax Cash) $400 $711 $199 IRR(5) = 61.7% $200 $301 $199 $127 $13 $- 1999 2000 2001 2002 Actual Pre-Tax Adjusted Pre- Net Cash Flow Tax Net @ Avg $18 $29/sh $(200) Year Source: Delta Air Lines annual reports FY2000, CY2000, 2001, 2002, 2003. Blue Water Solutions CONFIDENTIAL
  36. 36. The question is … 36 Where are you today and where do you want to be tomorrow? Can you articulate your strategic competitive advantage in one sentence? Which of the 15 aerospace sub-industries should you invest R&D, marketing & sales resources in - and when and - in what order and - in what geographies? Which strategic forces are driving change in each sub-industry and geography? Which bundle of process and technology services are most attractive in each sub-industry and in which geographies? Which bundle of process and technology services are “cost of doing business” / low margin commodities vs “cost of winning business” / high margin innovations? Which strategic position (Best Product, Total Solution, System Lock-In) can you pursue and which should you pursue and how? Who could / should you partner with and develop alliances with? What should your branding image be and how can your marketing material address the various strategic forces? What is your go-to-market plan and schedule and how do you align marketing and the sales force in order to be ready to execute? Blue Water Solutions CONFIDENTIAL
  37. 37. Our approach is … Strategy is a cyclical analytical continuous improvement process 37 Successful companies have a well defined 3 Strategy Formulation process to continuously Strategy sense, interpret, decide and respond (SIDR) to Hax: Bonding Theory industry change across multiple long view 4 Competition Analysis Industry Competitive scenarios. Porter: Forces Model Structure Positioning 2 Industry Analysis Schwartz, Lindgren, Kim & Mauborgne: Blue Ocean / Scenarios Governance 1 Set the strategic agenda S Haeckel, Cebrowski, Bradley & Nolan: Sense Successful companies 5 Target customer value have architected their Peters, Keen, Smith & Khalsa: Focus P T businesses to be agile 6 Open collaboration (plug and play) in order to Womak, Harry & Breyfogle: 6σ / Lean O 7 Peer innovation efficiently adapt to Kanter, Christensen & Gottfredson: Collaborate change, to effectively take advantage of unique Critical Success (CSF) situations and to 8 Values & Metrics continuously measure Key Process (KPI) Senge, Kaplan & Norton: Balance and mature capabilities. 9 Sense & ObserveOODA: Decide, Act Observe, Execution S Orient, John Boyd, COL/USAF ret. 10 Interpret & OrientSIDR: Sense, Interpret, Decide, R I 11 Decide Respond - Stephen P. Bradley & Richard L. Nolan; D 12 Respond & Act Stephan H. Haeckel Blue Water Solutions CONFIDENTIAL
  38. 38. 38 Blue Water Solutions, Inc Accelerating the future of Aviation Maintenance 2235 Bent Creek Manor Alpharetta, GA 30005 O: 678.524.8289 F: 770.777.4759 E-mail: info@avioxi.com www.avioxi.com Blue Water Solutions CONFIDENTIAL