Elements Of Aircraft Maintenance Reserve Development Iata Mcc
1. Presented By:
Shannon Ackert
Vice President, Capital Markets
October 20th, 2010
Maintenance Cost Conference
1IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
2. Jackson Square Aviation, LLC Overview
Jackson Square Aviation is a global
commercial aircraft lessor headquartered
in San Francisco, California
2IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
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
3. Agenda
3
1. Significant Maintenance Events
2. Maintenance Reserve Parameters
3. Maintenance Reserve Escalation
4. Maintenance Reserve Development
I. Appendix A – Maintenance Reserve Information Resources
II. Appendix B – Maintenance Costs & Reserve Rates
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
4. • Heavy Structural
Inspection (HSI)
• C-Checks
• Performance Rest
• LLP Replacement
Mtx EventsEquipment
• APU Restoration
• Landing Gear
Overhaul
Airframe
Engine
Components
Hard-Time
Mtx Interval Process
Condition-Monitored
Hard-Time
Condition-Monitored
Hard-Time
1.0 – Significant Maintenance Events
4IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
5. Variable Cost
Fixed Interval
Airframe HSI
Landing Gear Ovhl
Fixed FC Interval
Fixed Cost Engine LLP
Replacement
Event Application
Engine Module &
APU Restoration
Reserve Equation Comments
• Variability in costs, which
can be difficult to predict if
equipment is new or ageing
• Predictable, very little
variability in both costs
and time on-wing
• 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
2.0 – Maintenance Reserve Parameters
5IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
Variable Cost
Variable
FH Interval
6. Source : Boeing
3.0 – Maintenance Reserve Escalation
6IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
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) Index
3. Computed Using OEM escalation formula – weighted using labor &
material Indices (ECI – Labor & PPI - Material)
7. 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” factor
escalations: 10% - 15% per phase.
II. Flight Cycles
• Cost may be increased to
account for high cycle operation.
Routine
Non
Routine
Newness
< 6 Years
Maturity
6 – 15 Yrs
Aging
> 15 Years
Non
Routine
Non
Routine
Routine Routine
4.0 – Maintenance Reserve Development
7IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
8. 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
8IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
9. I. 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
4.0 – Maintenance Reserve Development
9IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
10. 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
10IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
4C/6YR Check Escalated
15% off First-Run Costs
Both 4C/6YR & 8C/12YR Checks
Escalated 10% off Mature-Run Costs
Elements of Aircraft Maintenance Reserve Development
11. 4.0 – Maintenance Reserve Development
II. 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”.
11IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
12. 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
4.0 – Maintenance Reserve Development
12IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
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
13. 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.
13IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
14. Mean-Time
BetweenRemovals
5,945 FH - MTBUR
5,495 FH - MTBR
6,450 FH - MTBCR
12-Mo Rolling Averages
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 = $36 / APU FH
14IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
15. 4.0 – Maintenance Reserve Development
15
IV. Engine Performance Restoration
Cost Factors
I. Engine Build Goals - Tend be influenced by business decisions,
and based on:
a) Maximizing usage of LLP hardware, which often leads to lower
shop visit costs but higher DMC ($ / FH), or
b) 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.
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
16. 4.0 – Maintenance Reserve Development
16
IV. Engine Performance Restoration
Cost Factors
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
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 $/FH
Replace No LLPs
Build to 7,000 FC
Replace Core LLPs
Build to 10,000 FC
17 7 7 12 17 20 20 12
I. Engine Build Goals – Example
First Run TOW = 13,000 FC / 26,000 FH 30 20 20 25
At Shop Visit :
Maximizing usage of LLP hardware Minimize Number of Shop Visits
Engine LLP Status @ EIS
17. 4.0 – Maintenance Reserve Development
17
IV. Engine Performance Restoration
Cost Influencing Factors – continued
II. Age – rates reflective of first & mature-run status
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
As Engine Ages
Hardware Deterioration
Rate Increases
Higher Maintenance
Costs
1st SV
2nd SV
3rd SV
20,000 FH 16,000 FH 15,000 FH
Elements of Aircraft Maintenance Reserve Development
18. EGT
Margin
Loss
(˚C )
2,000 4,000 6,000 8,000 10,000
Flight Cycles
2,000 4,000 6,000 8,000 10,000
Flight Cycles
Same Engine Goes Into Shop
EGT Limit
EGT Limit
Time On-Wing – High Thrust Rating Time On-Wing – Low Thrust Rating
Flight Cycles Flight Cycles
Same Engine Goes Into Shop
Time On-Wing High Thrust Time On-Wing Low Thrust
EGT Limit
EGT Limit
10,000 FC
EGT
Margin
Loss
8,000 FC
4.0 – Maintenance Reserve Development
IV. Engine Performance Restoration
Time On-Wing Factors
I. Engine Thrust Rating - Increasing Thrust > Higher EGT
Deterioration > Lower Time On-Wing
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Elements of Aircraft Maintenance Reserve Development
19. 4.0 – Maintenance Reserve Development
IV. Engine Performance Restoration
Time On-Wing Factors - continued
II. Engine Flight Leg
19IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
Cruise
1 FH
Cruise
3 FH
Flight Profile = 1.0 Flight Hour per Flight Cycle
Flight Profile = 3.0 Flight Hours per Flight Cycle
1 FH 1 FH
20. Flight Leg (Hours)
Cost$/FH
Greater Flight Leg
Lower
DMC
Increasing Flight Leg
Lowers EGT
Deterioration
Higher Time On-Wing
4.0 – Maintenance Reserve Development
IV. Engine Performance Restoration
Time On-Wing Factors - continued
II. Engine Flight Leg
Increasing Flight Leg
Lowers EGT Deterioration
Greater Flight Leg
Lower
DMC
Cost$/FH
Flight Leg (Hours)
Higher Time On-Wing
and Lower Cost $ / FH
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Elements of Aircraft Maintenance Reserve Development
21. 4.0 – Maintenance Reserve Development
1.0 2.0 3.0 4.0
Flight Leg (Hours)
0%
10%
20%
Increasing Derate = Lower Thrust
1.5 2.5 3.5
Cost$/FH
Increasing
Derate
Lowers Thrust &
EGT Deterioration
Higher Time On-Wing
Increasing Derate
Lowers Thrust and
EGT Deterioration
Higher Time On-Wing
and Lower Cost $ / FH
Cost$/FH
Flight Leg (Hours)
5% Derate
10% Derate
Increasing Derate = Lower Thrust
15% Derate
IV. Engine Performance Restoration
Time On-Wing Factors - continued
III. Engine Derate
21IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
22. 4.0 – Maintenance Reserve Development
IV. 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.
22IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
23. Lowest
Medium / Low
Medium
High
Highest
Colors highlight severity
and rate of occurrence of
distress
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
24. 1.0 1.5 2.0 2.5 3.0
1.0
10% Derate
SeverityFactor
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
24IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
IV. Engine Performance Restoration
Example – Severity Curve
Elements of Aircraft Maintenance Reserve Development
25. 4.0 – Maintenance Reserve Development
25
IV. Engine Performance Restoration
Example – CFM56-7B26 Restoration Calculation
Base Operation : 2.0 Flight Leg / 10% Derate / Temperate Region
Base Rate : $80 / FH
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010
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
Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
26. 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.
26IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
27. 4.0 – Maintenance Reserve Development
27
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.
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
28. 4.0 – Maintenance Reserve Development
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V. Engine Life Limited Parts (LLP) Replacement
Stack Cost
IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
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
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
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.
29. 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.
29IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
30. Appendix A – Sources of Maintenance Reserve Metrics
1. Maintenance Reserve Claims – Example Performance Restoration
30IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
Elements of Aircraft Maintenance Reserve Development
31. Appendix A – Sources of Maintenance Reserve Metrics
Elements of Aircraft Maintenance Reserve Development
2. OEM Conferences & Publications
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3. Commercial Publications
34. 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
34IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation
35. 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
35IATA Maintenance Cost Conference, Abu Dhabi, UAE October 20th, 2010Jackson Square Aviation