AFM Issue 91 by AFM Magazine

The business and financing of airline operations AIRLINE FLEET MANAGEMENT

Interview: SAS’ VP of fleet 737-800: Ripe for conversion? Up-cycling aircraft When to teardown your engine

What to do when time’s up for your aircraft ISSUE 91 July–August 2014

Published by

July–August 2014 Issue 91 www.afm.aero

Editor Mary-Anne Baldwin mary-anne@afm.aero +44 (0)208 831 7511 Contributors Jonny Williamson, Justin Burns, Martin Roebuck and Neelam Matthews. Advertising Manager Ellis Owen ellis@afm.aero +44 (0)208 831 7519 Editorial Director Joe Bates joe@aviationmedia.aero Design Erica Cooper erica@afm.aero Andrew Montgomery andy@afm.aero Website Jose Cuenca jose@aviationmedia.aero Published on behalf of MRO Network by Aviation Media Sovereign House 26-30 London Road Twickenham, TW1 3RW, UK Managing Director & Publisher Jonathan Lee jonathan@aviationmedia.aero AFM IS A FULLY AUDITED MAGAZINE Website: www.afm.aero

Foreword From a child’s favourite teddy bear to your most comfy shoes or fail-safe pair of jeans, it’s gutting when a reliable favourite is no longer good for anything but the bin. Imagine what that feels like when your favourite toy is a 737. Having to let go of an aging aircraft can be not only frustrating, but extremely pricey. Your replacement aircraft is going to cost a lot so it’s important that you get the optimum return from your old asset. Thankfully, there are a lot of options, many of which we explore in this issue. On page 18, we look at the innovative ways in which teardown companies are ‘up-cycling’ scrap into things you may never have thought possible. From scenery for a roller coaster ride to bird houses, magazine racks and bar stools, these guys are proving there’s a whole world of opportunities for your unloved aircraft.

AIRLINE FLEET MANAGEMENT (ISSN 1757-8833) Online: 1757-8841 (USPS 022-324) is published bi-monthly by UBM Aviation Publications Ltd and distributed in the USA by SPP, 95 Aberdeen Road, Emigsville PA. Periodicals postage paid at Emigsville, PA. POSTMASTER: send address changes to AIRLINE FLEET MANAGEMENT, c/o PO Box 437, Emigsville PA 17318.

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Later in the magazine (page 26), the Aircraft Fleet Recycling Association (AFRA) highlights the need for new recycling models and AviaAM Leasing assesses the decisions involved in choosing when to restore, convert or scrap your aircraft (page 22). We provide a full report on AEI’s upcoming 737-800 cargo conversion programme (page 39), examining how these aircraft – many of which are increasing in age and decreasing in value – are drawing closer to retirement.

We also speak to MTU, ELFC and Aerfin to find out more about the engine teardown market and all the considerations an engine owner must work through (page 45). In short, the many options boil down to three key ones – teardown, re-lease or covert. But the issues around each option are numerous. An asset owner must decide where the asset’s value lies, what the state of the market for converted freighters, engines or certain parts is like. If it is to re-lease, it must look at lease rates, aircraft demand and MRO costs. The concerns are so complex they can be paralysing. But here’s the crunch; stay immobile for too long and you’ll watch the value drain from your asset. Aren’t you pleased you’ve got this issue of to help?

Editor Mary-Anne Baldwin

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afm • Issue 91 – July–August • www.afm.aero

The business and financing of airline operations AIRLINE FLEET MANAGEMENT

Interview: SAS’ VP of fleet 737-800: Ripe for conversion? Up-cycling aircraft When to teardown your engine

What to do when time’s up for your aircraft ISSUE 91 July–August 2014

Published by

July–August 2014 Issue 91 www.afm.aero

Issue 91 July –August

In this issue

03 8 14

Foreword

NEWS ROUND UP

The latest on deals, mergers, appointments and more.

14 18

FOCUS

One to one: Niklas Hårdänge

18 22 26

Niklas Hårdänge, VP of fleet management at Scandinavian Airlines, talks to Mary-Anne Baldwin about the airline’s fleet development plans.

FLEET OPERATIONS

Up-cycling an aircraft

From a theme park ride to films, or turning a fuselage into furniture, Mary-Anne Baldwin looks at innovative ways to re-use end-of-life aircraft.

Finding the balance: When to restore, convert or scrap AviaAM Leasing and its CEO, Tadas Goberis, search for the right time to convert an aircraft.

Model approach: New methods in aircraft recycling AFRA’s communication manager, Martin Todd, examines plans to create new models that will enhance the European aircraft dismantling and recycling sector.

afm • Issue 91 – July–August • www.afm.aero

CONTENTS

30 34

TRADING, LEGAL AND FINANCE

Asia’s aviation market Mary-Anne Baldwin reports from the International Society of Transport Aircraft Trading (ISTAT) conference in Hong Kong where industry specialists provided their view of the Asian aviation market.

BFE: Its impact on delivery and values

39 45

BFE decisions can have an impact on the on-time delivery of aircraft, and also on longer-term asset values. Careful selection of BFE can help to protect value for operators, investors and lessors. Thomas Naughton, technical project manager at Santos Dumont, explains.

MAINTENANCE OPERATIONS

The 737-800: Is it ripe for conversion? In time for a new 737-800 PTF conversion programme, Martin Roebuck examines the market for converted 737-800 aircraft.

Engine teardown: When’s the right time?

Engine teardown is a complex issue. Owners must consider the value of the engine, its parts, and the market for each. Choosing when to tear down an engine can feel like playing Russian roulette. Neelam Mathews reports.

DATA

Industry data

Data including: Aircraft deals and orders; aircraft list prices and lease rates; engine market values; and lease rates.

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NEWS

US blocks Norwegian’s bid to break long-haul

he US House of Representatives has blocked Norwegian Air Shuttle’s low-cost international subsidiary from launching services between London Gatwick and the US in July. Norwegian Air International (NAI) plans to offer revolutionarily low fares on long-haul flights between Europe and US destinations, such as New York, Los Angeles and Orlando. However, the US has approved legislation that would prevent it from doing so, arguing that the carrier would break international labour laws. It says NAI’s operating model violates the Open Skies agreement as it allows unfair competition. In a statement, US congressman, Peter DeFazio, explained that its ruling would “help protect American jobs from unfair competition by NAI – which plans to register its aircraft in Ireland, a country with less stringent labour laws and regulation – and outsource pilots and crew to countries

with a cheaper, less experienced workforce, which will undermine safety”. The airline argues that it meets all the legal requirements under the Open Skies agreement, and that the US’ rebuttal therefore breaks the international agreements to allow open travel between countries. NAI can register its aircraft in Ireland because it has an Irish operating licence. It has been waiting for an American operator’s licence since February. It said in a statement: “As a licensed carrier of the European Union, Norwegian meets all the legal, safety and operational requirements to serve the United States – and we fully intend to do so in the near future.” It said it was “disappointed” with the legislation but added: “As with anything new and innovative, Norwegian expected opposition from entrenched interests, and we will continue undeterred in the pursuit of our goal of serving the United States.”

NEWS IN BRIEF Wizz Air scraps plans for IPO Wizz Air is abandoning plans to sell shares worth €200m ($273.3m) on the London Stock Exchange, citing poor market conditions. The Hungarian LCC was going to use the IPO proceeds to strengthen its balance sheet, fund its future expansion and pay for new assets. The airline said that “despite the positive response to our business strategy and the company’s growth opportunities and prospects” it had decided not to proceed with the IPO “due to market volatility in the airline sector”. The airline remained upbeat for the future, adding: “The outlook for Wizz Air’s business remains extremely positive and unaffected by the decision not to proceed with an IPO”.

China Eastern orders 80 737s Boeing has confirmed an order from China Eastern Airlines worth almost $8bn at current list prices. The order includes 20 737 NGs and 60 737 MAXs. In a recent stock exchange filing, the airline stated that it plans to sell 15 ageing 737-300s and five 757 jets back to Boeing, with a book valuation of almost $250m. Boeing’s commercial VP of sales and marketing for north-east Asia, Ihssane Mounir, said: “We look forward to making history with China Eastern as they are poised to make the largest purchase for single-aisle airplanes by a Chinese airline.” Delivery of the aircraft will occur between 2016 and 2020.

Mystery of disappearing aircraft More than a dozen flights vanished from radars for almost half an hour, according to Austria’s flight safety monitor. The 13 aircraft disappeared from air traffic controllers’ radar screens in Austria on 5 June and 10 June, said Austro Control’s Marcus Pohanka. Unseen for 25 minutes on each day, traffic controllers in neighbouring Germany (Karlsruhe and Munich) and the Czech Republic (Prague) also reported similar troubles. Pohanka didn’t disclose which airlines and aircraft were involved. He hinted that some could have been passenger jets due to the height they were flying, but said there was no danger at any time. Eurocontrol and European Aviation Safety Agency (EASA) have been called in to investigate.

afm • Issue 91 – July–August • www.afm.aero

NEWS

Boeing buys up new business Boeing is to expand its products and services with the purchase of two aviation companies, ETS Aviation and AerData. Bristol-based ETS Aviation provides fuel-efficiency analytics software. The company provides more than 120 airlines and corporate flight departments with the tools to monitor fuel consumption, identify fuel savings opportunities, and track and report carbon emissions. It will join the Jeppesen UK subsidiary of Boeing when the deal is completed, which is due to happen in the second quarter. “Boeing is focused on creating a competitive advantage for our customers,” said Stan Deal, SVP of Commercial Aviation Services at Boeing Commercial Airplanes. “Adding these fuel-efficiency tools enhances the edge we provide customers, helping airlines realise greater operating and environmental efficiencies.” The OEM will also purchase Netherlands-based AerData, which provides integrated software solutions for lease management, engine fleet planning and records management. With it, it will expand its aircraft maintenance and leasing records management capabilities. Deal explains: “AerData’s tools make it easier for airlines and leasing companies to manage complex maintenance records. “Increasing the efficiency of records management helps streamline the process of placing airplanes and other valuable assets with operators during leasing transactions.”

AWAS increases its credit facility AWAS has increased its first unsecured revolving credit facility from the original target of $300m to $435m. Ray Sisson, president and CEO of AWAS, commented: “We are very pleased with the continued support and confidence that the capital markets have shown AWAS. “We will continue our high-yield focus, which we have proven over the past three-plus years is a sustainable growth model.” Twelve lenders, six of which are new to AWAS, have committed to the facility. The transaction was supported by commitments from four joint lead arrangers: Royal Bank of Scotland; RBC Capital Markets; DBS Bank; and BNP Paribas.

IATA lowers airline profit forecast A deteriorating economic environment, decreased world trade and a dip in business confidence has seen IATA cut its airline profit projection by $700m to $18bn. Concerns over China’s economic growth and various geopolitical risks have compounded industry apprehension, although IATA has stated that “economic prospects are expected to improve as the year progresses.” Speaking at the 70th IATA AGM and World Air Transport Summit in Doha, Qatar, Tony Tyler, director general of IATA, stated that “aviation is a catalyst for economic growth”, but currently there is a “mis-match between the value that the industry contributes to economies and the rewards that are generated by those who risk their capital to finance the industry”. Amid improved airline performance, strong passenger growth and increased connectivity, the CEO said that sustainable solutions still needed to be found in regard to “strong headwinds from rising infrastructure costs, inefficiencies in air traffic management, a heavy tax burden and costly regulation. “Governments should understand that the real valuation of aviation is the global connectivity it provides and the growth and development it stimulates, not the tax receipts that can be extracted from it,” he added.

Ryanair issues €850m bond Ryanair has issued its first ever Euro bond debt insurance as part of its plans to source low-cost financing. Ryanair is planning to access the debt capital markets ahead of deliveries of its new 180 737-800NG order, due to start in September. The airline is aiming to grow by 40 per cent over the next five years to more than 110 million passengers per annum. Fixed at 1.875 per cent for seven years, the bond will be listed on the Irish Stock Exchange. Ryanair’s CFO and deputy CEO, Howard Millar, commented: “The bond was more than eight times over-subscribed that reflects very strong demand from investors right across Europe.”

Avolon files for proposed IPO Avolon is reportedly planning an initial public offering (IPO) of its common shares. The global aircraft lessor’s offering will be made only by means of a prospectus. Copies of the prospectus may be obtained from any of the three companies named as joint book-running managers. These companies include: JP Morgan Securities, Morgan Stanley & Co and Citigroup Global Markets. A registration statement relating to the offering has been filed with the Securities and Exchange Commission, but has not yet become effective. The exact number of shares to be sold and the price range have yet to be determined.

afm • Issue 91 – July–August • www.afm.aero

NEWS

Emirates cancels order for 70 A350s Emirates has cancelled its order for 70 A350s, wiping billions off Airbus’ books and putting its aircraft programme under the microscope. The aircraft were first ordered in 2007 when the total list price stood at $16bn, however they are currently listed at a collective $22bn. The decision will also cut the A350’s order book by 10 per cent. Yet, Airbus’ chief operating officer of customers, John Leahy, was bullish when he spoke privately at the Airbus Innovation event in Toulouse. “We rarely have cancellations on the A350. If you look at our order book, I think we now have around 150 cancellations, and that’s including this 70… I’m not anticipating any more,” he said. The A350 will enter into service with its first delivery in about six months, but Airbus has said it is confident it can substitute the orders before Emirates’ planned deliveries start in 2019. “I think our finance department and our production people would be worried if we had planes delivering next year, or the year after. But five years out to 2020? No, that won’t have any impact,” he said. Indeed, just hours after the announcement, he boasted that he’d received interest from prospective customers. “In terms of those order positions, especially those early ones, there’s already

a queue of people – the announcement was made a couple of hours ago. They are already expressing interest in those slots”. Rolls-Royce, the A350’s engine maker, will also take a $4.4bn (or 3.5 per cent) hit to its programme, yet it echoed Airbus’ resilience. “While disappointed with this decision, we are confident that the delivery slots, which start towards the end of this decade, vacated by Emirates, will be taken up by other airlines,” Rolls-Royce said in a statement. The airline cancelled the order following a fleet review. It sees a greater need for the larger A380 and has been pushing Airbus for an upgrade of the aircraft. When asked whether the cancellation was the price for saving the A380 programme, Leahy replied: “I think Tim [Clark, Emirates’ CEO] has made it very clear that the A380 is his best airplane, his most profitable airplane. He’s talking about buying more of them. He’s encouraging us to re-engine the aircraft”. “It’s never good news when someone cancels an order, but if he’s [Clark] doing it because his fleet planning needs have changed and he’s looking for aircraft of different size categories, I don’t think that it will have any impact at all.” Leahy said the company is not currently planning to re-engine the A380 but admitted: “When your largest customer is encouraging you to study it, we, of course, will study it.”

NEWS IN BRIEF Delta orders 15 A321s Delta is hoping to enhance customer experience and shareholder value by replacing retiring jets with 15 new A321 aircraft. With an estimated delivery date of early 2018, the new A321s will replace similar, lessefficient domestic aircraft that Delta is retiring from its fleet. The carrier now has 45 A321s on order, with the first due to start service at the beginning of 2016. To finance the order, the airline aims to reinvest 50 per cent of its operating cashflow back into the business, resulting in $2bn to $3bn of capital expenditures annually through 2018, with $2.3bn planned for 2014.

NEO engine passes stress test Pratt & Whitney’s PurePower Geared Turbo-Fan (GTF) engine has passed another important milestone on its way to certification. Over a two-month period, German engine manufacturer, MTU, conducted the trial and fitted 400 measurement sensors to collect data during more than 20 hours of testing. Complex telemetry runs are a mandatory requirement for official certification, serving to measure the vibrational stress acting on the blades, thermal load and temperature distribution. Director, programme management, PurePower PW1100G-JM, Oskar Schnell, stated: “The stress test went well, all of the test results have matched our predications, and in fact we finished ahead of schedule.”

afm • Issue 91 – July–August • www.afm.aero

FAA extends 787 approval The US Federal Aviation Administration (FAA) has approved additional extended twin operations (ETOPS) for the 787 Dreamliner. The move will allow 787s to be operated for up to 330 minutes from a landing field and signals continued confidence in the Dreamliner’s technical capabilities. Dreamliners have been allowed to operate up to 180 minutes away from a landing field since they were introduced into service in 2011. Granting of the expanded operational permission will allow airlines to introduce additional routes after they meet the proof of capabilities requirements and receive approval from their own regulatory agencies for such operations.

NEWS: People

On the

move

ATR appoints new CEO

Jet Airways hires new CEO

Humphreys becomes BATA CEO

ATR has named Patrick de Castelbajac as its new chief CEO. Castelbajac succeeds Filippo Bagnato, whose four-year term expired at the end of May. Prior to being appointed as CEO in 2010, Bagnato had held the role between 2004 and 2007. Castelbajac brings with him a wide variety of industry experience having started his aviation career at MBDA (previously Aerospatiale Missile). In 2002 he joined Airbus’ legal affairs division where he became VP for purchasing and intellectual property in 2007. His most recent role was as head of contracts negotiations for Airbus commercial.

Jet Airways, which has been without a CEO since January, has appointed Cramer Bell to the position pending regulatory approvals. The Australian national previously worked as the CEO of Air Seychelles; he has also held senior management roles at Gulf Air, Qantas Airways and Kendell Airlines. Jet’s acting CEO and CFO, Ravishankar Gopalakrishnan, resigned with immediate effect. He had taken over additional responsibility as CEO after the departure of Garry Toomey in mid-January. Jet also announced it would be taking “tough measures” to re-shape the airline and return to profitability after reporting a record quarterly loss in 4Q to the end of 31 March, of $366.5m.

The British Air Transport Association (BATA) has appointed Nathan Stower as its new CEO. He is currently head of public affairs at the Association of Train Operating Companies, and will join on 18 August, taking over from the retiring Simon Buck. Barry Humphreys, chairman of BATA, explains: “I am delighted that Nathan has agreed to join BATA and lead the organisation over the coming years. There is no shortage of challenges facing UK airlines and I have no doubt that Nathan will be able to play a leading role in meeting them and taking BATA to a new level”.

Rovinescu becomes IATA chairman

Airberlin appoints new COO

The International Air Transport Association (IATA) has announced that Calin Rovinescu, president and CEO of Air Canada, has assumed his duties as chairman of the IATA Board of Governors for a one-year term. The appointment is effective immediately. Rovinescu succeeds Richard Anderson, CEO of Delta Air Lines, whose one-year term expired at the conclusion of the association’s 70th AGM and World Air Transport Summit in Doha, Qatar. IATA also announced that the board of governors appointed Andres Conesa, Aeromexico CEO, to serve as chairman from June 2015 following Rovinescu’s term.

Helmut Weixler will become airberlin’s COO from 1 August 2014. Taking over from Helmut Himmelreich, Weixler will also assume the role of accountable manager. Having previously held various leadership positions at airberlin between 2007 and 2011, Weixler’s most recent role was overseeing flight operations and quality control at Qatar Airways. With Himmelreich reportedly departing for personal reasons, Oliver Lackman will take over the position of accountable manager on a temporary basis until 1 August.

afm • Issue 91 – July–August • www.afm.aero

ASI welcomes key leaders Aviation Strategies International (ASI) has made two key senior appointments in its leadership team. Gordon Hamilton has joined as SVP of business operations, while Maxime Langlois has been appointed as director of corporate services. Hamilton has been involved in the aviation industry since 1969 and his previous roles have included project managing in a range of roles for the Airports Council International and the International Air Transport Association. Langlois joins ASI with more than 12 years of experience in the fields of hospitality and international relations for the likes of the United Nations, INTERPOL, the Department of Foreign Affairs and International Trade of Canada.

FOCUS: SAS

One to one: Niklas Hårdänge Niklas Hårdänge, VP of fleet management at Scandinavian Airlines (SAS), talks to Mary-Anne Baldwin about the airline’s fleet development plans.

Take us through SAS’ current aircraft fleet. We have 139 aircraft in operation in SAS and Blue1, the 100 per cent owned subsidiary of SAS. Blue1 operates nine Boeing 717s and we have 12 long-haul aircraft in a mix of A330-300s and A340-300s.

we also have a regional operation consisting of 12 CRJ900s.

The short-haul fleet is divided among our three major bases: Oslo Airport [OSL] has 737 NGs; Stockholm Arlanda Airport [STO] has 737NGs; and Copenhagen Airport [CPH] has the A320 Family. At Copenhagen,

The MD80 and 737 Classic does not operate any more in SAS. The MD80s are being delivered to Delta, one per month, with six remaining. Regarding the 737 Classic, they are being returned to lessors, with three still remaining.

SAS wet-leases 14 aircraft as well; a mix of turboprops and RJs [regional jets] to support our bases in CPH and STO.

afm • Issue 91 – July–August • www.afm.aero

FOCUS: SAS We are still the second-biggest 737 NG operator in Europe [for 2014] and believe we have an efficient, modern fleet. During the last few years, the fleet has been simplified and modernised through the withdrawal of MD80s and 737 Classics, and we have one short-haul aircraft type per production base. We will continue to modernise the fleet and have an A320 Neo order and a renewal of the widebody fleet on the way soon. We have lowered our cost dramatically in the last few years and we expect to continue to make our operation more efficient, bringing the cost down even more. What are your oldest aircraft? How and when will you be looking to divest them? Our oldest aircraft in operation is a 737-600 from 1998. It will most likely operate until 20 years old, and at that time it will be sold as a whole or parted out.

For the Neo order, we see the benefits with the new engine technology and other improvements giving us a new workhorse for shorter and longer European routes. For the widebody order, it´s a modernisation of our current mix of A340s and A330s. We will benefit from the increased MTOW [maximum takeoff weight] that will make the A330 more capable for the longer long-haul routes. We think the A350-900 will be a great aircraft with good economics, and that it will be popular among investors and lenders, which is important to us. Do you get customer demand for, or feedback on, certain aircraft? If so, which aircraft and what is the feedback? We did get a lot of comments on the MD80, mostly positive. There is more feedback on cabin interior, and seats, and quality of service than of aircraft type.

Niklas Hårdänge, VP of fleet management at Scandinavian Airlines

During the last few years, the fleet has been simplified and modernised What is your future fleet strategy? We have a good fleet mix today with aircraft coming in and out, and we have orders taking us to about four to six years in the future. How are you looking to finance your future aircraft deliveries? We aim to have a mix of buying and leasing. We will choose the financing that is most suitable at the time of delivery. We have done a lot of sale and leasebacks and we also investigate EETCs and can use ECA financing in some cases.

You have an interesting mix of aircraft, including the CRJ and other regional jets. Please list your regional jet fleet and explain why you’ve chosen these for your operations. SAS operates 16 CRJs. We own 12 CRJ900s and operate them ourselves. Then an additional four CRJ200s are on wet lease from Cimber. The reason for the CRJ900 operation is that we have a demand for an efficient RJ in Copenhagen, operating on thinner routes or at off-peak times on bigger routes. It’s also an important part of our long-haul feeder system.

We have done a lot of sale and leasebacks in Japan. That might be further developed, but we will also look to other sources. EETC is interesting and will be considered.

Why have you chosen such a diverse fleet? There will be further simplification, but A330s and A340s for long-haul, and 737 NGs and A320s for short-haul, supported by some RJs, and wet-lease, is a quite good fleet mix, I think.

What’s the line of thought behind selecting the particular aircraft models you have ordered? SAS has orders for 30 A320 Neos, four A330-300s and eight A350-900s. At the time of the decision, these types were the winners.

Does a lack of fleet continuity cost you in any way, such as in higher pilot training or MRO costs? We have one short-haul type and base, so the additional cost is not that high.

afm • Issue 91 – July–August • www.afm.aero

FOCUS: SAS

How many of your aircraft are/will be leased? That depends on market conditions and competitiveness of offers, but we aim to have 50 to 70 per cent of our aircraft on lease. Would you be interested in the proposed A330 Neo for your operations? Probably not, as we already have orders for the A330-300 with the increased MTOW, 242 tons and an A350-900 order. Are you interested in investing in any other new or upcoming aircraft, such as the CSeries, C919 and/or MRJ? We are not ruling that out, but it does not really fit into our strategy. It could be interesting for wet lease. What would you like to see developed in terms of airframe and engine offerings? Larger, efficient turboprops. There seems to be less and less regarding fuel efficiency developments on the smaller aircraft. You’ve cited over-capacity in certain markets and have trimmed your full-year profit forecast. Will you be adjusting routes and/or altering your fleet as a result? There’s been a lot of new capacity being put into the market, putting pressure on cabin factor and yields. We are making some adjustments and expect less growth this year. We estimate four per cent ASK [available seat kilometres] as growth.

Have you changed any routes recently? What new routes are you planning to add, and which aircraft will you use them on? SAS has more leisure routes operated by 737-800 and A320s, and more short routes operated by wet-leased ATR72-600s. SAS is introducing new routes as we gain capacity through productivity increases. SAS continues to increase the number of routes to attractive holiday destinations from Scandinavia. For the winter, SAS is launching seven new routes, with four routes going to holiday destinations in Spain. At the same time, 20 summer routes will continue on the winter timetable. SAS will actually launch a total of 53 new routes in 2014. Do you use pooling schemes for any of your parts or engines? No, and we don’t have any plans to do so. In what way does your fleet give SAS the competitive advantage? In the Nordic environment, a mix of smaller and bigger short-haul aircraft is an advantage. The frequent traveller expects frequency and smooth transfers. We have a mix of smaller jets, i.e. 737-600s and bigger jets, i.e. 737-800s. In that way we can give the customer more frequency than our LCC competitors.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Up-cycling aircraft

Up-cycling an aircraft From a theme park ride to films, or turning a fuselage into furniture, Mary-Anne Baldwin looks at innovative ways to re-use end-of-life aircraft.

f you’ve any interest in home décor, you’ll probably be familiar with the trend for up-cycling – that’s turning old junk into something new and desirable. It’s seen wine bottles turned into drinking glasses and suitcases into coffee tables, but recently, UK designer and TV presenter, Kevin McCloud, took it many steps further by asking “What can we make out of an A320?” The UK’s Channel 4 documentary, Kevin’s Supersized Salvage, showed the presenter and his team of three designers use aircraft parts to create new items, from rickshaws to rocking chairs and from storage to jewellery. The challenge was to use each and every part of the plane, leaving nothing for scrap. While an A320 of its vintage is worth between $1m and $3m, the scrap value of this plane was £15,000. Because of its value, it was not the prime candidate for up-cycling were it done just for profit, but this project was also about design innovation. And, thankfully, it had a generous contributor. As the CEO of an AFRA-accredited teardown company, Sycamore Aviation, Kevin O’Hare had access to the aircraft and the means to disassemble it – both of which he gave without charge.

From fuselage to furniture Sycamore Aviation removed around 2,000 potentially airworthy parts and cut the aircraft into manageable pieces, which were then put on a low loader and transported to a workshop near Wembley, London. There, the designers transformed the components into weird, wonderful and stylish pieces. While most aircraft parts have their own inherent value – either in the aftermarket or as scrap – such innovative up-cycling could create a new market for otherwise unusable aircraft parts.

Indeed, aircraft parts lend themselves to today’s trend for industrial design, and what the presenter, Kevin McCloud, and his team did with them was really rather special. McCloud wanted the finished pieces to look different from the plane itself and its parts. “It’s very important that we don’t take bits of the plane, polish them up and just sell them as a paperweight,” he says. And the team – including its three designers – certainly achieved that. Paul Firbank, salvage designer, makes household objects, such as lights, from industrial equipment. Harry Dwyer, designer and electronics engineer, makes more ‘fanciful’ pieces and was the brains behind creating a rickshaw and rocking chair from the components. Lastly, there’s Max McMurdo, who calls himself an up-cycling entrepreneur. “Max’s approach is entirely different again,” says McCloud. “He takes sections of the plane and turns it into buildings”. One of McMurdo’s finished pieces was a beautiful polished gazebo made from strips of windowed fuselage. Bird boxes were made from air-conditioning ducting, while a tray table was turned into a magazine rack – complete with a cup holder. Other objects, such as a desk lamp made from seat frames, were completely unrecognisable from their original parts. The programme not only showed the teardown, planning and manufacture of these fresh design pieces, but also how the finished products were marketed and sold to the general public. In fact, the televised project drummed up some real business. A new bar and club in London took about 100 bar stools made from the parts. “The interior designer who bought them would love more of this type of stuff on a commercial scale,” says O’Hare.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Up-cycling aircraft

“We will look to keep doing this for maximum recyclability, and not just melting down for tin cans but for a worthwhile use. We think there is an actual commercial venture in providing this material. Even if we don’t continue with the full airframe, we will certainly start with a select number of items and materials,” adds the teardown CEO. He has also been in talks with a high street shop that would like to order a certain part to be made into a household object. “They are looking to purchase them by the thousand if we can do it at the right price on a commercial scale.” The first airing of the show, in late April, couldn’t have been more meaningful. It coincided with the birthday of Katie, O’Hare’s daughter. Both Katie and her dad were at the heart of the project. Now aged five, Katie was diagnosed with cancer and not expected to live past three. “She is still going strong with a very good prognosis after two major operations and a course of chemo,” O’Hare explains. He donated the plane in a bid to raise money for the charity that has supported his daughter’s fight against cancer. Proceeds from the up-cycled objects are going to the children’s charity, Neuroblastoma Children’s Cancer Alliance (NCCA). “I was always hopeful that they would make interesting items and maybe get retailers involved, but the thought of raising money and profile for this small charity clinched it for me, especially as they have helped us as a family over the last three years,” says O’Hare.

Mark Gregory, CEO of ASI, explains that this type of thing “isn’t new”. ASI has sold parts to up-cycling companies for 18 years – the entire life of the company. It works closely with a company called Fallen Furniture, based in Bath, UK. Using parts provided by ASI, it creates furniture and objects such as a clock made from a 747 fuselage, a table made from an exit door and a circular bar made from an engine cowl. But according to Gregory, this part of the business is not very profitable. He believes the Channel 4 programme used only 15 to 20 per cent of the aircraft and is doubtful a whole aircraft could be up-cycled in a cost-effective way. Only about one per cent of ASI’s profit comes from up-cycling parts into furniture. Gregory explains that is because of the amount of man-hours needed to turn a part into a piece of art. “The amount of time and effort that goes into it is tremendous really. And we’re not giving it [the parts] away. Our time involved, to say cut a section and polish it, costs money. “Most people want a three-windowed section that they can put a clock behind, or stuff like that. For that we charge about £200, just for the raw material [which is] a metre long by about 60 centimetres high.” The result of high-cost production is a steep price tag, meaning there are only a limited number of buyers. “It’s not furniture for everyday people,” admits Gregory, although he counters that it’s great for managers, directors and aviation companies. But ASI doesn’t just rely on up-cycling as its only innovative means of business.

Films and theme parks But such innovative uses for aircraft parts aren’t just limited to charity projects; they can create a good return for some companies, and for Air Salvage International (ASI) it has provided sustained business.

The company will soon sell one of its aircraft to Westfield shopping centre in Shepherds Bush, London, which will install it as a flight simulator. It’s taking the front section of an A320 so that customers can try their hand at being a pilot.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Up-cycling aircraft

Thorpe Park’s ride, The Swarm, features an old 737.

It has also supplied the UK theme park, Thorpe Park, with a 737, which it used as scenery for its ride, The Swarm. Passengers board the ride from a dilapidated, boarded-up chapel. The ride spins 180º, drops 127ft and reaches G force 4.5 as it takes them through an apocalyptic scene past a ‘crashed’ plane, helicopter and an up-ended ambulance.

Gregory believes he could have tripled the money made from the aircraft McCloud used for up-cycling by not turning it into furniture. “An A320 would sell for a minimum of £35,000 – and that’s empty. We turn them into simulators for colleges. That one would have been a prime candidate. The flight deck alone would sell for about £25,000.”

The company has also worked with production crews requiring aircraft for films including World War Z and some of the James Bond films.

According to Gregory, ASI would put only five per cent of an A320 into landfill. A training institution might pay £80,000 for the front section of an A320, other parts could be sold and others still could be kept until there was a market for them.

Gregory explains that some crews hire the aircraft and others buy them – and the decision often depends on whether they want to blow it up. Sometimes the crew requests an aircraft with all its working parts, but often it would be stripped of all valuable components first. If the crew wants a realistic interior, then depending on budget, ASI works with the company to strip and replace valuable assets for identical ones that no longer work. He also explains that some companies just want the cabin interior to use for filming scenes that take place on board an aircraft. “We do far more work with those [film and TV] people than we would ever do with people who turn parts into furniture,” he says.

Turnover from training According to Gregory, there are about six UK aircraft dismantling companies, but none are as old as ASI. Its longevity has meant that it has been able to build up a good working relationship with its clients. Not all teardown companies would find it easy to sell aircraft to a film company; unfortunately, it’s a very limited market. At the time of interviewing, Gregory had just closed a deal with a film company, but in comparison, it was working with four aviation training companies. This is a more viable market for end-of-life aircraft, not only because there is more business, but also because it is more profitable.

“We also work with police, the fire services, the airport services; people involved in aviation where they need to get access on board an aircraft to carry out training.” Aside from training facilities such as flight attendants academies, ASI sells aircraft to other schools. For example, it sells some of the cabin interior, such as side or ceiling panels, to Oxford University, which is researching how to recycle composite plastics. Composites plastics are made by combining numerous types of plastic; it is very hard to melt down and extract one plastic from another, meaning recycling is currently either not cost-effective or not even possible. Gregory explains that about 90 per cent of the plastic used in a modern aircraft is composite, so this type of research will play a crucial part in making aviation more environmentally friendly, and will open up more residual value in the parts. “One day plastic aircraft parts will go into a machine at one end and come out the other as something else,” says Gregory. Regardless of how its done, teardown companies will always look to make the highest return possible, but sometimes, even the low return markets, if they are innovative and not too competitive, can also generate worthwhile income. “Ultimately we are in the business to recover the spare parts from the airframe and we are always looking for avenues to maximise the return on the airframe,” Gregory surmises.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Aircraft afterlife

Finding the balance: When to restore, convert or scrap AviaAM Leasing and its CEO, Tadas Goberis, search for the right time to convert an aircraft.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Aircraft afterlife

ith the 737 Max, A320 Neo and other next-generation aircraft rapidly approaching their commercial launch dates, airline and leasing companies are being faced with a pressing issue; how to make the most of their current 20-year-old aircraft.

Consistently rising oil prices alone contribute to one-third of all airline expenses, whereas aircraft maintenance accounts for another 10 to 12 per cent. All of the aforementioned factors drive local airlines to seek more fuel-efficient and less maintenance-demanding aircraft, thus significantly lowering the demand for 20-year-old aircraft.

Restore, convert or scrap – these are the main options for aircraft owners wishing to squeeze the last drop of juice from their ageing assets. However, none of these options guarantees sufficient profit. Moreover, it seems that there’s no clear point at which an aircraft becomes entirely unworthy of investment.

Second chance

The majority of commercial aircraft have a lifecycle of 20 to 30 years, depending on their type and operational condition. Some passenger aircraft exhaust

“An aircraft can be granted a second life by converting it into a cargo plane; 737 Classics are among the most popular candidates for such a conversion. However, considering the remaining aircraft recourses and the cost of the conversion itself (around $3.5m to $4m), only 20 per cent of such aircraft can be converted to freighters. “Moreover, the global freight demand over the past year has increased by less than one per cent, while many

Tadas Goberis, CEO, AviaAM Leasing

Restore, convert or scrap – these are the main options for aircraft owners... but it seems that there’s no clear point at which an aircraft becomes entirely unworthy of investment their potential early because of increased maintenance costs, a need for refurbishment and upgrades, or diminishing performance. “For example, major technical inspection and repair works on the 737 Classic will cost approximately $700,000, while the market price for a 20-year-old 737 Classic is below $4m, and keeps dropping,” explains Tadas Goberis, CEO of AviaAM Leasing. “The question is, ‘what can the owner do to compensate its on-going maintenance costs?’ One option is to lease, or sell, the aircraft to another operator. But is it the best option?” Once, the emerging markets in Asia-Pacific, Africa and Latin America were a perfect place for an aircraft entering its second life, as most local airlines simply didn’t have sufficient funds to acquire young aircraft. However, the situation has significantly changed during the last decade. According to IATA, while the growth of North American passenger traffic keeps slowing, the Latin American market maintains a steady increase of six to 12 per cent each month. According to Goberis, the growing middle class in developing regions means that travellers, particularly in certain regions, are becoming more demanding of air travel services, yet these airlines’ operational costs show no signs of dropping any time soon.

countries maintain 15- or 20-year-old age limits for aircraft. Therefore, anyone considering the option of aircraft conversion must carefully evaluate the future market,” explains the CEO. When maintenance expenses become too much of a burden, and upgrades or conversion are not viable solutions, an aircraft owner is left with only two options – storage or scrap. It may choose storage for several reasons. For example, if it has yet to decide on the further use of a particular aircraft, storage is where that aircraft usually awaits a verdict. The same scenario is also likely if an owner is waiting for market demand for that aircraft to return. However, the cost of storing an aircraft can be as high as $25,000 to $30,000 per month. This means that aircraft preservation is only a temporary solution.

The sum of its parts While aircraft storage may cost $350,000 a year, the teardown of an aircraft not only costs less but should also deliver a profit. “Depending on the aircraft type and the scope of work, aircraft teardown will cost up to $200,000. But this is a one-time payment, which actually pays off. The majority of teardowns allow 70 per cent of the aircraft’s parts to be reclaimed, restored and sold.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Aircraft afterlife

Depending on its age, an aircraft’s components can be worth more than the sum of its parts.

The remaining 30 per cent is sold as scrap metal by the teardown company and is considered a non-recoverable waste. Fortunately, new aircraft recycling technologies allow for 80 to 85 per cent of a retired aircraft to be reclaimed, meaning that the dismantling business is becoming both increasingly efficient and profitable. “Considering the dismantling costs and the residual value of the aircraft, in some cases the margin for dismantling an aircraft may vary from 20 to 80 per cent,” says Goberis. Major components – such as engines, landing gear and line-replaceable units – are the most valuable parts of a retired aircraft as they can be relatively easily restored and reintroduced, either back to the owner’s fleet, or sold on the open market. Parts that need to be changed regularly – for example, wheels and brakes – will also create high demand for as long as that aircraft type is operated. Auxiliary power units, landing gear and avionics, as well as certain engine parts, are also highly popular in the aftermarket due to substantially higher prices for new parts and components. For instance, the market surplus price for second-hand high-pressure turbine vanes (used in CFM56 engines) varies from $2,400 to $15,000, while new parts cost between $25,000 and $50,000. Regarding profit from aircraft scrap, aluminium provides the largest portion, followed by other materials, including steel, titanium, plastics and textiles. However, re-selling aircraft scrap is not as profitable as re-selling parts. The current price offered for aircraft aluminium ranges from $0.6 to $1.4 per kilogramme, depending on its purity. Considering that a single recycled aircraft may provide on average only 12 to 50 tonnes of aluminium, re-selling scrap metal can hardly be considered profitable.

The aftermarket Meanwhile, the demand for parts of certain aircraft, sush as the 737 Classic, is dwindling because that aircraft model will reach the end of its lifecycle in five to seven years. But an aircraft’s lifecycle is not the only deciding factor. Despite the A320 still being quite popular in the industry, the market for its parts is saturated; the dismantled parts from several A320s are sufficient to maintain the stock for a couple of dozen aircraft. The demand for spare parts is much higher for relatively young aircraft types, such as the 737 NG, as only a few of them have been torn-down for parts. However, if an operator wishes to invest in scrapping such an aircraft rather than operating it, it should act fast. For instance, as the 737 NG approaches its 20-years’ edge (at around 2020 to 2022), the number of scrapped aircraft will increase, pushing down the price for spare parts. “Meanwhile, practically none of the same rules apply to most modern aircraft. Half of the latest aircraft models are comprised of composites, but the problem is that modern technologies still cannot fully recycle such materials as carbon fibre. They require significant recourses in order to restore their technical performance and reliability. “All in all, there is no universal formula for ageing aircraft. Depending on demand and an operator’s financial capabilities, some 20-year-old aircraft may get an extra five years as a passenger aircraft, or a bit more as a freighter. However, dismantling and scrapping is inevitable for most aircraft,” says Goberis. Unfortunately, there is no one-size-fits-all solution. Each aircraft will reach the point of no return at a different stage of its life. The main lesson is that owners predict for themselves at what point they can no longer make a profit from their asset, and when it needs to be written off.

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Recycling models

hile local politicians and industry players regaled German Chancellor, Angela Merkel, at the recent Berlin Air Show, a quieter corner of the air show housed the first ILA forum on aircraft dismantling and recycling in Germany. Anyone who has paid attention to European aircraft disassembly will know that German companies have not featured heavily in the sector – something the forum sought to change.

Reflecting on the fact that up to 600 aircraft are expected to be retired each year over the next decade, Norbert Steinkemper, aerospace project manager at Süderelbe, notes: “The German aircraft recycling sector will definitely contribute to tackling a higher volume of aircraft.” But he believes “these valuable assets will have to be dealt with through a more decentralised approach”.

Model behaviour

According to Germany’s investment promotion agency, German Trade and Invest (GTAI), which co-organised the event, Germany has a long tradition in environmental technologies, policies and supportive legal framework.

Steinkemper is involved in creating more effective mobile aircraft dismantling units to be used on aircraft where they stand, rather than transporting them to dismantling facilities. He accepts that using mobile dismantling units can be economically challenging, but believes they are essential in environmental terms; many retired aircraft are hard to move, so have to be disassembled where they are.

This has helped it to establish itself as a leader in environmental issues, but it is yet to focus on aircraft dismantling and recycling.

Another important issue to arise from the forum was the need for a new model to deal with the rising volume of ageing aircraft that will be retired, and likely dismantled, in

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Recycling models the coming years. The traditional economic model for an aircraft at the end of its life is to make a profit by removing and re-furbishing the engines, avionics, landing gear and other parts for which there is strong demand. Jöerg Woidasky, professor for sustainable product development at the University of Pforzheim, told the assembly: “Currently 80 to 85 per cent of the value of a disassembled aircraft comes from the engines and the continuous use or re-use of certified parts. So a great deal of effort goes into re-covering, re-engineering and re-marketing parts. The remainder of the monetary value comes from materials recycling; however, this traditional model is becoming problematic.” In confidence, parts managers admit that they have shelves of recovered parts that are unlikely ever to be re-fitted on an aircraft. Why? The problem is that older aircraft, which account for the majority of aircraft ready for disassembly, are increasingly being removed from service; this results in a surplus of parts, countered by diminished demand. As such, industry observers talk of warehouses filled with DC-7s, DC-8s, 737 Jurassics, early 737 Classics, early A320s and 747s. As each year passes, the list of older aircraft parts forlornly adorning warehouse shelves grows. New business models focus on extracting much greater value from recycling, including the recycling of those parts on the shelf. Süderelbe’s Steinkemper states: “What is becoming more interesting from a recycling perspective is the potential to recover high value materials, rare earths, [and] metals such as titanium. You can definitely see a push to develop the technologies to bring these high-valued materials back into the supply chain. “Ensuring that more recovered materials are brought back into the supply chain has to be seen in the context of greater product responsibility,” says Thomas Probst, senior consultant with the recycling network, Bundesverband Sekundürrohstoffe und Entsorgung.

Getting involved Creating a more vibrant closed-loop recycling market, where more recovered materials are returned to aeronautics manufacturing, is one way Europe can offer a distinctive value proposition to the aviation sector. “There needs to be a more positive return on investment for aircraft recycling activities; bringing more value to the table can be a significant driving force, leading to a more positive future for our sector,” claims Steinkemper. According to GTAI, Germany is already Europe’s largest market for recycling technologies and it offers an ideal platform for new developments that involve recovering more raw materials. At present, it is estimated that 60 per cent of an aircraft’s weight is currently recovered, and there is potential to increase this significantly.

The Aircraft Fleet Recycling Association (AFRA) recognised the need for greater attention to aircraft materials recycling in its 2012 Best Management Practices (BMP) guide. The guide provides practical solutions for those working in the field of aircraft parts and materials recycling, and the accompanying AFRA audit and accreditation programme ensures that the facilities operate in a safe and environmentally responsible fashion. According to Derk-Jan van Heerden, deputy director of AFRA and general manager of AELS, the guide helps aircraft recyclers – which represent a growing proportion of AFRA members – to capture more value from aircraft, increasing the amount of materials that can be recycled and raising the overall residual value of the high-grade materials used in aircraft manufacturing. Woidasky says: “The recycling sector is taking the lead and pushing for greater product responsibility while looking for more creative ways of dealing with end-of-life aircraft. We are not seeing airlines pushing things forward.” “We need to get to a place where airlines are saying, ‘I flew this aircraft for 20 odd years. I now think it is important that we find a good end-of-life solution for this asset,’” agrees Probst. Woidasky says: “We favour the AFRA approach, where you have a set of minimum standards promoting best practice, coupled with an informal network that encourages industry players to act responsibly.”

Value proposition While the majority of panel participants supported the bolstering of German and other European aircraft dismantling and recycling, there was one dissenting voice. Karl Trowbridge, SVP of international sales and MD Europe at Aeroturbine Europe, takes a different approach to the business of managing older aircraft. “Aircraft are revenue-generating assets and end-of-life solutions have to be seen within this context,” he argues. Under AerCap’s purchase of ILFC, Aeroturbine was also absorbed by the lessor, which manages 1,300 aircraft and has assets of $45bn. In his role at the subsidiary, Trowbridge clearly places end-of-life aircraft solutions within the context of maintaining and managing the residual value of aircraft. For example, after engines have been removed, they will either be put back into a lease portfolio where the green time is burnt off, or they’ll go straight to teardown. The company describes itself as a ‘cradle-to-grave’ company. “We don’t park aircraft if we can avoid it. Our aircraft, our assets, are not making revenue if they are parked in the desert,” states Trowbridge. Aeroturbine does not sub-contract any of its teardowns to European facilities. It was a contentious position at the forum, but Trowbridge is unapologetic. “Look, it costs around $80,000 to ferry a narrowbody to the US; this

afm • Issue 91 – July–August • www.afm.aero

FLEET OPS: Recycling models

generally appears on the ticket of the lessees. Members of the audience might say you could be saving that $80,000 if you carried out that teardown in Europe.” According to the executive, once one accounts for building and ferrying engine stands (at a cost of $25,000) and then deducts the cost of shipping the engines (also at around $25,000), the majority of savings evaporate. What remains is accounted for by the fact that skilled labour in the US is much lower than in Europe. Furthermore, Aeroturbine is extremely reluctant to hand over operational control. “If we subcontract, we no longer control the process. For us it is important that we maintain the integrity of our parts. We also need to control the logistics. “In order to do this we have to carry out the inspection of parts and the logging of parts. The bottom line is that we do not want to de-centralise our teardown operations. As a company, our teardown is an integral part of our maintenance activities,” confirms Trowbridge. If the European aircraft disassembly and recycling sector is to fulfil its potential and make the most of economies of scale, it will have to create business models that ensure enough retired aircraft remain in Europe.

Another issue is the conundrum of promoting higher standards in the European aircraft disassembly while offering economically viable services in an increasingly competitive market. Heerden notes: “In certain cases, I offer to carry out jobs to an even higher standard, but customers are not always willing to pay for that. If they can get a cheaper quote, which may be less environmentally orientated, then they go with that. If we want greater competence and a higher quality of work in our sector, we need more airlines and lessors to insist on AFRA accreditation when tendering teardowns. But of course higher quality entails higher costs.” Creative partnerships are one way Europe can offer a more attractive value proposition to the aviation industry. For example, aviation members can build economic mass by partnering with other industries to bundle recovered materials before presenting them to smelters or recyclers. Franz Josef Kirschfink, MD of Hamburg Aviation, certainly advocates a cluster approach within aviation. He surmises: “Putting all stakeholders in the value chain, including academics, MRO companies, recyclers, airlines – in fact all those involved in the aircraft end-of-life cycle – is the best way to create models that convince aircraft sellers they will get a regular and reliable income from their assets.”

afm • Issue 91 – July–August • www.afm.aero

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TLF: Asia aviation

hile analysts may argue over figures and percentages, none disagree that, on the whole, Asia is set for significant growth. And as Asia’s trade and GDP rise, so does demand for air travel.

According to economists’ predictions, this summer, China will take over from the US as the world’s largest economy, making it the strongest global success story today. “It’s an absolute economic miracle, what China has achieved,” says Mowat.

Adrian Mowat, MD and chief emerging market and Asian equity strategist at JP Morgan, supports the consensus that Asia will lead the growth of aviation. “Whether you’re looking at passengers, or you’re looking at cargo traffic, Asia is the largest market,” he says.

There is an assumption that China’s economy will grow at seven per cent, but Mowat thinks this figure is too modest. He notes that there are half a billion 15 to 39 year olds in China; that’s twice the US population. This demographic is seeking higher education and skills that will drive the economy to account for what he believes will be 15 per cent of global GDP.

According to the analyst, Asia will hold 40 per cent of the global economy by value. It already covers more than a third of total cargo capacity and – in the Cathay Pacific-Air China group – has one of the largest cargo airlines globally.

As such, he predicts that both China’s passenger and export markets will pick up. However, the country is not without roadblocks. “China’s international traffic is amazing, but domestic traffic competes against high-speed rail,” Mowat

afm • Issue 91 – July–August • www.afm.aero

TLF: Asia Aviation growth rates of five [per cent], which I argue may be a little conservative,” says Mowat. The high levels of low-cost penetration in both the Philippines and Malaysia are largely due to their airports, location and lack of competition from incumbent airlines. Other countries, such as Korea and Japan, should take note as they too could prosper from LCC growth should they also gain deregulation. “If you look at the penetration of air travel in Asia… Japan has a relatively low number of trips per capita,” says Mowat. However, he also notes that Asia’s infrastructure is straining under the pressure, including airports at Manila, Beijing and Malaysia’s Kuala Lumpur. Overall, the analyst predicts a “modest deceleration” of growth across the globe between the first and fourth financial quarters of 2015. Growth rates in China will also decelerate. However, he predicts that this will even out to see overall growth. He foresees a “better and broader momentum of economics in 2014” and predicts that even the US will see a three per cent growth rate for each of the next three financial quarters. “We believe that the global economy is healing and we are on our way to the normalisation of interest rates.”

Asia’s aviation finance Aside from its growing air travel market, Asia is playing an increasingly important role in aviation finance and investment. Simon Galpin, director general of HK Invest, a government body that supports investment in Hong Kong, notes that Hong Kong operates two business models: that of Asia and that of the West. It’s also perfectly located to serve all of Asia and has quick access to South-East Asia, mainland China and Japan.

explains. “In China they are growing their rail system at a rate we’ve never seen before; they’ve just upped the rail budget again. You have to look at the low-cost carriers [LCCs] being affected by that, as well as how that’s going to affect the smaller aircraft as opposed to the trunk route aircraft.” China’s low-cost start-ups are also being blocked by regulation. The analyst notes that LCCs cover seven per cent of China’s domestic routes, versus 78 per cent in Indonesia (as of December 2012). With around 18,000 islands, Indonesia is a growth spot for low-cost airlines – as is the Philippines, which with 7,107 islands is growing at six per cent. “The Philippines has probably one of the best macroeconomic tourism markets globally. Then you have Indonesia and India with potential

Hong Kong, the setting for this year’s Asia conference, is the base for 70 of the world’s largest banks and, according to Galpin, 16 per cent of global GDP comes from Hong Kong. It’s one of the most financially competitive countries in the world, topped only by New York (second place) and London (top ranking) for GDP production. Those three are followed by Singapore, then Tokyo. Not only does it have good connections and a solid financial standing, but Hong Kong also offers its investors savings by way of tax breaks. “It’s stipulated in our regulations that Hong Kong remain a low tax economy,” says Galpin. For example, there is no import tax – crucial for Hong Kong as it is not a global producer but imports all of its food, and even most of its water, from neighbouring countries. There is also no tax on alcohol, leading many Chinese wine makers to set up production in Hong Kong. Those in aviation can gain similar benefits from doing business in the region.

afm • Issue 91 – July–August • www.afm.aero

TLF: Asia Aviation

All of this is boosting interest from Western aviation investors; meanwhile, Asian investors are set to grow. In a poll of the conference’s delegates, which comprised leaders in aviation finance, leasing and operations, 86 per cent believed Chinese lessors will be ‘bigger’ or ‘much bigger’ in the next five years; only a combined four per cent thought they would be ‘smaller’, ‘much smaller’, or the same size as they are now. The belief was that the majority of Chinese lessors would focus on deals within their own country and Asia, while a quarter believed they would approach all major global carriers. Looking outside of China, Chishima Real Estate, based in Osaka, Japan, has recently branched out into aviation. According to Paul Hirodo, the executive officer of its aircraft leasing division, the company is essentially a ‘landlord’ that is using aviation as a means to expand. Hirodo explains that it has a “steady property income” but high tax requirements. “Tax is very important to Japanese investors – aircraft can be used to balance their business,” he explains. It’s equity financed, “but that’s borrowed from local banks, which are very happy to lend at a very attractive rate”. Because most aviation financing deals are conducted in US dollars, currency conversion can be an issue for Asian companies. For this reason, while Chishima will continue to trade in US-based aviation deals, it is also considering offering Japanese yen-based leasing to Japanese airlines.

The market for JOLCOs A significant financing opportunity from Asia is the Japanese operating lease with call options (JOLCO), which has received increased interest from both airlines and financiers. “The JOLCO market has seen a recent boom,” says Marcus Jung, partner at FPG Investment and Asset Management. “There is a strong market in Japan for this sort of business.” FPG has completed “five or six” JOLCOs, including four last year, and there are a number lined up for this year. Jung notes that the platform “provides airlines with a very low rate, 100 per cent loan”. He adds: “There is a lot of appetite for JOLCOs in the Japanese market and we are about ready to jump into the lessor market.” Yet he warns: “It’s not an unlimited market.” He also admits that lessors will not find the financing platform as useful as airlines. “It will never be as mainstream with lessors.” One reason for this is that airlines typically want to keep hold of their aircraft, while lessors want to trade them. Stephen Cook, head of transport finance at Macquarie AirFinance, which is Australian but takes 68 per cent of its business from off shore companies, adds further concern about JOLCOs, noting: “The thing with JOLCOs is it’s a one-way bet in terms of risk, so you are exposed.”

Li Ling, director of aviation leasing at Bank of Communications, notes that her company already provides yen-based leases, and more in other local currencies, but says “that’s not our main focus, mainly we use US dollars”.

Another issue is familiarity. Jung notes that it is “easy” for ‘big name’ airlines, such as British Airways, to secure these deals, but that Japanese investors are less familiar with lessors, so are less willing to agree a deal. Yet, he claims these investors are “being educated”.

While not as well known in the West as its counterparts, such as AWAS and JSA, Bank of Communications owns a sizeable 60 aircraft. It was the first to undertake leasing in Shanghai and is the only bank to offer both Chinese renminbi- and Japanese yen-based finance leasing for airlines.

While it’s evident that Asia’s aviation market will prosper, it is also clear that the West must join hands with Asia if it is to be a part of this growth. Western airlines, financiers and lessors must integrate, familiarise and form partnerships in order to secure their part in the future. Otherwise, they may be left behind.

afm • Issue 91 – July–August • www.afm.aero

TLF: Buyer furnished equipment

BFE: Its impact on delivery and values BFE decisions can have an impact on the on-time delivery of aircraft, and also on longer-term asset values. Careful selection of BFE can help to protect value for operators, investors and lessors. Thomas Naughton, technical project manager at Santos Dumont, explains.

B 34

uying an aircraft is not as simple as selecting a model from a catalogue, evaluating its range, weight or fuel efficency. Every operator must plan and prepare for its aircaft to be equipped with its own branded seats, specific in-flight entertainment (IFE) systems and other buyer furnished equipment (BFE).

Items that fall under the description of ‘BFE’ vary between different airframe manufacturers. For example, a 737-800’s BFE encompasses: seats, IFE, galley structures, galley inserts, emergency equipment and avionics components, while an A320-200’s BFE comprises a smaller list: seats, IFE, galley inserts, emergency equipment and a limited number of avionic components.

Whether for a small growing operator or a well-established legacy carrier, the selection and delivery of BFE is equally important and needs to be managed with the utmost care. The initial stages of prospecting and ordering are the most intensive as some contracts can take weeks or months to negotiate and agree terms. Ordering for ‘customisable’ items such as seats, galleys and IFE often goes hand-in-hand with building the aircraft specification.

The customer is ultimately responsible for the procurement and on-time delivery of BFE to the airframe manufacturer’s final assembly line. Any delay in meeting strict BFE on-dock dates specified by the airframe manufacturer could result in such equipment not being installed or, even worse, it could delay the aircraft’s delivery. Either situation would have a seriously detrimental effect on timelines and operations for both the owner and operator. It is therefore imperative that the BFE

afm • Issue 91 – July–August • www.afm.aero

TLF: Buyer furnished equipment

consider existing pooling arrangements, the availability of spare parts, and MRO and repair centres, which may dictate the BFE choice for new deliveries. A large part of aircraft customisation involves the selection of seats and galley structures. Due to the wide range of customisation possibilities, a shipset of seats or galleys will require a long lead time. This can be at a minimum of nine months prior to the aircraft delivery date. If a new specification programme is required, or if head injury citeria compliance is needed, then that lead time may quickly increase to in excess of 12 months prior to the aircraft delivery date. BFE choice is also closely tied to operating patterns, geographic location and individual customer preference.

Investors and owners Investors and owners have different interests in terms of aircraft specification and, therefore, BFE. An investor’s primary concerns are asset value, cost and transferability. Cost and value are closely related; an investor will endeavour to keep costs to a minimum while still retaining asset value, as increasing cost may not always transfer directly to increased asset value. Examples of this on a 737-800 aircraft are the winglets and bespoke dual-class configuration seats. The winglets make up a significant portion of the cost of the BFE, but also add value to the asset due to the fuel savings offered to the operator. On the other hand, a highly bespoke shipset of dual-class seats may cost almost as much as the winglets but not have the same desirability across the market and, therefore, will not necessarily add much (if any) residual value to the asset.

process is managed effectively and efficiently, reducing the risk of delays during the aircraft’s production phase.

Operators Operators have specific requirements for BFE, which tie directly into their aircraft’s specification. An established operator would pre-deterrmine its aircraft specification, allowing it to establish BFE requirements, including specific part numbers, suppliers and upgrades. However, a new or growing operator may not have the same stringent specification requirements and, therefore, could be more flexible with respect to choosing BFE. Other considerations to bear in mind when it comes to BFE selection are logistics and costs. More specifically, one should

IFE systems are also a key consideration for investors. The rate at which IFE systems develop in today’s commercial aviation market often means that a system installed on an aircraft today will be obsolete by the time the aircraft returns from a lease, and therefore may not be useful or desirable to the next operator. In this case, although there may be a high cost associated with installing an IFE system, it may not result in the asset increasing in intrinsic value. Therefore, when the next operator requires an IFE system to be installed on the aircraft, a six-year-old IFE system, or older, is unlikely to meet its operating requirements. From this point of view, value is tied with transferability. An aircraft that contains BFE and parts that are are popular with a majority of operators will, by nature, be highly transferable between operators and, therefore, will add value to investors. Nevertheless, investors must be mindful of the need to satisfy the operator and so compromises must be expected, especially in terms of cabin interior. This is most relevant in today’s market in which there is a trend for lower aircraft retirement ages and a reduced average fleet age.

afm • Issue 91 – July–August • www.afm.aero

TLF: Buyer furnished equipment

Equipping aircraft with airline-specific IFE systems can delay delivery and impact values.

Management of the BFE process is the same for owners and investors as it is for operators. The aircraft specification and BFE process must consider the end-user’s requirements, as well as attempting to retain residual value of the asset. The risk associated with the mismanagement of ordering and shipping is the same, if not higher. An owner that delivers an aircraft late, or without some components installed due to the late arrival of BFE, risks losing its customer or damaging its relationship with them.

BFE management process

A good relationship with various suppliers is also key to the process. A good relationship with suppliers, for instance, helps in the initial stages, ensuring pricing and contracts are agreed in the most efficient manner. It is also important in the final stages of the process when equipment is being shipped so that any issues can be dealt with quickly, ensuring minimal delays.

Effective, efficient management of BFE requirements is an important task for operators, investors and owners. The implications of late delivery or incorrect part numbers being delivered to the manufacturer could result in delays to the delivery of the aircraft, which could impact operations, cashflow and damage relationships.

A good relationship with the manufacturers and a good knowledge of their work and assembly practices are also important. Strong relationships with the manufacturer will greatly aid response times on any specification or BFE issues that may arise.

Another issue that may affect operators, investors and owners is that BFE management is not part of the normal daily workload. Furthermore, the workload required is not constant throughout the process. The process tends to be labour intensive at the beginning, when the aircraft specification is being determined and agreed, proposals and contracts are being negotiated, and purchase orders placed. Once orders have been placed and accepted, the labour demand drops, the process is monitored throughout the production phases and then increases again from about four to six weeks right up until delivery. Due to the inconsistency of the workload, it can be problematic for smaller operators or investors that do not have a regular stream of new aircraft to manage the process effectively. The lull in the middle of the process makes it undesirable to employ a full-time BFE manager while the labour intensive peaks at either end create a strain on regular staff who may be required to carry out daily tasks in addition to managing the BFE requirements. Moreover, it is unlikely that smaller investors and operators will have the in-house expertise to ensure efficiency. An in-depth

understanding of the process is key to attaining on-time deliveries while spreading the workload over a suitable period of time.

Similarly, maintaining a good logistics network is equally important. When using a directly contracted freight-forwarding firm to move equipment from the part vendor to aircraft manufacturer, the manager often has greater control over transit times than if the vendor arranges shipping. In summary, efficient BFE management is a key contributor to ensuring on-time aircraft delivery and protecting asset values. During manufacture, the customer becomes an essential part of the aircraft assembly process and is required to work closely with both part vendors and aircraft manufacturers in order to ensure the correct components are delivered where they need to be in a timely manner. As new aircraft types enter the market, manufacturers increase the scale of their production, and revise production processes, it becomes increasingly important that owners, investors and operators have a good understanding of the BFE process. They need to be able to adapt quickly to changes in the market and to changing requirements from the aircraft manufacturers.

afm • Issue 91 – July–August • www.afm.aero

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MRO: Cargo conversions

The 737-800: Is it ripe for conversion? In time for a new 737-800 PTF conversion programme, Martin Roebuck examines the market for converted 737-800 aircraft.

S-based Aeronautical Engineers Inc (AEI) is promising a new departure in passenger-tofreighter (PTF) aircraft conversion when its 737-800 programme receives its supplemental type certificate – it hopes by early 2017. The programme highlights AEI’s belief that it is now costeffective to convert the 737-800, but is there really a market for it?

Robert Convey, VP of sales and marketing at AEI, says: “The programme is unique in that the 737-800 is still in production and its replacement – the MAX 8 – is nearing entry into service. This means owners and operators will have access to modern narrowbody converted freighters for the first time.”

“Boeing will run with the -800 until 2019 because, for some operators, investing in the MAX is not worth it for the fuel savings they get. That’s perfect for us because it will mean an abundance of feedstock. The industry could be converting -800s till 2040 and they could spend another 20 years in service.”

The 737 as a freighter AEI’s -300 conversion comes in a nine, or 10-pallet configuration, and the -400 takes 11 pallets. The company has decided not to develop a -700 freighter, but its -800 will accommodate 11 full-height unit load devices plus one smaller unit. “We’ve passed on the -700. It would be no different from the -300 as a cargo conversion. The engines and airframe mean it would cost more, but there would be no more available space,” Convey says.

AEI carried out 224 PTF conversions on 727s and has so far converted 68 737-200s, -300s and -400s. However, no other conversion programme has been launched before the aircraft has been out of production for at least four years.

“It’s the -800 that will replace -300s and -400s because of the additional pallet position and extra range of 500 miles. It’s a no-brainer. This is where the industry is going.”

According to Convey, low interest rates have changed the dynamics of the industry by reducing demand for second-hand passenger narrowbodies. “Start-up LCCs [low-cost carriers] can take new aircraft ex-factory when they used to take 15-year-old planes. It’s a new phenomenon.”

AEI expects to announce its first -800 customer in the next three months. The maths dictates that it will be an existing owner, as -400s are selling for $3m while the -800 will have a value of $12m to $13m when the conversion programme goes live. AEI’s on-cost will be around $3.5m.

When the -800 freighter comes to market, the oldest passenger aircraft will be nearing 19 years old. “The ones most likely to be converted will be 16 to 17 years old,” says Convey.

“You wouldn’t do it for one more [pallet] position unless you already own the aircraft,” Convey admits. “It’s early, it’s a niche product. The general freight guys will still be converting -400s.

afm • Issue 91 – July–August • www.afm.aero

MRO: Cargo conversions

All images courtesy of IAI.

There will only be a handful of customers for the -800 initially. But as it grows in age and prices fall, it will come more into reach.” He predicts that Asian operators, confronted by regulatory requirements on age and avionics, will be among the early takers for the -800 conversion. Integrators in Europe will also be in play, as direct owners or via ACMI agreements (lease agreements that include aircraft, crew, maintenance and insurance), but US take-up will be slower, he predicts. “The twos [737-200s] lasted so long, they’re only just getting into -400s. But customers realise that the -300s and -400s are three or four year plays. The -800 is a 20 year play – we could be talking about leases of 10, 12, even 15 years. It’s not a question of if, but when,” Convey insists. The -800 will also be offered as a Combi – AEI’s first – which will combine five main-deck pallet positions with 90 seats. “I see requests for it from governments, the UN and operators that fly in outlying areas like Alaska and Africa,” he says. Boeing’s total final production of the -800 will be around 3,500. AEI expects that 200 to 300 will ultimately be converted to freighters. Maximo Gainza, analyst at aviation consultancy Ascend, believes 200 is a “conservative” estimate.

IAI and PEMCO IAI, part of Israel’s Bedek Aviation Group, sees a big market for PTF conversions of both the -700 and the -800. “Although the capacity of both is not very different from the Classic 737, the operating economics make it more attractive than the ageing Classic,” says Jack Gaber, senior VP of marketing and business development.

To date, IAI has converted 40 -300s and 14 -400s, mostly for GECAS and other lessors, although customers have also included airlines such as Qantas and Jet2com. “We believe that within a couple of years, the Classic will be replaced by the NG [next generation] as the preferred model to be converted,” Gaber says. For US converter Pemco, however, there is no commercial logic in a -800 freighter. Kevin Casey, Pemco president, says: “It’s larger by only one position. The fuel benefit over the Classic is well publicised, but if your longest runs are under two hours, you’re doing too much climbing and descending so the benefit is not really there.” The bigger issue for Casey is acquisition cost. “A Classic costing $2.5m becomes a $7.5m airplane fully converted. The oldest -800, from 1998, costs $13m, so would become an $18m airplane. “There’s a step-up in freighter conversion activity as values diminish,” Casey says. “But looking back at previous programmes, that didn’t occur until seven years, on average, after production ceased. That would take us until 2025 to [20]26 in the case of the -800. There’s no explaining how you’re going to get payback [with an aircraft that is still in production]. “In most people’s eyes, a cheap freighter is a good freighter. I like the -800 a lot, but I am not convinced we are in the zone of convertibility,” Casey states. He points out that, earlier this year, the -800 was actually increasing in value by around three per cent per month and lease rates remain “sky high”. Those supporting a new narrowbody freighter argue that there are fewer -400s than -300s in the market for potential conversion, and that the -300 has a significantly lower payload at 19.1 tonnes compared with 21.7 tonnes.

afm • Issue 91 – July–August • www.afm.aero

MRO: Cargo conversions

An IAI Bedek cargo conversion.

“There is a diminishing number of heavyweight -400s left,” Casey accepts. “But express traffic is not dense, so it’s only operators in Africa and Latin America who really need to consider payload. In any case, recent research suggests payloads are hovering around 50 per cent.” Now that Qantas has disposed of all of its -400s, British Airways (BA) will soon have its fleet in the spotlight. However, Gainza believes that with D-checks looming, BA’s aircraft may instead be considered for part-out. This could make Malaysia Airlines’ -400s, due to be phased out by 2015, next up for conversion.

Norwegian Air Shuttle currently has 79 leased and owned 737-800s in its fleet. Unveiling one of Europe’s largest orders in January 2012, which was for 100 737 MAX 8s and 22 737-800s as well as 100 A320 Neo aircraft, Norwegian’s CEO, Bjørn Kjos, said: “We intend to replace every aircraft after seven years of operation. We will sell or rent out our older aircraft in order to keep a young fleet.” The commercial rationale was that the MAX 8 would burn up to 20 per cent less fuel than first-generation -800s.

The road ahead The second-hand aircraft market in countries that have some of the greatest need for freighters – such as China and Indonesia – is being affected by the 15- and 20-year age limits civil aviation authorities are introducing. Gainza says: “There is still a fair amount of time left” for the -400, which is from 14 to 26 years old now. “Despite the Chinese controls, aircraft built in the 1996 to [19]98 period are going there and 15 conversions have already been completed this year.” However, it is likely that the biggest influence on -800 feedstock will not be tightening regulations, but the fact that airlines are decommissioning at an ever-younger age. When Jet Airways removed some 12 to 15 year old -800s from service, lessor GECAS sent them for part-out. Around 40 -700s across the globe have already had the same fate. It’s “a high number for a relatively young fleet”, says Gainza. Emerging markets will continue to look for older and cheaper freighter options, but he expects “at least one integrator” to go for -800 freighters and points out that DHL will soon need 30 or 40 replacements for 757s that are nearing 30 years old. “If they’re happy with the size, the -800 would be the way to go,” he concludes.

Re-lease or release?

Deliveries of the new orders start in 2016. By then, Norwegian’s first -800s will be eight years old, but the carrier is not confirming at this stage whether it plans to renew leases and keep its older, owned -800s in operation. Qantas retired its last 737 Classic in February, although it retains four -300s as freighters. The carrier operates 70 -800s. Spokeswoman, Jacqui Kempler, says: “Our 737-800 fleet is very young after extensive renewal over the past few years, with an average age of 6.3 years. We will not need to make a decision on replacement aircraft for several years, and we have no plans to convert our -800s to freighters.” With a wide mix in its fleet, Turkish Airlines (THY) may be a more likely candidate for PTF conversions. As of June, it was operating 82 737-800s, of which 24 are owned, 33 are on financial lease, 10 on operating lease and 15 wet-leased. The carrier’s oldest -800s are of 1998 vintage, among the earliest made. Its rapid expansion means they have all remained in service, but with 95 more 737s on order – 20 -800s, 65 MAX 8s and 10 MAX 9s – THY may be tempted to dispose of its older equipment soon.

afm • Issue 91 – July–August • www.afm.aero

11th annual 16-17 September 2014 Business Design Centre London United Kingdom

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MRO: Engine teardown

Engine teardown: When’s the right time? Engine teardown is a complex issue. Owners must consider the value of the engine, its parts, and the market for each. Choosing when to tear down an engine can feel like playing Russian roulette. Neelam Mathews reports.

he decision whether to tear down an engine is a tough one as teardowns come at a price; labour and skills are the same as required in an overhaul.

How does one decide to do a complete overhaul if the engine is over halfway towards its time between overhaul (TBO)? Among the many considerations, the owner must look at the availablity of that aircraft type and its parts, and whether repair would be more cost-effective than reaping gains from serviceable parts. There is no generic answer to determine the right time for engine teardown, as each engine must be treated on its individual merits. Jon Sharp, president and CEO of Engine Lease Finance Corporation (ELFC), explains his company’s ‘hold or sell’ analysis: “On the one hand, we take into account the engine or host airframe lifecycle and current and forecast demand for leasing, whereas on the other we consider the specific condition of the engine in question. For example, does it need an expensive shop visit anytime soon? What is the life limited parts [LLP] status like? And what are the current market conditions for selling?”

The lessor will compare the forecasted income from the engine sale or teardown against what it could make from continuing to lease under a new contract. The time is right “if the engine is nearing a heavy shop visit and is obsolete. Or, if the investment to lease-in an engine is lower than the targeted overhaul costs”, says Heinrich-De Stefano. Lessors should evaluate the current lease market and prospective lease fees in comparison with the cost of performance restoration. “This should be compared with the prospective value of the engine in parts. Owners, if they are a financial institution, can make the same calculations,” explains Heinrich-De Stefano. According to a study by Monaco-based financial advisory, Stratos, the cost of maintaining engines is heavily stacked towards the second decade of an engine’s life, so investors are very sensitive to the cost burden of maintaining mature engines. Operators need to consider their flight operations and fleet management plan. “If the engine is coming near to a heavy shop visit, it might make sense to teardown or sell the engine for parts and lease-in an engine for the remaining lifetime or operation of the aircraft,” adds Heinrich-De Stefano.

Simple mathematics Rüdiger Heinrich-De Stefano is the VP of material management for MTU’s Maintenance Lease Service, an 80 per cent joint venture with Sumitomo Corp. It handles lease and material management, including teardown for MTU Maintenance. According to Heinrich-De Stefano, the decision for a lessor with a lease contract that’s soon to expire is “simple mathematics”.

According to Gary Fitzgerald, MD of Stratos; “The forecast of intrinsic maintenance value is a key element in investors’ evaluation of residual values during the life of the aircraft.” Siemens product lifecycle management (PLM) software, for example, enables engine suppliers to seamlessly manage an

afm • Issue 91 – July–August • www.afm.aero

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MRO: Engine teardown

aircraft engine programme from concept to disposal, using a single source of knowledge, creating sustainable business value.

Trends in teardown A recent forecast by MTU Maintenance estimates that while shop visits for commercial jets above 100 seats will grow around two per cent per annum over the next 10 years, engine MRO revenue should grow at a rate of 7.4 per cent. However, the sector is in a period of transition; more MRO-intensive engines are being replaced by new ones with less need for maintenance. There is presently an over-proportional growth in demand for engines, such as the V2500, CFM56-5 and -7. “Let’s hope that there is no return to times of irrational exuberance,” says Sharp. “Particularly now, with significant new money flooding the market, encouraging new entrants tending to ‘follow the leader’, I am concerned the bubble will burst.” “Luckily, we entered into these growth platforms years ago,” says Katia Diebold-Widmer, head of marketing at MTU Maintenance in Hannover. She explains that, on the negative side, struggling MRO providers that are focused on ageing engine types are now looking for ways to compensate their decreasing workload on older models by increasing their market penetration on newer models. This is leading to a plethora of shops offering CFM56-5B and -7 services at very low prices. According to Auvinash Narayen, VP of sales and marketing at AerFin: “The market remains volatile and opportunistic, with few large-scale transactions.” Airlines often restructure their fleets following major events such as the financial crisis, SARS and 9/11. During such times, operators often phase out older aircraft, creating opportunities for traders, Narayen explains. “While we don’t know when the next major event might happen, we are seeing a reduced

economic life on aircraft due to the high volumes of new aircraft going into the market, [which are] driving down the residual values of older aircraft and [causing the] premature retirement of younger aircraft.” “Over-capacity is certainly strongest with older engine types,” says Diebold-Widmer. “At the same time, we estimate there is currently under-capacity for certain engine types, such as the GE90 Growth.” Typically, most entrants will invest in new narrowbodies as they are the safest bet for future demand. But other business models involve lessors investing in older equipment. “If you know how to manage the market supply and demand patterns, you can tap into this niche,” says Sharp. While traditional traders look at narrowbody engines that need volumes to sustain material supply, UK-based AerFin focuses on a niche of distressed assets for higher risk adjusted returns. “Most businesses chase volume to serve the mass market and to deploy capital. AerFin is not constrained by credit line facilities and we are therefore able to focus on innovation and deploy a far higher degree of technical resources to achieve higher returns from smaller markets,” say Narayen. Adding to its portfolio, AerFin is planning to implement EASA through accreditation; this will enable it to re-certify parts under a scope that will complement its engine disassembly facility. The present 45,000 sq ft facility in Cardiff, UK, has a warehouse devoted to engine inventory that has been sent for repair; the company manages the distribution supply chain to OEMs, MROs, airlines and parts traders. The amount of parts an owner can retrieve is often based on how the engine has been operated. “If the lease market is weak and the parts market is strong, there will be more teardowns. Additionally, if major carriers are exchanging their fleet and these

afm • Issue 91 – July–August • www.afm.aero

MRO: Engine teardown

assets will not be absorbed as flyers, the amount of engines for teardown increases as well,” explains Heinrich-De Stefano. More specifically, different geographical regions may also present a risk to those involved in buying equipment for disassembly. The amount of parts that can be retrieved depends on how and where the engine has been operated. For example, engines that have been operated in harsh environmental conditions will have a different business model to most. A concentration of ageng aircraft in certain locations may appear to provide opportunities; however, this is only the case if such regions have stringent maintenance procedures. Inconsistent record keeping or historical maintenance standards may adversely affect component values and environmental conditions may increase the need for maintenance. This represents a risk for traders buying equipment from certain operations, Narayen points out.

Breaking down an engine The cost to break down an engine can reach tens of thousands of dollars and varies depending upon the amount of parts to be retrieved, but typically the cost is minimal in relation to the value of the parts. MTU says it is prepared to give customers a fixed price for teardown, enabling them to make a quick decision. Technically obsolete parts, as well as consumables and parts that are glued in, cannot be repaired or re-used. “But other than that, it is more a question of ‘is there demand for the part and is the repair economical’,” says Heinrich-De Stefano. Those that can be recycled are handed over to a company that will extract the precious metals. Netherlands-based Aircraft End-of-Life Solutions (AELS), for instance, dismantles engines

for high-alloy metals. According to Dark-Jan van Heerden, deputy director of AELS, the price of an alloy could be $20-$25 per kg as against $1.2 per kg for aluminium. “However, the cost of destruction is also much higher. Engines are made to last so taking them apart requires time, effort and skill.” Engine OEMs are often blamed for adopting strategies that limit the surplus parts market, which is worth around $3.5bn. In the long-term, this could have an adverse effect on residual values as fewer MROs will be able to compete, and buyers of surplus material become reliant upon OEMs and their affiliated engine service agreements, says Narayen. The various care packages all use OEM-controlled shops that exclude any PMA or DER parts and use as little as possible teardown parts from third parties, said an engine lessor. “These OEM strategies will cause certain lessors – likely starting with those that focus on older equipment – to fall into bed with non-OEM MROs and teardown specialists, so welcoming DER in particular. This would secure a lower cost of ownership and a teardown exit. The OEMs may yet shoot themselves in the foot.” Sharp says existing engines will not be dumped in favour of MAX and NEO types, because the backlog for the current powerplants is huge. “Airlines are not going to retire the aircraft unless there is a significant hike in oil prices,” he argues. “As far as the MRJ and Embraer’s new aircraft types [the E2 aircraft] go, we have no idea how the new engine types will perform. Once the honeymoon period for OEM support is over and the fleets are growing, we can make the investment decision. Which means we’ll have to wait for five years from EIS [entry into service] to see how the market will look.”

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Deals

Industry data

Aircraft deals

Firm orders

57 58

List prices and lease rates Engine data Data supplied by IBA’s JetData. www.ibagroup.com

Aircraft deals 6 to 30 April, 2014 MSN

Manufacturer

Model

Event

Owner

Operator

Date

15308 17000395 17000394 4184 17000396 17000397 27125 3364 37791 6050 29487 30696 E2389 41561 32736 23803 6066 6056 6059 4029 41248 3560 3385 561 2919 3322 6046 171 30687 32361 28171 6043 14501199 30248 30710 730 55194 30278 2610

Bombardier Embraer Embraer Bombardier Embraer Embraer Boeing Airbus Boeing Airbus Boeing Boeing BAE Systems Boeing Boeing Boeing Airbus Airbus Airbus Bombardier Boeing Airbus Airbus Airbus Airbus Airbus Airbus ATR Boeing Boeing Boeing Airbus Embraer Boeing Boeing Airbus Boeing Boeing Airbus

CRJ-705/900 E-170/175 E-170/175 DHC8-400 E-170/175 E-170/175 737-300 A319 737-800 A320 737-400 737-800 146-200/RJ85 737-800 737-800 767-200 A320 A321 A321 DHC8-400 737-800 A319 A319 A320 A321 A321 A321 ATR72 737-700 737-800 757-200 A320 ERJ-145 737-700 737-700 A320 717-200 737-800 A321

Operated by partner Operated by partner Operated by partner Operated by partner Operated by partner Operated by partner Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease

Endeavor Air Skywest Airlines United Airlines Centaurium Aviation AG Republic Airlines Republic Airlines Nauru Air Corporation AWAS Celestial Aviation Trading 73 Celestial Aviation Trading 26 Petrus Asset Management ILFC Triangle Aircraft Leasing CIT GECAS Bank of Utah SMBC Air Lease Corporation Aviation Capital Group Bombardier GECAS Amentum Capital Wells Fargo Bank NW VGS Aircraft Holding Ltd Turkish Airlines AWAS CIT Swiftair SA ILFC Macquarie Airfinance ILFC ICBC Leasing Alan Sugar JB 30248 INC ILFC GECAS Boeing Capital Corporation Aviation Capital Group SMBC Aviation Capital

Delta Air Lines United Express Mesa Airlines Air Berlin American Eagle Airlines American Eagle Airlines Our Airline VIM Airlines Transavia France Avianca Brasil DHL Network Operations Air Transat Airlink Aerolineas Argentinas SunExpress Dynamic Airways S7 - Siberia Airlines Thomas Cook Airlines Monarch Airlines North Cariboo Air Okay Airlines Germania Ural Airlines Avion Express AWAS Aegean Airlines American Airlines Antrak Air Ethiopian Airlines SunExpress Royal Flight Aeroflot - Russian Airlines Air Charter Scotland Southwest Airlines Ethiopian Airlines Hamburg Airways Cobham Aviation Jet2.com Monarch Airlines

10/04/2014 10/04/2014 11/04/2014 15/04/2014 15/04/2014 28/04/2014 07/04/2014 07/04/2014 08/04/2014 08/04/2014 09/04/2014 09/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 11/04/2014 11/04/2014 11/04/2014 11/04/2014 11/04/2014 11/04/2014 12/04/2014 13/04/2014 14/04/2014 14/04/2014 14/04/2014 14/04/2014 14/04/2014 15/04/2014 15/04/2014 15/04/2014 16/04/2014 17/04/2014 17/04/2014

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com

Aircraft deals 6 to 30 April, 2014

MSN

Manufacturer

Model

Event

Owner

Operator

Date

1518 660 33641 41991 32672 27612 28207 6060 2376 19000641 27990 30338 28834 19000534 41317 6078 2077 671 486 30040 35312 6081 15313 28039 11517 6079 6044 558 499 2296 5886 19000661 788 2700 4478 2189 23478 37569 408 E2392 35131 869 35134 2658 2296 39404 28834 3801 3444 809 32694 30389 35132 30880

Airbus ATR Boeing Boeing Boeing Boeing Boeing Airbus Airbus Embraer Boeing Boeing Boeing Embraer Boeing Airbus Airbus Airbus Airbus Boeing Boeing Airbus Bombardier Boeing Fokker Airbus Airbus Airbus ATR Airbus Airbus Embraer Airbus Airbus Airbus Airbus Boeing Boeing ATR BAE Systems Boeing Airbus Boeing Airbus Airbus Boeing Boeing Airbus Airbus ATR Boeing Boeing Boeing Boeing

A330-300 ATR72 737-800 737-800 737-800 767-300 767-300 A320 A320 E-190/195 737-800 757-200 757-200 E-190/195 737-800 A320 A320 A320 A330-200 737-800 787-8 A320 CRJ-705/900 767-300 F-100 A320 A320 A320 ATR72 A319 A319 E-190/195 A300-600 A319 A320 A320 737-300 747-8 ATR72 146-200/RJ85 737-800 A330-200 737-800 A320 A319 737-800 757-200 A319 A320 ATR72 737-800 737-800 737-800 737-800

Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Operating lease Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned

Intrepid Aviation Partners Nordic Aviation Capital A/S ORIX Aviation BBAM GECAS ILFC ILFC AWAS BOC Aviation Minsheng Comair Ltd Wells Fargo Bank NW ILFC Minsheng Air Lease Corporation BOC Aviation GECAS Eastok Avia GECAS ILFC ILFC AWAS Delta Air Lines Unicredit Leasing Mass Jet Lease B.V. AWAS SMBC VGS Aircraft Holding Ltd NK Aviation Ltd CIT ICBC Leasing BOC Aviation Wells Fargo Bank NW GECAS Volito Aviation ILFC Qantas Atlas Air NK Aviation Ltd Steven Ltd TUI Travel PLC Wells Fargo Bank NW Sumisho Asset Mgmt GECAS CIT GECAS ILFC CIT Irishlynch Leasing Ltd Swiftair SA Celestial Aviation Trading 62 VGS Aircraft Holding Ltd ORIX Aviation Air Berlin

Asiana Airlines Darwin Airline Pegasus Aeroflot - Russian Airlines SunExpress UTAir Aviation UTAir Aviation Aeroflot - Russian Airlines Transavia Minsheng Jet Kulula.com Nordwind Airlines Royal Flight Minsheng Jet China Southern Airlines China Southern Airlines Kogalymavia YanAir TAP - Air Portugal Nordwind Airlines Aeromexico Vueling Endeavor Air Meridiana Bek Air Vueling Aeroflot - Russian Airlines Avion Express HOP! Air Serbia China Eastern Airlines KLM Cityhopper MNG Airlines Brussels Airlines Vueling Air Malta Qantas Atlas Air Wells Fargo Bank NW Falko Regional Aircraft Thomson Airways Wells Fargo Bank NW Thomson Airways GECAS CIT Travel Service ILFC Tigerair Irishlynch Leasing Ltd Swiftair GECAS Transavia Thomson Airways Pegasus

17/04/2014 17/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 22/04/2014 22/04/2014 23/04/2014 23/04/2014 24/04/2014 24/04/2014 24/04/2014 24/04/2014 24/04/2014 25/04/2014 25/04/2014 25/04/2014 25/04/2014 26/04/2014 26/04/2014 28/04/2014 28/04/2014 28/04/2014 28/04/2014 29/04/2014 29/04/2014 29/04/2014 30/04/2014 30/04/2014 30/04/2014 06/04/2014 07/04/2014 08/04/2014 08/04/2014 09/04/2014 09/04/2014 09/04/2014 10/04/2014 10/04/2014 11/04/2014 13/04/2014 13/04/2014 14/04/2014 14/04/2014 14/04/2014 15/04/2014 15/04/2014 15/04/2014 15/04/2014

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com

Aircraft deals 6 to 30 April, 2014 MSN

Manufacturer

Model

Event

Owner

Operator

Date

4137 35137 28207 24910 28379 37568 30391 95014 30040 936 30111 2540 2596 25702 33964 33963 37261 35138 30295 211 96 34689 29650 34688 26160 28674 34902 34901 37791 41089 39939 38750 31192 39940 6068 15311 31930 39065 34796 35942 27125 25038 37791 53453 443 23897 23898 23897 23898 760 49404 28200 28868 788

Bombardier Boeing Boeing Boeing Boeing Boeing Boeing Sukhoi Boeing Airbus Boeing Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Airbus Bombardier Boeing Boeing Boeing Boeing Boeing Boeing Boeing McDonnell Douglas ATR Boeing Boeing Boeing Boeing Airbus McDonnell Douglas Boeing Boeing Airbus

DHC8-400 737-800 767-300 737-300 737-800 747-8 737-800 SSJ 100-95 737-800 A320 767-300 A320 A320 747-400 737-700 737-700 737-800 737-800 737-800 A330-200 A330-300 737-800 737-800 737-800 757-200 757-200 737-800 737-800 737-800 737-800 737-800 737-800 737-800 737-800 A319 CRJ-705/900 737-900 737-800 787-8 787-8 737-300 737-500 737-800 MD-80 ATR42 767-200 767-200 767-200 767-200 A320 MD-80 737-300 737-300 A300-600

Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Returned off sub-lease Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sale & leaseback Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease Sold off lease

Nordic Aviation Capital A/S SMBC Aviation Capital ILFC Orix Aviation Transavia Airlines Atlas Air Transavia Airlines VEB-Leasing ILFC GECAS Celestial Aircraft Trading 2 CIT CIT Aircastle Investment Turkish Air Force Turkish Air Force Thomson Airways SMBC Aviation Capital Boullioun Aviation Services ILFC ILFC AerCap NBB Leasing Co Ltd TUI Travel PLC Aerolease Aviation LLC Alcudia Leasing NBB Leasing Co Ltd NBB Leasing Co Ltd Celestial Aviation Trading 73 SMBC SMBC Avolon Aerospace AerCap SMBC Avianca Wells Fargo Bank NW Wells Fargo Bank NW BOC Aviation DY7 Aviation Ireland Ltd LOT Polish Airlines Nauru Air Corporation Avtrade Ltd GECAS Aserca Airlines Solenta Aviation Mojave Jet LLC Mojave Jet LLC Jet Midwest Group LLC Jet Midwest Group LLC Aircraft 32A-760 Inc Airlease International Kahala US-28200 LLC Cara Aircraft Leasing Wells Fargo Bank NW

Nordic Aviation Capital A/S Thomson Airways ILFC Orix Aviation Transavia Atlas Air Transavia VEB-Leasing ILFC SmartLynx GECAS Bulgaria Air Bulgaria Air Aircastle Investment Turkish Air Force Turkish Air Force Thomson Airways Thomson Airways Travel Service Hi Fly Hi Fly TUIfly Transavia France TUIfly Thomas Cook Airlines (UK) Thomas Cook Airlines Transavia France Transavia France GECAS COPA Airlines Garuda Indonesia Lion Air American Airlines Malaysia Airlines Wilmington Trust Company Delta Air Lines Delta Air Lines Jet Airways Norwegian Intrepid Aviation Nauru Air Corporation Avtrade Ltd GECAS Aserca Airlines Solenta Aviation Mojave Jet LLC Mojave Jet LLC Jet Midwest Group LLC Jet Midwest Group LLC Bank of Utah Airlease International Kahala US-28200 LLC Cara Aircraft Leasing Wells Fargo Bank NW

15/04/2014 17/04/2014 18/04/2014 21/04/2014 21/04/2014 21/04/2014 22/04/2014 22/04/2014 24/04/2014 24/04/2014 25/04/2014 27/04/2014 28/04/2014 29/04/2014 30/04/2014 30/04/2014 30/04/2014 30/04/2014 30/04/2014 09/04/2014 09/04/2014 10/04/2014 15/04/2014 28/04/2014 28/04/2014 28/04/2014 29/04/2014 30/04/2014 08/04/2014 11/04/2014 14/04/2014 15/04/2014 17/04/2014 17/04/2014 17/04/2014 18/04/2014 25/04/2014 30/04/2014 30/04/2014 30/04/2014 07/04/2014 07/04/2014 08/04/2014 08/04/2014 09/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 10/04/2014 11/04/2014 14/04/2014 14/04/2014

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com

Aircraft deals 6 to 30 April, 2014

MSN

Manufacturer

30248 1451128 35145 49981 53173 53258 53161 53172 26081 28494 405 7194 7486 15066 28494 25020 25021 26298 25023 26395 11348 26539 1450540 11304 28870 25163 27990 27625 1541 7112 11573 24683 671 1450481 1450481 49173 49180 25372 25252 995 49342 95040 28162 15076 E3373 28085 25065 25065 25702 662 32775 24840 7622 30276

Boeing 737-700 Sold off lease Embraer Boeing ERJ-135 737-800 Sold Returned off lease off sub-lease McDonnell Douglas MD-80 Sold off lease McDonnell Douglas MD-80 Sold off lease McDonnell Douglas MD-80 Sold off lease McDonnell Douglas MD-80 Sold off lease McDonnell Douglas MD-80 Sold off lease Boeing 737-400 Sold off lease Boeing 737-400 Sold off lease ATR ATR72 Sold off lease Bombardier CRJ-100/200 Sold off lease Bombardier CRJ-100/200 Sold off lease Bombardier CRJ-705/900 Sold off lease Boeing 737-400 Sold off lease Boeing 737-400 Sold off lease Boeing 737-400 Sold off lease Boeing 737-400 Sold off lease Boeing 737-400 Sold off lease Boeing 747-400 Sold off lease Fokker F-100 Sold off lease Boeing 737-500 Sold off lease Embraer ERJ-135 Sold off lease Fokker F-100 Sold off lease Boeing 737-300 Sold off lease Boeing 737-400 Sold off lease Boeing 737-800 Sold off lease Boeing 757-200 Sold off lease Airbus A319 Sold off lease Bombardier CRJ-100/200 Sold off lease Fokker Fokker 70 Sold off lease Boeing 737-400 Sold off lease Airbus A320 Sold off lease Embraer ERJ-145 Sold off lease Embraer ERJ-145 Sold off lease McDonnell Douglas MD-80 Sold off lease McDonnell Douglas MD-80 Sold off lease Boeing 737-400 Sold off lease Boeing 757-200 Sold off lease Airbus A321 Sold off lease McDonnell Douglas MD-80 Sold off lease Sukhoi SSJ 100-95 Sold off lease Boeing 757-200 Sold off lease Bombardier CRJ-705/900 Sold off lease BAE Systems 146-300/RJ100 Sold off lease Boeing 737-300 Sold off lease Boeing 737-500 Sold off lease Boeing 737-500 Sold off lease Boeing 747-400 Sold off lease Airbus A320 Sold off lease Boeing 737-700 Sold off lease Boeing 757-200 Sold off lease Bombardier CRJ-100/200 Sold with lease Boeing 737-800 Sold with lease

Model

Event

Owner

Operator

Date

JB 30248 INC Embraer ThomsonExecutive Airways Aircraft Delta Air Lines Delta Air Lines Delta Air Lines Delta Air Lines Delta Air Lines Allied Air Wells Fargo Bank NW Unknown (Denmark) SkyWest Airlines(USA) Avionco Canada Ltd Mesa Airlines Falcon Aviation Inc Its Infinity Trading Its Infinity Trading Global Air Fleet Its Infinity Trading Boeing Capital Corporation Jet Midwest Group LLC Fly Africa First Jet Jet Midwest Group LLC DiscoveryAir AeroTurbine Inc Comair Ltd Delta Air Lines Bhutan Air Avmax Aircraft Leasing Alliance Airlines Wells Fargo Bank NW Eastok Avia AVI Sales & Leasing Services Bank of Utah Fontera Flight Holdings Fontera Flight Holdings West Atlantic Federal Express Germania Aeronaves TSM Interjet Delta Air Lines Mesa Airlines North Cariboo Air Bank of Utah European Aviation Ltd Kaiserair Inc Aircraft MSN 25702-2 Smartlynx Airlines Bank of Utah Federal Express GeneralAsset-Finance CapitalVI Dart Group PLC

JB 30248 INC Embraer ThomsonExecutive Airways Aircraft Delta Air Lines Delta Air Lines Delta Air Lines Delta Air Lines Delta Air Lines Allied Air Aviation Capital Group Unknown (Denmark) SkyWest Airlines(USA) Avionco Canada Ltd Mesa Airlines Falcon Aviation Inc Its Infinity Trading Its Infinity Trading Global Air Fleet Its Infinity Trading Boeing Capital Corporation Jet Midwest Group LLC Fly Africa First Jet Jet Midwest Group LLC DiscoveryAir AeroTurbine Inc Comair Ltd Delta Air Lines Bhutan Air Avmax Aircraft Leasing Alliance Airlines Wells Fargo Bank NW Eastok Avia AVI Sales & Leasing Services Bank of Utah Fontera Flight Holdings Fontera Flight Holdings West Atlantic Federal Express Germania Aeronaves TSM Interjet Delta Air Lines Mesa Airlines North Cariboo Air Bank of Utah European Aviation Ltd Kaiserair Inc Aircraft MSN 25702-2 Smartlynx Airlines Bank of Utah Federal Express SAS Jet2.com

15/04/2014 15/04/2014 30/04/2014 15/04/2014 15/04/2014 15/04/2014 15/04/2014 15/04/2014 16/04/2014 16/04/2014 16/04/2014 16/04/2014 17/04/2014 17/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 18/04/2014 21/04/2014 21/04/2014 21/04/2014 22/04/2014 22/04/2014 22/04/2014 22/04/2014 22/04/2014 22/04/2014 22/04/2014 23/04/2014 24/04/2014 24/04/2014 24/04/2014 24/04/2014 24/04/2014 25/04/2014 25/04/2014 25/04/2014 25/04/2014 25/04/2014 28/04/2014 28/04/2014 29/04/2014 29/04/2014 29/04/2014 29/04/2014 29/04/2014 29/04/2014 30/04/2014 30/04/2014 08/04/2014 09/04/2014

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Deals Data supplied by IBA’s JetData. www.ibagroup.com

Aircraft deals 6 to 30 April, 2014

MSN

Manufacturer

Model

Event

Owner

Operator

Date

23739 30248 25864 10168 10177 25163 10150 533 6053 6053 36596 23804 23802 55079 29487 32736 37601 4184 55194 660 328 41991 212 15311 25349 24021 24021 55082 25163 29649 2142 30646 426 29933 35832 29934 35836 558 25585 23802 23804 634 28719 28747 28746 4605 5660 813 4439 1873 211 936

Boeing Boeing Boeing Bombardier Bombardier Boeing Bombardier Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Bombardier Boeing ATR ATR Boeing Airbus Bombardier Boeing Boeing Boeing Boeing Boeing Boeing Airbus Boeing Airbus Boeing Boeing Boeing Boeing Airbus Boeing Boeing Boeing Airbus Boeing Boeing Boeing Airbus Airbus Airbus Airbus Airbus Airbus Airbus

737-300 737-700 767-300 CRJ-700 CRJ-700 737-400 CRJ-700 A320 A321 A321 737-800 767-200 767-200 717-200 737-400 737-800 737-800 DHC8-400 717-200 ATR72 ATR72 737-800 A320 CRJ-705/900 737-400 737-300 737-300 717-200 737-400 737-800 A320 737-800 A320 737-800 737-800 737-800 737-800 A320 767-300 767-200 767-200 A319 737-300 737-300 737-300 A319 A320 A319 A320 A320 A330-200 A320

Sold with lease Sold with lease Sold with lease Sold with lease Sold with lease Sold with lease Sold with lease Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Sub-leased Transferred Transferred Transferred Transferred Transferred Transferred Transferred Transferred Transferred Transferred Transferred Wet-leased Wet-leased Wet-leased

BCI 2005-3 LLC AWAS Spectre Air Capital Wells Fargo Bank NW Wells Fargo Bank NW Aircraft Leasing Spail SL Wells Fargo Bank NW Fly Leasing Ltd Aviation Capital Group Aviation Capital Group COP I LLC GECAS GECAS Boeing Capital Petrus Asset Mgmt GECAS GOL Transportes Aeros Centaurium Aviation AG Boeing Capital Corporation Nordic Aviation Capital A/S Polka Bail BBAM NBB Leasing Co Ltd Wells Fargo Bank NW BBAM Wells Fargo Bank NW Wells Fargo Bank NW Boeing Capital Corporation Aircraft Leasing Spail SL Aviation Capital Group ILFC ILFC VGS Aircraft Holding Ltd CIT Aercap CIT Natixis Lease SA VGS Aircraft Holding Ltd Air Canada Rouge GECAS GECAS Air Canada Rouge KLM Simba Finance Ltd Simba Finance Ltd Bandurria Leasing Wizz Air Air Canada Rouge LAN Airlines SmartLynx ILFC GECAS

BCI Aircraft Leasing Southwest Airlines Vision Airlines Pacific Southwest Airlines Pacific Southwest Airlines Swiftair Pacific Southwest Airlines Corendon Airlines Thomas Cook Airlines Condor Transavia AeroUnion AeroUnion Delta Air Lines Southern Air Anadolu Jet Transavia LGWLuftfahrtgesellschaftWalter QantasLink Etihad Regional Astra Airlines Dobrolet Vanilla Air Endeavor Air Cronos Airlines AAR Aircraft United States Marshals Service Delta Air Lines Air Ghana SunExpress Germany Monarch Airlines Corendon Dutch Airlines Corendon Airlines LOT Polish Airlines Transavia LOT Polish Airlines SunExpress Germany Thomas Cook Airlines Belgium Air Canada Rouge TransportesAereos Mercantiles TransportesAereos Mercantiles Air Canada Rouge Jambojet Jambojet Jambojet LAN Ecuador Wizz Air Air Canada Rouge LAN Airlines Windavia Air Greenland Thomas Cook Airlines

15/04/2014 15/04/2014 17/04/2014 17/04/2014 17/04/2014 22/04/2014 22/04/2014 07/04/2014 07/04/2014 07/04/2014 08/04/2014 08/04/2014 08/04/2014 09/04/2014 09/04/2014 10/04/2014 11/04/2014 15/04/2014 16/04/2014 17/04/2014 17/04/2014 18/04/2014 18/04/2014 18/04/2014 19/04/2014 21/04/2014 21/04/2014 22/04/2014 22/04/2014 22/04/2014 22/04/2014 25/04/2014 25/04/2014 26/04/2014 26/04/2014 26/04/2014 28/04/2014 28/04/2014 07/04/2014 08/04/2014 08/04/2014 10/04/2014 11/04/2014 11/04/2014 11/04/2014 11/04/2014 15/04/2014 16/04/2014 22/04/2014 11/04/2014 20/04/2014 30/04/2014

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

INDUSTRY DATA: Firm orders Data supplied by IBA’s JetData. www.ibagroup.com

Firm orders – From 1 April to 20 June, 2014

Source: IBA’s JetData.

Firm orders – From 1 April to 20 June, 2014

Manufacturer

Variant

Customer

Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing

A319ceo A321ceo ACJ320 A330-200MRTT A320ceo A320neo A319ceo A320neo A320ceo A320ceo A320ceo A321ceo A321ceo A320neo A321neo 737-MAX 737-800 737-MAX 737-800 737-800 737-MAX 737-MAX 737-800 737-800 737-800 737-MAX-8 777-300ER 737-MAX 737-800 737-700C 737-800 737-900ER BBJ 777-300ER 737 737-MAX-8

American Airlines American Airlines Private Customer MTAD/Singapore Air Force Air New Zealand Tigerair Z/C Aviation Partners One LLC Royal Brunei Airlines BOC Aviation easyJet Aviation Capital Group AWAS Delta Airlines Air New Zealand Air New Zealand Undisclosed Ryanair Undisclosed Undisclosed Turkmenistan Airlines Undisclosed Undisclosed Undisclosed Eastern Air Lines Nok Air Nok Air Undisclosed Undisclosed Undisclosed Undisclosed Japan Transocean Air Undisclosed Undisclosed China Eastern Airlines Turkish Airlines

Data supplied by IBA’s JetData. www.ibagroup.com

Order date

No of Aircraft

Engines

01/04/2014 01/04/2014 14/04/2014 28/04/2014 02/05/2014 02/05/2014 02/05/2014 05/05/2014 12/05/2014 13/05/2014 20/05/2014 22/05/2014 29/05/2014 01/06/2014 01/06/2014 11/04/2014 29/04/2014 29/04/2014 29/04/2014 30/04/2014 30/04/2014 15/05/2014 15/05/2014 16/05/2014 21/05/2014 21/05/2014 22/05/2014 27/05/2014 27/05/2014 28/05/2014 30/05/2014 30/05/2014 01/06/2014 13/06/2014 16/06/2014

7 64 1 6 1 37 2 7 3 2 2 1 15 10 3 5 5 34 16 3 7 30 20 10 8 7 2 6 4 2 12 4 1 80 15

CFM56-5B V2500-A PW1100G PW1100G-JM CFM56-5B CFM LEAP-1B CFM56-7B CFM LEAP-1B CFM56-7B CFM56-7B CFM LEAP-1B CFM LEAP-1B CFM56-7B CFM56-7B CFM56-7B CFM LEAP-1B GE90-115B CFM LEAP-1B CFM56-7B CFM56-7B CFM56-7B CFM56-7B CFM Int’l CFM LEAP-1B

Source: IBA’s JetData.

afm • Issue 91 – July–August • www.afm.aero

AIRPORTS INDUSTRY & ROUTES:DATA: Airport List charges prices Data supplied by IBA’s JetData. www.ibagroup.com

List prices and lease rates – June 2014 Current Market Value Manufacturer Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus Airbus ATR ATR ATR ATR Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Boeing McDonnell Douglas Bombardier Bombardier Bombardier Bombardier (Canadair) Bombardier (Canadair) Bombardier (Canadair) Bombardier (Canadair) Embraer Embraer Embraer Embraer Embraer Embraer Fokker Fokker Sukhoi Sukhoi

Average List Price $71.90m $85.80m $93.90m $110.10m $221.70m $224.80m $245.60m $295.20m $414.40m $18.10m $18.90m $21.90m $22.70m $76.00m $90.50m $96.10m $357.50m $185.80m $188.00m $261.50m $296.00m $300.50m $320.20m $211.80m $30.00m $40.00m $45.80m $48.90m $22.20m $29.10m $40.00m $43.10m $47.70m $50.50m $35.40m -

Type

Oldest

Newest

A300-600R $3.50m $9.50m A310-200 $1.00m $2.00m A310-300 $2.50m $5.50m A318-100 $9.80m $18.00m A319-100 $7.50m $37.00m A320-200 $3.50m $43.50m A321-100 $7.50m $13.00m A321-200 $13.00m $51.00m A330-200 $19.00m $93.50m A330-200F $75.00m $91.00m A330-300 $16.00m $105.00m A340-200 $4.50m $9.00m A340-300 $5.00m $28.00m A340-500 $18.00m $32.00m A340-600 $20.00m $45.00m A350-900XWB - $142.00m A380-800 $129.00m $225.00m ATR 42-500 $4.20m $12.00m ATR 72-500 $6.00m $16.80m ATR 42-600 - $16.00m ATR 72-600 - $21.00m B717-200 $5.80m $10.00m B737-300 $0.70m $4.00m B737-400 $1.00m $5.50m B737-500 $0.90m $3.50m B737-600 $8.00m $13.00m B737-700 $10.50m $36.00m B737-800 $14.00m $48.00m B737-900 $14.00m $19.50m B737-900ER $28.50m $49.50m B747-400 $8.00m $30.00m B747-8F $125.00m $180.00m B757-200 $3.80m $17.50m B767-200ER $2.00m $11.20m B767-300ER $6.00m $65.00m B767-300F $20.00m $60.00m B777-200 $18.00m $41.00m B777-200ER $28.00m $105.00m B777-200LR $65.00m $145.00m B777F $125.00m $167.00m B777-300 $40.00m $68.00m B777-300ER $76.00m $166.00m B787-8 $93.00m $115.50m MD-11 $6.00m $10.00m MD-81 $0.50m $0.50m MD-82 $0.50m $1.20m MD-83 $0.50m $1.60m MD-87 $0.50m $1.00m MD-88 $0.70m $1.50m MD-90 $3.60m $4.60m Q200 $4.90m $8.00m Q300 $5.60m $11.00m Q400 $8.00m $21.50m CRJ-100/200 $1.20m $4.30m CRJ-700/705 $7.50m $20.30m CRJ-900 $10.50m $25.00m CRJ-1000 $19.80m $28.00m ERJ-135 $1.50m $4.00m ERJ-145 $1.80m $6.50m E170 LR $11.00m $26.00m E175 LR $14.50m $29.50m E190 LR $16.50m $33.00m E195 LR $18.00m $35.00m Fokker 70 $2.00m $2.50m Fokker 100 $2.20m $3.20m SSJ 100-95B $17.50m $23.00m SSJ 100-95LR $18.50m $24.00m

% Change 0% 0% 0% 0% 2% 2% -2% 2% 1% 0% 1% -4% 0% 0% 0% 0% -2% 0% 6% 3% 5% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% -2% 1% 0% 0% 0% 0% -2% 0% -1% -1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 0% 1% 0% 0% 0% -1% -2% 0% 0% -1% 0% 15% 0% 0%

Dry Lease Rate Oldest $0.060m $0.040m $0.055m $0.100m $0.090m $0.050m $0.080m $0.160m $0.220m $0.700m $0.210m $0.120m $0.130m $0.225m $0.275m $1.150m $0.060m $0.080m $0.070m $0.030m $0.045m $0.032m $0.080m $0.120m $0.195m $0.125m $0.255m $0.125m $1.300m $0.060m $0.050m $0.125m $0.250m $0.230m $0.340m $0.650m $1.200m $0.400m $0.700m $0.800m $0.100m $0.020m $0.020m $0.020m $0.020m $0.020m $0.060m $0.060m $0.065m $0.090m $0.035m $0.080m $0.120m $0.180m $0.035m $0.045m $0.105m $0.140m $0.155m $0.165m $0.040m $0.050m $0.140m $0.145m

% Change $0.165m 2% $0.090m 0% $0.120m 6% $0.185m 0% $0.305m 1% $0.360m 1% $0.170m 0% $0.425m 1% $0.860m -2% $0.800m 0% $0.910m -1% $0.190m 0% $0.360m 0% $0.380m 0% $0.525m 0% $1.250m 0% $2.000m 0% $0.140m 0% $0.180m 0% $0.155m 3% $0.195m 3% $0.125m 0% $0.070m 0% $0.095m 0% $0.065m 0% $0.150m 0% $0.310m 2% $0.400m 1% $0.200m -2% $0.415m 0% $0.390m -4% $1.500m 0% $0.210m 0% $0.200m 0% $0.480m -2% $0.560m -4% $0.390m -4% $0.870m -3% $1.000m -3% $1.400m 0% $0.675m -1% $1.550m 2% $1.100m 0% $0.180m -7% $0.040m 0% $0.045m 0% $0.050m 0% $0.040m 0% $0.050m 0% $0.090m 0% $0.080m 0% $0.120m 0% $0.190m 0% $0.065m 0% $0.200m 0% $0.240m 0% $0.270m 0% $0.070m 10% $0.080m 4% $0.225m -5% $0.255m 0% $0.290m 0% $0.300m 0% $0.060m 0% $0.090m 14% $0.225m 0% $0.230m 0%

Newest

Source: IBA’s JetData. Source: IBA’s JetData.

afmafm • Issue • Issue 87 –91 November–December – July–August • www.afm.aero • www.afm.aero

AIRPORTS & INDUSTRY DATA: ROUTES: Engine Airport datacharges Data supplied by IBA’s JetData. www.ibagroup.com

Engine data – June 2014

Source: IBA’s JetData.

Data supplied by IBA’s JetData. www.ibagroup.com

Engine data – June 2014 Type A300-600R A310-300 A319-100 A320-200 body A321-200 A330-200 A330-300 A340-300 A340-600 A380-800 B717-200 B737-300 B737-400 B737-500 B737-600 B737-700 B737-800 B737-900ER B747-400 B757-200 B767-300ER B777-200ER B777-300ER CRJ-200 CRJ-700 E170/175 E190/195 ERJ-145 ER Fokker 100 MD-11 MD-82

Engine CF6-80C2A5 PW4152 CFM56-5B5/P V2527-A5 CFM56-5B3/P CF6-80E1A3 Trent 772B-60 CFM56-5C4/P Trent 556-61 Trent 970 BR715A CFM56-3B1 CFM56-3B2 CFM56-3C1 CFM56-7B22 CFM56-7B24 CFM56-7B26 CFM56-7B27 PW4056 RB211-535E4 CF6-80C2B6F Trent 895 GE90-115B CF34-3B1 CF34-8C5 CF34-8E5 CF34-10E6 AE3007-A1 Tay 650-15 CF6-80C2D1F JT8D-217C

Full-life market value June 2014

Current half-life market value June 2014

$5.10m $6.20m $6.85m $8.15m $8.85m $16.00m $14.95m $5.75m $14.45m $20.65m $4.00m $1.00m $1.40m $2.10m $7.20m $8.00m $8.75m $9.05m $6.80m $4.20m $7.10m $21.00m $31.90m $2.20m $4.90m $5.05m $6.80m $2.30m $2.20m $5.00m $0.90m

$2.65m $3.30m $4.35m $5.40m $6.35m $10.20m $8.60m $3.90m $8.50m $13.85m $2.50m $0.60m $0.75m $1.20m $4.70m $5.50m $6.25m $6.60m $3.90m $2.80m $4.00m $13.50m $24.10m $1.25m $3.20m $3.30m $5.10m $1.30m $1.30m $2.75m $0.55m

Market lease rate $0.040m $0.045m $0.045m $0.060m $0.065m $0.120m $0.120m $0.045m $0.110m $0.170m $0.042m $0.020m $0.022m $0.028m $0.047m $0.056m $0.065m $0.066m $0.055m $0.050m $0.055m $0.170m $0.250m $0.017m $0.045m $0.045m $0.065m $0.025m $0.025m $0.045m $0.025m Source: IBA’s JetData.

afm afm •• Issue Issue91 91––July–August July–August••www.afm.aero www.afm.aero

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