How should operators assess and manage the cost of engine

ownership?

Time and Material v Power by the Hour/Long Term Service Agreements

OEM v Others

The engine maintenance business is dominated by the OEMs

“Rolls has managed to bundle services

contracts into an astonishing 92 per cent of Trent sales” July 19th, 2013. MRO Network,Alex Derber - MRO Network

“For the PW4000, 40-50% of the engines are under fleet service contracts; for the V2500, that is 60%

but it will grow to 80%. For the

GP7200, it’s 75-80% and for the GTF

it’s 80% under a fleet care arrangement.” April 7th, 2015, MRO Network,Matthew Bromberg - PW

OEMs sell installed engines at a loss and need the aftermarket to make profit

For example, extract from RR presentation to investors shows average loss of £1.6m for each Trent engine delivered in 2016.This produces an aggregate loss of £0.5bn which is compensated for with £1bn of aftermarket profit and £200m from spare engines.

Competition for new aircraft engine sales is always very intense and it is rare for an “airliner” engine to be sold at breakeven or profit. Engines for Corporate aircraft do make money at original sale – aftermarket is low for these due limited flying.

Why are engine maintenance LTSA so popular?

New engines are perceived to be inherently more risky than established types

• OEM LTSA transfers risk back to the OEM

Frequency and magnitude of Shop Visits are difficult to forecast

• Engines SV cost can vary from $3m - $15m and cost of new types is unknown

• LTSA brings certainty to maintenance cost expenditure

Acquisition of new aircraft/engine is usually a long-term commitment

• Cost / flying hour is focus rather than cost / SV

OEMs are the only players able to take the risk of new engine types

OEM contracts are attractive for new engine types –they are a payment plan with extended warranty

• Strong desire to transfer risk

• Focus on long-term costs (cost/hour)

• OEM has first-mover advantage

• New parts and OEM repairs

• Product risks well understood

• Focus on short-term costs

• Used and non-OEM parts available

• Independent shops can enter market

Fleet size

Sunset NewEngine age

Small

Large

Mature

Medium

An introduction to jcba

We are a niche consulting group formed 2002

We demonstrate an outstanding track record within the Airline industry.

Our unique partnership approach when working with Executive Management teams achieves “breakthrough” cost savings of 20 - 45%

We implement positive change to generate real productivity and profitability improvement

We share risk and guarantee results

An introduction to jcba

$ / F

light

Hour

Current cost $ /FH

Market Benchmark cost $ /FH Jcba “Best

Practise” Benchmark cost $ /FH

Value Added…

Other consultants are only able to identify the current “Market Rates”

We target and achieve best practise

“Stretch Targets”

Focus on Implementation and

Results Delivery

We will guarantee results.

Implementation fees linked to

performance and bottom line

benefits

Our airline track record

credentials are second

to none

Jcba’s experience

jcba have in-depth experience within the airline industry...

Typical Engagements

▪ Supply chain performance improvement

▪ Productivity improvement

▪ Lean operations

▪ Asset management

▪ Distribution network optimisation

▪ Procurement cost reduction

▪ Working capital reduction

▪ Merger integration

▪ Product rationalisation

▪ ERP improvementTURKISH TECHNIC