Costs Associated With Airline

8/11/2019 Costs Associated With Airline

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The effect of Aircraft Ageing on Maintenance and relatedOperating Costs

12 September 2013



Copyright – TBE International Limited 2013

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Why understand the Ageing Effect?

Airlines• Understand future maintenance costs• Understand future hull requirements• Plan for inventory requirements• Plan fleet renewal programmes

MROs• Understand future labour requirements

• Understand market demand• Facilities planning

Firstly….…. because its interesting!• But understanding aircraft ageing has a more practical use• Aircraft ageing can be considered the single most important maintenance cost variable


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What is aircraft ageing and what are the drivers?

Service Bulletins/AD, eg:- Strut mod- T/R lock gear box- NGS

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Engine Shop Visits- Performance Restoration- Life Limited Parts replacement

External damage- FOD- Hail- Impact damage

Component Maintenance- Wear out failures- Hard time removals

Line Maintenance

Base Maintenance- Routine inspections- Non Routine rectification- Corrosion- Fatigue

Maint ’ Influenced CostsDecreased reliability

- Delay costs Increase fuel burn- Weight increase

Maintenance ground time- Hull costs

Direct Maintenance Costs

External Factors

Operating parametersGeographical location

Labour efficiency

Outsource / in-house

Indirect Maint ’ Costs Spare holding costs

Engineering SupportInfra-structure- Tooling- Hangars




We will focus on these costs and theirinfluence on other elements

Aircraft Ageing Driver Tree

Operating

CostsAssociatedWith

AircraftAgeing

6

Non Routinefactor

RoutineMaintenance

MaintenanceInfluenced

Costs

IndirectMaintenanceCosts

Infra-structure(Tooling etc)

Engineering

Spares

Delay / Reliabilityinduced Costs

Fuel burn Aircraft Hull / MaintenanceGround time

DirectMaintenance

Costs

On AircraftLine Maint A/C Base

Maint

Off Aircraft

ComponentEngine

Modifications

BER/Scrap

Routine wear outPerformanceRestoration

LLP / Hardtimeremovals

ExternalFactors- Operatingparameters- Geographicallocation- Labourefficiency- Outsource /in-house






Direct Maintenance Costs

8

To understand how Direct Maintenance Costs are affected by ageing, consider

some real world examples…..




On Aircraft Maintenance

• For all On Aircraft Maintenance the major cost driver is labour…… so to simplify this presentation we will only consider Labour but in any full analysis materialshould also be modeled.

• To conduct any meaning full analysis the data needs to be normalised, so we need tointroduce some concepts

Non Routine Maintenance:• To understand how the amount of Non Routine changes with aircraft age

Actual Routine Labour Hours of the event

Actual Non Routine Labour Hours of the eventFor each event, Non Routine Maintenance Factor =




• First consider Non Routine Maintenance….. Its more interesting! • Consider an actual example for a fleet of B744 aircraft…..

NR increases at ~ 4% per yearEasy right?

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Aircraft Age

NR/R Factor

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a c

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4A Check C Check D Check

A different picture if check typeis considered!

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A checks do not show any increased NR findings with age0

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A checks do not show any increased NR findings with age

• C checks show the typicalageing ‘bump’

• But 2 different rates ofIncrease of NR findings

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On Aircraft Maintenance – Non Routine Maintenance

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A checks do not show any increased NR findings with age


• But 2 different rates ofIncrease of NR findings

• The rate of NR findings increase at the same ratefor D checks and C checks (~4.2% - 5% / year)

• Magnitude of NR for each 1 hour of R is differentbetween C and D checks (due access and levelof inspection)




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t i n e

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Aircraft Age


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Aircraft Age


A checks do not show any increased routine findings with age

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Aircraft Age




• The rate of Routine increase is the same for Dchecks and C checks (~1.5% / year) but froma different base

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On Aircraft Maintenance – Routine Maintenance

• Consider the same fleet of B744 aircraft…..




On Aircraft Maintenance – Routine and Non Routine

• Putting together the Routine and Non Routine elements…..

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R + N R L a

b o u r

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t u r i t y

F a c

t o r

Aircraft Age


A checks do not show any ageing effect

C and D checks exhibit an ageing effect of~4.5% per year after maturity

Maturity at5-10 years




Component Maintenance

• Component maintenance can be looked at via 2 mechanisms:1. The number of removals or MBTUR/hard-time limit of each component2. The cost of repair of each component when removed

• Follow the process

1. Consider the MBTUR of each rotable / repairable component fitted2. Consider the Quantity per Aircraft (QPA) fitted

This will give the quantity of removals per year

3. Dissect removals into 1 st , 2 nd , 3 rd etc removals4. Apply a cost to each removal type

This will give the cost ageing curve for the aircraft




0%

10%

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100%

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5 0 ,

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C u m u

l a t i o v e

Q t y C o m p o n e n

t s ( % )

Q t y C o m p o n e n

t s ( F r e q u e n c y

)

MBTUR

Cum Components Qty Components

The aircraft has ~ 1,000 Rotable andRepairable components fitted with a

CMM and CLP > $5000

Component Maintenance, cont ’

• Consider an example of an A330• Operating at a utilisation of 4000 FH p.a, 8 FH/FC

14

A/C TSN after 25 years =100,000 FH

• Now apply the QPA to obtain the quantity of removals






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C o m p o n e n

t R e m

o v a

l s p e r

Y e a r

Aircraft Age

5+ Removal 4th Removal 3rd Removal 2nd Removal 1st Removal

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• Look at the ‘type’ of removals….

~150 of the annual removalswill be very low MBTURitems eg: wheels, filters etc

• Why is this important?• The 1 st removal is a lower cost than subs removals, ie: repair cost increases with age

Proportion of 1 st / 2nd etc removalsdecreases as the aircraft ages

• Now apply the different cost per event




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C o m p o n e n

t A g e

i n g /

M a

t u r i t y

F a c

t o r

Aircraft Age

Avg increase in costs after maturityis ~0.4% - 0.5% per year

WarrantyPeriod

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• Putting together the quantity of events and the relative cost per event a component costageing curve can be developed




Engine Maintenance

• Analysing engine ageing can be difficult as internal component deterioration is onlyfinancially relised once the engine as a ‘system’ is unserviceable

• This is further compounded by different on-wing and in-shop inspection limits• A component (eg: blade) which is serviceable on-wing can be unserviceable if exposed in

the shop

• To observe the effect of ageing use a process similar to that used for componentmaintenance

• Split Activity – engine SVs, module exposure and LLP replacement• Apply Price – increase in scrap rates as individual components age




Engine Maintenance, cont ’

• Consider a fleet of CFM56-7 engines• Operating at a rating of 24,000lbs, 3.0 EFH/EFC and 8% T/O derate

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U S D

, M i l l i o n s

Aircraft/Engine Age (Years)

Core Refurb LPT Refurb LLP Replacement

Avg TOW10,500cyc

Avg TOW9,500cyc

Avg TOW8,000cyc

Core EngineLLP Limit

Booster/LPTLLP Limit

Pull fwd toalign with SV





• Consider a different view…..

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Core Refurb Booster/LPT Refurb LLP Replacement

• Core Refurb costs increaseover time due to increasedscrap/repair costs

• LLPs generally do notexhibit ‘ageing’ as cost isdriven by a regulatory limit

• Booster/LPT refurb costswould also exhibit‘ageing’ effects ifprojected out far enough




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( U S D / E F C )


Core Booster/LPT LLP Total

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• Looking at a cost per EFC

The steps represent theageing effect




Modifications

• We haven’t addressed modifications in any of the previous examples • Modifications can be classified in 2 categories:

1. Safety• ADs and mandatory SBs• Risk reduction modifications• Ageing aircraft modifications

2. Economic• Any non safety modification should have

some form of economic break even for theairline

• Not necessarily from maintenance cost

• These increase with age• But can affect young aircraft• Aircraft type specific or ‘global’

• The magnitude of modificationswill increase with age

• These should ‘pay back’ withina specific time hurdle

• The key is to have a structured and robust modification evaluation processwithin the airline




Maintenance Influenced Costs

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To understand how Maintenance Influenced Costs are affected by ageing, consider

some real world examples…..




• Generally, maintenance ground time is proportional to labour hours spent on the aircraft• So it follows that a similar curve to the airframe labour ageing curve also applies to

ground time

Effect of Ground time

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Aircraft Age


Potential120%

increase inTAT in the

first 6 years

Potential 30% increase inTAT in 7 years after

maturity

Variability increases as ageincreases effecting turn time




1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 1 3 5 7 9 11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

September June July August

98% 98% 98% 98% 98%98% 98% 98% 98% 98% 98%98% 98% 98% 98% 98% 98%

GREEN = check yield <98%, ORANGE = check yield 98-99%, RED = check yield 100%

1 2 3 4 5 6 8 9 10 12 13 14 16

7 11 15 100%

99%

100%

99% 99% 100%

100%

99%98% 98% 98% 99% 99% 100% 99% 100%

With an extension of 2 days in TAT (6 to 8 days => 33% increase)

1 2 3 5 7 9 11 13 15 17 19

4 6 8 10 12 14 16 18 20 95%

96%96%

97% 96% 96% 96% 95%98% 97% 97%

98% 98% 98%98% 98% 97% 97% 97% 96%

This generally turns into 2 lines of maintenance

Effect of Ground time, cont ’

• This only considers a single check type – obviously this will be compounded for everyD check cycle due to the addtional turn time associated with a D check

• Consider a maintenance planning scenario – simplified for illustration:• A single line of maintenance, 6 day TAT, 18 month maint interval and 98% interval utilisation

ff f




Ground Time can be viewed in economic terms as:

1.Revenue Potential of Aircraft, but only count it if this is‘

real’

• The measure is actual revenue $

2. Hull Cost , this is always‘

real’

if a hull can be saved/deferred• The measure is the ownership cost of hull (lease costs etc)

Effect of Ground time, cont ’

• When considering ground time in an economic sense it is effectively the opportunity costof an aircraft

• The opportunity cost relates to:• The revenue making potential of the aircraft if it were in service• The value of an extra hull

• Consider the dry lease rates of:• B738/A320 = US$180K-300K per mth (US$2.2M-3.6M p.a.)• A330 = US$490K-790K per mth (US$5.9M-9.5M p.a.)

• B773ER = US$1M-1.2M per mth (US$13-14M p.a.)

Di h R li bili




Management Strategy orthere is no age related DR decrease?

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Dispatch Reliability

• There are some issues when looking at long term Dispatch Reliability trends1. The airplane can fly multiple mission types throughout its life2. Schedule constraints vary over time3. Availability of ‘spare’ hulls in network is an issue 4. Availability of spares to recover the aircraft

• But, there is a general ‘feeling’ that Dispatch Reliability decreases with aircraft age• But by how much, if at all?

• Although, consider that many airlines operate ‘older’ fleets quite successfully where

dispatch reliability is critical• Delta• UPS / Fedex

Dispatch Reliability can be significantly affected by External Factors



I Di t M i t C t




In-Direct Maintenance Costs

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• In-direct Maintenance costs do have a link to Direct Maintenance costs changes and canbe considered ‘Direct Maintenance Support Costs’

Spare holding costs- Inventory acquisition and mgt- Warehousing- Obsolescence

Engineering Support- Repair schemes- Maintenance system content / hosting- SB/AD review

Infra-structure- Hangar costs- Tooling

DMC Ageing Link

Component Ageing- MBTUR- Repair TAT

Airframe Ageing- Routine elements- Non routine elements

Airframe Ageing- Routine elements- Non routine elements

Putting it all together




No visible labour impact, butreliability is impacted (see reliability)

Linked to ground time, non routinefactors

Both Routine and Non Routine

exhibit ageing effects (see graph)Event / MBTUR and subsequentrepair cost driven

Costs are event driven, large impactof external factors

Increases due to weight, non-flush

repairs, panel warpingGenerally proportional to labourincrease + ‘unusual defects’

Dispatch reliability decreases withage, unique defects

Linked to ground time, non routinefactors

Linked to MBTUR, repair TAT andnon routine

Putting it all together….

OperatingCosts

AssociatedWith

AircraftAgeing

Spares

Infra-structure(Tooling etc)

Engineering

Fuel

Delay / Reliabilityinduced Costs

Aircraft Hull / MaintenanceGround time

Line Maintenance

Base Maintenance

Component Maintenance

Engine Maintenance

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MaintenanceInfluenced

Costs

IndirectMaintenance

Costs

DirectMaintenanceCosts

Summary




Summary

• If conducting an ageing analysis for fleet renewal purposes don’t forget toinclude the ‘Maintenance Influenced Costs’

• These can have a significant effect (sometime more than Direct Maintenance)

• This IS NOT an exact science, all aircraft age differently, there is no one rule,consider

• Aircraft type• Your operating parameters• Your geographical location• Labour efficiency• Insource/outsource

• There are multiple ageing mechanisms and each are different

• There are commercial management strategies to limit / manageexposure of ageing

• But that will be a topic for another day !




TB E …Capability through people…

Thank You!




For further information please contact

Tom BemsteinTBE International Limited

Level 19, Two International Finance Centre.

8 Finance Street,Central. Hong Kong.

Phone: +852 3101 7286Fax: +852 3101 7287

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Documents

Costs Associated With Airline