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Global developments presenting risks and rewards for the aircraft trading and financing market

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Headline News was last updated: December 17, 2009

Service

Guide.

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December 2009:

United ordered 25 A350 XWB & 25 B787 aircraft & has options for 50 of each for delivery between 2016 & 2019. www.twitter.com/avreg

United Fleet retirement plan: It will retire its B747s and B767s flying on international routes between 2016 and 2019. www.twitter.com/avreg

United fleet rationale: The A350 has a range 11% greater than the B747, & the B787 has a range 32% greater than the B767. www.twitter.com/avreg

United engine selection: A350 /Rolls Royce Trent XWB engine, and the B787 powered by either the Rolls Royce Trent 1000 or the GE GEnx.  www.twitter.com/avreg

United fuel burn advantage: It will reduce its fuel costs and carbon emissions from the 50 aircraft by about 33%. www.twitter.com/avreg

United maintenance advantage: It expects average lifetime maintenance costs for the new aircraft to be approximately 40% lower per available seat mile than the aircraft that will be retired. www.twitter.com/avreg

Exeltech  Aerospace lost $243K on $11.8M revenues for Q2 ended September 30. It completed 29 heavy maintenance checks vs 25.

November 2009

Fokker Services introduced FLYFokker, a lifecycle support program for startup, mature and phase-out operators.

FLYFokker comprises a package of four solutions: Take Off, Take Care, Take Over and Take Next.

TSA (Transportation Security Administration) wants regulatory inspection authority for aircraft-repair shops

TSA says terrorists could use the facilities to sabotage aircraft undergoing maintenance.

FAA reports that nearly 5,000 approved repair shops are in business worldwide doing work ranging from repairs to heavy maintenance.

TSA is especially concerned with shops on or near airport property, where terrorists could potentially take control of an aircraft for use as a weapon.

TSA critics report that all shops working on U.S.-based planes already are subject to FAA licensing and inspection.

October 2009

U.S. Air Force has awarded Northrop Grumman Corporation a nine-year contract to provide Contractor Logistics Support (CLS) for its fleet of KC-10 Extender refueling tanker aircraft.

KC10 indefinite delivery/indefinite quantity contract has a total ceiling value of $3.8B.

Northrop Grumman is providing supply chain management, depot-level logistics integration and support, engine maintenance, aircraft maintenance and modifications for the KC-10 refueling tanker.

KC10 tanker/cargo aircraft is part of the Air Force's Air Mobility Command arsenal and has supported air force operations around the world.

KC10 teams will perform the work at depots located at Northrop Grumman's Lake Charles Maintenance and Modification Center, Lake Charles, La., and at TIMCO Aviation Services' facility in Greensboro, N.C.

September 2009

Cathay Pacific will sell part of its stake in maintenance company HAECO to parent Swire Pacific for USD$245M to raise needed cash.

CX will sell its 20.7M shares in HAECO, or 12.5% of its holding, for approximately $245M to Swire Pacific.

Cathay Pacific (CX)/HAECO) deal will reduce CXs share in the MRO HAECO to 15% & increase Swire's holding to 46%.

CX/BOC do a deal which is the largest sale-and-leaseback arrangement in Cathay's history and is consistent with CXs cash-preservation priority.

CX/BOC sale-and-leaseback covers six B777-300ERs due for delivery between Q4 2009 and Q2 2011

CX arranged an aircraft sale-and-leaseback deal with BOC Aviation (BOC) to increase its liquidity.

CX has no plans to cancel aircraft orders but it is negotiating delivery deferrals.

CX has 39 aircraft due for delivery through 2012. CX has 19 B777-300ERs on order from Boeing.

CX fleet consists of 97 owned and 25-leased aircraft.

BOC has 127 aircraft out on lease and 64 new aircraft on order.

August 2009

The world jet-powered civil aviation fleet consists of over 77,000 aircraft flying 77M hours annually.

1)Over 52,000 are business and general aviation (BGA) jet aircraft.

2)25,000 jet aircraft are in the air transport fleet

Nearly half of the fleet (37,000) aircraft is based in North America, 16,8000 jet aircraft are based in Europe, the Asia-Pacific regional has about 10,000 aircraft.

Worldwide more than 4,800 firms employ more than 480,000 people in the civil maintenance & repair supply chain. 

Nearly 4,200 firms employing more than 200,000 people in the USA are involved in supporting these aircraft providing maintenance and repair services through maintenance & repair organizations (MROs).

Spending in the global MRO market was estimated at $50Bn in 2008.

North America accounted for $19.4Bn of the MRO spending total.

The maintenance and repair market is divided into four market segments:

1)Airframe heavy maintenance

2)Engine overhaul

3)Component repair

4)Line maintenance

Cost structure

Labor cost account for 70% of every heavy maintenance check and 22% of the engine overhaul cost.

Material costs account for 20% of a heavy check and 60% of the engine overhaul cost.

Repair/specialty services costs account for the balance of the heavy maintenance and the engine overhaul costs.

Maintenance philosophy

1)Block maintenance concept

2)Progressive maintenance concept

3)On-condition maintenance concept

This overview is focused mainly on the block maintenance approach to overhaul.

Airframe heavy maintenance is broadly categorized as:

Air Transport Aircraft

C CheckEvery 2,500 to 3,000 flight hours, requiring 2,000 to 4,000 man hours

D CheckEvery 20,000 to 24,000 flight hours, requiring 10,000 to 50,000 man hours

Business & General Aviation Aircraft

Minor      Every 300 to 500 flight hours, requiring 4 to 15 man hours

Major      Every 3,000 to 5,000 flight hours, requiring 2,000 to 5,000 man hours

Engine overhaul is broadly categorized as follows:

Air Transport Aircraft

OverhaulEvery 4,500 to 25,000 flight hours, requiring 11,000 to 140,000 man hours

Hot Section Inspection (HSI) Every 1,000 to 3,000 flight hours, requiring 500 to 4,000 man hours

Business & General Aviation Aircraft

Hot Section Inspection (HSI)Every 1,000 to 3,000 flight hours, requiring 500 to 4,000 man hours

Overhaul      Every 3,500 to 7,000 flight hours, requiring 5,000 to 20,000 man hours

The component overhaul market is fragmented into the following market segments:

Wheels & Brakes

Avionics

Auxiliary Power Unit

Fuel Systems

Hydraulic Power

Flight Controls

Thrust Reversers

Landing Gear

Electrical

Other

The overhaul of wheels and brakes are generally the highest expense on most aircraft due to significant wear and tear and average about 20% of component repair cost.

Line maintenance covers three basic checks:

Transit Checks   Every flight cycle, requiring 1 to 5 man hours

Daily/Weekly ChecksEvery 24 to 36 hours and/or every 4 to 8 days requiring 5 to  30 man hours

A Checks      Every 350 to 700 flight hours requiring 50 to 250 man hours

September 2009

FAA is investigating American Airlines over structural repairs to its aging fleet of MD80s

FAA investigation centered on repairs to the rear bulkhead of the MD80 series aircraft.

American has 270 MD80s representing 44% of its fleet.

Engine shop visits:

An estimated 20,000 commercial high bypass ratio aircraft engines will be overhauled between 2009 and 2010

Retired

8,732

Passenger

Fleet

Freightert

Fleet

New Jet Aircraft Deliveries

24,951

Converted to freighter

          2,585

7,414

Recycled

3,134

Passenger Jet Aircraft

24,097

Freighter Jet Aircraft

  854

1,306

DEMAND CYCLE

Passenger aircraft of 100 seats-plus

Source: Airbus 2009