Engine Values Book Edition

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1 2014 Edition

2 Welcome to the 12 th addition of the Engine Values Book, which has been updated with IBAs current view on engine values, lease rates, maintenance costs, maintenance information as well as market data supported by IBA s JetData aircraft database. Examining the 10-year orderbook for the Boeing 787 gives the inclination that the programme was the most accepted aircraft with customers but also marked the change of times were the market experienced mass orders before the launch of an aircraft. When thinking of successful aircraft programmes such as the A330, significant orders increased as the aircraft entered into commercial service. Of course even 10-years on there is a greater emphasis on the replenishment of much improved technology coinciding with the end-of-lease of current operation aircraft in operator fleets. The last year has once again reinforced this with Airbus and Boeing capturing orders for their much talked about neo and MAX that are both due for service entry in the run up to the end of the current decade. For 2013 and heading forth into 2014, there is the continuing shift from west-to-east aircraft finance with the aircraft delivery value estimated to be US$ 110 billion. By this, we see increasing activity in the Japanese and Chinese markets with financials tools such as the Japanese Operating Lease (JOL). Larger scale activity such as that seen by Sumitomo Mitsui and Mitsubishi are set to continue again emphasising the regions keenness for the hard asset, in this instance seen as aviation related investments. This shift comes as no surprise as airlines and those alike are looking to secure the best rates of finance, no longer offered by popular Export Credit Agencies (ECAs) due to updates to the Aircraft Sector Understanding ultimately making it a level playing field for host countries as rates are now more representative of commercial debt. This means that interest rates have increased, in some cases to more than double what they were originally. This rate is driven by operator credit risk rating with airlines in the higher ratings (AAA BBB-) expected to bill from eight per cent of their financing needs with lower rated airlines expected to produce up to 18 per cent. In recent times, as airlines such as British Airways could not benefit from such agreements whereas airlines such as Ryanair, who despite having their largest hubs in the United Kingdom, were able to access such avenues of finance. For an airline such as Ryanair this is a distinct advantage, especially considering that along with easyjet they have taken large strides over the past 10-years in a low-cost boom that has seen a market shift of passengers from British Airways short-haul; take for example a comparison of British Airways movements from London Gatwick Airport years ago compared to today. The previous year leaves behind yet more record orders and deliveries with further production ramp-up s expected in the coming year on the their current respective single-aisle aircraft manufacturing lines. Airbus obtained the most orders during 2013 with 1,619 compared to Boeing s 1,531 and Boeing delivered more aircraft with 648 compared to Airbus s 626. CFM and Pratt & Whitney/IAE will be the fortunate engine recipients of the increased order and delivery activity due to their market shares in the single-aisle engine market with both current and future aircraft. The hitherto concerning the 777X was also ended in 2013 as Boeing finally introduced plans to introduce the aircraft by the end of the decade. The 777-8X is aimed as a direct competitor to the Airbus A whilst the 777-9X is a further stretched version. General Electric will continue on from the ER as the sole engine supplier with the GE9X engine. As of the first quarter of 2014, the 777X has already received significant orders Cathay Pacific, Emirates, Etihad and Lufthansa with Qatar Airways showing significant interest with a LOI for 50 of the type. The Airbus A350 is well into its test program with the first flight completed during 2013 and the most recent figures show that 814 aircraft are on order with service entry due at the end of this year with Qatar Airways.

3 The mention of all new aircraft programs does not savour anything for the outgoing previous generation of twin-aisle aircraft. In a time when record orders and deliveries are being made, many of the stalwart aircraft are continually being retired; some at a fast pace. The fate of the McDonnell Douglas MD-11 in passenger service has been confirmed as KLM will be retiring the remaining four aircraft (PH-KCA/-KCB/-KCD/-KCE) as the final planned service is for October 25 th this year. The remaining aircraft are currently in-service on routes from Amsterdam (AMS) to and from Toronto (YYZ) and Montreal (YUL). The market is also a wash with many freighters entering storage and passenger aircraft heading part-out locations across the United States. No fewer than 24 aircraft have been sent for part-out since the start of 2013, as Air Pacific, All Nippon Airways, British Airways, Cathay Pacific, Korean Air Cargo, Lufthansa, Philippine Airlines, Qantas and United Airlines have all had aircraft ferried. As can be expected, this has released the respective CF6-80C2, PW and RB engines into the market and this has been evident with values feeling more pressure. Lufthansa and British Airways will be continuing with their gradual retirement of the types and it is expected that others will follow. The is not the only four-engine aircraft suffering from exit strategies from fleets. Iberia and Lufthansa are sending earlier examples of the A /-300 for part-out with Lufthansa responsible for no fewer five aircraft. CFM56-5C values have been under pressure as a result with increase spare engines available on the open market. Approaching lease ends on the later A /-600 aircraft are also causing much attention as airlines are believed to be seeking further exit strategies. Whilst the single-aisle market does show older vintages leaving fleets, the majority is for aircraft that have operated for what would be considered as a typical economic life; Air France are earlier A320 s and have replaced them with new A320 s for example. Doing away with the old CFM56-5A engine technology and gaining a new aircraft equipped with the latest CFM56-5B technology and an airframe equipped with Sharklets is not uncommon amongst current operators of A320 family aircraft. Although there then tends to be an increased amount of CFM56-5A engines available, there is still a significant size fleet existing to serve and maintain. Perhaps the most prominent developments from CFM and IAE the most prominent single-aisle engine manufacturers, is introduction of their respective OEM approved maintenance by where no PMA or DER repairs are present. This fairly recent introduction is also strengthened by the inclusion of LLP s. Both programmes use a back-to-birth trace of the engine and the components in the belief that an engine without the aforementioned PMA and DER will ultimately lead to strengthened residual engine values and OEM approved maintenance or fleet hour agreements were longer on-wing times can be achieved between shop visits. This is seen as a worthy concept especially as it is expected to carry forward to the CFM-Leap and Pratt & Whitney PW1000 engine platforms will once again see many fluctuations in engine values such is the nature of the industry, but as engine manufacturer s move even closer towards more aftermarket control and with the advent of frequent performance improvement packages, residual values could see some strengthening particularly for thriving aircraft programmes. Looking further on, Rolls-Royce has followed Pratt & Whitney in their future engine developments announcing that they will also utilise a Geared Turbofan currently known as the UltraFan. Plans outlined reveal that the engines could be ready for service by 2025 with the expectation that Rolls- Royce will once again feature in single-aisle aircraft market. Further announcements from other engine OEMs can be expected to follow. The IBA Valuations Team June 2014

4 IBA s Commercial Valuation Team is composed of: - Phil Seymour, President & Chief Operating Officer, Senior Certified ISTAT Appraiser: phil.seymour@ibagroup.com - Dr. Stuart Hatcher, Head of Valuations & Risk, Senior Certified ISTAT Appraiser: stuart.hatcher@ibagroup.com - Jonathan McDonald, Senior Analyst, Certified ISTAT Appraiser: jonathan.mcdonald@ibagroup.com - Alice Gondry, Senior Analyst, Certified ISTAT Appraiser: alice.gondry@ibagroup.com - Usman Ahmed, Senior Analyst: usman.ahmed@ibagroup.com - Kane Ray, Senior Analyst: kane.ray@ibagroup.com - Mike Yeomans, Senior Analyst: mike.yeomans@ibagroup.com - Hashen Hewawasam, Aviation Analyst: Hashen.Hewawasam@ibagroup.com - Kim Seward, Aviation Analyst: kim.seward@ibagroup.com - Huda Syed, Aviation Analyst: huda.syed@ibagroup.com - Carmen Wong, Aviation Analyst: carmen.wong@ibagroup.com - Dr. Shirley Brunton, Data Analyst: shirley.brunton@ibagroup.com IBA Group Limited IBA House 7 The Crescent Leatherhead Surrey, KT22 8DY United Kingdom Tel: +44 (0) Engine Values Book 2014 Edition All Rights Reserved

5 Table of Contents... i Engine Value Methodology... iv Value Definitions... iv Maintenance Definitions... v Disclaimer... vi Section i: Worldwide Distribution & Market Share... i.1 Manufacturer Market Share by Installed Engines... i.2 Manufacturer Market Share by Operators... i.3 Engine Type Market Share by Thrust Class... i.4 Section 1: CFM International CFM CFM56-5A CFM56-5B CFM56-5C CFM56-7B Airworthiness Directives Section 2: Engine Alliance GP Airworthiness Directives Engine Values Book 2014 Edition i All Rights Reserved

6 Section 3: General Electric CF CF6-80C CF6-80E CF6-50C, CF6-50E & CF6-80A GE GEnx Airworthiness Directives Section 4: Honeywell ALF502 & LF Airworthiness Directives Section 5: International Aero Engines V Airworthiness Directives Section 6: Pratt & Whitney JT8D PW PW PW PW Airworthiness Directives Engine Values Book 2014 Edition ii All Rights Reserved

7 Section 6: Rolls-Royce AE RB RB Tay Trent Trent Trent Trent Trent BR715 (Rolls-Royce Deutschland) Airworthiness Directives Section 7: Pratt & Whitney Canada PW Airworthiness Directives Engine Values Book 2014 Edition iii All Rights Reserved

8 Engine Valuation Methodology Whilst the techniques used and the judgements made do not isolate every single influence and reduce it to a numerical value that impacts on the overall model, it is our view that the complexity of a purely mathematical approach would produce values that were overly sensitive to minor changes in the parameters feeding it. Consequently, IBA feels that, when making an assessment of engine value, there is still no substitute, for the blend of market research and intelligence, mathematics, and judgement based on the experience of the appraiser in this highly dynamic market. The Engine Values Book has therefore been constructed around the following criteria: Scope: Engine variants associated with current production modern technology western-built passenger and cargo aircraft with an entry into service date of post-1980 and with a minimum population of 200 engines and/or 100 delivered aircraft. Method: Determination of values includes account of replacement price, age, market condition, depreciation based on resale history and useful economic life. Engines are considered within the market segment to which they belong and compared with the competitor engines in the segment. Engine values, rental rates and maintenance indicators are based on IBA s own engine databases which have been built on information for various engine types routinely gathered and stored as part of IBA s daily business. Assumptions: (a) current / balanced market condition with balance achieved at levels perceived appropriate for today s market (b) "standard / mid-time maintenance condition" (c) good / average physical condition (d) typical utilisation (e) standard / average specification unless otherwise indicated. Value Definitions Market Value is IBA s opinion of the most likely trading price that may be generated for an engine under the market circumstances that are perceived to exist at the time in question. Market Value assumes that the engine is valued for its highest, best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. Base Value is IBA s opinion of the underlying economic value of an engine in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest, best use". An engine s Base Value is founded in the historical trend of values and in the projection of value trends and presumes an arm's-length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. Engine Values Book 2014 Edition iv All Rights Reserved

9 In most cases, the Base Value of an engine assumes its physical condition is average for an engine of its type and age, and its maintenance time status is at mid-life, mid-time (or benefiting from an above-average maintenance status if it is new or nearly new, as the case may be). Quick Engine Change (QEC) kit is defined as a collection of components and accessories installed into a bare engine to reduce the time required for installation of the entire powerplant onto an aircraft. QEC kits can be categorised into three types: basic, neutral & full. A basic QEC includes all prime parts and accessories required for an engine test. A neutral QEC can be considered to comprise the basic kit plus sufficient specialist parts and accessories that will allow installation on an airframe but excludes any items relating to a specific aircraft or application. A full QEC comprises the neutral kit plus those items required for varying aircraft applications. In the case of basic and neutral, neither the thrust reverser nor the nose cowl is included. Each engine type should be considered unique in its QEC configuration and installation. Values are shown as a range to bracket IBA s view of neutral and full QEC kits and to reflect the different make-up of each kit as the components and accessories vary depending on the type of aircraft the engine will eventually power. Typical Current Rental Rate (TCRR) is IBA s opinion of the monthly lease rental as it relates to an arm s length transaction between a willing lessor and a willing lessee for a single engine transaction. Values are shown as a range to bracket IBA s view of short-term (18 months) to long-term (5 years) duration of rental. Maintenance Definitions Life Limited Part (LLP) Cost refers to IBA s opinion of the basic cost of all of the engine s life-limited parts (LLPs), assuming all-new parts. Mean Time Between Overhauls (MTBO) represents IBA s opinion of the average time, in flight hours, between major engine shop visits. This does not include unscheduled removals for reasons such as foreign object damage but it does include removals due to exhaust gas temperature (EGT) deterioration or LLP life expiry. Basic Overhaul Cost is IBA s estimated figure for an average workshop visit carried out under a time & materials basis. This includes labour for teardown, inspection, repair costs, material replacement and a degree of LLP replacement. Engine Values Book 2014 Edition v All Rights Reserved

10 Airworthiness Directive (AD) Airworthiness Directives (ADs) have been included at the end of each section of the Engine Values Book. Recurring ADs are noted with a bullet and key ADs are further noted by the use of bold, red lettering. Key ADs, as defined by IBA, fall into one or more of the following categories: ADs resulting from an uncontained failure. ADs that reduce the life of components, LLPs and primary components. ADs requiring a correction of operational problems. ADs requiring piece part inspection programs of LLPs and usually resulting in a restricted operational life and/or driving components out of the engine at shop level. These key ADs are usually associated with high costs in terms of operational disruption, higher material investment, or higher shop visit rates with possible increases in cost of each shop visit. Wherever possible, IBA has provided a dollar value of key ADs for each engine. Disclaimer This Engine Values Book represents the opinion of the International Bureau of Aviation (IBA), and is intended to be advisory only. Therefore, IBA assumes no responsibility or legal liability for any action taken, or not taken, by the user, or by any other party. In using this guide, the consumer agrees that IBA shall bear no such responsibility or legal liability. Engine Values Book 2014 Edition vi All Rights Reserved

11 Section 7: Rolls-Royce Rolls-Royce Trent 900 The fourth generation in the Trent family, the Trent 900 program, was launched in 2001 to power the A380 and is the leading engine on the aircraft type. The engine is scaled up 10% from the Trent 500 and features the same three-shaft architecture as the other members of the Trent family. It features a swept fan, 3-D aerodynamics throughout the compressor and turbine sections, and contra-rotation of the high pressure spool. Rolls-Royce claims that the Trent 900 engines generate only 40% of the CO2 per passenger kilometre of an average family car. The Trent 900 made its maiden flight on 17th May 2004 on Airbus' A testbed and achieved engine certification in October The Trent 900 enters service with a thrust rating of 70,000 pounds although it is certificated to up to 80,000 pounds. The Trent 900 engines powered the first scheduled service of a Singapore Airlines' Airbus A380 from Changu Airport, Singapore to London Heathrow on 18 March The Trent 900 powerplant has benefited from the high number of hours and cycles accumulated by the A380 test fleet due to the production delay, accumulating over 18,000 flying hours, while powering four of the five A380 test aircraft on the flight test program. The engine had a high-profile on-wing uncontained failure onboard a Qantas aircraft in November 2010, whilst operating at maximum thrust. Rolls-Royce made preliminary a payload-reduction recommendation for Trent 900 operators as a result. As of 2014, the Rolls-Royce Trent 900 has the largest operating base of the two engine options for the A380 with 10 operators Edition All Rights Reserved Page 7.30 IBA Group Limited, IBA House 7 The Crescent, Leatherhead Surrey KT22 8DY, UK

12 Section 7: Rolls-Royce Rolls-Royce Trent 900 Engine Variants Available Variant Thrust Flat Rating SFC* Aircraft Type(s) Engines in Service Trent ,000 lbf 30.0 C lb/h/lb A engines Trent ,000 lbf 30.0 C lb/h/lb A engines * Specific Fuel Consumption (SFC) not available for all variants; SFC at cruise conditions where applicable Aircraft Manufacturer Aircraft Airbus A Airframe/Engine Combinations Engine Trent 970 Trent 972 Worldwide Population 59 aircraft 12 aircraft 2014 Edition All Rights Reserved Page 7.31 IBA Group Limited, IBA House 7 The Crescent, Leatherhead Surrey KT22 8DY, UK

Section 7: Rolls-Royce Rolls-Royce Trent 900 Active = 280 Parked = 4 Worldwide Distribution of Installed Engine Population Worldwide Distribution of Trent 900 engines Total installed population 284

0% Latin America - - Latin America - - Middle East - - Middle East - - North America - - North America - - Current Market Value, Base Value, Typical Current Rental Rate (TCRR) & QEC Trent 970 Engine

13 Section 7: Rolls-Royce Rolls-Royce Trent 900 Active = 280 Parked = 4 Worldwide Distribution of Installed Engine Population Worldwide Distribution of Trent 900 engines Total installed population 284 engines Total operators of Trent 900 engines 10 operators Africa - - Africa - - Asia Pacific 200 engines 70.4% Asia Pacific 7 operators 70.0% Europe & CIS 84 engines 29.6% Europe & CIS 3 operators 30.0% Latin America - - Latin America - - Middle East - - Middle East - - North America - - North America - - Current Market Value, Base Value, Typical Current Rental Rate (TCRR) & QEC Trent 970 Engine Maintenance Indicators Trent 970 Market Value Dressed $13,850,000 Life Limited Part (LLP) Cost $7,600,000 Base Value Dressed $13,850,000 Average Cost of Overhaul $6,600,000 Typical Current Rental Rate Low $120,000 per month High $170,000 per month Mean Time Between Overhauls (MTBO) 25,200 Flight Hours QECU $600,000 Fleet Average Flight Hour/Cycle Ratio 8.0 FH/Cycle All amounts in US$ All amounts in US$ 2014 Edition All Rights Reserved Page 7.32 IBA Group Limited, IBA House 7 The Crescent, Leatherhead Surrey KT22 8DY, UK

14 Section 7: Rolls-Royce Rolls-Royce Trent 900 Current Market Value & Base Values Values in US Dollars (millions) Annual inflation of 2.0% assumed Type CMV Trent Trent Edition All Rights Reserved Page 7.33 IBA Group Limited, IBA House 7 The Crescent, Leatherhead Surrey KT22 8DY, UK

15 Section 7: Rolls-Royce Listing of Airworthiness Directives (AD) Issuing Authority Cost Estimate Description EASA CAA DGAC FAA (US$) HP Turbine Nozzle Guide Vane (NGV) Convex Surface inspection Prevent the release of a high-pressure (HP) turbine blade IP Shaft Coupling Splines Inspection CN HP/IP Section Inspections - CANCELLED IP turbine shaft rigid coupling splines Inspection IP turbine bearing housing Inspection Replacement of the fuel oil heat exchanger IP turbine seal fins and interstage seals Inspection Inspection of the intermediate pressure compressor rear stub shaft (IPC RSS) piston ring Inspection of the intermediate-pressure (IP) compressor rotor shaft rear balance land for cracks. $2,271 Indicates recurring AD; Bold red indicates key AD Trent 970 & Edition All Rights Reserved Page 7.53 IBA Group Limited, IBA House 7 The Crescent, Leatherhead Surrey KT22 8DY, UK

Engine Values Book. Issue: 16 May Member of ISTAT UK CAA Approval No. UK.MG.0622

Engine Values Book. Issue: 16 May Member of ISTAT UK CAA Approval No. UK.MG.0622 Engine Values Book Issue: 16 May 2018 Member of ISTAT UK CAA Approval No. UK.MG.0622 www.iba.aero Welcome to the 16th edition of the Engine Values Book, which IBA has updated with current views on engine