NextGen Equipage Impact on Airlines and MROs April 16, 2013 www.nexacapital.com
Without NextGen equipage by operators, there will be no NextGen Marion C. Blakey President, Aerospace Industries Association NEXA Page 2
Key NextGen Systems for Operators GPS WAAS Precise global navigation for all phases of flight. Signal integrity and assurance. Supports both ADS-B and RNAV investments. Accuracy will improve with new Block 3 satellite capabilities. ADS-B Out and In Transmits precise location and other information about the aircraft to ground stations and other ADS-B equipped aircraft. With ADS-B In, aircraft obtain graphical and textual weather products, traffic advisories, and other aeronautical information. RNAV/ RNP Data Comm An aircraft using RNAV can fly on any desired flight path within the coverage of ground- or space-based navigational aids. Pilots can reduce miles flown, save fuel, and enhance safety and efficiency. RNP is RNAV with alerting. Datacomm will provide means of two-way communication for ATC clearances, instructions, advisories, flight crew requests and reports. The exchange of routine controller-pilot messages via data link will enhance capacity/safety. Installation Integration FMS/CMU mods Ancillary systems Service bulletins Certification NEXA Page 3
The NextGen Paradox Predominant Equipage En route airspace congestion causes delays from Air Traffic Controller workload saturation. NextGen Reduces Delay in Congested Enroute Airspace These delays are seen as excessive miles-in-trail spacing, inefficient vectoring, and airborne holding. The largest benefit of NextGen is the reduction in operating costs associated with these delays. Capacity is limited by controllers ability to handle multiple aircraft in a given en route sector. Regression analysis shows a 90% correlation between capacity and equipage level. A 70% equipage level will increase sector capacity by 10% to a maximum of 14% with 100% equipage. Airspace Capacity Increases with Equipage KEY FINDING: Predominant Equipage. Benefits begin to accrue to operators in good measure with 50-60% participation. NEXA Page 4
NextGen Comparisons with Other Investments Aircraft Technology Benefit-Cost Comparison - Boeing 737-800 NextGen Re-Engine Winglets Capital Costs* Engines $12,000,000 Wing Modification $885,000 Data Comm $80,000 ADS-B Out $75,000 ADS-B In $200,000 RNP 0.3 w RF Legs $200,000 * Labor and certification included Total Cost $555,000 $12,000,000 $885,000 Benefits Fuel Savings 10% 12% 4% Delay Reduction 21% Maintenance Avoidance 2.5-5% One Year Fuel Savings $1,024,107 $1,228,929 $409,643 Delay Reduction $269,659 Maintenance Avoidance $200,000 Total Benefit $1,293,767 $1,428,929 $409,643 Five years Fuel Savings $5,120,537 $6,144,644 $2,048,215 Delay Reduction $1,348,297 Maintenance Avoidance $1,000,000 Total Benefit $6,468,834 $7,144,644 $2,048,215 Benefit/Cost Ratio 1 Year B/C Return 2.33 0.12 0.46 Indexed 19.58 1.00 3.89 5 Year B/C Return 11.66 0.60 2.31 Indexed 19.58 1.00 3.89 Last 2 of 5 Year B/C Return 4.66 0.60 2.31 7.83 1.00 3.89 Notes Benefits analysis assumes predominant equipage has been achieved, capturing system-wide delay reduction benefits. No system-wide benefits. No system-wide benefits. NEXA Page 5
Section 221: Incentivize Equipage Installations FAA Modernization and Reform Act of 2012: Secretary may establish an avionics equipage incentive program for the purpose of equipping general aviation and commercial aircraft with communications, surveillance, navigation, and other avionics equipment as determined by the Secretary to be in the interest of achieving NextGen capabilities for such aircraft. The incentive program... shall, at a minimum -- (1) be based on public-private partnership principles; and (2) leverage and maximize the use of private sector capital. The amount of any guarantee under this program shall be limited to 90 percent of the principal amount of the underlying loan. NEXA Page 6
NEXA Capital: NextGen Aircraft Financing Initiatives NEXA Capital has been at the forefront of NextGen infrastructure renewal initiatives, and is launching multiple vehicles to provide innovative financing solutions for the commercial and general aviation communities. NEXA s public-private partnership offerings, tap aerospace industry investment and federal loan guarantees, to create alternative funding sources for equipage installation and infrastructure renewal investments. NextGen Equipage Fund The Fund provides $1.1 billion of funding capacity for many commercial aviation operators in the U.S.. The Fund completed a first close in September, 2011, and expects to complete a second round within the next 3 months. The Fund will offer low interest financial loans and highly competitive operating leases. NEXA Capital is in direct discussions/negotiations with over 10 U.S.-based airlines, and expects to be in a position to complete its first investment within the next 6 months. NextGen GA Fund The GA Fund will be capitalized with up to $550 million of equity and debt commitments. Based on the contemplated financing structure, anticipated market adoption rates, and number of aircraft owner and operators utilizing the financing offered by the Fund, NEXA anticipates approximately $1.8 billion of NextGen avionics installations by over 60,000 general aviation customers over the next 10 years - a strong catalyst for economic activity and job growth with no direct funding from the government. NEXA Capital is commencing its capital raise for this fund (up to $50 million of equity), and simultaneously pursuing its debt facility and federal loan guarantee approval process. Equipage Export Fund - NEXA Capital is in the early stages of structuring a public-private financing vehicle to support the export of NextGen technology and early adoption by the international aviation community. NEXA Page 7
U.S. Commercial Air Transport Retrofits US Air Transport Fleet - Top 30 Operators (2011) Delta Air Lines 739 UPS Airlines 210 Air Wisconsin 70 American Airlines 607 Atlantic Southeast 172 Mesaba Airlines 57 Southwest Airlines 541 JetBlue Airways 151 Shuttle America 56 FedEx 429 Pinnacle Airlines 145 Frontier Airlines 51 United Airlines 359 AirTran Airways 138 PSA Airlines 49 US Airways 349 Alaska Airlines 116 Allegiant Air 46 Continental Airlines 327 Comair 103 ABX Air 38 ExpressJet Airlines 244 Mesa Airlines 101 Compass Airlines 36 SkyWest Airlines 226 Chautauqua Airlines 87 Hawaiian Airlines 33 American Eagle Airlines 225 Republic Airlines 83 Trans States Airlines 29 Unit Cost by AC Type (thousands FY $11) Data Comm (FANS 1/A+) ADS-B Out ADS-B In (CDTI) RNP 0.3 with RF Legs Retrofit Forward Fit Retrofit Forward Fit Retrofit Forward Fit Retrofit Forward Fit Commercial Widebody 80 40 135 70 500 300 525 260 Narrowbody 80 40 150 70 500 300 525 260 RJ 80 40 130 70 500 300 525 260 TuroProp 80 40 150 70 500 300 525 260 General Aviation GA TurboProps 80 40 15 10 30 30 260 130 GA Jets 80 40 15 10 30 30 260 130 GA Piston N/A N/A 14 8 30 30 N/A N/A Source: FAA - The Business Case for The Next Generation Air Transportation System, August 2012 http://www.faa.gov/nextgen/media/nextgen%20bus%20case%202012%20(2012-10-05).pdf NEXA Page 8
GA Market Penetration NEXA Page 9
Sizing the GA Market NEXA Page 10
Contact NEXA Capital Partners Head Office NEXA Capital Partners, LLC 1250 24 th Street NW, Suite 300 Washington, DC 20037 USA Phone +1-202-558-7417 Website www.nexacapital.com NEXA Page 11