Airlines costs management May 2016 Phil Seymour - CEO Paul Lyons - Strategy Director
Housekeeping Your Participation Open and close your control panel Join audio: Choose Mic & Speakers to use VoIP Choose Telephone and dial using the information provided Submit questions and comments via the Questions panel Note: Today s presentation is being recorded and will be provided within 48 hours.
Enhancing Decision Making Full service Data, asset management, technical advisory Independent No vested interest in a deal progressing or in placating advertisers No conflict in treatment of assets under management or for sale Diversified talent pool Imaginative solution finding from a breadth of backgrounds Exclusive data Unique access to critical data and intelligence EXIT IPO readiness DD on prospective buyer Sell side advisory ADDRESSING ISSUES SELECTION Portfolio monitoring & analysis Early warning of concerns Litigation & dispute support Target intelligence Market entry Competitive intelligence 4. EXIT 1. IDENTIFICATION 3. BUILDING VALUE 2. AQUISITION OPPORTUNITY Asset DD & values Competitor analysis Key stakeholder DD Benchmarking THE DEAL Negotiation Critical factors Risk assessment RUNNING THE ASSET Maintenance reserves and DOC analysis Costs management Technical & regulatory advisory Redelivery planning Regular reporting around fleets & values
The technical costs quadrant (narrow/wide savings) Fleet Planning: $2/5m Mission/Sector/Payload Flexibility/Options Buy/Lease Crew Commonality Maint Support Options Maintenance Costs $1/2.5m How do you compare? OEM Data v Real World Environment/Operational Impact Reserves v Costs variances MPD v Contractual Warranties and Provisions $1/2.5m Management of claims Lack of airline focus Process driven Millions available and unclaimed AD cost sharing Transition Management $1.7/3.9m Extend or Return Analysis Early Engagement Key issues revisited Improvement Initiatives
Show me the money Potential savings for a fleet of 76: $317m Typical operating profit for a 76 aircraft airline: $175m easy to slide into loss Cashflow critical, savings can smooth the seasonality curve Fleet size: 76 Redelivery Ratio 10% Widebody multiplier 2.5 Narrow/Wide redelivery ($m) 1.7 3.9 Potential savings across ($m): Narrow Total ($m) Wide Total ($m) Fleet Planning 152 380 Warranties and Provisions 76 190 Maintenance costs 76 190 Redeliveries 13 30 sub total 317 790 Engines Rotables Fuselage Landing Gear Interior Avionics Fleet Planning X X X X Warranties and Provisions X X X X X Maintanance costs X X Redeliveries X X 16 14 12 10 8 6 4 2 0 Potential saving per aircraft ($m) Savings per narrow Fleet Planning Maintenance costs savings per wide Warranties and Provisions Redeliveries
In more detail Fleet planning Fleet Planning: $2/5m Mission/Sector/Payload Does it fly far enough to maximise efficiencies How rapidly is traffic changing Flexibility/Options Agree costs of upgrades even if not chosen Buy or Lease? Operational versus financial benefits Lease if you can t drive a big discount Carefully review a great deal on a less popular aircraft It isn t just about the lease rate or purchase price lease rate/price weight 8 7 6 5 4 3 2 1 0 age Average Aircraft 1 Aircraft 2 Crew Commonality Consider the potential for up/down scaling Maintenance Support Options - Don t have the OEM as your only source fuel burn maintenance costs - Regional Considerations range - In-house v Outsourcing
In more detail Maintenance costs Maintenance Costs $1/2.5m How do you compare? OEM Data v Real World Environment/Operational Impact Reserves v Costs variances MPD v Contractual In-house/Outsourcing Engines/High Cost Rotables Direct maintenance costs by airline Source: IATA
In more detail Warranties and provisions Warranties and Provisions $1/2.5m Creeping costs, under the radar Management of claims Lack of airline focus - falling between the cracks Process driven AD cost sharing Maintenance Reserves Millions available and unclaimed Finance Keep to budget Get costs fixed Create supplier competitiveness the maintenance guys always bust the budget (spend too much) get the OEM to be aligned with our interests Line Maint. Keep it safe Get it fixed Get it out maintenance costs are difficult to predict so I always overestimate but am told its too high the OEM cost estimates are not adequate
In more detail - Transition Management Transition Management $1.7/3.9m Extend or Return Analysis Early Engagement Key issues revisited Improvement Initiatives Engines General Components Fuselage, windows and doors Landing gear Corrosion Interior and carpet APU Wings & Empennage - 200,000 400,000 600,000
Extend or Return? Extend Good deals to be had, especially on widebodies, given demand and fit out costs. Gap between current and next generation kit has narrowed, slowing adoption Still a big decision driven by a complex balance of rates, costs, reserves and demand. Return Last minute = bad news and/or big fees Two years planning How to replace/where s it going What can I avoid paying for What do I get next engines, IFE Not a lesson in each side shafting the other In fact the opposite is true, doing the right thing = a better deal and more choice.
Recent examples Start up airline 8 year lease Marketing and sales 95% of management time Lease docs literally shoved in drawer and ignored 6 months out nowhere near return conditions, gears and engines late to MRO at peak time of year (Winter) Big prob for both parties late delivery penalty, high costs for each side Lessor fails to deliver to next lessee on time. Medium airline Great tech team, but focus on up, not back. Focus on the day to day difficult to change Sufficient volume to really hit core operations. We are seeing moves for this size of airline to realise limitations and outsource to specialists Large airline Some might say arrogance Assume strong commercial strength will mean lessors will concede Probably the worst at collating records, mods and repair files if various tech depts. are spread over a large area.