D4.2 Cost-benefit studies of possible future retrofit programmes

D4.2 Cost-benefit studies of possible future retrofit programmes WP / Task N : D4.2 Lead Contractor (deliverable responsible): ADSE Due date of deliverable 30/06/2011. Actual submission date: 19/01/2012. Report Period: 6 month 12 month 18 month Period covered: from: Month to: Month Grant Agreement number: 265867 Project acronym: RETROFIT Project title: Reduced Emissions of Transport aircraft Operations by Fleetwise Implementation of new Technology Funding Scheme: Support Action Start date of the project: 01/11/2010 Project coordinator name, title and organisation: M. Knegt, Fokker Services Tel: +31 886280202 Fax: +31 886280211 E-mail: martin.knegt@fokker.com Project website address: www.fokkerservices.com/retrofit_fp7 Duration: 16 months PROPRIETARY RIGHTS STATEMENT THIS DOCUMENT CONTAINS INFORMATION, WHICH IS PROPRIETARY TO THE RETROFIT CONSORTIUM. NEITHER THIS DOCUMENT NOR THE INFORMATION CONTAINED HEREIN SHALL BE USED, DUPLICATED OR COMMUNICATED BY ANY MEANS TO ANY THIRD PARTY, IN WHOLE OR IN PARTS, EXCEPT WITH THE PRIOR WRITTEN CONSENT OF THE RETROFIT CONSORTIUM THIS RESTRICTION LEGEND SHALL NOT BE ALTERED OR OBLITERATED ON OR FROM THIS DOCUMENT

List of authors Full Name Evert Jesse Piet van Aart Johan Kos Company Information ADSE b.v. ADSE b.v. NLR Document Information Document Name: Document ID: D4.2 Version: V1.0 Version Date: 19-01-2012 Author: E.Jesse, PvAart ADSE, J.Kos NLR Security: PUBLIC Approvals Coordinator Knegt FS WP leader Kroon / Nouwens FS Name Company Date Visa Documents history Version Date Modification Authors 0.1 31-11-2011 0.4 14-12-2011 First version, submitted to partners for supplements and comments Comments incorporated, some editorial changes E.Jesse P.v.Aart J.Kos Update by E.Jesse 0.5 20-12-2011 Time gain for SESAR adjusted Update by E.Jesse 0.6 19-11-2012 Editorial changes Update by E.Jesse 1.0 19-11-2012 Approved version by WP leader A.Nouwens, E. jesse Page 2/36

TABLE OF CONTENTS 1 INTRODUCTION... 5 1.1 CONTEXT... 5 1.2 PURPOSE OF THIS DOCUMENT... 6 1.3 ABOUT THIS DOCUMENT... 6 1.4 INTENDED READERSHIP... 6 2 AVIONICS RETROFIT FOR SESAR COMPATIBILITY... 7 2.1 INTRODUCTION... 7 2.2 TARGET FLEETS... 8 2.3 NUMBER OF AIRCRAFT TO BE CONVERTED... 8 2.4 EFFECT ON THE SESAR OPERATIONAL SCENARIO... 9 2.5 COST BENEFIT ANALYSIS... 9 2.6 CONCLUSIONS AND RECOMMENDATIONS... 16 3 RE-ENGINING A320 FAMILY... 18 3.1 INTRODUCTION... 18 3.2 TARGET FLEETS... 18 3.3 NUMBER OF AIRCRAFT TO BE CONVERTED... 18 3.4 CONVERSION SCENARIO... 19 3.5 COST BENEFIT ANALYSIS... 19 3.6 CONCLUSIONS... 24 4 ELECTRICALLY POWERED TAXIING... 25 4.1 INTRODUCTION... 25 4.2 ASSUMPTIONS... 25 4.3 LTO CYCLE... 25 4.4 AIRCRAFT GROUPS CONSIDERED IN THE STUDY... 27 4.5 CALCULATION OF THE EFFECT ON EMISSIONS... 28 4.6 COST-BENEFIT TO THE AIRCRAFT OPERATORS... 33 4.7 SUPPORT FROM THE EUROPEAN COMMISSION... 34 4.8 CONCLUSIONS ELECTRIC TAXIING... 34 5 CONCLUSIONS... 35 6 REFERENCES... 36 Page 3/36

Glossary APU ATC ATM CO CO2 db(a) ETS EU EC FS GPS GTF H2O HC IFR ISA ktas Acronym Auxiliary Power Unit Air Traffic Control Air Traffic Management Carbon Monoxyde Carbon dioxide A weighed decibel Emission Trade System European Union European Commission Fokker Services Global Positioning System Geared TurboFan Water (unburned) HydroCarbons Instrument Flight Rules International Standard Atmosphere Knots True AirSpeed K Thousand LTO M Million NEO NDA NOx NRC OEM RETROFIT ROI SESAR SO2 STC T TO Landing to Takeoff Cycle New Engine Option Non Disclosure Agreement Signification Generic term for the mono-nitrogen oxides NO and NO 2 (nitric oxide and nitrogen dioxide) [Wikipedia] Non Recurring Costs Original Equipment Manufacturer Reduced Emissions of Transport aircraft Operations by Fleetwise Implementation of new Technology Return On Investment Single European Sky ATM Research Sulphur dioxyde Supplementary Type Certificate Tonne TakeOff Page 4/36

1 Introduction 1.1 Context The RETROFIT project analyses the possibilities and attractiveness of retrofitting new, but technically mature, technology solutions into the large existing fleet of commercial airliners. Existing aircraft still have a long life to serve, whereas the operational environment is changing. Airlines are confronted with emission trading limits, new noise regulations, increasing fuel prices, new safety and security demands, new ATM environment where older aircraft cannot fully comply with the new ATM standards, and passenger expectations of timely departure and arrivals and enjoying the highest levels of comfort possible. Deliverable 4.1 (ref. 15) provided a selection of possible retrofit programs which are considered potentially feasible, without analysing cost benefit issues in any detail. Ref 1 selected 3 possible cases for a more detailed cost benefit analysis, based on the following criteria: 1) Relevance for a future air transport system, i.e. providing a significant impact 2) Provide a representative scenario for possible EU actions to help to achieve the desired benefits for the EU and global community 3) Be sufficient limited in scope to allow a meaningful cost benefit study The following cases have been selected, and will be analysed in this report: 1) Retrofitting existing aircraft operating in EU airspace with SESAR compliant avionics (Ch.2) Apart from direct benefits in fuel and emissions such a program, if on a sufficiently large scale, could bring the effective deployment of SESAR several years forward. This justifies an interest from the European Commission to support such a program. 2) Retrofitting existing A320 aircraft with new generation engines (Ch.3) Such a program would have a large impact on the global fuel consumption and emissions due to the large number of aircraft involved. The scale of such an enterprise would be such that private parties would probably be reluctant to undertake it, hence with sufficient community benefits it could be justified to support such an initiative. 3) Retrofitting existing aircraft with electric (wheel driven) taxiing systems (Ch.4) Autonomous taxiing without running the engines at a very inefficient power setting has direct benefits for the environment of the airport. This study will quantify the cost/benefit ratio of electric taxiing systems for the operators and aims to indicate the value of large scale introduction of such systems for the airport environment. These cases should not be seen as the only candidates for retrofit, just examples to indicate possible interactions. Page 5/36

1.2 Purpose of this document This document contains the results of the cost benefit analysis as output for task 4.2 1.3 About this document By using the guidelines of the European commission the following areas were identified as being important to the seventh framework programme: Environmental performance Cost-effectiveness of the aircraft Operational improvements Passenger and Crew well being (safety, comfort) The cost benefit analyses are limited to the first three, but where appropriate passenger and crew well being will be briefly discussed. 1.4 Intended readership This report is targeted towards the project consortium only. It may be used for the EC as background information for the identified retrofit needs. Page 6/36

2 Avionics Retrofit for SESAR compatibility 2.1 Introduction The benefits of the SESAR ATM system for the operators and the Community are dependent on the number of aircraft equipped with a compatible avionics system (navigation and communication). Currently delivered aircraft are already largely compatible and when the SESAR system would be in place all delivered aircraft will comply fully. However, most aircraft of the existing fleet are not SESAR compatible, and these are expected to remain in service for several more years or even decades. Retrofitting existing aircraft with SESAR compatible avionics would enable the operators and the European Community to benefit much earlier from the potential SESAR benefits. This cost-benefit analysis should indicate under what conditions retrofitting of existing aircraft would be cost effective, and how the EU could stimulate retrofitting if the direct benefits for candidate aircraft would not be sufficient as a private enterprise considering possible perceived economical risks. It is assumed for this cost benefit analysis that the ground infrastructure will be in place for SESAR and that suitably equipped aircraft will gain a time saving relative to the current situation. It is assumed here that the flight has to be recognised by ATM to be SESAR compatible to obtain the projected time savings, hence there is no benefit in part SESAR compatibility. Non-SESAR equipped aircraft are assumed not to experience a deterioration of the current situation, this means that they will not experience more delays compared to the current situation. Eurocontrol has published recommended inputs for cost benefit analyses in the European ATM system (ref.2). Aircraft types and number of flights are available. Information is available concerning a reasonable average time saving per flight, which will be in the order of a few minutes, and time related costs are calculated. Both general cost data and aircraft specific cost data are available, although the latter cannot be provided to outside parties due to NDA considerations. Additional information has been provided by Retrofit partners Ad Cuenta, Paragon and FS. As the interest of the EU is to obtain benefits on a system wide scale this cost benefit study is based on the assumption that a large retrofit program will be done. It is clear from the distribution of flights over the Eurocontrol area that this would involve a number of different aircraft types and models. To cover 50% of flights at least ten types of aircraft should be retrofitted. This implies that in order to be successful a retrofit program should be set up to enable a number of different aircraft types to be converted. It is therefore assumed that a generic unit will be developed which encompasses all capabilities required for SESAR compatibility. This is basically communication (digital upload and download) and 4D navigation, probably with GPS. For individual aircraft types different interface modules will be developed to be able to use this unit as an add-on device. It is assumed that for competitive reasons two manufacturers will independently develop and sell such a unit. Page 7/36

Note that for several large aircraft, which only spend limited time in EU airspace, the cost benefit analysis of conversion may be quite complex with an unpredictable outcome. In this study therefore only those programs are analysed which offer the potential of a large number of conversions, as this shows the potential for the full traffic flows, but it is to be expected that for several aircraft types with fewer numbers in the fleet conversion could become cost-effective when such a system would be commercially available. This study has been executed with very simple financial models, with many assumptions concerning the fuel price, ETS charges and the future European financial situation. The results should therefore not be seen as absolute, but as indicative. 2.2 Target fleets In 2009 the largest number of flights in European airspace was executed by the A320 family, with in total 24.2% of all flights, with the Boeing 737 NG in second place, with 11.4%. The Boeing 737 Classic was responsible for 8.3% of all flights. The next aircraft concerning total traffic volume are the ATR 42/72 family and the Bombardier CRJ with each about 3% of the traffic volume. (ref. 2) As each aircraft type to be converted will incur some additional development costs, it is assumed that a large scale retrofit program can only be successful if it includes the A320 and the Boeing families, and such a program will not be dependent on the inclusion of many other types as each additional type will show reducing cost-benefits and contribute less to the total benefits. This study therefore analyses retrofits on the A320 family, the Boeing 737NG and the Boeing 737 Classic. If a retrofit programme on this scale could be profitable additional aircraft could be converted, but this will not greatly influence the overall results. 2.3 Number of aircraft to be converted SESAR targets 75% compliance by 2015, which should be achieved by making this a mandatory conversion while allowing controlled exemptions. Several types are already exempt, because of high costs for conversion (ref.3). This includes the F100 and the F70. Many current types (variants of the A320 and the 737 family) have temporary exemptions when they are equipped with avionics suites which cannot be converted because the OEM supplier has so far no conversion kit on offer. Ref. 1 identifies 70% of all flights by type, for which 29 types are specified. This includes different variants of the same family (737-700 and -500 for instance) but not separated to different avionics suppliers. The unidentified flights are probably made up of a number of older commercial aircraft types/versions in small fleets as well as bizjets. As conversion cost is the main argument for allowing exemptions (ref.3) it follows that retrofits will only be mandatory for relatively common aircraft types, where the NRC of the interfacing between system and aircraft can be amortised over a relatively large fleet. As the costs per aircraft are independent of the size of the aircraft, but the benefits scale with the number of seats, smaller aircraft will have much worse cost-benefit ratios and will therefore more easily obtain an exemption. Page 8/36

This information suggests therefore that a conversion rate of ~50% of the current fleet is the most that can be realistically expected. Gradual introduction of new aircraft and removal of old ones could bring the ratio to the targeted ~75% within 10 years, which is also a reasonable time period for the retrofit scheme. Based on the reasoning above the following conversion scenario is used for this study: According to ref.1 in 2009 1710 units of the A320 family (A319/ 320/321) were in operation in EU airspace, 831 737 NG, and 623 737 Classic. These 3 types represent about 25% of the (known) fleet in numbers and perform about 44% of all flights, and 50% of all flights originating and arriving in the European Air Traffic area. Note that the latest A320 and 737 aircraft delivered are already largely SESAR compatible; when SESAR comes in effect these aircraft will be adapted at very low cost. Taking into account the age of the different aircraft it is assumed that at most 75% of the A320 fleet and the 737NG fleet will be converted, and 40% of the 737 classic fleet. This results in a maximum of about 2000 aircraft to be converted. This value is used for the following discussion, to indicate the potential of conversions on this scale. In the following the cost benefit is calculated for between 200 and 2000 conversions to show the sensitivity. 2.4 Effect on the SESAR operational scenario New additions to the fleet, with SESAR compatibility installed from delivery, will probably start about 2015, and will probably number 300 or so per year (40% of the projected world deliveries of new A320 and Boeing 737 aircraft). This means that it could take more than 6 years before an equal number of SESAR compatible aircraft would be in place, compared to the best Retrofit scenario shown. Hence the benefits of SESAR would become available to the European society up to 6 years earlier due to a retrofit programme, and remain at a much larger scale for several years. 2.5 Cost benefit analysis In this study the cost benefits have been analysed for the operator of the converted aircraft, for the suppliers of the systems and for the European society as a whole. It is postulated that such a conversion project must be beneficial both for the operator and for the supplier, who are linked via the unit costs of the retrofitted systems. The European society would benefit via an across the board time saving for the passengers and a reduction of aircraft emissions. This benefit is quantified to indicate to which extent the European Community would be justified to stimulate such large scale retrofit programs. As the costs of conversions are not very dependent on the type of aircraft, but mostly on the age and configuration of its avionics system, no distinction has been made between cost benefit effects of individual aircraft types. 2.5.1 Cost benefit supplier Page 9/36

In this scenario it is assumed that the supplier will develop a generic SESAR compatible unit and will develop type specific interfaces for each aircraft type/model to be retrofitted. This will incur a non-recurring cost. The recurring costs of the hardware and actual conversion costs, including downtime, are assumed to be part of the suppliers costs. The supplier charges an all-in price to the user, which covers these costs, contributes to a payback of the development costs and delivers a reasonable profit. To assess whether such an endeavour can be sufficiently profitable for the supplier the break even point is calculated, where the total income from the sales and conversions equals the total investment in the generic unit and the type specific interfaces, including interest. The conversion program is considered to result in a good business when the break even number is sufficiently far below the total market volume. The results are compared to the estimates of SESAR according to ref.4 Assumptions: 1) Number of suppliers: 2 It is likely that all major avionics suppliers would be capable of developing such a system, and many operators would prefer the same supplier as for their existing avionics suite. That means that Thales, Collins and Honeywell would be candidate suppliers. It is assumed here that there will be at least two suppliers. It is considered doubtful whether the market can bear a third one, as this would add 50% to the overall development costs. 2) Number of aircraft to be converted per supplier: between 200 and 1000. The highest number represents 50% of the maximum volume assumed in par. 3.3, as a consequence of having 2 suppliers. 3) Development costs: Between 100 M and 250M This includes the generic unit and 6 type specific interfaces; two per aircraft type are considered. When more aircraft types are converted the development costs will be higher, in particular since these aircraft may well be equipped with older avionics systems. 4) Hardware plus conversion costs: 100K per aircraft This is a ballpark estimate, which could be on the high side as the actual conversion could be done during regular maintenance and the hardware costs of avionics units by themselves are not very high; system costs are usually mostly driven by amortisation of (software) development costs 5) Price commanded: between 250 K and 1250K Ref.4 provides a number of different conversion package prices, ranging from a minimum of 300 k to a maximum of 1500 k per aircraft. It is clear from the description that these prices are dependent on the required functionality increase, as driven by the age of the aircraft to be converted, and on the number of retrofit aircraft types over which the nonrecurring costs can be amortised. This implies that the conversion costs per aircraft will increase with increasing overall coverage which reduces the number of units sold for each additional development programme- and increasing aircraft age. Page 10/36

Units to breakeven The conversion scenario of par. 2.3 involves only 2 aircraft manufacturers with a large fleet of relatively new aircraft. For these aircraft the development costs will be relatively low and the number of conversions sold will be high. The added functionality will be limited as much of the capabilities required are already on board. The conversion costs will therefore be in the lower range of that specified in ref. 4, assumed here to be between zero and 500k, on average 250 k. This will cover 25% of the operations. To convert additional aircraft the number of units sold will be much less while the development costs and the hardware costs per type will increase as the avionics suite on board will be older and have less relevant functionality. To cover 50% of operations the conversion costs are therefore set at 500 to 1000k for each additional aircraft, for an average of 750 k. To reach 75% of the existing fleets the costs per aircraft will be 1000 to 1500k, or 1250 k average. Ref.5 estimates the conversion costs for an equivalent US programme at between 200k and 700 k per aircraft. The results are presented in table 2.1 and Fig 4.1, expressed as the number of units to be delivered to break even, dependent on the total development costs and assuming a sales price of 250K, 750K and 1250K. Supplier cost-benefit Price commanded (k ) 250 750 1250 Total development costs (M ) 50 150 250 50 150 250 50 150 250 Manufacturing costs per unit (k ) 50 50 50 Conversion cost per a/c (k ) 50 50 50 units to Breakeven 333 1000 1667 77 231 385 43 130 217 Table 2.1. Cost benefit for the supplier under various assumptions 2000 1750 1500 1250 1000 unit sales price 200K 750 500 250 500K 1000K 0 0 50 100 150 200 250 300 Development costs M Fig. 2.1 Units to Break Even vs Unit sales price Page 11/36

The fleet conversion scenario as the mainstream of this retrofit program, large scale conversion of relatively new Airbus A320 aircraft, Boeing 737 NG and 737 Classic aircraft would entail a large number of conversions with relatively low development costs. With an average commanded price of 250K a profitable program could be expected. For conversion of the smaller fleets it is clear that the conversion price should go up as shown in table 2.1, to cover the higher development costs and smaller number of converted aircraft per type. 2.5.2. Cost benefit operator Costs incurred by the operator are mostly the purchasing costs of the equipment as discussed above. Maintenance and training costs are ignored. It is assumed that no significant weight penalty or payload loss will occur. No additional financing or leasing costs are assumed. The airline has to invest the cost per aircraft discussed in par. 2.5.1, this translates in depreciation, insurance and other capital costs elements. The benefits of the achieved SESAR compatibility will be a time saving due to more direct routing and less time involved in the arrival management phase. This time saving will result in a reduction of fuel burned, a reduction of ETS costs and a reduction of flight hours related maintenance costs. Due to the increased productivity the aircraft and the crew costs will also reduce, assuming that the time saved will not be spent idle on the ground. According to ref.2 there is also a time value for the passengers, but it is expected that this will not result in higher fares due to competitive pressure. This is therefore discussed under community benefits (3.5.3) Time saving expected Relative to an optimum flight path, time is lost due to routing via airways and following a flight trajectory in the takeoff and landing phase to avoid other traffic according to ATC instructions. SESAR will still maintain airways, hence a time saving may be expected mostly in a reduction of arrival management times. According to ref.2 Eurocontrol has stated that on average each flight incurred a distance penalty of 47.6 km relative to its optimum distance. This equates to 6 minutes of flight time with 250 ktas, but it could be more with typical approach speeds. In 2009 the average delay was 2.5 minutes relative to its scheduled time (see ref. 6). Ref. 16 quotes a time saving target of between 8 and 14 minutes, as the result of a 10% time saving per flight. This averages to 9 minutes time saving overall. It is not explained how the SESAR benefit, which is typically in the approach or departure phase, could have a benefit proportional to the total duration of the trip. This makes the larger time saving unrealistic. The above shows that the maximum time to be saved on average is about between 5 and 10 minutes, but many of the current delays may not ATC related and also some nonoptimum routings will remain with SESAR. For this study an average time saving of 5 Page 12/36

minutes is set as a reasonable target (which means that it can be used for fleet planning and thereby can be used to increase the utilisation of aircraft and crew). As extremes we assume time savings between 2.5 minutes and 9 minutes to show sensitivities. This time saving results in a reduction of fuel costs and maintenance costs, as the aircraft is airborne for a shorter time. When the time saved is used for additional utilisation of the aircraft and the crew these costs will reduce as well. Many of the longer delays incur follow-on costs, such as schedule disruptions, passengers which must be fed and accomodated, but it is not clear to what extent the SESAR system would reduce or eliminate this and this has therefore not been taken into account. Cost elements Conversion costs Par. 2.5.1 showed a cost benefit for the supplier of the equipment which is to be positive to make such a program feasible- based on an estimation of development costs and hardware costs dependent on the number of conversion sold. This was based on a SESAR estimation of conversion costs (ref.4) adapted to the fleetsize and age of the converted aircraft. This led to conversion costs between (average) 250 K for large fleets of young aircraft, to cover the first 25% of operations, increasing to 750K to cover an additional 25%. To reach 75% of operations with SESAR compatible aircraft the costs for the additional aircraft to be converted will be on average 1250K. Fuel costs Utilising ref 2 data and assuming that the time saving occurs in the arrival management phase it proves that on average (weighed to number of flights) the aircraft considered, the Airbus A320 and the Boeing 737 families, use 37 kg of fuel per minute. A saving of 5 minutes equates therefore to about 180 kg saving, or, with fuel @ 1,- per kg a cost benefit of about 180 per flight. For older aircraft types the fuel savings would be higher due to the higher specific fuel consumption. Emission related costs Assuming a current Emission Certificate market price of 15,- per tonne of CO2 adds about 8 to the benefit. Ref.2 shows much higher emission related costs, but these are generally external costs and will not be borne by the operators. Maintenance costs These costs have been analysed in the context of new aircraft developments and competitor analyses by ADSE, which cannot be disclosed due to NDA considerations. The results can however be shown as scaled to the aircraft sizes considered in this study. Flight hour related maintenance costs Time related costs 10 per minute Page 13/36

These costs have been analysed in the context of new aircraft developments and competitor analyses by ADSE, which cannot be disclosed due to NDA considerations. The results can however be shown as scaled to the aircraft sizes considered in this study. Capital costs and Insurance costs (based on a leasing scenario) Crew costs (flight crew plus cabin crew) 24 per minute 16 per minute For a 5 minute time saving this leads to an overall benefit of 444 per flight on average Yearly benefits The utilisation of the aircraft considered has been derived from ref. 2. The data provided for March 2009 have been scaled to the full year for the A320 family, the 737 NG and the 737 classic. They have been averaged weighing the differences in number of aircraft in operation. This led to an average utilisation of 1354 flights per year. Cost benefit results Table 2.2 shows the calculations and Fig 2.2 shows the results, expressed as a payback time for the investment per aircraft by the operator. With an average time saving of 5 minutes per aircraft an investment of 250K would pay for itself in much less than one year. This could be representative for the first large batch of relatively modern A320 and 737 aircraft to be converted, as assumed in the conversion scenario of par. 2.3. A second batch of older aircraft, including comparably sized other aircraft types would have much higher conversion costs and have a payback time of 1 to 2 years. Note that the other cost elements get progressively more uncertain. To reach a maximum coverage of more than ~75% will incur high costs for rapidly diminishing returns. Operator cost benefit (per ac) Retrofit costs (k per aircraft) 250 750 1250 250 750 1250 250 750 1250 time saved (min/flight average) 2.5 2.5 2.5 5 5 5 9 9 9 fuel saved, kg per minute 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 fuel price ( /kg) 1 1 1 1 1 1 1 1 1 Emission costs ( / tonne CO2) 15 15 15 15 15 15 15 15 15 Fuel saving per flight (kg) 93.5 93.5 93.5 187.0 187.0 187.0 336.6 336.6 336.6 Emission costs reduction per flight ( ) 4.43 4.43 4.43 8.87 8.87 8.87 15.96 15.96 15.96 Productivity gains ( /minute) 50 50 50 50 50 50 50 50 50 productivity gains ( /trip) 125 125 125 250 250 250 450 450 450 total benefit per trip ( ) 223 223 223 446 446 446 803 803 803 Flights per year 1354 1354 1354 1354 1354 1354 1354 1354 1354 Costs savings per aircraft per year (k ) 302 302 302 604 604 604 1087 1087 1087 years to break even 0.83 2.48 4.14 0.41 1.24 2.07 0.23 0.69 1.15 Table 2.2 Operator cost benefit under different assumptions Page 14/36

Payback period (years) 4.50 4.00 3.50 3.00 average time saving 2.5 minute/flight 2.50 2.00 5 minutes/flight 1.50 1.00 0.50 9 minutes/flight 0.00 100 300 500 700 900 1100 1300 1500 Unit price (k ) per aircraft Figure 2.2 payback time vs. aircraft conversion time dependent on average time savings This picture shows that a reliable time saving of 5 minutes on average for each flight justifies quite a large investment. However, the projected time savings will be seen by the prospective customer as quite speculative, and it is to be expected that an operator would take a more conservative gain scenario when deciding about this investment. Assuming a 1 minute saving over the year and a 2 year payback period allows an investment of not more than 250 K according to table 2.2. 2.5.3 Community benefits Ref. 2 specifies a value of the time saved for the passengers. This value is derived from different sources and includes the value for business travellers and leisure. It was averaged to 50 per hour per passenger. It is assumed here that the airlines would not charge this to the passengers, hence it is a value that becomes available to the European society as a whole (instead of to the balance sheets of the airlines). For an average passenger capacity of 150 seats, and taking an average load factor of 70.5% (ref. 2) this time value amounts to 88 per minute saved per trip, or 440 for the assumed total saving of 5 minutes. Ref. 2 provides different values for the EU of the reduced emissions. These are external to the airline system and reducing these would not directly benefit the operator. They vary between 12 to 140 per tonne, the discrepancy is caused by the fact that there is no simple metric for this parameter. Ref. 2 recommends the use of a value of 35 per tonne CO2 not emitted. Page 15/36

Table 2.3 provides the calculation for the community benefits, dependent on the number of aircraft converted and the time saved per flight, taking 1354 flights per year per converted aircraft. Community benefit (per year) Aircraft converted 500 1000 2000 500 1000 2000 500 1000 2000 time saved (min/flight average) 2.5 2.5 2.5 0 5 5 5 9 9 9 Time value per minute per trip ( ) 88 88 88 88 88 88 88 88 88 CO2 reduction value, per tonne 35 35 35 35 35 35 35 35 35 Community benefit time (M /year) 149 298 596 312 624 1247 536 1072 2144 Community benefit CO2 M per year 7 14 28 14 28 56 25 50 101 Total Community benefits (M /year) 156 312 624 326 652 1303 561 1123 2245 Table 2.3 Community benefit of retrofit for SESAR compatibility under different assumptions The maximum benefit conceivable amounts to 2000 M per year. A more realistic scenario, with 1000 aircraft converted and 5 minutes time saving per flight yields an overall benefit of ~650 M per year for the European Community. Note that this benefit is not attributable to the SESAR system by itself, but to the retrofitting of 1000 existing aircraft to SESAR compatibility. 2.6 Conclusions and recommendations Large scale retrofitting of systems as discussed will only occur when there is a good business case for the suppliers and the operators. Assuming 2 competing suppliers this means that between 1000 to 2000 aircraft would have to be converted, at a cost of between 0 and 500k /aircraft. Such a scenario could yield about 1000 M /year for the European society in terms of time saved and reduced emissions. However, such a business case would be dependent on the large sales volume as the main cost driver of the system is the cost of developing the unit and the interfaces for the different aircraft. As the total volume of available aircraft is realistically limited to about 2000 and more than one supplier may be in this market, the costs should be recouped and a profit realised with a market share of well below 1000 units. If the market expected is much smaller the price to be charged for a conversion would increase rapidly. The operator buys such a system to reduce operating costs, and he will base his investment decision on a reasonably conservative assumption of the time benefits to be achieved. If he counts on 1 minute average time saving per flight he would not pay more than say 250 k and this would limit the system development costs to about 100M or less. The above suggests that commercial prospects for the development of such a system are by themselves probably not good enough to expect the market to take this up, and produce and operate sufficient units to make a noticeable difference at a European level. This is largely caused by the risks perceived by the suppliers and the operators. In that case the EU forfeits the benefits indicated in table 2.3. Page 16/36

There is therefore a good case for the EU to stimulate this development provided the numbers in this scenario study are correct-, and this could take one of the following forms: 1) Provide a risk free loan for the development costs of the generic unit 2) Provide a risk free loan for the development of the aircraft specific interfaces. This has the advantage that also smaller fleets can be converted cost-effectively 3) Provide financial incentives to the operators (reduced landing fees?) Such measures should conform with the EU regulations. This will be discussed further in task 4.3 Page 17/36

3 Re-engining A320 family 3.1 Introduction The A320 is one of the most numerous narrow body aircraft, burning a large fraction of the air transport fuel. The A320 NEO will be developed by Airbus Industries to use the latest state of the art Pratt&Whitney and General Electric engines. Currently several thousands of A320 family aircraft are in service, re-engining these with the new engines foreseen for the NEO could result in a very large fuel and emission reduction. Assuming Airbus involvement a relatively low threshold retrofit programme can be envisaged, where these engines are retrofitted to a significant percentage of the fleet of existing A320 aircraft. This promises a fuel saving of between 10 to 15% per flight, which will have a large economic and environmental benefit. For this family only the A319, the A320 and the A321 will be considered, conversion of the A318 is not considered a realistic proposal. No difference has been identified here between versions powered by CFM 56 and V-2500 type of engines. The cost benefit analysis is generally based on re-engining with the P&W GTF engine, but the numbers will be comparable when using the GE Leap-X engine. 3.2 Target fleets As a reference it is assumed that the program will start in 2015 and only aircraft of 10 years age or younger will be converted. According to ref. 7 up to the end of 2005 a total of 2600 A320 family aircraft had been delivered. In 2010 this number has grown to 5250. Assuming current (year 2011) production rates the total will be 6400 in 2015. Worldwide in 2015 there would therefore be 3800 A320 family aircraft of less than 10 years of age available for retrofitting, before correcting for hull losses and decommissions. Airbus intends to deliver the A320 NEO from about 2016. It is assumed that after this date no significant number of standard A320 will be delivered. Therefore not more than a few hundred A320 would become available during this conversion programme. The maximum number of candidate aircraft is therefore set at 4000 units. 3.3 Number of aircraft to be converted Assuming a realistic maximum of 50% of this potential 2000 aircraft could be converted. This analysis will assume retrofit programmes of 250 units, 1000 units and 2000 units. Page 18/36

3.4 Conversion scenario A re-engining of existing aircraft will require the design of the modification, the design of other hardware of the aircraft influenced by the re-engining (wing strengthening etc), establishing and certifying the new performance of the aircraft, retuning flight characteristics and much more. Certification of the modification would entail a very large effort as well, and be impossible without active cooperation of Airbus Industries. This makes it very unlikely that such an effort would be undertaken under an STC, and it is assumed therefore in this analysis that Airbus will be a major partner in such an endeavour. It is possible that the actual conversion would be done by one or more conversion centres. For the larger conversion scenarios a series production type of conversion would be logical. For the economic analysis it is assumed that such a program would take in total 10 years, excluding the development time, to convert the numbers assumed in 3.3. After that time conversion of aircraft older than 10 years may be done as most of the nonrecurring costs will have been amortised. This would allow a slow wind down of the program. Airbus has not indicated that it is considering such a program; this scenario is purely hypothetical therefore. 3.5 Cost benefit analysis 3.5.1 Cost benefit supplier Development costs The supplier will invest in the development of the conversion, production of all flight manuals, tooling etcetera. No bottom up estimate of the costs for this has been attempted. Ref. 8 quotes Airbus Industry that the total development costs of the A320 NEO is about 1000M, including the winglets. It is assumed therefore that the NRC of the retrofit conversion will not be more than half of this, as much of the propulsion integration work will already have been done. For this analysis cost benefit has been calculated for an NRC of 100 M, 250 M and 500 M therefore. Powerplant costs The list price of engine plus nacelle is estimated to be $10.5 M. A discount will be obtained dependent on the number of engines ordered, this discount is assumed to be 25% for a program of 250 conversions, 30% for 1000 conversions and 35% for 2000 conversions. This gradual increase is based on the fact that for such a program Airbus will already have a very large order base with the engine supplier for the NEO development. The existing powerplants will have a residual value; they will be used for spare parts/maintenance of the fleet of unconverted aircraft. As the converted aircraft will be less than 10 years old the value of the existing propulsion units will be significant; for this Page 19/36

analysis a residual value of 50% is assumed. This value may be too high when a very large fraction of the A320 fleet would be converted, leading to an excess of existing engines. Conversion costs Only rough estimates can be given for the costs of conversions, as the program is not at all defined. Assuming that each conversion will be done by 50 man during 3 weeks (assuming a 250 unit production run) and doubling the costs for parts and overhead brings the bare conversion costs for a 250 unit run to 800k per unit. Assuming a standard learning curve of 80% on direct labour and parts the costs will be about 500k per conversion for a 1000 run program and 400k per unit for 2000 units. Downtime costs It is assumed that during the downtime an A320 will be leased, this will cost about 250k per conversion. Investment payback and profit margin The program will have a nominal duration of 10 years. In that time the development costs must have been generated by direct sales. It is assumed here that there will be a direct charge on the conversion price equal to the total development costs divided by the number of aircraft converted. The profit of the program is assumed to be 10% on total turnover. This may seem low, but it includes a profit on the powerplants. Basing the profit on value added only would show a much better percentage. Table 3.1 shows the supplier cost/benefit for the different scenarios. In these the supplier/conversion centre has a good business with the program, if the sales prices would indeed be obtained. Supplier cost benefit Sales volume (aircraft) 250 1000 2000 Development costs M 100 250 500 100 250 500 100 250 500 List price propulsion units (per engine, M ) 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 purchasing discount powerplant 25% 30% 35% Purchase price engine+nacelle M /engine 5.51 5.51 5.51 5.15 5.15 5.15 4.78 4.78 4.78 Trade in existing engines (per engine, M ) 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40 Conversion costs (ex powerplants) M /aircraft 1.20 1.20 1.20 0.77 0.77 0.77 0.61 0.61 0.61 Costs downtime (3 weeks lease) M /aircraft 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 cost price M per aircraft 9.68 9.68 9.68 8.51 8.51 8.51 7.62 7.62 7.62 Payback primary investment 0.4 1 2 0.1 0.25 0.5 0.05 0.13 0.25 Profit margin on turnover 10% 10% 10% 10% 10% 10% 10% 10% 10% Profit per aircraft 0.97 0.97 0.97 0.85 0.85 0.85 0.76 0.76 0.76 Sales price M 11.04 11.64 12.64 9.46 9.61 9.86 8.43 8.51 8.63 Table 3.1 Supplier cost-benefit Page 20/36

It shows that the result is sensitive to the assumptions, in particular at relatively low retrofit volumes, but in all cases the largest contributor is the powerplant costs. At a large program volume the development costs have a relatively small influence on the eventual sales price. 3.5.2. Cost benefit operator Cost savings Fuel costs According to ref. 8 the exchange of the engine will reduce the average trip fuel consumption by 12%. Using the A320 family trip fuel data from ref. 2 and an average of 1500 flights per year worldwide for the A320 fleet (10% higher than the EU average of ref. 1 leads to a fuel saving of 630 T/year per converted aircraft. With a fuel price of 1,- /kg the benefit will be 0.63 M /year per aircraft. Emission related costs The conversion will reduce emitted CO by about 2000 T/year. Assuming a current Emission Certificate market price of 15,- per tonne of CO2 adds therefore 0.03 M per year to the benefit. This shows that the results are not sensitive to the value attached to emission certificates. Ref. 2 shows much higher emission related costs, but these are generally external costs and will not be borne by the operators. This will be taken into account in par. 3.5.3 Maintenance costs The new engines are claimed to have lower maintenance costs compared to the current generation of engines. This is considered too unclear at the moment to take credit for, hence no benefit in maintenance costs are assumed. Table 3.2 summarizes the savings assumed, based on an improvement of 12% on fuel consumption: Operator cost-benefit re-engining A320 All data per aircraft fuel saving (T/year) 630 CO2 reduction (T/year) 2016 fuel price ( /kg) 1 Emission trade value CO2 ( /T) 15 fuel cost saving (M /year) 0.63 Emissions saving (M /year) 0.03 Total benefit per aircraft (M /aircraft/year) 0.66 Table 3.2 Operator benefits of re-engining Capital costs It is assumed that the powerplants will be depreciated in 15 years to 10% residual value, as they will not be thrown away at the end of the life of the airframe. From this the depreciation of the existing powerplants is subtracted, assumed to be at the same rate of Page 21/36

the new engines: to 10% of their residual value at the time of conversion in 15 years, which is probably too slow. The conversion costs will be depreciated in 8 years to zero residual value, about in line with the expected depreciation rate of the airframe. Additional insurance costs are set at 2% of the total investment per aircraft to reflect the increased value of the converted aircraft. Table 3.3 shows the result: Operator Capital costs Sales volume (aircraft) 250 1000 2000 Development costs M 100 250 500 100 250 500 100 250 500 Purchase price M 11.04 11.64 12.64 9.46 9.61 9.86 8.43 8.51 8.63 Depreciation engines 0.49 0.49 0.49 0.45 0.45 0.45 0.41 0.41 0.41 Depreciation Conversion 0.35 0.43 0.55 0.25 0.26 0.30 0.21 0.22 0.23 Insurance costs 0.22 0.23 0.25 0.19 0.19 0.20 0.17 0.17 0.17 Total capital costs (M per year per aircraft) 1.07 1.15 1.30 0.88 0.91 0.94 0.78 0.79 0.81 Table 3.3 Operator capital related costs due to re-engining Cost benefit comparison Table 3.2 indicates that under the assumed economic conditions (fuel price, emission costs) a yearly benefit of 0.66 M per converted aircraft may be expected. Table 3.3 shows that in all scenarios considered the capital costs will be higher than that. This suggests that this will not result in a good business case for the operator and the suppliers even when more than 1000 aircraft would be converted. To result in a sufficiently attractive ROI the fuel efficiency improvement should be more than 20% even for the largest programs imaginable, unless other cost benefits are identified (such as maintenance costs). Based on this, and considering the risks when the program would not reach the assumed conversion volumes it is considered very unlikely that such a program would be started without significant support from governments. 3.5.3 Community benefits Emissions As will be shown in chapter 4 the most important emission elements in terms of costs are CO2 and NOx. Other emissions, like SO2, H2O and CO have only a small impact on the overall sum. Therefore for this cost benefit analysis only the benefits of a reduction of CO2 and NOx are valued. For the community benefits the value of a Tonne of CO2 saved is taken from ref. 2. This source quotes several values but recommends to use 35.50 for this type of studies for a base year of 2001. This value is escalated to 2009 via the inflation rates provided in the same report. Page 22/36

Ref. 2 specifies the average emission of Boeing 737 and A320 sized aircraft as around 10 kg of NOx per tonne of fuel burned. This is a rough value, derived from LTO data. It is assumed here that the converted aircraft will emit NOx in the same proportion hence these emissions will be reduced at the same rate as the improvement of the fuel consumption. This value is somewhat speculative: on one hand it may be expected that the new engines have a better position against the current ICAO regulations, but the relevant parameter is the overall pressure ratio, and it is to be expected that this will be higher than that of the replaced engines. The value of a kg of NOx saved was 4.30 in 2001, (ref.2) escalated to 5.20 in 2009. Other emissions like SO2 and H2O have been allocated values as well, but it is much less clear how this would result in noticeable monetary savings and the effect on the total is quite small. These other effects have therefore been neglected. Noise reduction value Ref. 2 quotes noise costs per event between 65 and 333 per aircraft event. The lowest values are for relatively modern aircraft. The numbers seem not very consistent as the Boeing 777 and the Boeing 737-400 are quoted with the same marginal noise costs per event. To get a first impression of the noise benefit for the Community of re-engining the A320 it is assumed that for the current A320 aircraft the external costs per event will not be larger than 50,- According to the Kostenmethod as used for several years in the Netherlands an aircraft with 4.5 dba lower noise levels compared to a reference aircraft can execute double the number of takeoffs and landings for the same perceived community disturbance. This suggests that 4.5 db reduction per event translates to 50% of the external costs per event, or 25. The actual noise reduction of the A320 NEO vs the current A320 is not yet known, but it is expected to be in the order of 3 to 5 dba per event (10 to 15 dba cumulative in certified noise levels). This is close to the reduction required for a halving of the external costs, and for this analysis it is therefore assumed that the re-engined A320 will reduce the external costs per event by 25, or 50 per trip. The results are given in table 3.4. Page 23/36

Community value over 20 years CO2: T saved per aircraft per year 2016 External costs CO2 ( /T) 43.2 benefit per aircraft per year (k ) 87 NOx: kg saved per aircraft per year 6300 External costs NOx ( /kg) 5.2 benefit per aircraft per year (k ) 33 Noise: ext. cost reduction per aircraft per year (k ) 68 Total per aircraft per year (M ) 0.19 Number of aircraft converted 250 1000 2000 Total reduction external costs over 20 years (M ) 939 3756 7511 Table 3.4 reduction of external costs This shows that the total reduction in external costs amounts to almost 0.2 M per aircraft per year, which is less than 1/3 rd of the direct benefits for the operator. As the shortfall of the direct benefits for the operators for a good business case is much larger than that, it is concluded that a stimulating programme in which a fraction of this gain is invested is not likely to entice the suppliers and operators to start such an enterprise. 3.6 Conclusions Projected fuel savings of 12% as specified by Airbus for retrofitted aircraft are not enough to offset the costs of such a retrofit programme, even when the reduction of external costs (noise, emissions) is taken into account. Only if the fuel saving exceeds 20%, or when additional cost benefits are realised (maintenance costs) could such a program be commercially successful. The reduction of external costs is less than 1/3 rd of the direct benefit for the operator. It is not likely therefore that such a programme could be made cost effective by support from the European Community. It is therefore not recommended for the EU to stimulate such a program, unless significantly larger benefits would be projected. Page 24/36