Журнал - The Engine Yearbook 2005

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ENGINE YEARBOOK 2005

owners since multiple transfers of

both aircraft and engines will take

place on a leased aircraft fleet and

such programmes are designed to

share and optimise the cost and risk

of operation and maintenance.

While it is clear that the design and

inherent reliability of an engine will

influence costs, they are also directly

influenced by the MRO through the

reliable accomplishment of repairs,

assembly routines and the consequent

shop turnaround times. Fast in-house

repair cycles reduce costs by avoiding

investment in pool materials and enable

high turn rates on materials. This

enables MROs to offer attractive spare

part exchange fees. Extensive MRO in-

house repair capability also reduces

vendor costs, while improving the MRO

cost structure through the efficient use

of fixed assets.

Effective and accurate fleet

planning schemes supported or

managed by an MRO allow for an

optimum allocation of resources,

resulting in attractive rates and

charges to the operator. Predictability

and efficiency can even be enhanced

by combining these fleet management

aspects with on-line trend

monitoring features and on-site

inspection, line maintenance and

logistics support, all provided by one

source. Generally speaking, optimal

life-cycle cost programmes will be

achieved when the MRO provider

and the operator (or owner) share a

close involvement in fleet

management, and where the provider

can offer significant operational

experience and unique systems. The

range of influences on engine

ownership costs is so extensive that

there is no ‘one size fits all’ solution.

Instead there should be a tailor-made

solution for each operation - and the

best people to provide this are

qualified MROs.

From the operator’s perspective,

managing engine ownership costs

requires a long-term view, backed by

good financial acumen. Key factors

include: outsourcing sub-fleets to

minimise complexity and using MROs

to leverage scale. Risk-sharing

programmes should be arranged with

qualified partners and may be

A good MRO should support all

aspects of its customer’s needs with in-

depth knowledge, proven experience of

aircraft/airline operation, integrated

capabilities, complete independence

from outside influence, significant

leverage with quality OEMs and good

financial acumen. Indeed, as aircraft

and engines have become more

complex, a good MRO has become a

valuable asset in its own right. ■

covered by-the-hour contracts or

time and material agreements that

address performance guarantees,

engine life-cycle programmes, asset

management and/or inventory

reduction through the economies of

scale. Contracts, especially short-term

agreements, need to be monitored

very closely while engine fleets and

life-cycles should be intimately

understood.

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EYB2005_1 13/9/04 1:50 pm Page 19

ENGINE YEARBOOK 2005

Engine maintenance

costs

Engine maintenance costs

can account for a third of

total aircraft maintenance

costs. Understanding how

engine maintenance costs

come together is therefore

essential to any airline. Dr

Olaf Rupp, manager product

support engineering GE/CFM

for MTU Maintenance

Hanover throws some light

on the subject.

or airlines, the assessment and

selection of new aircraft and

engines is an important part of

business planning. During this process,

understanding the life-cycle costs of the

whole system as well as the subsystems,

such as the engines, is a key factor.

Maintenance accounts for about 10-15

per cent of the direct operating cost of

an aircraft but the exact figure will

depend upon a number of parameters

such as the aircraft model, the engine

type and the nature of the operation

(see figure 1). Total aircraft maintenance

cost can be broken down further into

line maintenance, heavy maintenance,

component maintenance and engine

maintenance. The distribution of costs

between these centres varies once again

depending on a number of factors. But

engine-related costs can add up to as

much as a third of the total aircraft

maintenance cost.

Elements of engine maintenance

cost

Engine maintenance costs (EMC)

divide into those encountered on-wing

and those experienced off-wing. On-

wing maintenance costs are not only

influenced by pure technical issues

such as the engine type and any

modifications that may be necessary,

but they will also be affected by the

philosophies that an airline applies to

its line maintenance. This article focuses

on the off-wing element of maintenance

cost and the parameters that influence

it.

When an engine is removed and goes

into a shop for refurbishment, the

primary cost factor of the shop visit is

the material cost. Approximately two

thirds of the costs of an engine shop

visit come about through the

replacement of material. If life-limited

parts (LLP) need to be replaced the

material cost element will increase

further. Only about a quarter of the

shop visit costs can be attributed to

parts repair, leaving a relatively minor

portion to the labour involved in

disassembly and assembly (see figure 2).

The biggest portion of the material

cost is attributable to airfoils. The high-

pressure turbine (HPT) airfoils have

significant influence on cost, with

individual vanes costing as much as

$15,000 and blades costing as much as

$7,000 each. Where the cost of

The influence of some factors

that affect EMC,for example the

hours-to-cycles ratio and thrust

de-rate can be calculated

scientifically.

EYB2005_1 7/9/04 8:54 am Page 20

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ENGINE YEARBOOK 2005

replacing high-pressure compressor

(HPC) airfoils may be low for mid-

European operators, those airlines

operating in the Middle East may

experience significant cost from this

source. Engines operated in a sandy

and/or erosive environment can cause

HPC scrap rates to approach 100 per

cent. Typically, the largest portion of

the parts repair cost is also associated

with airfoils since high-tech repairs,

such as rejuvenation or split vane

repairs are required to get these parts

back into a serviceable condition.

Factors influencing EMC

As already mentioned, numerous

factors influence EMC: the hours-to-

cycles ratio; the thrust de-rate applied

during takeoff; environmental

influences such as temperature and

pollution; line maintenance procedures;

and ETOPS operations requirements, to

name just a few. These are all factors

that are related to a specific operator

whereas other factors, such as parts

repair capabilities, need to be

considered by an airline when choosing

a maintenance provider. Ultimately,

however, material prices and therefore a

significant part of EMC is decided by

the engine OEM.

The influence of some factors that

affect EMC, for example the hours-to-

cycles ratio and thrust de-rate can be

calculated scientifically. The influence

of other factors such as ‘pilot factors’

are considered to be ‘soft’ and are near-

impossible to estimate. Nevertheless,

they may have significant influence on

how frequently an engine has to go into

a shop and how expensive the shop

visit is.

Engine operation

Engine operation is the main

influence on how much an engine and

its constituent parts are stressed,

thereby having a large influence on

engine deterioration and EMC. The

effects of the hours-to-cycles ratio and

the thrust de-rate are typically easy to

estimate. When an engine is operating

two hours per cycle and a 10 per cent

effective de-rate is being applied, the

EMC per engine flight hour can be

assumed to be 100 per cent (see figure

3). If the effective de-rate being used on

the engine decreases to about five per

cent, there will be an increase of EMC

per EFH of some 14 per cent. If the de-

rate stays at 10 per cent, but the hours-

to-cycles ratio changes to four hours per

cycle the EMC per EFH will reduce by

some 22 per cent. Obviously, the figures

quoted in this example will never be

absolutely correct, since in real life

more than one parameter will change,

but they do provide a good indication

of how the hours-to-cycles ratio and the

thrust de-rate can influence EMC. In

some maintenance contracts, such as

by-the-hour contracts, changes in

engine operation during the contract

period are addressed through the use of

tables which show how much the cost

per flight hour will change if, for

example, the operator uses more or less

takeoff de-rate.

Line maintenance procedures can

also influence EMC but the extent of

this influence depends upon the

operator. For example, MTU

Maintenance once discovered that an

operator of CF6-80C2 engines

experienced positive results when it

introduced coke cleaning. The main

engine removal reason for this

From a planning perspective, it is

not only important to reduce the

TAT of engines at a shop visit.It is

equally important to have

process stability which can

guarantee that standard TATs

can always be achieved.

EYB2005_1 7/9/04 8:54 am Page 22

ENGINE YEARBOOK 2005

operator was related to engine

performance - the engine had to be

capable of operating at high thrust

levels to take off from hot and high

airports. Discussions with the operator

resulted in the introduction of a

regular coke cleaning procedure in

order to reduce EMC. In this

particular case, an increase in engine

on-wing time of approximately 30 per

cent was achieved following

introduction of the cleaning

procedure, with only a very minor

influence on the cost of shop visits.

This might appear to be an extreme

example, but it is indicative of how

important it is to consider all aspects

of engine operation when seeking to

reduce EMC.

Parts repair capabilities

As already mentioned, the parts

repair capabilities of an engine

maintenance shop may also influence

EMC. The three parameters always

considered by an airline when

assessing an engine shop visit are:

turn-around-time (TAT); quality

(mostly measured by test cell EGT

margin); and engine shop visit cost.

Looking at the engine maintenance

market as it is today, TAT and quality

are not usually the factors which

ultimately influence whether an

engine is sent to one maintenance

shop or another. These two

parameters are almost taken for

granted - which doesn’t mean that the

maintenance providers don’t still

need to further improve them. From

an airline perspective, it is desirable

to find a maintenance shop that will

deliver its service at the best value

for money.

In the past, airlines mostly had an

eye for the best mid- to long-term

deal (that is, they wanted to reduce

cost per engine flight hour over the

medium- to long-term). In some cases

that would result in paying more for

a shop visit but making savings over

the next couple of years. Today, the

perspective has become more and

more short-term. With the severity of

the current financial climate, some

airlines simply cannot afford to

invest into the future. Instead, they

have to make sure that they survive

today - or at least until the end of

the year. This has resulted in even

stronger competition between

overhaul bases with respect to shop

visit cost.

As previously mentioned, material

costs are by far the largest and it is

therefore important to review and

identify any means of reducing such

costs. This can be achieved by

repairing parts instead of replacing

them — only if it has no effects on

engine reliability. This process

usually starts within the engine shop

visit process (see figure 4) — during

the inspection and repair of parts. At

MTU Maintenance this is being done

in close cooperation with OEMs, such

as MTU Aero Engines in Munich, as

well as institutes and suppliers, to

ensure the best possible repair

procedures. These are then approved

and incorporated into workscopes

and repair processes.

The result of this process is the

evolution of special repairs, such as

MTU’s balance strip of HPT blades.

This is a controlled partial stripping

process which allows multiple

stripping of the blade by an

EYB2005_1 7/9/04 8:55 am Page 23

ENGINE YEARBOOK 2005

electrochemical process, including a

new eddy current measuring system

for quality control. For blades that are

permitted to be repaired only once,

the scrap rate can be reduced from 40

per cent to about 25 per cent. Bearing

in mind the cost of such parts, this

represents a significant reduction in

the shop visit cost.

When looking at repair potential it is

also important to ensure that future

processes reduce TAT. An example of

this was a problem experienced by MTU

Maintenance Hanover when considering

the cleaning of HPT blade internal

cavities prior to repair. Cleaning with

standard processes was found to be

inadequate, leading to the risk of a

higher scrap rates at the subsequent

shop visit. Also, it was established that

the cleaning processes varied for

different engine types from different

manufacturers. With the introduction of

a caustic cleaning ‘power washer’ (see

figure 5) the process was standardised

permitting the optimal preparation of

blades for welding.

From a planning perspective, it is

not only important to reduce the TAT

of engines at a shop visit. It is

equally important to have process

stability which can guarantee that

standard TATs can always be

achieved. The introduction of

automated machinery in the repair

process assists in this regard. Laser

powder HPT blade tip restoration is a

good example of such a process

whereby each blade configuration is

addressed by a unique CNC program,

including a vision system for

geometry measurement. Controlled

pre-heating resulting in a reduced

heat-affected zone can also

significantly reduce the risk of blades

cracking due to high stresses (see

figure 6). High automation of such

processes also leads to high process

stability with a first-pass yield of

more than 95 per cent (see figure 7).

PMA parts/DER repairs

When once again considering the

high portion of material within the

EMC, the discussion would not be

complete without discussing PMA

parts and DER repair. The PMA part

discussion in particular has been

Figure 5: Power washer for internal cleaning

of blades.

Figure 6: Laser powder HPT blade tip

restoration.

EYB2005_1 7/9/04 8:55 am Page 24

ENGINE YEARBOOK 2005

going on for many years within the

aviation industry with some of the

larger airlines owning or part-owning

their own PMA part manufacturers.

In the meantime OEMs simply say

that they are more than willing to

significantly reduce spare parts

prices if airlines are willing to pay

more for their new engines.

Speaking to airline engineers, it would

appear that the technical acceptance of

PMA parts is much higher than it used to

be. Nevertheless, certain airlines refuse to

accept these parts for different reasons.

These include contractual commitment to

the OEM as well as liability and warranty

issues which the airlines have to deal

with. Furthermore, most leasing

companies are not willing to accept the

use of PMA parts, since they do not wish

to be exposed to the situation where the

next lessor refuses to accept an engine

because it contains PMA parts. And from

a logistics viewpoint the use of PMA

parts can result in an inventory cost issue

since it is necessary to administer two

different part numbers.

Summary

Since EMC are a major part of an

airline’s total aircraft maintenance cost, it

is important to understand the

parameters that drive this cost. Some of

the parameters described above can be

influenced by the airline itself — such

as the thrust de-rate applied and line

maintenance procedures adopted.

Others, however, such as the parts repair

capabilities of a maintenance base cannot

be directly influenced by an airline. But

they still need to be considered when

selecting an engine maintenance

provider. Even though the parking of

certain aircraft types has resulted in high

market availability of certain used spare

parts, sometimes at very low prices,

material remains the main shop visit cost

driver for most active engine types,

resulting in great potential for further

repair development. ■

EYB2005_1 15/9/04 3:38 pm Page 25

ENGINE YEARBOOK 2005

Engine trading and value

trends

Many factors affect engine

values, some of which are

predictable and rational, and

others less so. Abdol

Moaberry, CEO of GATelesis

analyses what has happened

to engine values in the past

so that we might better

understand what will

happen in the future.

n the current market, one would

need a crystal ball to avoid all of

the economic indicators,

technological advancements and

external factors that are now

included in valuing jet engines and

establishing value trends. But even

then a crystal ball could not take into

account one very important

measurement; the stimulus-reaction

of human influence. The latest round

of engine valuations was severely

impacted (negatively) by human

influence: that of the terrorist attacks

on September 11, 2001. There are

those who argue that the market was

on its way down anyway, and that

might be true, but the attacks caused

an immediate and possibly premature

industry-wide fleet retirement

programme that took engine values

from their highest historical levels to

the lowest in one fell swoop.

It is important to understand where

the industry is at present in order to

understand the drivers behind jet

engine values and where they are

going. It is quite obvious that the

aviation industry is presently in the

midst of its most severe recession.

Airline capacity and yields are down

significantly and, in all likelihood,

certain airlines will continue to incur

losses for the foreseeable future. Two

years ago, the industry was at what

some called the bottom: in 2002 two

of the top 10 US airlines were

threatening to file for bankruptcy

protection; there was significant asset

distress in the aviation industry; and

many major airlines had significant

labour union issues. Now, in 2004,

two of the top 10 US airlines are

threatening to file for bankruptcy

protection and United Airlines,

which filed for Chapter 11 last time

around, may not survive. How does

this ongoing turmoil affect aircraft

and therefore engine asset value?

And how predictable are these

trends, if at all? Finally, how will

existing and new participants, engine

lessors and resellers evaluate their

portfolios and business models?

The best place to start is to

understand demand and why it

exists. Additionally, it is important

to consider the variables that affect

demand and therefore engine values

and their trends. It is obvious that

all sectors of the aftermarket have

gone through a significant change

since 1999; and the engine leasing

and trading market is no exception.

The days of airlines holding assets

and inventory are gone, and they

have been replaced with the spot

market. Airlines are aggressively

relying on engine lessors and traders

to meet their needs, while not

necessarily allowing the customary

reaping of economic benefits of

being on the right side of the supply

and demand curve.

The JT8D is a perfect example of

market pressures affecting supply

and demand and therefore values. If

one was to plot the product life cycle

of the JT8D from new through to

obsolescence, it would look like a

mountain range of peaks and valleys

as opposed to the traditional bell

curve shape. The JT8D had a unique

attribute: its numerous variants were

installed on the Boeing 727-100 and -

200, B737-100 and -200, the Douglas

DC-9 as well as on a few dozen

Caravelles. This resulted in 11,400

engines being manufactured. At that

time, there were no alternatives and

EYB2005_2 7/9/04 10:03 am Page 26

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ENGINE YEARBOOK 2005

originally thought was a declining

market. The JT8D was not without

its woes, however, and in the late

1980s and early 1990s the engine was

considered a declining asset. By 1993

when UPS decided to re-engine its

B727-100 fleet with Rolls-Royce

engines, JT8Ds were trading in the

$50,000 to $75,000 range and they

were not easily saleable even at those

prices. In a similar manner, JT8D

lease rates hit the floor.

When the airline industry started

to pick up in 1996 and B727s and

B737-200s started to be redeployed

worldwide, JT8D values started to

climb again. By 1998 the earliest

model of JT8D, the -7A engine, had

climbed in value to $600,000 and the

JT8D-17 exceeded $1,500,000 in

value. There was a market frenzy and

lease rates for the higher-thrust

models climbed to near $20,000 per

month plus maintenance reserves.

Core engines were being traded at

$300,000 to $500,000 and part-outs

became frequent, as there was a need

for spare parts for engine overhaul.

Many new trading and leasing

companies emerged on the back of

the engines were interchangeable

with little modification between

Boeing and Douglas applications; an

uneconomical option in today’s jet

engine market.

I think it is safe to say that the

JT8D was Pratt & Whitney’s jewel in

the crown: it was an engine with a

relatively simplistic design that

became the industry dominant

engine type by virtue of the numbers

installed in what the manufacturer

the JT8D and quickly consolidated.

Part-out programmes across fleets

became common with financial

players entering the fray to make a

quick buck. All of this happened

despite a January 1, 2000 deadline to

convert the engines to become Stage

III noise compliant.

By the end of 1999 many had seen

the writing on the wall, but it was

not until after the September 11

attacks that it became obvious that

the JT8D was on its way down the

product life cycle curve. Airlines

reacted to the sudden downturn by

parking or retiring JT8D-powered

aircraft. By the middle of 2003, JT8D-

17 core engine sale transactions were

being logged at $15,000 per engine

and operating leasing was not even

on the radar. Good serviceable half-

life engines were trading at barely

$100,000 per unit with full QEC and

it was evident to most that the JT8D

was never going to recover. Or was it?

Northwest Airlines took a serious

look at the market and decided that it

would shut-down its JT8D maintenance

base in Atlanta and develop a more

cost-effective programme for its JT8D-

powered fleet. It developed a no-risk,

no-return condition, hybrid cost-per-

flight hour leasing programme with

rates as low as $35 per hour with no

monthly minima. This compared with

an average cost of approximately $200

per hour in 1999. In basic terms

Northwest was operating the JT8D,

with no maintenance risk, no return

conditions and very basic and almost

non-existent FOD coverage for less than

20 per cent of what it had done just a

few years previously. And when the

engines became tired and no longer

performed they simply swapped them

out with another engines. At first,

many traders and lessors were resistant

to the programme, but they soon

realised that Northwest was one of only

a few airlines remaining active in the

JT8D market.

By the first quarter of 2004 air travel

had increased a little, the market had

started to marginally recover and more

JT8D-powered aircraft were redeployed.

As Northwest took more engines, the

surplus market started to dry up and

values rose again. Indeed, engine

When trying to understand

values for newer engine types,it is

important to realise that the

value drivers in today’s market

are not dissimilar to those of

previous engine markets. Supply

and demand are obvious,but

utility, reduced

interchangeability, noise and

emissions and aircraft volatility

are probably more important

when considering value.

EYB2005_2 7/9/04 10:04 am Page 28