Журнал - The Engine Yearbook 2005

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technical expertise

and financing power for world-wide

spare engine support

flexible spare engine support

packages to the airline industry.

Engine Lease Finance Corporation

Engine Lease Finance

Corporation

A subsidiary of The Bank of Tokyo-Mitsubishi, Ltd.

Shannon Headquarters: Tel +353 61 363555. Fax +353 61 361785

San Francisco: Tel +1 415 3930680. Fax +1 415 3930677

E-mail: info@elfc.com

technical expertise

and financing power for world-wide

spare engine support

Engine Lease Finance Corporation is one of the world’s leading engine

financing and leasing companies specialising in the

provision of individually tailored,

flexible spare engine support

packages to the airline industry.

We are a team of highly experienced aviation industry professionals

who, together with our extensive financial resources, provide an

optimum blend of technical expertise and financing power to meet the

operational demands of airlines world-wide.

Operating Leases

Sale & Leaseback

Engine Acquisitions & Re-marketing

Management of Engine Assets

technical expertise

and financing power for world-wide

spare engine support

Engine Lease Finance Corporation is one of the world’s leading engine

financing and leasing companies specialising in the

provision of individually tailored,

flexible spare engine support

packages to the airline industry.

We are a team of highly experienced aviation industry professionals

who, together with our extensive financial resources, provide an

optimum blend of technical expertise and financing power to meet the

operational demands of airlines world-wide.

Operating Leases

Sale & Leaseback

Engine Acquisitions & Re-marketing

Management of Engine Assets

ELF Airline Fleet CMYK Ad 26/6/01 6:53 pm Page 25

ENGINE YEARBOOK 2005

maintenance condition is a lot more

than any of the other asset types

referred to above.

For example, a used mature engine

(one in the mid-range of life for the

type) that is otherwise completely

interchangeable with others throughout

a very substantial worldwide fleet —

but is zero hours from full-performance

refurbishment (ZTSO) including total

life-limited part (LLP) replacement —

will be worth two or three times as

much as its equivalent run-out cousin.

The value of an older engine (one no

longer in production, with declining

numbers of host aircraft) will vary more

dramatically still; a serviceable engine

will be valued at whatever the flight

hours remaining are worth as a function

of the shop visit cost, whereas a run-

out engine of this type will be close to

valueless because there is an over-

supply of parts with so many engines

available for breaking down.

The well-prepared lessor that

constantly rolls over its portfolio of

assets, selling older product and

replacing it with new, will be less

exposed to this latter effect but must be

prepared for it nevertheless. Market

turbulence will not always allow the

planned exit from an asset at the

expected value at the expected time

and, in that case, alternative strategies

will need to be employed to extract

value from the asset. We will return to

this point later.

The core business of ELF is like many

operating lessors — that is to say we

purchase assets, in this case commercial

aircraft engines — as a long-term

investment with an anticipated hold

period of between 10 and 15 years,

during which time we expect to place

the engine on two or three successive

long-term leases with different

customers, with perhaps one or two

short-term leases in between in order to

optimise utilisation. The engines are

initially placed on long-term leases with

airlines that recognise the economic

benefits of this type of lease over a

period of typically between five and 10

years. The definition of the term

‘operating lease’ means that the airline

takes all operational risk, expressly

including that of maintenance, and the

lessor is in effect simply a source of

finance, rather than a source of an

engine, which will likely have been the

airline’s in the first place and then sold

and leased back. The lessor, however,

cares greatly how that maintenance is

carried out, for it affects both the value

and re-marketability of its engine asset

at lease end.

At the end of each lease, the plan is

to move the engine smartly to the next

lessor. To facilitate this the engine must

meet minimum standards in many areas,

all of which should have been

anticipated in the lease documentation

and in the on-going management of the

lease. During this time the airline will

regularly report to the lessor details

concerning engine usage, including the

hours and cycles consumed and

condition monitoring data.

Additionally, the lessor’s nominated

representative will inspect the engine

and its records on a regular basis. The

records must always be complete,

accurate, up-to-date, in compliance

with airworthiness authority

requirements and in the case of LLPs,

traceable back to birth.

Full shop visit history should be

available showing that all applicable

effective airworthiness directives (ADs)

have been complied with and all high-

priority service bulletins (SBs)

incorporated. If the engine is capable of

operating at different power ratings, the

time spent at each setting must be

recorded since the limits on the LLPs

may differ from one rating to the next.

At lease end, the QEC should be

complete and all components must be

serviceable. The engine must be free of

any carry-forward defects and its

condition-monitoring track should be

free of signs of abnormal performance

deterioration. If any of these standards

are not evidenced faultlessly, the

potential new lessee may reject the

engine and the lessor may find himself

facing the unplanned expenditure of a

shop visit to rectify matters before it

can lease the engine again.

Airline lessees exist in a wide variety

of jurisdictions falling under different

national airworthiness authorities —

but they usually have shop visits

carried out at FAA- or JAA-accredited

agencies and in the lease contract, the

lessor will usually insist upon both

EYB2005_2 7/9/04 10:23 am Page 40

ENGINE YEARBOOK 2005

standards being complied with because

the next lessee will not be known at

that stage and may require either.

Worldwide, there is a growing

sophistication and capacity for the

overhaul of most engine types but,

nevertheless, an engine lessor may

express a preference for certain shops to

accomplish engine overhaul work.

Alternatively, it may wish to exclude

other overhaul shops if it has had bad

experiences previously.

The lessor will set standards for all

shop visits and will wish to become

involved in all engine shop visits,

especially the final shop visit prior to

the return of the engine from lease. The

minimum standards applied in the lease

documents may not suit the

expectations of the next potential lessee

(if known) and so the lessor may

require a deeper shop visit than

required by the lease, investing its own

money to have certain modifications or

replacements carried out beyond the

specified minima. There are

circumstances where the opposite may

apply, and the lessor will want less

work done because it is planning an

earlier than originally expected exit

from the engine. Indeed, it may not

want a shop visit at all (see below). The

application of this type of flexibility is

increasingly a feature of the engine

leasing industry.

A thorny subject is that of the

incorporation of non-OEM parts (PMAs)

and non-OEM repairs (DERs) at shop

visits. Engine OEMs, not surprisingly,

wish to keep the supply of parts and

repairs to themselves, but in so doing

limit competition and cost reduction

initiatives. Whilst at first glance it may

appear that the lessor should welcome

the use of PMAs and DERs because of

the potential for cost reduction, the

lessor faces the problem that not all of

its potential customers and/or their

airworthiness authorities will

necessarily accept them. Consequently,

an engine that is redelivered with either

PMAs or DERs incorporated may have a

limited market, which is a restriction

that the lessor cannot tolerate. Hence,

until there is wider acceptance of PMAs

and DERs, they will be expressly

excluded in operating lease contracts.

The engine will also need to have an

expected life remaining at lease-end

that is suitable for the new lessee’s

purposes, which is why the operating

lessor will insist upon a meaningful

minimum return condition. This

minimum return condition is unlikely to

match the condition the engine was

acquired in, and so there will be a

formula for a financial trade-off. In a

perfect world, the lessor will have

collected maintenance reserves exactly

balancing the hours and cycles burned

off the engine in order to protect its

exposure. This is almost universal for

short-term leases (meaning months

rather than years) and provides

considerable comfort to the lessor,

particularly from a credit point of view.

Nevertheless, the risk that the lessor

has not calculated the correct rate of

reserves (or has been knocked down too

far in negotiations) remains, and so

when it comes to paying for a shop visit

it could be under-funded. As indicated

previously, the lessor whose core

business is operating leasing, may rely

upon short-term leasing as a stop-gap

when it has an engine returned from a

long-term operating lease but does not

yet have another long-term home.

The collection of maintenance

reserves for a true long-term operating

lease is less common, but at least the

lessor should have the benefit of an

obligation on the part of the lessee to

restore the engine to the minimum

return condition and/or to pay cash

compensation for difference in

condition in both remaining shop visit

life and LLP cycles. To that extent, the

lessor accepts the credit risk of the

lessee, as mitigated by whatever

security package is included in the

lease, such as deposits, letters of credit,

parent company guarantees and the

like.

Turning back to the lessor’s exit

strategy and the frustration of sound

plans by market turbulence, we can

again emphasise the importance of

managing maintenance by the various

means mentioned above. If the lessor is

unable to fulfil a planned divestment by

selling the asset outright, either as a

financial product with a lease in place, or

as a stand-alone piece of machinery, it

will turn to other ways of liquidating its

investment profitably. Assuming

Assuming appropriate

depreciation has been charged

and adequate reserves posted to

the balance sheet,the engine

lessor has the option of running

down the valuable hours and

cycles remaining by basically

selling power to an airline and

accepting the return of a run-out

engine which the lessor will then

sell or consign to a parting-out

agency or overhaul shop.

EYB2005_2 7/9/04 10:27 am Page 41

ENGINE YEARBOOK 2005

appropriate depreciation has been

charged and adequate reserves posted to

the balance sheet, the engine lessor has

the option of running down the valuable

hours and cycles remaining by basically

selling power to an airline and accepting

the return of a run-out engine which the

lessor will then sell or consign to a

parting-out agency or overhaul shop. A

well-maintained and operated engine will

spend more time on-wing and so earn

more dollars and one with impeccable

records will fetch the best price from the

parts agency. An engine that has PMA

parts installed or DER repairs

incorporated may be valued less highly.

The key to exploiting the appropriate

exit strategy for a given engine is

flexibility. The operating lease will have

been written typically seven years

previously and lease-end market

conditions may be far from what was

originally expected. The lessor has to

monitor the market carefully and work

with his lessee in partnership to achieve

the best outcome. Uniquely, this can be

achieved with aero-engines by trading

metal for money, in either direction. For

example, if an engine nearing the end

of its lease is in need of a shop visit to

restore it to the minimum return

condition specified in the lease, with

the attendant spend of maintenance

reserves (whether held by the lessor or

by the lessee as a balance sheet accrual),

and market conditions are not good for

another long-term lease prospect (which

is what the return conditions were

designed for seven years previously)

then the lessor should contemplate

whether it is better to release the lessee

from the obligation of the shop visit,

take the engine back as is and hold on

to the cash. Such pro-active

management of the maintenance process

recognises that part of the asset is

already liquidated (the cash held), that

it can be short-term leased to burn off

remaining hours and cycles (raising

more cash) before being sold to a part-

out agency (clearing at least book value

and ideally making a profit); it is worth

re-stating that the success of this

strategy will depend upon the charging

of appropriate depreciation and the

prudent accumulation of reserves over

the seven years.

Alternatively the lessor may decide to

collect as much cash as possible from

the hours and cycles remaining, but

stop short of a sale of the engine

because it believes that values will

recover as the overall economic cycle or

the micro-cycle applicable to that

engine swings back. In this

circumstance and depending on the

flexibility of the lessor’s finances, the

debt against the engine can be reduced

by the cash collected, so that the

carrying cost is minimised and the asset

is held for an anticipated future upturn

in the market. When an upturn is

judged to be imminent, the lessor will

restore the engine by spending on a

shop visit before leasing it out in a

rejuvenated market.

In summary, the process is overall one

of macro-economic planning involving

investment and divestment (exit)

strategies which should be combined

with the ‘sleeves-rolled-up’ day-to-day

micro-management of an individual

engine through its maintenance and

market cycles so that the value of the

original investment is optimised. It

requires a flexibility of approach and

enlightened co-operation between

lessee and lessor. ■

EYB2005_2 7/9/04 10:29 am Page 42

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ENGINE YEARBOOK 2005

Upgrading GE’s maturing

engines

Two years after we first

reported on GE’s strategic

venture into the business of

upgrading its mature fleet of

in-service commercial

turbofan engines, GE Engine

Services explains how its

strategy is paying off.

E Aircraft Engines was the

first of the engine OEMs to

implement a systematic

strategy of technology transfer to its

maturing in-service engines. It all

came about as a result of the creation

of GE Engine Services in 1994, when

a services engineering organisation

was formed to improve the

productivity of long-term support

contracts — typically maintenance

cost per hour (MCPH) agreements.

Subsequently, GE elected to make

such improvements available to other

customers, which eventually led to

the formation of a dedicated

upgrades group.

“It is a strategy to continue to infuse

the latest technology into our more

mature product lines. We did not just

look at a cost problem on a compressor

or turbine blade. Rather we took a

system-wide approach by evaluating all

the technologies we could use to take

the engine to a new level,” comments

Bob Barton, general manager,

marketing, GE Engine Services.

Today there are no less than eight

major upgrade ‘products’ available

covering the bulk of GE’s in-service

fleet. Broadly speaking, they all aim

to improve performance and on-wing

lives while reducing operating and

maintenance costs. Most would be

fitted as and when the engines came

off wing for a scheduled overhaul.

The applicable engines types include

CF6-6, CF6-50, CF6-80A, CF6-80C2,

GE90-90B and CF34-3A. Together this

represents an engine fleet of some

5,943 engines powering some 2,359

aircraft, according to AvSoft’s ACAS

database. And to add to this, GE also

supports a number of upgrades for

the vast CFM56 fleet — however, this

was the subject of another article in a

recent issue of Aircraft Technology.

CF6-6 and -50 upgrades

The most recently certified

programmes of those covered here is

the CF6-6 and CF6-50 “hot section

upgrade”. Following an agreement

announced in October 2001, Air

France has now fitted over 40 kits for

the CF6-50 upgrade at its own

technical facilities. The programme

called for GEAE to provide up to 106

hot-section upgrade kits for the

airline’s CF6-50 engines powering its

B747-200s and B747-300s. “Air France

has finished installing around 60

upgrade kits — I believe the final

number installed was around 60,”

notes Barton. This upgrade, certified

in November 2001, is billed as

providing up to 22 per cent

improvement in engine cost of

ownership through the incorporation

of advanced materials and

technology, extending time-on-wing

and reducing shop visit cost. List

price per engine is presently in the

region of $1.0 million.

Interestingly, Air France has

actually combined several kits in

parallel: the hot section (HPT nozzle,

HPT blade stage 1); an improved

compressor blade set; and thirdly, a

new metal combustor installed in

addition to the turbine frames and

compressor blade refurbishment. The

modified combustor reduces the

likelihood of fragmentation which

would result in additional shop

visits.

FedEx has also been a significant

customer and has steadily increased

its time-on-wing through the use of

the “HT90” upgrades on the CF6-6

EYB2005_2 7/9/04 10:30 am Page 44

ENGINE YEARBOOK 2005

upgrade if they are retired

immediately after passenger-carrying

duties. However, many others will

undoubtedly be re-assigned as cargo-

haulers, in which case, the business

justification for engine upgrades on

this model would appear to remain

sound, especially as world economies

recover.

CF6-80A & -80C2 upgrades

Turning to the more modern CF6-80

variants, Barton is particularly

upbeat: “Where we see the growth in

the CF6 family has been in the hot

sections of the -80A and -80C2.

Typically in our technology portfolio

we have materials technology, control

systems technology, aerodynamic

design technology, and for the CF6-

80A and -80C2, we have gone into the

material technology ‘bucket’ and

‘pulled out’ mono-crystal N5 hot

section airfoils, and we offer those as

replacement airfoils for the -80A and

-80C2.”

The -80C2 market is potentially

huge — there are almost 3,000

engines in service. The larger and

more modern -80E on the A330

for its DC-10s. Focusing on the

turbine section, this modification

incorporates new hot section

materials to address EGT and blade

distress. It aims to reduce total cost

of ownership by around 35 per cent.

List price is presently around $2.4

million.

The Fan Speed Modifier programme

is no longer active for two reasons:

(a) lack of demand (many CF6-50/-6

aircraft being taken out of service);

and (b) some technical difficulties

integrating the new electronics with

the existing analogue systems.

Regarding the broader outlook for

the CF6 series, Barton is optimistic

yet cautious: “As most of the aircraft

into the freighter world, we will

continue to have upgrade kits which

will keep those engines in

substantially better shape, at lower

operating costs, especially regarding

the hot section where most of this is

focused. Incidentally, while the CF6-

50 and -6 markets have both slowed

significantly, we nevertheless sustain

those engines for customers who

want a longer ownership horizon,”

says Barton.

It should be remembered that Atlas

Air was a launch customer for CF6

upgrades along with Air France and

FedEx. However, while Atlas is still

designated as a customer, it has

nevertheless encountered a number of

insurmountable difficulties, not least

of which was the sudden loss of its

founder and CEO, Michael Chowdry

in a light-aircraft crash. [Indeed,

prior to both this tragedy and the

9/11 aftermath, that carrier was even

expected to be a launch customer for

the cargo version of the A380.]

Anyhow, the immediate consequence

of this was a pause for thought

followed by a complete financial

‘restructuring’ — a process which is

still ongoing at the company. In

short, as things stand today, Atlas

still has a programme for installing

the CF6 upgrades, albeit at a slower

pace than was originally envisaged

prior to the difficulties.

Overall, it is fair to say that a large

proportion of the CF6 ‘classic’ fleet

may be less than likely to see an

employs the most advanced

technology already, specifically the

stage 1 & 2 blades, HPT nozzles and

HPT shrouds. “Because the

component dimensions were similar,”

notes Barton, “we have been able to

infuse the technology of the -80E into

the -80C2. This particularly benefits

operators of the -80C2 with higher

thrust capability, as well as those

with difficult operating conditions

like marine environments or hot &

high takeoff.”

In essence, the -80C2 upgrade

package offers new HPT airfoil

material for all the stages. “The most

aggressive part of the upgrade, and

the one which most airlines are

interested in,” explains Barton, “is the

stage 2 HPT nozzle. The -80C2 is

unique in that you specify any

stage(s) of the HPT to upgrade; you

don’t necessarily have to upgrade the

entire turbine all at the same time.”

He points out that the largest

upgrade customers would tend to be

cargo operators which see the value

in longer on-wing times as well as

lower material costs across their

fleets. “For them the cheapest shop

EYB2005_2 7/9/04 10:38 am Page 45

visit is the one they don’t have,” he

adds. “They will spend a little more

incrementally at the [upgrade] visit,

but then the objective is to reduce

the number of visits in the longer

term, and subsequently, when they

do have their next visit, the material

costs should be substantially lower.”

GE90 thrust upgrade

Regarding the GE90 upgrade

programme, he adds: “The biggest

success we’ve had recently has been

that quite a number of GE90-94B

upgrades have been ordered by

airlines that initially purchased the -

90B. In the first quarter of 2003,

China Southern ordered the -94B

upgrade.” In the second quarter of

2004 Continental ordered the -94B

upgrade as well.

The programme in question

incorporates 3D aerodynamics in the

HPC. It also optimises some HPT

cooling and improves clearances in

the LPT. In addition, it allows a

GE90-90B operator to either take

advantage of lower fuel burn at the

original 90,000lb thrust level, or

benefit from improved aircraft

payload-range performance with the

94,000lb thrust level. Thus the

operator can use it either way. Of

course, it is more cost-effective if an

operator is going to extend its route

structure and use the higher thrust

for that extra payload-range

capability, as that pays back faster

than a straight fuel-burn reduction.

The GE90 upgrade also improves the

operating temperature of the engine

and helps to reduce maintenance

costs. For example the GE-90B with

the -94B bill-of-materials and ‘3D-

aero’ operates at lower temperatures

and does improve maintenance costs.

CF34-3A1 to CF34-3B1 conversion

It should be noted that there has been

a CF34-3A to -3B conversion for quite

some time. Although the -3B is the

current production engine, there are

many -3A engines in circulation,

primarily with Delta Connection and

previously with Lufthansa CityLine. The

latter is actually the largest customer for

the CF34-3A to -3B upgrade and is about

one to two years away from completing

ENGINE YEARBOOK 2005

GE turbofan programmes summary

CF6-50 HPT durability upgrade overview/benefits:-

● advanced turbine materials, coatings, and cooling technology from latest generation of aircraft engine design;

● N5 material upgrade for stage 1 nozzle, eliminates trailing-edge bow, improves EGT retention,

improves mean time-to-scrap, and reduces repair work scope;

● N5 material upgrade for stage 1 blade improves EGT retention, improves mean time-to-scrap, and

reduces repair workscope;

● projected value:- up to 22 per cent improvement in time on-wing; shop visit cost reduction up to

$65,000 in HPT blade and nozzles; improved HPT durability up to 50 per cent in stage 1 blade and

25 per cent in stage 1 nozzle; improved EGT and performance retention; payback in one shop visit;

● target customers: CF6-50 operators;

● results to date: endurance test results: 2,000 cycles between shutdown and takeoff (200 cycles run

above EGT redline). All blades and nozzles in serviceable condition; no blade or nozzle distress

noted; Only 9°C EGT deterioration occurred;

● customer results to date: Significant improvement in test cell EGT margin from non-upgraded engines

to upgraded engines.

CF6-80A HPT durability upgrade overview/benefits:-

● reduced engine cost of ownership by up to 17 per cent through the incorporation of advanced

materials coatings and cooling technology, extending time on wing and reducing shop visit cost;

● N5 material upgrade for stage 1 nozzle eliminates trailing edge bow, improved EGT retention,

improves mean time-to-scrap, and reduced repair work scope;

● N5 material upgrade for stage 1 blade confers improved EGT retention, improved mean time-to-scrap,

and reduced repair work scope;

● projected value: up to 12 per cent improvement in time-on-wing; shop visit cost reduction up to $70,000

in HPT blade and nozzles; improved HPT durability; improved EGT and performance retention;

● present customers: Federal Express.

CF6-80C HPT durability upgrade overview/benefits:-

● reduced engine cost of ownership by around 24 per cent through the incorporation of advanced

materials, coatings and cooling technology, extended time-on-wing and reducing shop visit cost;

● HPT durability from material and design change on: stage 1 HPT blade, nozzle, and shroud; stage 2

HPT nozzle and shroud;

● allows for fleet commonality with CF6-80E engine;

● upgrade package tailored to customer’s fleet;

● purchase as entire kit or by specific component;

● upgrade as entire set or during scrap replacement on piece-part level where applicable;

● projected value: up to 20 per cent improvement in time-on-wing;

● shop visit cost reduction up to $150,000 in HPT blade, nozzle, and shrouds;

● improved HPT durability;

● target customers: CF6-80C operators.

GE90-90B to -94B to upgrade overview/benefits:-

● incorporates 3D aero HPC airfoils, fan outlet guide vane sealing, HPT active clearance control

optimisation plus LPT clearance reduction;

● increased payload capability for longer-range missions, takeoff from limited airports and under hot day

conditions;

● increased thrust capability to GE90-94B rating;

● 1.6 per cent fuel burn reduction and more than 20ºC additional EGT margin;

● reduced maintenance cost by up to 10 per cent;

● typically, less than a three-year payback horizon;

the applicable market for these upgrades: Operators of GE90 baseline engines other than the -94B;

● upgrade is incorporated at the next scheduled shop visit, at GEAE’s Wales facility;

● programme development timeline: Over 50 per cent of the GE90 fleet has committed to this upgrade.

CF34-3A1 to CF34-3B1 upgrade overview/benefits:-

● HPC: recontoured airfoils in rotor and stator; number of rotor airfoils reduced from 30 to 26; and

improved material in rotor airfoils (DA718 versus HS718);

● HPT: improved airflow; improved material in stator and stage 2 nozzle;

● LPT: improved transition design to prevent thermal cracking; improved heat transfer in transition

reduces case temperature; improved aerodynamics in stage 3 nozzle; improved material (HS188) in

stator; integral seals in nozzles reduce wear;

● projected value: improved takeoff thrust; improved climb thrust (0.7 per cent at 10,000ft;

2.2 per cent at 37,000ft); fuel burn reduced (3.1 per cent at takeoff, APR takeoff, and maximum

continuous operation; up to 2.1 per cent at maximum cruise); improved durability; improved life-

limited parts lives for longer time on wing;

● target customers: CF34-3A1 operators;

● Main achievements to date: Upgrade is fully developed and released. The upgrade kit may be installed

during a shop visit by authorised CF34 overhaul providers. Installation is already under way.

EYB2005_2 7/9/04 10:48 am Page 46

ENGINE YEARBOOK 2005

all its engines. At some point, however,

other big -3A operators would probably

begin to convert from -3A to -3B.

To follow on, GE is also developing

an HPT nozzle durability upgrade for

the -3B which should have completed

testing and certification by the first

quarter of 2005. This upgrade to the

HPT nozzles will provide durability

improvement. The focus of CF34

upgrade development has turned to

reducing maintenance costs. On the

R&D side, GE is also looking for an

overall assessment of whether there is a

major upgrade which it can implement

to the CF34-3. The company is looking

at 3D-aero and advanced materials, but

nothing has been determined as of yet,

according to Barton. Similarly, while the

largest growing fleets of newer CF34s

are the -8E and -8C on the ERJ-170,

CRJ-700 and CRJ-900, GE has

developed a common bill of materials

for the -8C program which will be

available in the first quarter of 2005.

Economics

In a typical upgrade GE would take

the list price (which is usually for a

whole ship-set) and subtract out the

normal material spend which the

operator would have otherwise incurred

for a regular shop visit, and then GE

would determine the ‘incremental’

dollar value. Barton illustrates this

concept:

“An HPT blade scrap-rate at an

overhaul would normally be 30 per cent

— an expense which an airline would

normally face. Therefore the resultant

cost is often much lower than the list

price of the upgrade. And of course

there are negotiated discounts available

for fleet-wide incorporations and return

of the displaced hardware. In addition,

displaced parts can be reconditioned,

usually through GE Aviation materials;

otherwise they are scrapped.”

He adds: “While list prices have

escalated by between three and five per

cent, depending on the upgrade kit, the

actual cost which the airline typically

sees varies, especially in the case of a

managed engine fleet like FedEx. In this

case, the operator pays for the

performance improvements over time so

price becomes incorporated into the

long-term service agreement, and

moreover, the airline will probably

obtain a discount.”

“Typically we see a return on

investment for the customers in the 15-

25 per cent range, and payback periods

which can be as short as eight or nine

months, prior to any subsequent post-

upgrade shop visit. So when we analyse

economics and determine pricing, we

develop modelling for fleet-wide

incorporation, taking into account the

very specific operating conditions of

every airline. We customise each

upgrade package.”

Outlook

On the market for upgrades in

general, Barton observes: “The first

couple of years were great in terms of

orders. However, 2001 and 2002 have

not been as good. The market for engine

upgrades has closely mirrored

utilisation and shop visits across the

board, which have been depressed.

However, as that begins to turn, I think

we will see more interest in upgrades.”

(Upgrades have seen steady growth

since 2000. Sales continue to improve as

customers become more aware of the

value.) ■

"Typically we see a return on

investment for the customers in

the 15-25 per cent range,and

payback periods which can be as

short as eight or nine months,

prior to any subsequent post-

upgrade shop visit…."

—Bob Barton,general

manager, marketing, GE Engine

Services.

EYB2005_2 7/9/04 10:53 am Page 47

ENGINE YEARBOOK 2005

The aero-engine aftermarket and

opportunities in gas path diagnostics

The gas turbine aftermarket

has undergone significant

change and is set to see

more profound changes in

the future. Such

developments are of great

importance to this industry,

where reliance on the

aftermarket is an essential

part of the business case.

Professor Riti Singh of

Cranfield University

considers some of the ideas

underpinning advanced gas

path diagnostics and the role

of this technology in the

changing business

environment.

n the early years, advances in

technology, such as cooled blades

or the move from pure jets to

turbofans, offered large advantages in

functionality, making the engine

business a research and design

technology-led industry. The 1970s

and 1980s saw market pressures

driving down purchase costs, leading

to the integration of engineering and

manufacturing. The last two decades

have seen an increasing emphasis on

life-cycle costs and significant

improvements in engine reliability

and on-wing life.

Recently, the business paradigm

has been changing. Enhanced

reliability, long on-wing life and a

lucrative aftermarket have led to

engine manufacturers seeking long-

term maintenance contracts, quite

often through the use of by-the-hour

contracts. Not only the OEMs but

also competing OEMs, operators and

specialist players are active in these

markets. In these circumstances, a

key competitive advantage for

manufacturers will be their

understanding of this market and one

consideration within this will be

engine diagnostic capabilities.

Reducing life-cycle costs

From an airline’s perspective, the

engine-related costs represent a

substantial fraction of the direct

operating costs (DOC). In a long-

range aircraft, the propulsion system

accounts for about 20 per cent of the

initial cost and up to 55 per cent of

the recurrent maintenance costs.

It is therefore no surprise that the

last two decades have seen an

increasing emphasis on reducing

aero-engine life-cycle costs and

improving engine reliability and “life

on-wing”. Both engine acquisition

cost and maintenance costs have been

substantially reduced by the adoption

of the concept of derivative designs

and modular products. This has

reduced the amount of development

and manufacturing work required for

a new engine concept. Additionally,

great improvements have been

achieved through team-based

working practices, improved

processes and the extensive use of

information technology. Maintenance

costs, however, have mainly benefited

from the substantial increase in

engine life and reliability, as well as

from the development of new

approaches to the customer support

operation. The latter include engine

health monitoring, which can provide

a more planned maintenance schedule

and a reduction in the number of

spare engines required.

OEM’s perspective

From the perspective of the aero-

engine manufacturer, the reduction

of aero-engine life-cycle costs and the

improvement of customer support

operations are becoming the key to

market survivability. Within the

aero-engine industry, a lot of interest

is focused on the headline-grabbing

original equipment sales successes of

the major engine manufacturers.

EYB2005_2 7/9/04 10:59 am Page 48