Airline Maintenance Cost Executive Commentary - January 2011

Airline Maintenance Cost Executive Commentary

An exclusive benchmark analysis (FY2009 data) by IATA’s Maintenance Cost Task Force Executive Summary In 2009, global aviation faced the worst decline to date. Economies Overhead accounted for an average of 24% of the total maintenance cost. As worldwide have been shaken by the global crisis and demand for aviation not all airlines reported the overhead cost, for the purpose of this analysis we plunged. The air cargo industry has been extremely hardly hit, as demand for mostly focus on the direct maintenance cost (DMC). air freight is very elastic and demand for consumer goods dropped to record The 20 airlines continuously reporting to the MCTF for 4+ years flew 2% less lows. The financial consequences for the aviation industry have resulted in a flight hours and 6% less flight cycles, resulting in a 3% lower annual aircraft “permanent” loss of 2.5 years of growth in passenger business and 3.5 years utilization (down to 8.82 hours/day). The stage length increased by 4% of growth in air cargo*. compared to the year before. The 40 MCTF participating airlines in 2009 reported a total fleet of 3,312 Engine cost remained by far the largest single expenditure, amounting to aircraft. Boeing aircraft represented the majority (63%), followed by Airbus about 43% of the maintenance spending. Almost three quarters of engine with 32%. Narrow body aircraft represented over 60% of the fleet, while wide maintenance was outsourced; this excludes materials purchased for the body aircraft accounted for 32% of the fleet. airlines which do work in house. The direct maintenance cost per flight hour varied for the 40 MCTF airlines Covering all maintenance costs except for employee cost (which is part of the according to the aircraft category, from an average of $682 per flight hour for in-house maintenance), the supply chain area represented the vast majority narrow bodies to $1,430 per flight hour for wide body aircraft equipped with of maintenance spending. The reliance on supply chain remained relatively three or more engines and $1,204 per flight hour for wide body aircraft constant year on year, hovering around 80% of the direct maintenance equipped with 2 engines. Regional jets posted the lowest maintenance cost - spendind. Including material, it even amounted to over 90% in case of engine $461 per flight hour. maintenance. Unit costs ($ per flight hour) for the 20 MCTF airlines As far as the 20 consistent MCTF airlines are concerned, the total direct decreased, except for outside repair which increased slightly from $564 in maintenance spendind decreased for the first time in the past four years by 2008 to $572 in 2009.

6%. Most likely, this is attributed to airlines deferring maintenance and retiring *Source: IATA (Jan 2010) older aircraft. Meantime, the fleet renewal rate was of 8%, as older aircraft orders had to be delivered. MCTF - January 2011 1 Airline Maintenance Cost Executive Commentary - January 2011

TABLE OF CONTENT DEFINITIONS & ACRONYMS

Executive Summary p 1 20 MCTF airlines: Airlines which provided data consistently over the past four years Definitions & Acronyms p 2 (FY2006-2009) 1. Global Picture p 3 40 MCTF airlines: Airlines which provided ♦ 1.1. World Fleet p 3 data for FY2009

♦ 1.2. Maintenance, Repair and Overhaul (MRO) Market p 3

2. Cost Analysis (FY2009) - 40 MCTF Airlines p 4 * * * ♦ 2.1. Direct Maintenance Cost by Segment p 5

♦ 2.2. Direct Maintenance Cost by Element p 5 AC: Aircraft 3. Cost Analysis (FY2006-2009) - 20 MCTF Airlines p 6 Aircraft family: Aircraft communalities (e.g. • 3.1. General Trends p 6 A320 Family includes A318, A319, A320, A321) • 3.2. Maintenance Costs Overview p 8 Cost elements: Material, labor and outside • 3.3. Supply Chain p 10 repairs (or outsourced, used interchangea- 4. Maintenance Cost Analysis by Aircraft Category p 11 bly)

♦ 4.1. MCTF Narrow Body Aircraft p 11 Cost segments: Line, base, component and engine maintenance ♦ 4.2. MCTF Wide Body Aircraft p 13 DMC: Direct Maintenance Cost 5. Conclusion p 14 FC: Flight Cycle IATA’s Maintenance Cost Task Force (MCTF) p 15 FH: Flight Hour IATA’s Airline Operational Cost Task Force (AOCTF) p 16 MCTF: Maintenance Cost Task Force NB: Narrow-body aircraft with more than 100 seats (excludes Embraer 190/195) RJ: Regional-jets up to 100 seats (includes Embraer 190/195) Supply Chain: includes all maintenance activities performed by third party (outsourcing) and the cost of material purchased to do work in-house Total Maintenance Cost: DMC plus overhead TP: Turbo-props WB: Wide-body aircraft with more than one aisle or equivalent freighter WB2: Wide body aircraft equipped with two engines WB3+: Wide body aircraft equipped with 3 or more engines

2 Airline Maintenance Cost Executive Commentary - January 2011

1. GLOBAL PICTURE

1.1. World Fleet Figure 1 Of the 4,157 new jet aircraft added to the world fleet between 2002 and 2009, just about half were narrow body, Fleet evolution by region (2002-2009) while wide body accounted for 14%. A noteworthy evolution 2000 was that of regional jets, with the world fleet adding 1,560 regional jet aircraft, accounting for 38% of the total global 1500 growth (Figure 1). 1000

The trend for the past 8 years reflects the growth of aviation 500 notably in Asia and in the Middle East, but also in Europe 0 and South America as the result of the market opening (deregulation). As airlines in these regions added new Number of aircraft -500 aircraft to their fleets, the average fleet age decreased. In Europe and the Middle East, the demand for regional jets -1000 was driven up by a rapid growth of Low Cost Carriers Africa Asia Europe Middle North Pacific South (LCCs) and Regional Carriers. North American fleet mar- East America Rim America ginally expanded by a net of 191 aircraft. This is due to the fact that almost 700 older narrow body aircraft have been WB NB RJ Source: ACAS 3 retired and replaced with smaller capacity regional jets. The youngest average fleet age remains that of the Pacific Rim Figure 2 (9.9 years), with the African region at the opposite pole World Fleet - Fleet Statistics (21.1 years). 3,500 10.00 A total of 524 McDonnell-Douglas have been retired be- 3,000 9.50 tween 2002 and 2009, 60% of which having been removed 9.00 between 2008 and 2009. This trend indicates an acceler- 2,500 8.50 ated move by airlines to retire older fleets, especially at 2,000 tough economic times. 8.00 1,500 7.50 In 2009, Airbus and Embraer increased their market share 1,000 7.00 at a steady rate of 7% and 9% respectively. While the

500 Utilization (hours/day) increase is significant, it is still well below the double-digit Hours, Cycles per Aircraft 6.50 growth seen for these two manufacturers in the years pre- 0 6.00 ceding the economic recession. 2002 2003 2004 2005 2006 2007 2008 2009

World fleet utilization decreased slightly to 7.91 hours per FH/AC Cycles/AC Utilization Source: ACAS 3 day, from 7.98 hours per day in 2008. MCTF airlines were however capable of improving utilization and reported an average of 8.8 hours in 2009 (Figure 2).

At the same time, airlines worldwide have constantly increased the stage length from 1.87 to 2.04 hours between 2002 and 2009.

2. Maintenance, Repair and Overhaul (MRO) Market

Worldwide MRO spending estimates for 2009 continued the Figure 3 upwards trend netting a 0.6 billion increase year on year to 45.7 billion dollars (Figure 3). The very small increase Estimated World MRO Spending $65.3 reflects the hardship year for airlines which may have de- $70 ferred maintenance and expedited the replacement of older $60 fleets in an effort to keep maintenance expenses to the $50.1 13.8 minimum. $45.1 $45.7 $50 $42.3 $38.8 $41.0 We would like to point out that certain elements are not $37.8 $36.1 $37.0 $38.3 10.1 $40 9.6 9.9 included in the above-mentioned forecast – such as over- 8.6 8.7 26.0 head, inventory/logistics-associated costs and depreciation. 11.5 10.0 $30 12.0 10.7 11.6 21.2 18.8 18.5 13.5 17.1 18.0 $20 10.4 10.5 10.1 10.7 13.2 9.8 $10 6.9 6.7 6.9 7.2 7.4 7.9 8.7 9.0 7.8 MRO Spending (Billion USD) (Billion Spending MRO 8.5 8.2 8.5 8.9 8.0 7.3 8.1 8.3 7.8 9.0 12.2 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2015 2020 Line Maintenance Components Engines HM & Mod

Source: Aviation Week / Overhaul & Maintenance, April 2010 Issue

3 Airline Maintenance Cost Executive Commentary - January 2011

2. Cost Analysis (FY2009) - 40 MCTF Airlines

In fiscal year 2009, 40 airlines par- Fleet Count by Manufacturer - 40 MCTF Airlines in 2009 ticipated to the Maintenance Cost ATR, 45AC, 1% FOKKER, 25AC, 1% Task Force (MCTF). The current section presents a relevant analy- EMBRAER, BOMBARDIER, 3AC, sis of the data provided by these 84AC, 3% 0% airlines. For details on MCTF see AIRBUS, 1,054AC, page 15. 32% Total fleet count for all the 40 airlines that participated this year to MCTF was 3,312 aircraft. Total flight hours and total flight cycles were 10.4 million and 4.5 million respectively. Av- erage age of the fleet was 10.7 years. Fleet distribution of the partici- BOEING/MD, pating airlines (Figure 4) shows 63% 2,100AC, 63% Boeing/MD and 32% Airbus while other manufacturers have low market Figure 4 Source: MCTF 2010 share (3% or less).

For wide body aircraft, cost per flight hour varied from $811 for the A330 fleet to $2,212 for the MD-11 fleet (excluding from this the A380, as it had just started flying). The MD-11 also tops the cost of older planes in terms of dollars per aircraft – $8.2 million (Figure 5).

Regarding narrow body aircraft, Figure 6 shows that airlines spent in average $2 million per aircraft or $600 per flight hour for both Airbus 320s and Boeing 737NGs. MCTF airlines indicated the MD-80 fleet as top maintenance cost performer in 2009, and the MD-90 as the fleet most expensive to maintain. The relatively low operational cost of the MD-80 fleet is attributed to its retirement. Most likely, the aircraft that is retired is just before a major heavy airframe check and both engines and other major components are at the end of their economic life. It is expected that in the upcoming years this trend will continue.

Wide Body Unit Cost - 40 MCTF Airlines in 2009 Narrow Body Unit Cost - 40 MCTF Airlines in 2009

2,500 2,000 MD-90 B747 Classic 2,000 A300 1,500 B737 Classic 1,500 B777 A340 A310 1,000 $/FH $/FH B747-400 B757 1,000 B767 B737 NG A330 500 A320 Family 500 MD-80

0 0 0123456 012345 $/AC Figure 5 - Source: MCTF 2010 Million Figure 6 - Source: MCTF 2010 $/AC Millions

4 Airline Maintenance Cost Executive Commentary - January 2011

2.1. Direct Maintenance Cost by Segment

In 2009, the proportion of engine maintenance to direct Maintenance Spend by Market Segments - maintenance cost was 43% for the 40 MCTF-participating 40 MCTF Airlines in 2009 airlines. Base and component maintenance accounted for the same share of the cost each, respectively 20% (Figure Line$ 17% 7). Engine$ 43% Line maintenance accounted for 17% of the DMC. As line maintenance is directly linked to the daily operations, it is not surprising that airlines keep tight control and outsource Base$ only about a fifth of it, most likely related to the work done 20% at outstations. As expected, wide body aircraft reported the highest average with $210/FH (Figure 8). Component$ Figure 7 - Source: MCTF 2010 20%

Line Maintenance by Cost Element - 40 MCTF airlines in 2009 250 210 200

137 150 126 117 Outsourced $/FH 100 Labor Material 50

0 WB RJ NB TP Aircraft Category Figure 8 - Source: MCTF 2010

2.2. Direct Maintenance Cost by Element

Average labor rate varied significantly, as the 40 MCTF participating airlines reported in 2009, with a median cost Maintenance Spend by Cost Elements - of in-house labor of 38 dollars/man-hour. This is a direct 40 MCTF Airlines in 2009 reflection of the various socio-economical contexts the Labor$ airlines are operating in, with the specifics of the geo- 21% graphical region where they are located. Significant differ- ences occur between rates in the developed vs. develop- ing world. Despite our MCTF efforts, understanding of the calculation of the labor rate is not always consistent.

With labor cost accounting for 21% of the direct maintenance cost, labor rate plays a significant role in the financial equation of airlines. Together with material, in-house Outsourced$ Material$ maintenance amounted for 42% of the maintenance 58% 21% spending in 2009 (Figure 9). Figure 9 - Source: MCTF 2010

Outside repairs may offer an alternative to mitigating potentially high in-house labor costs - and for the 40 MCTF airlines, 58% of the maintenance was in fact performed by third parties last year. As outsourcing is the largest portion of the direct maintenance cost, airlines need to focus on elements related to outsourcing contracts such as workscope definitions, financial terms, extent of the services offered and supplier management.

5 Airline Maintenance Cost Executive Commentary - January 2011

3. Cost Analysis (FY2006-2009) - 20 MCTF Airlines

Out of the 40 MCTF-participating airlines this year, we will focus in this section on the trend analysis of data furnished by the consistent participants. These are 20 world airlines which provided data over the past four fiscal years (2006-2009). We will refer to them as the “20 MCTF airlines”.

3.1. General Trends

Figure 10 - Source: MCTF 2010

FOR MORE INFORMATION ON MCTF

Visit our website: www.iata.org/mctf

6 Airline Maintenance Cost Executive Commentary - January 2011

For the 20 consistent participants, fleet count increased Aircraft Category Evolution - Number of Aircraft to 1,711 aircraft between 2006-9, with airlines introduc- ing 98 aircraft and retiring 72 aircraft. 20 MCR Airlines, Year on Year

Compared to 2008, the number of flight hours in 2009 decreased by 3% and number of flight cycles by 6%. WB The utilization went down to 8.8 hours/day. Neverthe- less, the utilization of both narrow body and wide body TP aircraft remains significantly higher than the world average of 7.91 hours/day. The stage length increased from RJ 2.36 to 2.46 hours. NB The average age of the fleet for the 20 consistent MCTF participants improved slightly in 2009, due to the NB RJ TP WB addition of the new aircraft, combined with the retire- 2009 893 36 26 756 ment of older planes (Figure 12). Airlines expanded 870 33 28 753 their fleet by adding 62 narrow body and 36 wide body 2008 aircraft. The demand for RJs and turboprops by the 20 Figure 11 - Source: MCTF 2010 consistent airlines seems small and constant.

Utilization of wide body aircraft went down 6% from 10.7 Average Fleet Utilization and Fleet Age - hours/day in 2008 to 10.1 hours/day in 2009, while the 20 MCTF Airlines utilization of narrow body, regional jets and turboprop 12.0 12.0 aircraft remained at similar levels, hovering around 7.8 11.5 hours/day. 11.0 11.0 The fleet mix reveals that narrow body aircraft account 10.5 for 52% of the fleet with wide body aircraft representing 10.0 10.0 44% of the fleet of the 20 consistent participants (Figure 9.5 Age (years)

11). The very low number of turboprop and regional jets Utilization (hours) 9.0 9.0 reflects the business model of these 20 airlines, as they 8.5 are focusing on mainline operations and allowing re- 8.0 8.0 gional subsidiaries to operate other routes (Figure 13). 2006 2007 2008 2009 Age Utilization

Figure 12 - Source: MCTF 2010

Figure 13 Source: MCTF 2010 Figure 14

7 Airline Maintenance Cost Executive Commentary - January 2011

3.2. Maintenance Costs Overview

The direct maintenance cost per aircraft decreased by 7%, from 3.63 million dollars in 2008 to 3.37 million dollars in 2009. At the same time, the cost per flight hour decreased by 4%, while the cost per flight cycle remained rather constant. Engine maintenance accounted for about 40% of direct maintenance costs (Figure 15).

For the 20 airlines constantly participating to MCTF, the direct maintenance spending was 6% lower in 2009 compared to the year before. Component maintenance spend remained virtually unchanged over the same period. The market segment for which airlines cut down the most was base maintenance (9%). The cost of base maintenance per flight hour decreased from an average of $213 in 2008 to $198 in 2009, as a result of the retiring of older aircraft therefore the elimination of the need for the heavy checks associated with the respective planes (Figure 16).

Maintenance Spend by Market Segment - Cost per Flight Hour by Cost Segments - 20 MCTF Airlines in 2009 20 MCTF Airlines 500 Line, $1.1 Bil, 444 450 422 19% Engine Engine, $2.3 Bil, 400 374 40% 350 350 Component Base Base, $1.1 Bil, 300 19% 235 250 226 230 $/FH 219 213 200 198 203 204 196 150 187 Component, $1.3 Bil, 22% 100 128 116 Line 50 Figure 15 - Source: MCTF 2010 0 2006 2007 2008 2009

Figure 16 - Source: MCTF 2010 Engine spend decreased by 7% year on year, while engine cost per flight hour went down 5%, from $444 in 2008 to $422 in 2009 (Figure 16).

As the outsourced maintenance remained at similar levels with the previous year and such long-term contracts cannot be renegoti- ated at short notice, most of this variation in the engine cost in 2009 may be explained by the reduced scope of maintenance, hence the need for less material.

Cost per Flight Hour by Cost Elements - 20 MCTF Airlines 700

600 564 572 520 490 500 Outsourced 400 Material $/FH 300 263 231 233 203 264 200 246 180 180 100 Labor

0 2006 2007 2008 2009

Figure 17 - Source: MCTF 2010 Figure 18 - Source: MCTF 2010

8 Airline Maintenance Cost Executive Commentary - January 2011

Figure 19 - Source: MCTF 2010 Figure 20 - Source: MCTF 2010

Figure 21 - Source: MCTF 2010 Figure 22 - Source: MCTF 2010

Line maintenance accounted for 19% of the direct mainte- Line Maintenance Spend by Element - nance spend by the 20-MCTF airlines (Figure 15). This rep- 20 MCTF Airlines resented a 6 percentage point increase from the amount 100% 18% spent by the same 20-MCTF airlines in 2006. At the same 26% 22% 26% time, the spending is consistent with the 17% spent by all 40 80% participating airlines. 60% 65% 56% 60% 59% Labor remains the largest portion of the line maintenance 40% cost, accounting for about 60% of the expenses associated with this cost element, the remaining being spent in purchas- 20% ing material (15%) or at servicing the aircraft by contract line 18% 18% 17% 15% 0% maintenance (Figure 23). 2006 2007 2008 2009

Line Material Line Labor Line Outsourced

Figure 23 - Source: MCTF 2010

9 Airline Maintenance Cost Executive Commentary - January 2011

Figure 24 - Source: MCTF 2010 Figure 25 - Source: MCTF 2010

3.3. Supply Chain

By supply chain we refer here to the maintenance services which are purchased (outsourced) plus the material purchased, thus the total of maintenance which airlines have no hands-on control over and for which they need to rely on third-party services. In general, there is no tendency by the 20 consistent participants to rely more on supply chain as it is commonly assumed. While the cost of outside repairs increased, percentage-wise the 20 MCTF airlines purchased slightly less in 2009 compared to 2006 (Figure 26).

Figure 26 - Source: MCTF 2010

Figure 27 - Source: MCTF 2010 Figure 28 - Source: MCTF 2010

10 Airline Maintenance Cost Executive Commentary - January 2011

The highest direct maintenance cost reported by the 20 consistent airlines over the past four years was recorded in 2008. In 2009, as utilization decreased and recession started showing its effects, airlines decreased their maintenance spend and deferred maintenance. Additionally, the introduction of new aircraft brought the maintenance honeymoon amongst other benefits, with the reduction of maintenance costs for older planes as a direct consequence. This also explains why the cost per aircraft decreased from 3.6 million in 2008 to 3.4 million in 2009. Conversely, the cost per flight hour and the cost per cycle increased only marginally year on year, as airlines recorded slightly less hours and cycles (Figure 10).

Overall, for the 20 consistent airlines, the average unit cost (per aircraft, per flight hour and per cycle) decreased marginally in 2009 compared to 2008.

This may be explained by the evolution of several factors:

Total direct maintenance spending: 6% decrease from 6.1Bn to 5.8Bn; Line spending: 7% decrease from $1.12Bn to $1.06Bn; Base spending: 9% decrease from $1.2Bn to $1.1Bn; Engine spending: 7% decrease from $2.47Bn to $2.3Bn ; Fleet renewal: 8% decrease of the fleet age from 12 years in 2008 to 11 years in 2009; Flight cycles: 6% less departures; Flight hours: 2% less hours flown; Utilization: 2% decrease from 9.11 to 8.82 hours year on year.

4. Maintenance Cost Analysis by Aircraft Category

4.1. MCTF Narrow Body Aircraft Fleet Mix (NB) ‐ 20 Consistent Participants 1,000 The 20 consistent participants continued to expand their narrow 870 893 900 body fleet, keeping the upward trend confirmed year-on-year, 770 770 44 42 800 120 45 45 132 and finished 2009 with a record 893 aircraft. Currently, narrow 700 MD‐90 131 133 130 body aircraft account for 55% of the their fleet. Boeing is the 600 142 MD‐80 Size market leader with a total of 635 aircraft, followed by Airbus with 124 125 500 247 B757 230

Fleet 400 258 aircraft. However, while keeping the leader position, Boeing 186 198 B737 NG has steadily lost ground to Airbus in the narrow body segment, 300 96 109 B737 Classic the latter increasing its market share by 7 percentage points, 200 118 90 258 A320 Family from 22% in 2006 to 29% in 2009 (Figure 29). 100 167 180 213 0 2006 2007 2008 2009

Figure 29 - Source: MCTF 2010

Figure 30 - Source: MCTF 2010

11 Airline Maintenance Cost Executive Commentary - January 2011

Maintenance cost trend analysis indicates that airlines spent less on base and engine maintenance in 2009. Together with the decrease in the number of flight hours, this resulted in a decrease of the maintenance cost per flight hour for these two market segments. At the same time, component and line maintenance cost per flight hour increased only marginally compared to 2008. (Figure 33-34)

Maintenance Cost by Market Segment Maintenance Cost by Cost Element (NB, 20 Consist. ALs, US$, FY2009) (NB, 20 Consist. ALs, US$, FY2009)

Total = $2.0 Billion Total = $2.0 Billion

$404 Mil, $515.4 Mil, 20% $753.2 Mil, Line$ 26% Labor$ 37% Base$ $1.1 Bil, Material$ $430.1 Mil, Component$ 52% Outsourced$ 21% Engine$ $454.5 Mil, $442.3 Mil, 22% 22%

Figure 31 - Source: MCTF 2010 Figure 32 - Source: MCTF 2010

Cost per FH By Market Segments - Narrow Body, 20 MCTF Airlines 350 302 293 300 252 250 229 Line$/FH 195 183 180 200 172 Base$/FH 166 167 $/FH 150 126 Component$/FH 106 155 157 100 Engine$/FH 93 50 88

0 2006 2007 2008 2009

Figure 33 - Source: MCTF 2010

Figure 34 - Source: MCTF 2010

Cost per Flight Hour By Cost Elements - Narrow Body, 20 MCTF Airlines 450 421 412 369 400 352 350 300 Labor$/FH 250 208 201 Material$/FH $/FH 200 158 135 Outsourced$/FH 150 189 177 100 119 125 50 0 2006 2007 2008 2009

Figure 35 - Source: MCTF 2010 Figure 36 - Source: MCTF 2010

12 Airline Maintenance Cost Executive Commentary - January 2011

4.2. MCTF Wide Body Aircraft

The number of older aircraft (A300, MD-11, A330-200) declined as airlines added newer aircraft of the same Fleet Mix (WB) ‐ 20 Consistent Participants family to their fleet. As mentioned above, the 20 consis- 800 755 753 740 710 MD‐11 tent MCTF airlines chose to increase the narrow body 23 23 21 700 27 128 138 B777 fleet. Especially for older aircraft, maintenance is mostly 102 154 600 outsourced, with only a small percentage of works per- B767 formed in-house. 500 229 B747 Classic 215 228 217 Size 400 B747‐400 The evolution of the maintenance cost for the A310 fleet 25 20 14 10 Fleet 300 A380 indicates that airlines are retiring this fleet (Figure 38). 173 167 169 163 The number of aircraft decreased constantly between 200 A340 32 34 34 322 2006 and 2009, with the number of flight hours and flight 100 72 80 94 96 A330 27 43 27 19 cycles following the same pattern. Over the same pe- 0 37 31 27 25 A310 riod, the cost per flight hour and the cost per flight cycle 2006 2007 2008 2009 A300 decreased by 40% and 39% respectively. Figure 37 - Source: MCTF 2010

Figure 38 - Source: MCTF 2010

Maintenance Cost by Market Segment Maintenance Cost by Cost Element (WB, 20 Consist. ALs, US$, FY2009) (WB, 20 Consist. ALs, US$, FY2009)

Total = $3.6 Billion Total = $3.6 Billion

$652 Mil, $810.3 Mil, 18% Line$ 23% $1.5 Bil, Labor$ 41% Base$ $639.8 Mil, $2.0 Bil, Material$ 18% Component$ 55% $797.6 Mil, Outsourced$ Engine$ 22% $811.9 Mil, 23%

Figure 39 - Source: MCTF 2010 Figure 40 - Source: MCTF 2010

13 Airline Maintenance Cost Executive Commentary - January 2011

Cost per FH by Market Segments - Wide Body, 20 MCTF Airlines 568 600 544 480 500 452

400 Line$/FH 311 287 297 Base$/FH 300 253 $/FH 239 225 249 Component$/FH 252 234 200 234 Engine$/FH

158 100 140

0 2006 2007 2008 2009

Figure 41 - Source: MCTF 2010 Figure 42 - Source: MCTF 2010

Cost per Flight Hour By Cost Elements - Wide Body, 20 MCTF Airlines

800 725 689 700 650 606 600

500 Labor$/FH

400 333 Material$/FH $/FH 294 297 259 300 Outsourced$/FH 316 292 200 232 229 100

0 2006 2007 2008 2009

Figure 43 - Source: MCTF 2010 Figure 44 - Source: MCTF 2010

5. Conclusion

By renewing the fleet and deferring maintenance, airlines have tried to mitigate the downside effect generated by the world economic crisis. While airlines were cutting on capacity, they were also taking this opportunity to increase their fares, to help recover quicker from the global financial crash.

The 40 MCTF participating airlines posted a mixed cost picture, with an average labor rate of 42 dollars (not including overhead). The total spending by these airlines was in excess of 12 billion dollars, which represents about 30% of the estimated world MRO in 2009. Overhead spending amounted to about 3 billion dollars, while the direct maintenance spending (line, base, component and engine) represented 76% of the total maintenance cost. Their average direct maintenance cost per flight hour was 893 dollars, and the average direct maintenance cost per cycle was 2,091 dollars.

The 20 consistent MCTF airlines reported less cycles (-6%) and less flight hours flown (-2%) as well as a lower average fleet utilization (down 2%, from 9.11 hours/day in 2008 to 8.82 hours/day in 2009), while increasing the stage length by 4% to 2.46 hours.

For the 20 MCTF airlines, the fleet count increased as these airlines added 98 aircraft (mostly narrow body and regional jets) while retiring 72 older aircraft. The total direct maintenance spending decreased from 6.1Bn to 5.8Bn. Except for component spending, airlines lowered their spending for all other cost segments. Thus, line maintenance spend decreased by 7%, base by 9% and engine by 7%.

Airlines seem to have focused in 2009 on retiring older fleets, reducing workscope or deferring maintenance, and on increasing time on wing for engines. Whether they succeeded in finding a right balance to maximize their assets, or simply pushed back (and piled up) maintenance expenses and events which will translate in the coming years in red figures on the passive of their balance sheet, remains to be seen. 14 Airline Maintenance Cost Executive Commentary - January 2011

IATA’s Maintenance Cost Task Force (MCTF)

WHY PARTICIPATE IN MCTF?

MCTF is the industry focal point on commercial airline maintenance costs, including MRO (Maintenance, Repair and Overhaul) cost strategies.

By joining MCTF, airlines benefit from access to unique tools which permit benchmarking against industry performance covering 48 aircraft versions / 24 aircraft families, and providing for 36 airframe/ engine combinations.

Participation to MCTF is free of charge and open to any interested airline.

COST VS. BENEFITS

The data required for participation to MCTF is already available at the maintenance and finance departments respectively. Once the relevant information identified, airlines are required to populate an input toolset with them.

The input toolset is a user-friendly Excel form, designed by Airbus. The output software designed by Boeing allows for customized analysis based on the specificities of each airline. Airline fleet performance can be benchmarked based on cost per flight hour, cost per aircraft, and cost per cycle (departure).

TIMELINE FOR AIRLINE PARTICIPATION IN MCTF 2011 EDITION

DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Data Collection 31st July: Deadline for MCTF data collection

Your Input August – September: Data analysis

DEADLINE October – November: st July 31 ! ♦ Maintenance Cost Conference (MCC)

Data Analysis ♦ e-MCTF toolset MCC 2011 ♦ Airline Maintenance Cost Executive Commentary (AMCEC) MCR 2011 (2010 data) Maintenance Cost Conference 2011

Airline Maintenance Cost Executive Commentary CONTRIBUTORS

Chris MARKOU Geraldine CROS Assistant Director, Ops Cost Manager, IATA Operations IATA Operations [email protected] [email protected]

Adrian CIORANU Eunsuk YANG Consultant, IATA Consultant, IATA [email protected] [email protected]

15 Airline Maintenance Cost Executive Commentary - January 2011

IATA’s Airline Operational Cost Task Force (AOCTF)

Similar in concept to the MCTF, IATA developed the Airline Operational Cost Task Force (AOCTF), a group of airlines focusing on matters concerning airline operational expenditures and measures to optimize them.

OBJECTIVES AND ACTIVITIES

AOCTF’s main task is to undertake annual collections of detailed airline cost data for major operational cost areas (including flight operational, maintenance, ground operational and systemwide operations), broken down by aircraft type or by route area when applicable.

As the final delivery of AOCTF data collection, AOCTF member airlines receive an annual report, a key source of worldwide data, unavailable elsewhere, that can be used for benchmark purposes. This exclusive report includes:

♦ Overview of the participating airlines in terms of fleet size, fleet types and operational data

♦ High level analysis of financial performance Others Fuel ♦ Analysis of operational data and cost structures as well as 31% Pax Services 2% several key performance indicators (e.g. unit costs and 7% yields) Charges 7% ♦ Cost analysis per aircraft type

♦ Cost analysis per route area Distribution AOCTF also aims at defining and standardizing the reporting of 8% Cost of commercial airline maintenance costs. A/C Ownership Operations 10% 24% Maintenance 11% BENEFITS FOR MEMBERS 2008 - Distribution of Airline Operational Costs (Source: IATA SO&I/Economics)

Benchmark with own airline’s historical data and compare with their peers

Be updated with the industry trends in terms of cost performance, cost monitoring and cost management

Get the opportunity to network with airline industry professionals involved in finance and cost management, and exchange experience and best practices

PARTICIPATION

Membership to the AOCTF and its Steering Committee is open to all airlines (including cargo, charter and low cost carriers) and IATA’s Strate- gic Partners

Nomination form for AOCTF’s Steering Committee is available online at www.iata.org/aoctf

Visit AOCTF website (www.iata.org/aoctf)

Contact AOCTF at [email protected]