Tokyo IUMI Conference Airbus A380 – How Efficient Insurance Risk

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Tokyo IUMI Conference Airbus A380 – How Efficient Insurance Risk Tokyo IUMI Conference Airbus A380 – How efficient insurance risk management can respond to this challenge - Ingo-R. Zimmermann - IUMI Conference 2006 © EADS N.V. all rights reserved. 1 M o v i e 2 M i n u t e s IUMI Conference 2006 © EADS N.V. all rights reserved. 2 EADS The step beyond European Aeronautic Defence and Space Company IUMI Conference 2006 © EADS N.V. all rights reserved. 3 Consolidation of Aerospace Industry in the USA De Havilland Boeing Rockwell A+D McDonnell Douglas Hughes Space GD-Aircraft Lockheed Martin Marietta Loral Ford Aerospace LTV Missiles IBM-Federal Sys. Unisys. 26 companies 4 Grumman Northrop LTV Aircraft Westinghouse Logicon Litton Industries Newport News Raytheon Beech Aircraft BAe Business Jets TI-Defense Hughes Aircraft 19921993 1994 1995 1996 1997 1998 1999 2000 2001 IUMI Conference 2006 © EADS N.V. all rights reserved. 4 Consolidation of Aerospace Industry in Europe Hadley Page Avro British British Aircraft Aerospace Corporation 35% Celsius Saab GEC GEC Marconi Alfa Romeo Avio Aeritalia Agusta Siai Marchetti Oto Breda Thomson CSF Racal 21 companies 4 Matra-HT Matra Aerospatiale Aerospatiale AS-Matra Dassault Aviation Dassault Av. Fokker Dornier VFW Dasa MBB MBB CASA CASA AISA 1980 1985 1990 1995 1997 1998 1999/2000 IUMI Conference 2006 © EADS N.V. all rights reserved. 5 Competitive Position Revenues 2005 in bn € Boeing 44.1 EADS No. 1 in Europe 34.2 No. 2 worldwide Lockheed Martin 29.9 Northrop Grumman 24.7 BAE Systems 22.5 Raytheon 17.6 General Dynamics 17.1 Thales 10.3 Finmeccanica* 9.8 L3 Communications 7.6 Saab 2.1 * A&D activities only. Eliminations not considered Based on 2005 average exchange rates: € /$ = 1.245; € /£ = 0.684; €/SEK=9.269 IUMI Conference 2006 © EADS N.V. all rights reserved. 6 Competitive Position Orderbook 2005 in bn € EADS* No.1 worldwide 253.2 Boeing* 164.7 BAE Systems 87.4 Lockheed Martin 60.1 Northrop Grumman 45.2 General Dynamics 34.1 Raytheon 27.6 Finmeccanica** 26.2 Thales 20.2 L3 Communications* Aerospace and defence activities 5.6 ** Commercial aviation based on catalogue prices for EADS, contractual prices for Boeing Saab 4.6 * Commercial aviation based on catalogue prices for EADS, contractual prices for Boeing Based on 2005 average exchange rates: For US players, the backlog presented above is the total backlog (Funded backlog for L3) € /$ = 1.245; € /£ = 0.684; € /SEK = 9.269 ** Aerospace and defence activities only / AgustaWestland 100% consolidated. Eliminations not considered IUMI Conference 2006 © EADS N.V. all rights reserved. 7 EADS Insurance Risk Management General 4 Risk Management is part of Shareholders Communication. It has to be compliant with respective legal requirements in place. 4 Risk is a basic part of corporate life that, while not avoidable, is nonetheless manageable. 4 Insurance techniques are key financial tools to protect the assets and liabilities of EADS. IUMI Conference 2006 © EADS N.V. all rights reserved. 8 EADS Insurance Risk Management Organisation 4 In order to know how to deal with insurance techniques it is essential that in-house competence is available. 4 Therefore, a lean organization with clear responsibilities and clear control of the insurance purchased by the group is implemented on HQ-level since 2000/2001 when EADS was founded IUMI Conference 2006 © EADS N.V. all rights reserved. 9 EADS Insurance Risk Management Tasks and responsibilities 4 EADS Insurance Risk Management (“IRM”), centralized at EADS headquarters, is responsible for all corporate insurance activities and related protection for the Group. 4 It includes identification, evaluation, prevention and protection of insurable risks. 4 Insurance techniques are used to protect the assets and liabilities of EADS against financial consequences due to unexpected events. 4 Harmonized insurance policies and standards are in place for all insurance risks underwritten by the Group. IUMI Conference 2006 © EADS N.V. all rights reserved. 10 EADS Insurance Risk Management Tasks and responsibilities (cont.) 4 EADS pursues an insurance risk management strategy that includes operating procedures as well as policies regarding procurement and sales agreements. 4 A systematic review and monitoring procedure of protection systems applicable to all EADS sites is in place, fostering comprehensive and timely identification of risks and related adjustments of insurance coverage. 4 EADS follows a policy of obtaining external insurance coverage for all main and individual risks that can be insured at reasonable rates, on sufficient terms and limits provided by the international insurance markets. IUMI Conference 2006 © EADS N.V. all rights reserved. 11 EADS Insurance Risk Management Tasks and responsibilities (cont.) 4 However, to be more independent from volatilities of the insurance markets, EADS uses the capabilities of a corporate-owned reinsurance captive. 4 The captive is sufficiently capitalized and protected so as to ensure its ability to reimburse claims without limiting the scope of coverage of the original insurance policies and not additionally exposing financial assets of EADS. IUMI Conference 2006 © EADS N.V. all rights reserved. 12 The EADS Insurance Risk Management (IRM) approach Headquarter IRM department reporting to CFO. EADS-Business Dedicated responsibility within Divisions and Corporate Risk Management and Internal Business Units Control (RiMaIC) process F Direct access Cross to Insurance S function G and Re- To the benefit of Insurance and markets services Teamwork In-house core with competence BD‘s/BU‘s adding value USA UK RoW IUMI Conference 2006 © EADS N.V. all rights reserved. 13 Workflow and Tools EADS-IRM EADS Reporting & Information Relationship Business Controlling Corporate Risk transfer Tools & Divisions Support/Solutions Function Solutions Benchmark Airbus Corporate Captive E Military A Transport D Financial S Markets Eurocopter I Insurance and Re- Insurance Markets Space R M Defence and Consultants Security Syst. Services Brokers IUMI Conference 2006 © EADS N.V. all rights reserved. 14 Milestones of the A380 project 4th Qtr IUMI Conference 2006 © EADS N.V. all rights reserved. 15 A380 Challenges for insurance risk management New dimensions … New production facilities … New transport concept … Length: 73 m FAL – Toulouse Sea: Germany, UK, Spain Wing span: 79,8 m Customisation, Forward – Hamburg River: UK, France Pax: 555 + Aft. Fuselage Road: France Wing – Broughton Air: Europe IUMI Conference 2006 © EADS N.V. all rights reserved. 16 The IRM-process – Key elements 4 Detailed and systematic risk assessment is mandatory for new exposures to achieve transparency of potential claims scenarios. 4 Accurate timing is key for success 4 Tasks of the IRM-process as an integrated element of the entire project – in all phases! Project phase IRM tasks Pre-industrial launch Î Core study Industrial launch Î Detailed definition and final evaluation of IRM solutions Start production Î Risk-avoidance, - mitigation, SIR and transfer solutions implemented. 4 Insurance markets always involved in time IUMI Conference 2006 © EADS N.V. all rights reserved. 17 Methodology and tasks of the IRM process Pre-industrial launch Identification Focusing on new, different, accumulated exposures and their triggers. Industrial launch Evaluation Likelihood and severity to be assessed; measures of risk avoidance and mitigation, definition of uninsurable risks Risk Until start production management Measures of risk avoidance and mitigation implemented (e.g.: “Insurance” supplier-, purchase agreements, buildings, work in process, transportation system) IUMI Conference 2006 © EADS N.V. all rights reserved. 18 Methodology and tasks of the IRM process (cont.) Until start production Retention Setting up thresholds to be retained Self insurance Î Deductibles Î Captive Tools: case studies, actuary analysis, cost benchmark models effectiveness of risk engineering implemented. Remaining insurable risks are transferred to insurance Risk transfer markets mainly within corporate insurance programmes adjusted respectively. IUMI Conference 2006 © EADS N.V. all rights reserved. 19 Broughton (wings) Combined A 380 PDBI exposure* € 700M Key sites assessed regarding interdependen- cies and PML’s EMC’s. Risk protection systems implemented (improved/new) Combined € 1bln Meaulte (Cockpit) Hamburg (body, equipment) Combined € 200M Toulouse Combined Laupheim Combined € 1 bln (final assembly) € 200M (cabin covering) *preliminary 2006 IUMI Conference 2006 © EADS N.V. all rights reserved. 20 Risk assessment and risk mitigation – Case study – Targets: A380 Transport system 4 Routes 4 Transportation System € 30 M - € 62 M 4 Protection SEA 4 Values 4 Interdependencies 4 Liabilities Max. € 15 M Mostyn RIVER Broughton Hamburg St Nazaire Pauillac Langon ROAD Toulouse Cadiz € 4 M - € 13 M min./max. each IUMI Conference 2006 © EADS N.V. all rights reserved. 21 A380 Transport system A380 Special Purpose RoRo ship Ro-Ro ship « Ville de Bordeaux » 4 Double hull, car – carrier type 4 Length 154 m, breadth 24 m, deadweight 2270 mt 4 Max speed 21 knots, cruise 16 knots 4 Cargo bay length 120 m, width 21 m, height 11 m Operated by controlled atmosphere, acceleration recording 4 Door 21 m, x 11,5 m, ramp 200 T, Ro-Ro lanes FRET CETAM 1800 m 4 Capacity = 6 Airbus components 4 Deck area 6700 sqm 4 2 sets of Diesel engines, 8400 kw each IUMI Conference 2006 © EADS N.V. all rights reserved. 22 A380 Transport system Central Section Unloading IUMI Conference 2006 © EADS N.V. all rights reserved. 23 A380 Transport system Cargo
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