The BIG DEBATE: PMA & DER and OEM & Lessor What is RISK? 1. - PowerPoint PPT Presentation

Jim O’Sullivan josullivan@heico.com The BIG DEBATE: PMA & DER and OEM & Lessor

What is RISK…? 1. A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. 2. Finance: The probability that an actual return on an investment will be lower than the expected return. Financial risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk, Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and Underwriting risk. Source: BusinessDictionary.com 2

Balancing Risk with.. VALUE? 1. Accounting: The monetary worth of an asset, business entity, good sold, service rendered, or liability or obligation acquired. 2. Economics: The worth of all the benefits and rights arising from ownership. Two types of economic value are (1) the utility of a good or service, and (2) power of a good or service to command other goods, services, or money, in voluntary exchange. 3. Marketing: The extent to which a good or service is perceived by its customer to meet his or her needs or wants, measured by customer's willingness to pay for it. It commonly depends more on the customer's perception of the worth of the product than on its intrinsic value. Source: BusinessDictionary.com 3

Regulatory and Technical Support Korea / FAA China / FAA Hong Kong / FAA FAA SAIB NE-08-40 Argentina/ FAA Brazil/ FAA Israel/ FAA EASA Decision EASA/FAA TIPS ED/2007/003/C 2011 BASA FAA RAF Study We are not aware of a country in the world that does not allow the import/operation of (and many more) a product that contains PMA parts.

The Risk (Cost) of Doing Nothing OEM Prices Double every 7 years “…the OEM’s increasingly tight grip on the Restrictive practices need to be redressed aftermarket means Delta’s spares costs double about every seven years . Without TechOps parting “Whether it is a reality or perception that we are out engines to bolster spares and coming up with moving to single engine supply, I think that is a other alternatives to OEM-supplied support, that development that we don’t like to see. We think that increase could be even steeper… competition with engine as well as airframe supplier is an important feature of the industry…” …“We’re pretty good at sourcing outside the OEMs… …“I think, as an industry, we need to start taking …“ and we’re always working to develop those action, or our maintenance costs will defiantly rise. alternatives .” If we don’t challenge the restrictive practices Richard Anderson, CEO Delta Air Lines that exist, we will be held captive and costs, as Keynote MRO Americas we have seen before, will rise and will rise well April 2013 in excess of anything that is justifiable. So we have to start redressing this situation…” Willie Walsh, CEO IAG IATA AGM - Miami June 7 th 2015

OEM Influence on Choice, Cost and Value

PMA and DER Parts are found everywhere Wing >90% are non Engine Cockpit/Avionics • Flight Controls • INUs, IRUs • Actuation Systems • Display Units • Guides Components • DGAs • Electro-Mechanical • Instruments • Hydraulic Pumps • Autopilots • ACMs, CSD/IDG • Radomes • Batteries • Nose Cowls • APUs • Battery Packs • Cockpit Paper Landing Gear Fuselage/Interiors • Wheels and Brakes • In Flight Entertainment • Landing Gear • Lavatories • Seat Parts Engines Engines Engines • Tray Tables • CFM56 • Combustion Chambers • Fuel Pumps • Galleys • CF6 • Blades & Vanes • Nozzles • Overhead Bins • CF34 • Fan Exit Guide Vanes • Gears • PW2000 • Shrouds (single crystal & equiax) • Shafts • PW4000 • Thrust Reversers • Bearings 90% of Engine PMA • V2500 • Acoustic Panels • Starters Are non Gaspath • JT8D • Pneumatic/Bleed/Anti Ice Valves • Rings • JT9D • Heat Shields • Spacers • LM2500/500/600 • Insulation Blankets • Expendables 7

Alternate Material Options Increase as Aircraft Mature Source: ICF 8

Alternate Material Options are the only counter to OEM Dominance “OEM” % MRO has grown from 13% to 46% in 15 years OEM Parts PMA Parts & DER Repairs Options to use PMA / DER (DOA) Repairs keep independent MROs competitive. Without options there is no limit to OEM price. 11