Fleet Strategy
Investor Day 2007
Frankfurt, January 25th, 2007
Nico Buchholz
SVP Corporate Fleet
Deutsche Lufthansa AG
1
Overview
Strategy
2
Evaluation
Implementation
Conclusion
Lufthansa Corporate Fleet
Is responsible for Fleet Strategy, Development of Aircraft
together with the Manufacturer, as well as Aircraft Purchases
and Sales within the Lufthansa Group.
This includes
§ passenger aircraft from 30 seats to 500 seats
§ cargo aircraft
This includes the same activities for the engine market.
Additionally the Aircraft Asset Management is also performed
along with Aircraft Leasing Activities.
3
Each market needs a different approach
market driven
requirement
83
Longhaul
30
2006
550 Seater
A380
400 Seater
B747-8
200-300
Seater
53
possible
aircraft types
A350/B787
2010
298
Shorthaul
73
150-250 Seater
A320Fam/B737Fam
119
80-150 Seater
A320Fam/B737Fam
CRJ/C-Series/EMB/Sukhoi
106
50-70 Seater
CRJ/EMB/Sukhoi
2006
4
2010
Life Cycle: The Airline perspective
(> 30 years)
Aircraft Asset Management = Corporate fleet
Plan
Buy
Strategy/
Operational Rough
Early
Final
Detailed
Longterm
Planning specification negotiation specification negotiation
planning
Fly
Contract
Controlling
Aircraft
Aircraftevaluation
evaluationand
andmanufacturer
manufacturerdiscussions
discussions
Finance
Tax
Source: Corporate Fleet
5
Balance Sheet
Financing
Sell
Phase-out
&
remarketing
Life Cycle: The Manufacturer
Perspective
Action here has the most leverage on costs later on,
here, in the business envelope of LH.
Concept
Development
Program
Definition
Detailed
Design
Test &
Evaluation
80% of costs committed, <15% incurred
1. Engage the LC before acquisition / operations
Production
Ops &
Support
20% of costs committed, >75% incurred
Enhance Shareholder value
2. Acquisition
process
The majority of leverage into LH s business
case appears to be here.
This means being proactive as an Airline,
early in the LC.
Source: Corporate Fleet Strategy and Aircraft Evaluation
6
Disposal
5. Disposal
process
4. Feedback loop to transmit
& secure targets set
3. LH b.c
during
acquisition process
Ops process
The STRATEGY of today: focused on delivering the best
value proposition for LH and linked to the output of the
overall strategy process
Market driven corporate strategy
Maximize shareholder value (network,
KSF s (fleet), restrictions (risk + finance)
Max. Value = Fleet Strategy
Fleet Strategy
Opportunity, Risk, Scale, Buildup
Situation audit
Gap analysis level of fit (fleet)
Potential scenarios fleet development
Benchmark
Quantitative
Evaluation of scenarios
Qualitative
Source: Corporate Fleet Strategy and Aircraft Evaluation
7
Evaluation of Life Cycle Benefit
Ca
Delivery Date
sh
Op
LH Strategy
Technology
era
t
ing
Co
Price
st
-------
Aircraft Choice
8
De
e
c
i
Pr
are
p
S
vel
e
opm
nts
Definitions as used
Aircraft related
ba
u
ck
p
MTOW: max permissible weight of the aircraft at the start of the takeoff roll
MEW: weight of the structure, power plant, furnishings, systems and other equipment
that are considered an integral part of the aircraft
MZFW: maximum weight permitted before usable fuel is loaded into the airplane
OEW: manufacturer's empty weight plus the operator's items
COC:
all cost to operate an aircraft (fuel, crew, maintenance, landing and
air traffic control fees, except capital cost and insurance)
Range: range in still air, in nautical miles
SFC:
Specific Fuel Consumption = the fuel efficiency of an engine design. It measures the
fuel needed to provide a given thrust over a certain period of operation
(in kg fuel per lbs thrust)
Other expressions
Evaluation of an Aircraft:
considers technological impacts and COC over the operational life span
is not related to price at the initial phase
is not linked to strategy at the initial phase
Lufthansa life cycle:
From Entry Into Service (EIS) at LH until and including divestment from LH
Original Equipment Manufacturer (OEM) life cycle =
From conception of programme, through production phase, until fleet size has declined to a
minimum operational fleet
9
Passenger Airline:
Where we are, how we got there
1970
------ >>
And where to go
2006
>2014
A380
B747-8
16F/128C
200 300 seats
wide body
Intercont
115 Seats
Cont
94 Seats
70 Seats
Source: Corporate Fleet Strategy and Aircraft Evaluation
10
100 250 seats
short haul
Regional Aircraft
The last long-haul aircraft rollover can be measured.
It proved our assessment.
A340-300
TECHNOLOGY
DC-10
1989 Example: A340 vs. DC-10
2-Man vs. 3-Man Cockpit
- 8%
Fuel-Consumption-Reduction
- 25%
Maintenance
- 9%
Extended Range (A340 vs. DC-10)
Commonality to A320-Fleet
Less Noise
More Comfort
(unit cost reduction)
.
Source: Corporate Fleet Strategy and Aircraft Evaluation
11
Overview
Strategy
12
Evaluation
Implementation
Conclusion
The target
OEW
Range =
13
To manage cost is to understand the levers that impact
each cost element
typical cash operating cost (COC)
of long haul aircraft
100%
Cost elements have to be measured for
their competitive sustainability
Fuel
Total Maintenance Cost
Landing Fees
Handling Fees
Navigation Fees
Cockpit Crews
Cabin Crews
Source: Corporate Fleet Strategy and Aircraft Evaluation
14
Technology assessment leads to cash operating cost
sensitivities over our lifecycle
Progress is expected to focus on detail improvements of aerodynamics, engines,
production and systems
Structural/Material
Carbon fibre; Composites
New alloys; Glare
Laser beam welding
Maintenance cost
Aerodynamic/Flightmechanics
Larger laminar area
Adaptive wing
Riblets
Optimized stability
Reduction of noise
Cabin design
Lower deck seating
New Entertainment systems
New Catering Systemes
Engines
Pic-Source: NASA
Fuel burn reduction
Slow rotating fan
New compressor-/turbine profiles
New alloys
Variable pitch fan
Low emission combustor / double stage burner
Noise reduction
Source: Corporate Fleet Strategy and Aircraft Evaluation
15
Systems / ATC
New Cockpit-Architecture
Fly by light
Integrated networks & ground data
exchange/link
More electric / less hydraulic
New APU technology / fuel cell
Free flight concept
Impact of Fuel price
Source:
TECSON
Source:
TECSON
Source:
TECSON
Source:
TECSON
16
Current programs show a significant improvement in specific
fuel consumption (sfc)
1980s
1990s
2000
Delta sfc (%)
Datum =>
~ 15 %
improvement
Source: Corporate Fleet Strategy and Aircraft Evaluation
17
>2007
Aircraft Maintenance
*) slices not corresponding to absolut levels
Source: Corporate Fleet
18
Engine:
i.e. materials, repair procedures,
design of engines, less parts
reduce cost
Components:
i.e. landing gear and brakes, new
materials, multiple source and the
braking procedures reduce cost
Airframe:
self diagnostic maintenance and
optimised design reduce cost
(i.e. simplified flap system,
electrically instead of hydraulically
activated)
Dealing with the manufacturers
multiple supplier strategy for key elements
AIRBUS
19
GE
PW
RR
Bombardier
Embraer
Sukhoi
Fees
for
Navigation
Input
MTOW
Landing
Handling
MTOW
Payload + Space
As payload is the only driver yielding revenues,
thus weights are critical in any evaluation.
20
The operating cost chart enables us to easily position
comparable aircraft
15%
relative unit cost
per seat
10%
Type X shortened
5%
0%
-5%
-10%
-10%
Decrease
aircraft
size
Type X
Increase
aircraft
size
New
Technology
-5%
0%
Source: Corporate Fleet Strategy and Aircraft Evaluation
21
unattractive
area
Type X stretched
5%
10%
15%
20%
relative cost per trip
Overview
Strategy
22
Evaluation
Implementation
Conclusion
Putting strategy and evaluation into practice
Decisions on fleet go
beyond economics
23
The B747-8 will be helping to optimize the capacity
staggering of the Lufthansa long-range fleet, while also
offering an attractive cost position
Long haul
550
450
A380-800
549
+ 34%
approx.
410
B747-8
B747-400
344
350
+ 34%
306
A340-600
250
221
Source: Corporate Fleet Strategy and Aircraft Evaluation
24
A340-300
+ 38%
Quiet for Communities
Frankfurt/Main Airport, Germany
RWY 25R
85 dBA NADP 1 (ICAO-A) Takeoff noise contours
6000nmi Mission
Hattersheim
Kelsterbach
747-8
B747-8
Raunheim
and reducing
emissions
747-400
B747-400
Walldorf
Source: Boeing
FRA-11152006001
COPYRIGHT © 2006 THE BOEING COMPANY
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Competitive Positioning
§
Own assets
§
§
§
§
Modern fuel efficient fleet to hedge against fuel price fluctuations
§
§
§
no cash out for leases and no worry on redelivery cost
flexible dispositon and planning for replacement, growth and reduction
well balanced mix between depreciated and new assets
advantage over i.e. 767 fleets by using the A330
747-8 entry into service in 2010 offers a position close to the larger aircraft
Early delivery dates
§
§
first on 747-8
unique fast delivery slot management within the September 2006 order: A320s end of 2007,
A330s early 2008
§
Capacity management harmonized through central unit allows less expenditure for
requirements across the group Lufthansa, Germanwings, Swiss, use the same
aircraft pool
§
Aircraft sizes suited to allow operations on frequency driven routes and size driven
routes
26
To close: the constant challenge
Planning of invest and capacities requires a long term fleet strategy and a broad horizon.
Fleet decisions on types have to satisfy multiple criteria such as taking into account
Homogeneous fleet
Economies of Scale
Fleet commonality
Innovative aircraft
conflicting interests
versus
Operational flexibility
versus
Product differentiation
versus
Risk mitigation/-spread
versus
Low capital expenditure
The target of Fleet Development:
Determine a low complexity fleet, market driven
multiple aircraft sizes offering high flexibility in
operation and performance while being state of
the (technical) art and sustainable highly economical.
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Q&A
Nico Buchholz
SVP Corporate Fleet
Deutsche Lufthansa AG
28
Disclaimer
This presentation is for informational purposes only, contains preliminary financial
and other information about Lufthansa and is subject to updating, revision,
amendment and completion. This presentation does not and is not intended to
constitute or contain any offer of securities for sale or a solicitation of an offer to
purchase any securities of Deutsche Lufthansa AG or any other company and
neither this presentation nor anything contained herein shall form the basis of any
contract or commitment.
Certain statements contained in this presentation may be statements of future
expectations and other forward-looking statements or trend information that are
based on management's current views and assumptions and involve known and
unknown risks and uncertainties. In addition to statements which are forwardlooking by reason of context, including without limitation, statements referring to risk
limitations, operational profitability, financial strength, performance targets, profitable
growth opportunities, and risk adequate pricing, as well as the words "may, will,
should, expects, plans, intends, anticipates, believes, estimates, predicts, or
continue", "potential, future, or further", and similar expressions identify forwardlooking statements. Actual results, performance or events may differ materially from
those in such statements. Lufthansa assumes no obligation to update any such
statements or any other information contained herein.
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