Professional Statement: Airbus A340-500/600 Product Life Cycle and Nacelle Components Final Report

3. 
   Future Spares. The future new spares market for Trent 500 nacelles is therefore extremely limited. We expect the fleet of less than 130 operational aircraft to decline post 2010 as more efficient and environmentally acceptable long-range twins including B777LR, B787, and A350XWB replace them in front line service, and some carriers park the aircraft due to their relatively high costs and the extended worldwide airline traffic downturn. As these aircraft are replaced, they will be “parked” and as a significant percentage of the A340-500/600 fleet could be parked or generating very low annual utilization by the year 2010. As we mentioned earlier, Thai, Qatar and ILFC/Cathay could sell or park 7 Dash 500s and 5 Dash 600s. The former represents 20% of the Dash 500 fleet. Early serial numbers will likely be permanently retired under 20 years of life; and parted out. This will also depress new spares and repairs demand as engines and nacelles will be among the first items to be acquired and put back into the world operating inventory.
   

4. 
   Historical Comparables. Finally, there are two major historical parallels to the spares future ahead of Trent 500 suppliers; the P&W JT8D Standard and JT9D. JT8D STD new spares sales peaked in the very early 1990s then plummeted to zero in 2000. JT9D spares sales peaked in 1997, then slumped dramatically as first generation 747-100/200/300s were parked and parted out. In short, the available inventory of usable engines ended the spares booms for each of those power plants. Additionally, a huge independent engine component repair industry developed that further eroded the demand for new engine spares from the OEM. The same will happen to the Trent 500 but on a much earlier schedule.
   

5. 
   MB Strategy Analysis of Nozzle/Plug Spares/Repairs. Based on this scenario, we believe that Trent 500 new spare/repair nacelle sales will be in the range of 100-130. This range at the low end of what we forecast more than a year ago (100-300). Our current forecast is based on far more detail. This range does not cover the 2007 Magellan forecast of 190. However, that forecast assumes production of a total of 721 which is equivalent to around 180 aircraft. Assuming we, Teal Group, and others are closer to total aircraft build reality, the total on wing number of nacelles is 540 or 135 aircraft shipsets. That number would result in far fewer forecast spare/repair sales than Magellan projects, around 25% less or around 130. Additionally, we expect third part repair parts activity in this sector, not withstanding the small fleet size. If the new component price is extraordinarily high as it might be in this unusual case as Magellan would attempt to recover its NRC, then a customer will be forced to develop a component repair and this would further depress spares sales of the Magellan component. Additionally, if Magellan is correct in forecasting 200 spare/repair nacelles by 2010, they would have to be ordering Beta21 from Timet. Finally, MB Strategy believes average fleet utilization will decline gradually to close to 4,000 hours as aircraft are sold into secondary markets and parked in substantial numbers. Therefore, we would have to reduce the forecast 130 spares/repairs by another 20% to 104. This projection assumes 40,000 hour nozzle/plug life even though MB Strategy believes the actual in service life will be higher due to typical cycle parameters and the difference between that cycle and the Magellan engineering analysis.
   

7. 
   Conclusion – The outlook for nacelle spares sales on Trent 500 is worse than that overall for the Trent 500 engine itself and the aircraft. RR can look forward to that steady stream of engine Long Term Maintenance Agreement revenues on the engine, and potentially the ability to leverage any Trent 500s that are removed from parted out A340-500/600s. Nacelle component suppliers will not have such flexibility as their products cannot be used on any other aircraft/engine combination. Finally, any aftermarket sales on the Trent 500 nacelle is more likely to accrue to companies and airlines that develop their own nacelle repairs in order to avoid the significant replacement cost for such a component ($700K per aircraft).
   

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