Colloquium on Environmental Aspects of Aviation

1. Colloquium onEnvironmental Aspects of Aviation Montreal 9 - 11 April 2001 Presented by Dr. Upali Wickrama Rapporteur FESG

2. Economic Analysis of Noise Policy Options

3. Description of Noise Policy Options

4. Topics • FESG Traffic and Fleet Forecast • Review of Current Fleet • Effect of Noise Stringency Levels on In-Service Fleet • Economic Assessment Approach • Objectives • Key Assumptions • Re-certification methodology • Cost Impact • Cost / Benefit Analysis • Cost / Benefit Ratios

5. ICAO FESGPassenger Fleet Forecast A consensus product

6. Key Forecast Assumptions • General assumptions • Two separate forecasts • one for passenger traffic • one specific for freight activity • General assumptions • Generic aircraft with seat categories • 50-99, 100-150, 151-210, 211-300, 301-400, 401-500, 501-600, 601-650 • General assumptions • Two separate forecasts • one for passenger traffic • one specific for freight activity • Base Year 1998 - Horizon 2020 • Forecast for intermediate years provided • 24 route groups for the forecast • 18 international routes • 6 domestic routes • routes to and from the Former Soviet Union are excluded • Generic aircraft with seat categories • 50-99, 100-150, 151-210, 211-300, 301-400, 401-500, 501-600, 601-650 • General assumptions • Base Year 1998 - Horizon 2020 • Forecast for intermediate years provided • 24 route groups for the forecast • 18 international routes • 6 domestic routes • routes to and from the Former Soviet Union are excluded

7. Retirement Forecast Methodology • Passenger Aircraft • Retirement profile (survivor curve) agreed by FESG • Freighter Aircraft • 35 years for general freight • 45 years for express freight

8. FESG Passenger Aircraft Retirement “Survivor” Curve

9. Retained 1998 In-Service Passenger Fleet 5732 Aircraft Retired from Passenger Service

10. Nearly 14000 New Aircraft 18878 Number of aircraft Growth 15006 13836 10774 Replacement Retained in service

11. FESG Passenger Fleet Forecast Generic 1998 2020 50-99 998 1589 100-150 4899 6469 151-210 2483 5162 211-300 1451 2972 301-400 557 1101 401-500 378 754 501-600 8 360 601-650 0 471 Total 10774 18878 FESG Passenger Fleet Forecast • The world passenger fleet is expected to increase to almost 19000 aircraft by the year 2020 • 5732 aircraft from the 1998 in-service fleet will be removed from passenger service • A potential for nearly 14000 new aircraft

12. Global Freighter Fleet Forecast

13. Topics • FESG Traffic and Fleet Forecast • Review of Current Fleet • Effect of Noise Stringency Levels on In- Service Fleet • Economic Assessment Approach • Objectives • Key Assumptions • Re-certification methodology • Cost Impact • Cost / Benefit Analysis • Cost / Benefit Ratios

14. Passenger Aircraft Total Passenger Aircraft = 11680 Distribution of Base Year Fleetby ICAO Region of Domicile Freighter Aircraft Total Freighter Aircraft = 1539

15. 1999 Year-End In-Service Fleet

16. Aircraft In 1999 Year-End Fleet Passing Noise Stringency Options Percentage of total passenger aircraft passing noise stringency level 91% 78% 63% 47% 27% Passenger Fleet

17. Aircraft In 1999 Year-End Fleet Passing Noise Stringency Options Percentage of total freighter aircraft passing noise stringency level 86% 36% 31% 26% 14% Freighter Fleet

18. Topics • FESG Traffic and Fleet Forecast • Review of Current Fleet • Effect of Noise Stringency Levels on In- Service Fleet • Economic Assessment Approach • Objectives • Key Assumptions • Re-certification methodology • Cost Impact • Cost / Benefit Analysis • Cost / Benefit Ratios

19. Description of Noise Policy Options

20. Objectives • Develop model to estimate airline costs associated with noise policy options • NPVs estimated for each policy option • Incremental costs derived by comparing policy options to base case “No ICAO Action” scenario • Compare costs against benefits

21. Key Assumptions • Detailed Fleet Database for Base Year • Region, Weights, Noise Certification Data, Seats for each aircraft • Fleet Forecast (route groups and generic seat categories) • Retirement Forecast • Aircraft Operating Costs • New Aircraft Prices based on list price range provided by Airbus and Boeing

22. Key Assumptions (cont.) • Used aircraft prices obtained from published market sources • Discount rates: 7% and 13% (before tax, constant dollars) • Technology Costs for New Compliant Aircraft • Recertification • Screening Analysis to determine types, quantities, and costs

23. Key Assumptions (cont.) • Phase out regions: U.S., Canada, ECAC (as of December 1998), Japan, Australia and New Zealand • Flights between exempt and non-exempt countries must use compliant aircraft • Market driven non-production assumption

24. Key Assumptions (cont.) • Phase Out Period • Non-compliant aircraft are removed on a linear basis • Aircraft retired progressively over the phase out period with oldest aircraft retired first • All non-compliant aircraft are removed by the end of the phase out regardless of age • Sensitivity tests for guaranteed minimum economic life assumptions

25. Key Assumptions (cont.) • Aircraft transfer / redeployment based upon airline’s historical acquisition behavior (new vs. used) as demonstrated in BACK / Lundkvist database • Resale values: Non compliant aircraft lose 50 per cent of their market value at phase out • Non compliant fleet made available to exempt region

26. Re-certification - Screening Analysis • Remove aircraft naturally retired before the start of the phase-out period • Remove aircraft that comply with the proposed noise level • Remove non-compliant aircraft in the internal fleets of exempt countries (aircraft used on routes between points in exempt countries)

27. Re-certification - Screening Analysis (cont.) • Remove non-compliant aircraft that have less than the required minimum remaining life before natural retirement • 5 years for passenger aircraft with a minimum cost for re-certification • 10 years for passenger aircraft with higher re-certification costs • 15 years for all freighter aircraft

28. Re-certification - Screening Analysis (cont.) • Remove non-compliant aircraft that do not contribute to a minimum pool of 100 engines • set as a minimum for a viable engine modification program • Remove non-compliant aircraft that show a re-certification DOC penalty (from ANDES) greater than 3 per cent

29. Option 4.1 32 5.1 26 5.2 26 5.3 37 6.1 32 % of eligible non-compliant aircraft (Non-Exempt) Eligible Re-certification Aircraft Number of aircraft

30. Topics • FESG Traffic and Fleet Forecast • Review of Current Fleet • Effect of Noise Stringency Levels on In- Service Fleet • Economic Assessment Approach • Objectives • Key Assumptions • Re-certification methodology • Cost Impact • Cost / Benefit Analysis • Cost / Benefit Ratios

31. Cost Impact To The World AirlinesNPV at 13 per cent Option 2.1 Option 2.2 Option 2.3 -8dB Cert. 2002 -11dB Cert. 2002 -14dB Cert. 2002

32. Proceeds from Sale of Old Aircraft + Operating Cost Savings Timeline (Years) Cash Flow Natural Retirement / Investment Case New Aircraft Purchase - Proceeds from Sale of Old Aircraft + Operating Cost Savings Cash Flow Timeline (Years) Investment Case Under Phase Out Policy New Aircraft Purchase - Cash Flow Model

33. Aircraft Retired Early Due to Phase-Out With Re-certification Option 6.1 Option 4.1 Option 5.3 Option 5.2 Option 5.1

34. Cost Impact To The World AirlinesNPV at 13 per cent, Re-certification Cost ($ Billions) Benefit ($ Billions) Option 5.2 Option 5.3 Option 6.1 Option 5.1 Option 4.1

35. Cost of TransitionNon-exempt fleet - Discount rate 13 per cent

36. Global Cost ImpactPassenger / Freighter NPV at 13 per cent, Recertification Option 6.1 Option 5.2 Option 5.1 Option 4.1 Option 5.3

37. Cost Impact - Non-Exempt Region NPV at 13 per cent Option 2.3 Option 2.2 Option 2.1 -8dB Cert. 2002 -14dB Cert. 2002 -11dB Cert. 2002

38. Cost Impact - Non-Exempt Region NPV at 13 per cent, Re-certification Option 6.1 Option 4.1 Option 5.3 Option 5.2 Option 5.1

39. Sensitivity Tests • States implementing phase out • Fleet protection • Guaranteed aircraft life • Age / Cycles

40. Sensitivity Tests Option 5.1 - Discount rate 13 %

41. Sensitivity Tests: Fleet Protection Option 5.1 - Discount rate 13 % - Non exempt Cost in billion 1999 US $

42. Topics • FESG Traffic and Fleet Forecast • Review of Current Fleet • Effect of Noise Stringency Levels on In- Service Fleet • Economic Assessment Approach • Objectives • Key Assumptions • Re-certification methodology • Cost Impact • Cost / Benefit Analysis • Cost / Benefit Ratios

43. Cost / Benefit Comparison Total Non-Exempt Discount rate 13 per cent Benefits in Person-Years 65 DNL Contour Cost per Person-Year (Thousands of 1998 U.S. Dollars) Recertification

44. Cost / Benefit Comparison Total Non-Exempt Discount rate 13 per cent Benefits in Person 65 DNL Contour Cost per Person (Thousands of 1998 U.S. Dollars) Recertification

45. Cost / Benefit Comparison Total Non-Exempt Discount rate 13 per cent Benefits in Person-Years 65 DNL Contour Cost per Person (Thousands of 1998 U.S. Dollars)

46. The Four Quadrants Quadrant 4 Negative Benefits Positive Costs Quadrant 1 Positive Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs

47. The Four Quadrants Quadrant 1 Positive Benefits Positive Costs Quadrant 4 Negative Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs

48. Noise Stringency Cost-BenefitNon-Exempt Region Total Recertification with no design margin 13% DNL65

49. The Four Quadrants Quadrant 4 Negative Benefits Positive Costs Quadrant 1 Positive Benefits Positive Costs Quadrant 2 Positive Benefits Negative Costs Quadrant 3 Negative Benefits Negative Costs

50. The Four Quadrants Quadrant 4 Negative Benefits Positive Costs Quadrant 1 Positive Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs