1. IRRB Rail Research Cooperative Effort By: Robert C. VanderClute Senior VP Safety and Operations December 5, 2006

2. Who is the AAR?  Serves its members including operations, maintenance, safety, security, research, economics, finance, data systems and public affairs  Has 2 for-profit subsidiaries and 1 affiliated organization  Transportation Technology Center, Inc.  Research and Development  Railinc Corporation  Data Systems  Railroad Research Foundation  Secures grants from Federal Agencies (FRA and DHA) for the betterment of the rail industry and its employees

3. Our Full Members

4. Safety & Operations Management Committee Network Efficiency Management Committee Policy & Advocacy Management Committee AAR Board Chief Operations Officers Chief Marketing OfficersChief Policy & Legal Officers Chief Executive Officers

5. Research Studies  Level 1-  Action  Simple exchange of information regarding rail research projects being performed.  Results  Minimal benefit except to alert other interested parties of what your colleagues are doing in the way of railway research, opens the door to interested colleagues to obtain more in depth knowledge of the issues.  Benefits  Minimal costs to the IRRB participants, can be presented at regular IRRB meetings.

6. Research Studies  Level 2 –  Action  An in depth discussion of specific research projects; white papers exchanged and presented on a common issue. Detailed discussions regarding the specific research issue are discussed, issues examined.  Results  More information on specific research issues exchanged between interested parties. Possible downside, duplicates other research forums such as the Heavy Haul and World Congress on Railway Research.

7. Research Studies  Level 3 –  Action  Specific research performed at the request of a client could entail several research organizations working together on a common issue. Results, benefits and costs are shared among the participants.  Results  Costs as well as benefits to the contributors are received. Need for research money, program administration and mechanisms to monitor and direct the program are required.

8. Railway Research Spending (annual estimate in US dollars)  Korea  (Korean Railway Research Institute)$ 63 million  Japan  (Railway Technical Research Institute)$135 million  USA  (TTCI) $ 13 million  EU  EU$ 50 million  Germany (DBAG)$ 35 million  UK (all sources)$ 66 million

9. What is needed for a successful research program ? Common Objective  Objective must be clearly defined by sponsors prior to project commitment  Each sponsor should have quantified costs & associated benefits for their organization  Participants nominated by sponsors must be managed by the sponsors to remain focused  (No alternative agendas)

10. What is needed for a successful research program ? Managed Competitive Environment  Objective definition & deliverables must account for conflicts arising from the competitive environment of:  Product Development / Marketing  Consultancy

11. What is needed for a successful research program ? Commitment  All participants should show commitment through either providing:  Funding  Expertise on a quantifiable basis  (Contractible Deliverables)

12. What is needed for a successful research program ? Funding  Transparent  Defined  Contractually committed to the project  Managed by Committee Chairman and project manager

13. What is needed for a successful research program ? Defined Deliverables and Migration Path  Project plans prior to start of project  Multi year timelines  Realistic milestones, tasks and deliverables  Commitments for facilities & resources  Effective conduct of research is not enough  Results of research need to be implemented to generate benefits for the members  Implementation requires involvement of other parties in the process as soon as possible – industry (suppliers)  Identify potential barriers to implementation through the innovation process

14. What is needed for a successful research program ? Project Structure  Steering Committee (SC) with membership at appropriate level to:  Ensure commitment from participating organizations and:  Ensure attention to project progress  Project leader reporting to SC with:  Defined Budget  Authority to commit funds to secure adequate resources  Stable & capable project membership

15. A successful research initiative AAR- Strategic Research Initiatives (SRI)  Recommendations are based on the following:  The SRI program is developed by a series of AAR committees addressing high priority industry risks, needs and opportunities  Committee involvement has ensured that the program is tightly focused on:  Vehicles, track and their interaction, and, on issues that are not adequately addresses by other railroads R&D  SRI priorities and committee recommendations are supported by extensive cost-benefit analyses.  Analyses suggest very high returns from SRI projects  Returns are supported by post-audits of completed projects

17. Strategic Research Initiatives  SOMC/RTWC governance ensures full accountability and responsibility with TTCI, RTWC and SOMC.  The issues addressed by the program are crucial to the industry’s future.  Safety, efficiency and reliability, and promise of significant returns.

18. AAR Strategic Research - Safety Cause Damage Costs (Numbers) SRI Project RTWC Rating Rail, joint bar and anchors $70 Million (318)  Improved Rail Performance  Improved Rail Flaw Inspection  Effects of HAL on Rail Joints  Improved Rail Welding  Advanced Rail Steels  Improved Performance Special Trackwork Designs and Maintenance  Rail Stress Management  Improved wheel/rail design and maintenance  Friction control A- A B+ A A- B+

19. AAR Strategic Research Program - Efficiency Spending Category Expenses Percent SRI Project RTWC Rating Wheels and Brakes 44% ($1.5 Billion) 27% ($0.94 Billion)  Strategies to prevent wheel Failures  Cracked Wheel Detection  Wayside detection – Brake condition monitoring  Technology Driven Train Inspection  Improved Brake Performance  ECP Brake A A- A A-

20. AAR Strategic Research Program - Reliability Spending Category Costs ($ Billion) SRI Project RTWC Rating Equipment- Caused Train Delays TBD  Technology Driven Train Inspection  Strategies to prevent wheel Failures  Cracked Wheel and Axle Detection  Brake condition monitoring  Improved Brake Performance  ECP Brakes  Roller Bearings  Improved Detector Reliability  Improved Car Inspection and Performance A A- A A-

21. Cumulative ROI for Proposed 2007 Strategic Research Initiative Program $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $0.0$0.7$1.5$6.4$7.2$8.2$9.2$9.9 $10.6$11.1$11.6$12.1$12.4$12.8$13.6$14.0$14.4$14.8$15.1$15.5$15.8$16.3$16.6 Cumulative Funding $000,000 5 Year NPV 15 Year NPV $12.8M Cumulative NPV $000,000

22. Lessons Learned UIC/WEC Joint Research Projects  UIC/WEC developed a number of high value projects of common interest  Intended to leverage worldwide pool of experience and expertise  International committee established and guided by UIC  UIC/WEC selected three projects  Rail Defect Management (Began in 1997 and completed in 2001)  Wheel/Rail Interaction (completed in 2005)  Wayside detection – never materialized

23. Lessons Learned UIC/WEC Joint Research Projects  Committee chaired by TTCI and project work managed by consultants  Program experienced difficulties and delays  Project deliverables were delayed  Lack of commitment from members to attend meetings or contribute towards timely completion of deliverables  Members/attendees lacked quantifiable expertise

24. Lessons Learned UIC/WEC Joint Research Projects  Steering group/committee never formed nor met to guide technical work nor reviewed status  Lack of accountability  Funding and budgets were unavailable to Committee Chairman/Project Leader  Work completed by extra efforts by a few members  End products and benefits intangible  Mostly reports and best practices guidelines  Implementation of results unknown

25. Where does the IRRB go from here ?