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

Economic Analysis of Noise Policy Options

Description of Noise Policy Options

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

ICAO FESG Passenger Fleet Forecast A consensus product

Key Forecast Assumptions General assumptions Two separate forecasts one for passenger traffic one specific for freight activity 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 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

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

FESG Passenger Aircraft Retirement “Survivor” Curve

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

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

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 8 360 601-650 471 Total 10774 18878 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

Global Freighter Fleet Forecast

Topics Review of Current Fleet 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

Distribution of Base Year Fleet by ICAO Region of Domicile Total Passenger Aircraft = 11680 Passenger Aircraft Freighter Aircraft Total Freighter Aircraft = 1539

1999 Year-End In-Service Fleet

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

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

Topics Economic Assessment Approach Objectives Key Assumptions 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

Description of Noise Policy Options

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

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

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

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

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

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

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)

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

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

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

Topics Cost Impact 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

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

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

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

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

Cost of Transition Non-exempt fleet - Discount rate 13 per cent

Global Cost Impact Passenger / Freighter NPV at 13 per cent, Recertification Option 4.1 Option 5.1 Option 5.2 Option 5.3 Option 6.1

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

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

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

Sensitivity Tests Option 5.1 - Discount rate 13 %

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

Topics Cost / Benefit Analysis Cost / Benefit Ratios 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

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

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

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)

The Four Quadrants Quadrant 4 Negative Benefits Positive Costs Positive Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs

Quadrant 1 The Four Quadrants Positive Benefits Positive Costs Negative Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs

Noise Stringency Cost-Benefit Non-Exempt Region Total Recertification with no design margin 13% DNL65

The Four Quadrants Quadrant 2 Positive Benefits Negative Costs Negative Benefits Positive Costs Quadrant 1 Positive Benefits Positive Costs Quadrant 2 Positive Benefits Negative Costs Quadrant 3 Negative Benefits Negative Costs

The Four Quadrants Quadrant 3 Negative Benefits Negative Costs Positive Costs Quadrant 1 Positive Benefits Positive Costs Quadrant 3 Negative Benefits Negative Costs Quadrant 2 Positive Benefits Negative Costs

Noise Stringency Cost-Benefit Total Exempt Region Total Recertification with no design margin 13% DNL65

The Four Quadrants Quadrant 4 Negative Benefits Positive Costs Positive Benefits Positive Costs Quadrant 2 Positive Benefits Negative Costs Quadrant 3 Negative Benefits Negative Costs

Noise Stringency Options Global Recertification with no design margin 13% DNL65

Thank you