Download - Aviation MRO IT: Emergence of SaaS and Convergence of BPO

Copyright © 2005-2008 Blue Water Solutions, Inc. (BWSI). Confidential Proprietary Trade Secrets & Know How

Blue Water SolutionsBlue Water Solutions

Aviation, Aerospace & DefenseAviation, Aerospace & Defense

Copyright © 2005-2008 Blue Water Solutions, Inc. (BWSI). Confidential Proprietary Trade Secrets & Know How

CONFIDENTIALCONFIDENTIAL

Presented to: SVP Operations, XX Airlines

MRO Technologies & Services MRO Technologies & Services

Point of ViewPoint of View

Presented by: Michael Wm. Denis, Senior Associate, Blue Water Solutions, Inc.

8 September, 2008

2

Blue Water SolutionsBlue Water SolutionsCONFIDENTIAL

Aviation MRO: NonAviation MRO: Non--Defense Industry Size and Growth ~ 4.0% CAGR to $62BDefense Industry Size and Growth ~ 4.0% CAGR to $62B

14

11

7

9

14.1

11.5

7.4

9.2

12

10.4

6.9

8.5

9.8

11.1

7.1

8.1

11.0

11.1

6.9

8.4

11.0

13.0

7.4

8.5

9.4

14.3

8.6

8.6

10.9

21.6

9.7

9.0

12.1

22.2

12.7

11.3

13.0

26.9

11.8

10.9

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2012 2016 2017

Airframes & Mods Engines Components Line

$41B

$51B

$41B

$37B

$36B

$38B$42B $40B

Five & Ten Year Compounded Annual Growth Rate Projections

Airframes & Mods = 4.7% slowing to 3.6% CAGR

Engines = 4.7% moderating to 4.5% CAGR

Components = 4.1% moderating to 4.0% CAGR

Line = 4.2% moderating to 4.0% CAGR

$58B

$62B

3


Aviation MRO: Industry Structure / Aviation MRO: Industry Structure / ““EcoEco--SystemSystem””

Regulatory Services

Logistics Services

Technology Services

Financing & Leasing

Engineering Services

Total T

echnical S

ervicesM

ainte

nan

ce S

ervi

ces

Defense Operators & Depots

Engine OEM

Airframe OEM

Component OEM

Commercial AircraftFleet Operators

Le

ga

cy I

n USAF/USN

Fle

et

1

Fle

et

2...

UK MoD

Fle

et

1

Fle

et

2

...

CountryX

MilitaryForces...

Other Segments:� BizJet / Corporate� Air Taxi / VLJ� GA: General Aviation

...

Le

ga

cy O

ut

LC

C N

et

Ou

t

3PMP & 3PL

Sourcing, Provisioning, Procurement, Warehousing, Distribution, Transportation, 3PL

Maintenance Planning / Packaging / Scheduling, Regulatory Compliance, Tech Docs, Reliability Engineering

Air

fram

e,

En

gin

e, C

om

po

nen

t &

To

tal T

ou

ch

Serv

ices

Power x Hour Engine Bundling, ACMI Wet Lease, Performance Driven Outcomes

FAA, JAA/EASA, CAA, NTSB

Infrastructure Products / Services, SaaP (On-Premise, EAI, Application Management), System Integration, SaaS (On-Demand)

4


Aviation MRO: Core Business ProcessesAviation MRO: Core Business Processes

Customer Relationship

Management

Supply Chain Management

Reservations, Airport

Operations, Finance & Human Capital

Shop, Tool & GSE Maintenance

Airframe & Engine

Maintenance

Flight Operations Maintenance

Engineering,

Maintenance Programs & Regulatory

Pricing, Marketing & Sales

Airport Operations

Flight Operations

Human Capital Management

Finance & Accounting

5


Aviation MRO: Core Business Processes vs. Industry Structure:Aviation MRO: Core Business Processes vs. Industry Structure:

Collaboration Capabilities and Technologies are noCollaboration Capabilities and Technologies are no longer an option!longer an option!

EASA, FAA, ICAO, ATA, IATA, ASD, AIA

6


Industry Structure & Synchronization vs. Nature of Demand & SuppIndustry Structure & Synchronization vs. Nature of Demand & Supply of Servicesly of Services

As the Structure and Integration of Services

increases so does:

Increasing Complexity to Execute

Increasing Barriers to Competitor Entry

Increasing Barriers to Customer Exit

Increasing Margins of Return

Increasing Likelihood of Cartels / Dominant Exchanges

Increasing Likelihood of Horizontal Monopolies

As the Nature of Demand & Supply of Services

increases so does:

Increasing Breadth or Depth of Services Demanded

Decreasing Sources of Supply Provided

Increasing Likelihood of Proprietary Standards

Increasing Likelihood of Vertical Monopolies

Structure of Industry & Synchronization

Nature of Demand & Supply (Services)

Increasing Complexity to ExecuteIncreasing Barriers to Competitor Entry and Customer Exit


Incre

asin

g B

read

th o

r D

ep

th o

f S

erv

ices D

em

an

ded

Decre

asin

g S

ou

rces o

f S

up

ply

Pro

vid

ed

Incre

asin

g R

isks t

o M

arg

ins

Increasing Margins

7


Aviation MRO Industry Structure vs. Demand & Supply of ServicesAviation MRO Industry Structure vs. Demand & Supply of Services

Structure of Industry & Integration

Nature of Demand & Supply (Services)

Process, Human Capital ConsultingOrg Design, Skills, Training, LEAN/6σσσσ, Metrics

System EngineeringImplementation, Integration

Component MaintenanceAvionics, LRUs, Subs, Fab

LeasingEngine, Airframe, ACMI

Engineering ServicesPMA, Mods, XML Task Cards

Infrastructure ManagementH/W, LAN/WAN, Communications

Application ManagementOn-Premise Management

AdvisoryServices

TechnologyServices

MaintenanceServices

BusinessServices

KnowledgeServices

PerformanceServices

Increasing Complexity to ExecuteIncreasing Barriers to Competitor Entry and Customer Exit


Incre

asin

g B

read

th o

r D

ep

th o

f S

erv

ices D

em

an

ded

Decre

asin

g S

ou

rces o

f S

up

ply

Pro

vid

ed

Incre

asin

g R

isks t

o M

arg

ins

Technology ConsultingApplication & Infrastructure

Strategy ConsultingFinancial, Marketing, M&A

Business Process OutsourcingFI, HR/Payroll, Call Ctr, CRM

Utility ComputingHosting, Grid H/W, WAN/Comms

Airframe MaintenanceHangar / Heavy Check / RON

Line Maintenance Engine Maintenance

Engine Power X HourBundled Acq + Eng + Mtc + Log

Airframe Performance MgtPBL, PDO, Goldcare, TTS+

Fleet ManagementReg, Mx Program, Pln, MOC/MCC

3rd Party LogisticsVMI, Warehousing, Dist / Trans

Knowledge ManagementMRO SaaS + CASS Reliability / BIIn

creasing Margins

8


Software as a Service / On Demand has two key differentiators:Software as a Service / On Demand has two key differentiators:

Source: Marc Benioff, CEO, salesforce.com, Tour de Force Atlanta, Apr. 2008, “The Future of Cloud Computing”

9


Just as Applications evolved via Abstraction, Virtualization andJust as Applications evolved via Abstraction, Virtualization and OutsourcingOutsourcing……


10


…… so too are Platforms moving to the so too are Platforms moving to the SaaSSaaS / On Demand business model / On Demand business model ……


11


…… a business model that originated in the airline / aerospace inda business model that originated in the airline / aerospace industry.ustry.

MRO ITMROSCMCateringCRS / GDS

12


The three waves of adoption of a The three waves of adoption of a Disruptive Value Innovation Disruptive Value Innovation in any industry are:in any industry are:

Source: Saugatuck Technology, 2007, “SaaS Beyond the Tipping Point”

The focus of SaaS shifts over time from cost-effective delivery of stand-alone applications (Wave I), to integrated business solutions enabled by web services and ESBs (Wave II), then to human workflow and collaboration based business transformation (Wave III).

Wave III: 2008-2014Workflow-enabled

Business Transformation

SaaS 2.0Evolution of Software-as-a-Service

Wave I: 2001-2006Cost-effective

Software Delivery

Ad

op

tio

n

Low

High

SaaSTipping-Point

2006

Wave II: 2005-2010Integrated

Business Solutions

SaaS 1.0

2007 2008 2009 2010 2011 2012 20132003 2004 2005

Early Adoption• Stand-alone Apps• Multi-tenancy• Limited Configurability• Focus on TCO / rapid deploy

2014

SaaS 2.0

Ubiquitous Adoption• Optimized Business Ecosystems• IT-targeted Ecosystems• Inter-enterprise Collaboration• IT Utility / SaaS Infrastructure• Customized, Personalized Workflow• Focus on Business Transformation

Mainstream Adoption• Integrated w/ Business Portfolio• SaaS Integration Platforms • Business Marketplaces

and SaaS ecosystems• Customization Capability• Focus on Integration

13


By 2010, a new SaaS business services provisioning model emerges, combining pure-play SaaS solutions with business services from both next-generation and traditional infrastructure, application hosting, Managed Service Providers and Business Process Outsourcing (BPO).

While many SaaS vendors desire to remain pure-play application solution providers, customers and industry specific trends in addition to Wall-street economic valuation metrics will decide how far into business services SaaS must go to effectively compete with traditional software vendors.

SaaS2.0

SaaS1.0

ASP

BusinessProcess

Outsourcing (BPO)

Infrastructure,Hosting &

ApplicationManagement

New Collaboration Services Models

SaaSSaaS and Business Process Outsourcing are on a collision course and Business Process Outsourcing are on a collision course ……

Pure Play Infrastructure / Communications

SaaS Infrastructure / SIPs

SaaS BPO

SaaS CSP

Source: Saugatuck Technology, 2007, “SaaS Beyond the Tipping Point”

14


Strategic

Value

Tactical

Value

System Collaboration

Business Processes

Business Applications

…… to create new business models around Collaboration Services Proto create new business models around Collaboration Services Providers (CSP).viders (CSP).

Technology Infrastructure

Business Services Provider

Business Process Management

Software as a Service

Application Management

Infrastructure Management

Hosting Services

From 1:1 to 1:N

From client site to web site

From SMB to global 1000

From tactical to strategicFrom commodity to industry specializedFrom cost-reducing to profit-enhancing

Operational

Value

Collaboration Services Provider

Systems Integration

Management

Increasing ROIC for an

Industry Collaborative

Shared Service

Increasing Propensity to

Outsource

Commodity Activities

Optimal Single Company

Risk / Return Proposition

On-Premise DeliveryFixed Solutions

Fixed Cost Plus Pricing Transaction Oriented

1:1 Company Standards 1:1 Client-specific Dedicated Delivery

On-Demand Delivery Configurable Solutions Shared

Utility Pricing Event / Workflow Oriented

1:N Industry-standards 1:N Industry-specific Ubiquitous Delivery

15


System Economics Strategy

Total Solution Strategy Best Product Strategy

Microsoft

Source: “The Delta Project: Discovering New Sources of Profitability in a Networked Economy”; Arnoldo Hax, Ph.D., MIT Sloan; Dean L. Wilde II, Dean & Company

Wal-Mart Southwest

Incr

easi

ng B

ondin

g Q

uotien

t

Point of View: The Strategic Positioning of select Aerospace & DPoint of View: The Strategic Positioning of select Aerospace & Defense efense MROsMROs

16


Aviation MRO Trends: Supply Chain Management Business Process OuAviation MRO Trends: Supply Chain Management Business Process Outsourcing tsourcing

(BPO) and Software as a Service ((BPO) and Software as a Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

Customers:

� Air Canada, American Airlines, Air India, PIA, Singapore, US Airways, KLM, Cathay Pacific, ANA, JAL, FedEx, Air New Zealand, Austrian, Lufthansa, China Airlines, Northwest, Egypt Air, Gulf Air, Icelandair, Kuwait Airways, Mexicana Airlines, Qatar Airways, Saudi Arabian Airlines, Royal Jordanian, Thai Airways, Virgin Atlantic & United.

Technology Partners:

� EDS (Hosting), AMOS, Lawson, Mxi, Oracle, SAP, TRAX, Quantum Control and Ultramain

Services:

� AeroBuy - a comprehensive, catalogue-based procurement system with full electronic connections to the aviation supply chain.

� AeroRepair - a solution that seamlessly enables end-to-end business process automation of the entire repair order lifecycle.

� AeroAOG - a comprehensive, e-commerce application used to mitigate the impact of AOG situations and to more efficiently manage the airline's loan/borrow/exchange business.

� AeroSourcing - a negotiation platform with full electronic connections to the aviation airline supply chain.

� AeroConsignment - a complete solution used to optimally manage consignment stocks between multiple trading partners.

� AeroComponent - a comprehensive, online application used to manage all components under "Support Contracts" with a single or multiple Component Providers.

� AeroDex - a business intelligence tool that enables you to make better decisions in order to manage your aviation company.

� Sourcing Process Management Services - a world-class team of sourcing experts who recognize the airline industry procures a variety of commodities and services that are critical to their daily operations.

Equity Owners of AeroXchange identified in BLUE. NWA’s equity will transfer to Delta Air Lines upon completion of the merger in late 2008. Airlines in BOLD are implementing or evaluating Mxi’s Maintenix solution.

17


Aviation MRO Trends: Bundled MRO Business Process Outsourcing (BAviation MRO Trends: Bundled MRO Business Process Outsourcing (BPO) and PO) and

Software as a Service (Software as a Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

HAECO is pleased to offer Fleet Technical Management (FTM) and Inventory Technical Management (ITM), two comprehensive total support packages that provide cost-effective, customized engineering and maintenance solutions. Airlines have recognized, in a highly competitive environment, they need to focus on their core competence of flight operations, maximizing revenue/yield and driving out costs by allowing HAECO to provide technical management services through a dedicated team of professionals that covers all aspects of airline engineering functions to ensure fleet operational safety and airworthiness requirement are totally complied with, to the satisfaction of operators' QA and regulatory authorities. HAECO selected and implemented Russell Adams enterprise:airline to provide the Fleet Technical Management (FTM) capability.

Lufthansa Technik’s unique Technical Operations web suite, manage/m™, allows commercial aircraft operators to manage all core functions of their fleet’s regulatory, engineering, maintenance and supply chain operations as a completely web-based system. All they need is access to the Internet.

Rounding out Lufthansa Technik’s Total Technical Services all-encompassing portfolio of maintenance, repair and overhaul (MRO) services, the modules of manage/m™ comprise a complete range of airline proven support functions that permit operators to live up to their responsibilities to the aviation authorities. manage/m™ improves effectiveness and efficiency offering real added value. manage/m™ is powered by Swiss Aviation Software’s AMOS solution.

Lufthansa Technik is proud to sponsor the official READI – web suite application! The purpose for the Reliability Exchange of Airline Data International (READI) is to provide a forum for the exchange of operational benchmark data, establishing the performance metric fleet Mechanical Scheduled Performance (MSP). READI is hosted by FedEx and currently comprises 30 airlines and OEMs.

Boeing CAS, Boeing IDS, Lockheed Martin Aeronautics, Rolls Royce DS&S, Bombardier, Embraer, Delta TechOps, KLM / AFI all have similar offerings in place or in some stage of realization

18


LufthansaLufthansa’’s corporate strategy and execution already includes s corporate strategy and execution already includes SaaSSaaS capabilities.capabilities.

Customized proprietary version of SAP A&D IS 3.0

Lufthansa Systems

AirlinesCargoCateringMaintenanceTechnologiesFinance & Investing

Lufthansa AG

Passenger Services

Lufthansa Airlines

Cargo CarrierFreight Forwarding3PL Services

Lufthansa Cargo

Swiss International

Catering

LSG SkyChef

Finance & InvestingLeasingConsultingTravel MgtAirliance, Amadeus

LH Holdings

LHT Airline Customers LHT Airline Customers

LHT LogisticsLHT Philippians, Sofia, Malta, Tulsa, Alitalia, Budapest, Shannon, AMECO, Shenzhen, CSA

Lufthansa Technik

19


Aviation MRO Trends: Total Services Business Process OutsourcingAviation MRO Trends: Total Services Business Process Outsourcing (BPO) and (BPO) and

Software as a Service (Software as a Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

Dubai Aerospace Enterprise has an amazing business vision

Behind the $15 billion Dubai Aerospace Enterprise is a very shrewd appreciation of business trends and a clear strategy to put Dubai at the head of the next big thing – aviation services.

The business concept here is to create a center of innovation for aviation, from the leasing and maintenance of planes to training personnel at a new aviation university to operating private airports and even manufacturing aircraft components.

Leveraging the fact that the Middle East and North Africa region will take 58% of wide bodied aircraft deliveries between 2005 and 2025, and 50% of recent new narrow body aircraft orders have been in the Middle East as the regional carriers are in the process of doubling their fleets.

DAE has a phased business plan to create an aviation center of excellence at the new Jebel Ali airport complex, and has established six operational subsidiaries across 14 industry segments. Further announcements are to follow for each business sector as this bold business plan is transformed into reality. � DAE Capital Aircraft leasing, Financing and Insurance with value-added services and a global presence.

� DAE Manufacturing Delivering cutting-edge research & development, manufacturing and assembly.

� DAE University An aviation campus for all levels of education, attracting both national and international students.

� DAE Airports Airport development and operations that lead the world in reputation and returns.

� DAE Engineering The global centre for aviation maintenance and support through acquisitions and partnerships.

� DAE Services An emerging world class solution provider in the aviation industry, focusing on offering technology based products, business services and outsourcing.

By 2015, DAE is expected to employ 30,000 people and to have 8,000 students a year passing through its university

This is yet another example of Dubai Inc. spotting a new opportunity through global business and technology trends and mobilizing its immense resources to capitalize at the opening.


20

CONFIDENTIAL

Information technology is central to Boeing’s corporate strategy of creating value for their aircraft customers and their passengers. This is a global strategy that leverages advanced networks, communications and applications to share information digitally amongst all stakeholders. This initiative is shared across all Boeing business units and extends from onboard technology enhancements to lifecycle information management tools. Maintenix® is central component of this strategy for the 787 aircraft as it provides the information hub for managing data and integrating these diverse technologies and services for the Boeing GoldCare offering. The objectives of the initiative include:

Leverage Boeing’s engineering knowledge and fleet-wide perspective to improve resource planning and maintenance execution activities

Automate traceability from maintenance activities back to compliance with source documents for maintenance requirements

Leverage fault information being captured onboard the aircraft to streamline line maintenance planning and execution activities

Set industry standards to facilitate closer integration between the airline community and the manufacturers and maintainers

Aviation MRO Trends: Engineering Business Process Outsourcing (BAviation MRO Trends: Engineering Business Process Outsourcing (BPO) and PO) and

SoftwareSoftware--asas--aa--Service (Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

Boeing signs Long Term Agreement with Mxi TechnologiesOttawa, Canada (July 8th, 2008) – The Boeing Company has named Mxi as a partner for GoldCare, Boeing's comprehensive life-cycle management service developed for the 787 Dreamliner. Boeing has selected Mxi to supply Maintenix®, an integrated, intelligent software solution that will serve as the maintenance management portion of a comprehensive suite of enabling technologies for GoldCare.

Under GoldCare, Boeing leads and integrates a global team to deliver maintenance, engineering, and materials management tasks within a predictable per-flight hour cost. Goldcare offers two levels of service, GoldCare and GoldCare Integrated Materials Management Service; both of which include new enabling technologies that turn airplane operating data into actionable information and knowledge.

Ottawa, Canada (July 23rd, 2008) – The Boeing Company, the world's largest manufacturer of commercial jetliners and military aircraft, has signed a "Software License Distribution Agreement" with Mxi Technologies, a leader in aviation maintenance management software. Under terms of the agreement, Mxi will supply Maintenix®, an intelligent, integrated software solution that will provide Boeing with meaningful improvements to their labor productivity in after-sales product support.

Boeing’s Global Operations Center. © The Boeing Company


21

CONFIDENTIAL

Aviation MRO Trends: Engineering Business Process Outsourcing (BAviation MRO Trends: Engineering Business Process Outsourcing (BPO) and PO) and SoftwareSoftware--asas--aa--Service (Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

“Technology is the key enabler of this kind of collaboration, which involves a significant amount of product lifecycle management across multiple countries. Boeing requires all its partners on the 787 to use an application called Catia, made by Dassault, and the plane is designed at a special online site, maintained by Boeing, called the Global Collaboration Environment. Goldcare customers, will also

benefit from advance engineering, maintenance and supply

chain management collaboration technologies that will

significantly reduce and predictably smooth lifecycle costs.”

Source: Boeing Co. as reported in CIO Insight magazine, 6 March, 2007

GoldcareGoldcare Network PartnersNetwork Partners

Americas Europe / MENA Americas Europe / MENA AsiaPacAsiaPac

OR

?

OR

OR

Back Office (ERP)

Maintenance (MIS)


22

CONFIDENTIAL

Aviation MRO Trends: Sustainment Business Process Outsourcing (BAviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and PO) and SoftwareSoftware--asas--aa--Service (Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.


23

CONFIDENTIAL

Aviation MRO Trends: Sustainment Business Process Outsourcing (BAviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and PO) and

SoftwareSoftware--asas--aa--Service (Service (SaaSSaaS) are merging into Collaboration Services.) are merging into Collaboration Services.

Maintenance information system linking the seven global F-35 operators is activated for flight test

Lockheed Martin is getting a head start on plans for a global Joint Strike Fighter sustainment system by switching on the information network that will collect, analyze and communicate maintenance data for F-35 flight testing.

The autonomic logistic information system (ALIS) will begin collecting data from the first F-35, which had completed 17 flights by the end of April. Initially data will be entered by maintainers, but an upgrade is planned to enable the aircraft to downlink data in flight, says Kevin LeBeau, ALIS integrated product team director.

ALIS provides 38% of the functionality needed to support the 14 development flight-test aircraft planned, says LeBeau, enabling maintainers to isolate faults and trigger the supply chain to deliver replacement parts.

Functionality is based on commercial software, including the Maintenix maintenance management system developed by Canada's Mxi Technologies. LeBeau says the ALIS team is developing shippable code every 30 days. When the second F-35 flies in May 2008 maintainers will be able to run checks and access status on the flight line using laptops and handheld portable maintenance aid.

Lockheed has established an operations control centre at its Fort Worth, Texas facility that includes sustaining engineering in order to develop repair tasks, improve component reliability and optimize the maintenance program against key performance parameters of aircraft availability, sortie generation rate and the performance based logistics contract, which shares risks and costs between the US DoD and Lockheed.

The international program team includes the United States, United Kingdom, Italy, Netherlands, Turkey, Canada, Australia, Denmark and Norway with Singapore and Israel participating through a non-program Security Cooperative Participation agreement.

The global sustainment operations centre in Fort Worth, Texas, USA. © Lockheed Martin

24


BuildBuildOnOn--PremisePremise

Custom S/W (SDLC)Custom S/W (SDLC)

1:1 Client1:1 Client--specific Solutionspecific Solution

Ad Hoc Capability MaturityAd Hoc Capability Maturity

Internal Infrastructure (Data Centers) Internal Infrastructure (Data Centers)

Customized DeliveryCustomized Delivery

Capital + Operations Pricing / Customer of 1 CostCapital + Operations Pricing / Customer of 1 Cost

Capability Sourcing FrameworkCapability Sourcing Framework

LeasedLeasedOnOn--DemandDemand

Configurable S/W & Processes (OnConfigurable S/W & Processes (On--Demand/Demand/SaaSSaaS) )

1:N Industry & Client1:N Industry & Client--specific Solutionspecific Solution

Agile & Continuous Capability MaturityAgile & Continuous Capability Maturity

External Infrastructure (Utility Computing)External Infrastructure (Utility Computing)

Ubiquitous DeliveryUbiquitous Delivery

Subscription Pricing / Shared CostSubscription Pricing / Shared Cost

BuyBuyOnOn--PremisePremise

COTS S/W (COTS S/W (BoBBoB or Suite) or Suite)

1:1 Industry or Function1:1 Industry or Function--specific Solutionspecific Solution

Fixed Version Capability MaturityFixed Version Capability Maturity

Internal Infrastructure (Data Centers) Internal Infrastructure (Data Centers)

Specialized DeliverySpecialized Delivery

Capital + Operations Pricing / Customer of 1 CostCapital + Operations Pricing / Customer of 1 Cost

ManagedManagedOnOn--CallCall

Fixed S/W & Processes (BPO / MBS)Fixed S/W & Processes (BPO / MBS)

1:N Industry & Function1:N Industry & Function--specific Solutionspecific Solution

Fixed Version Capability MaturityFixed Version Capability Maturity

External Infrastructure (Grid Computing)External Infrastructure (Grid Computing)

Dedicated DeliveryDedicated Delivery

Process Pricing / Shared CostProcess Pricing / Shared Cost

Structure, Agility & Functional Fit of Solution Product / Service

Structure of Capability Delivery

Decreasing Cost per Unit Capability-Maturity Increasing Business Agility to Respond to Change

Decreasing Risks (Operational, Financial & Technology)

Dec

reas

ing

Cos

t per

Uni

t Cap

abili

ty-M

atur

ity

I

ncre

asin

g B

usin

ess

Agi

lity

to R

espo

nd to

Cha

nge

Dec

reas

ing

Ris

ks (

Ope

ratio

nal,

Fin

anci

al &

Tec

hnol

ogy)

25


Aviation MRO Trends: Aviation MRO Trends: LCCsLCCs are transitioning to more Managed or Leased Services.are transitioning to more Managed or Leased Services.

New US Airways

Structure, Agility & Functional Fit of Solution Product / Service

Structure of Capability Delivery

Decreasing Cost per Unit Capability-Maturity Increasing Business Agility to Respond to Change

Decreasing Risks (Operational, Financial & Technology)

BuildOn-Premise

Functional Orientation Input Centric Thinking

Custom S/W (SDLC)1:1 Client-specific

Internal Infrastructure (Data Centers) Customized Delivery

BuyOn-PremiseProcess OrientationOutput Centric ThinkingFixed / Configurable S/W (Suite + BoB) 1:1 Industry-specificHosted Infrastructure (Data Centers) Standardized Delivery

LeasedOn-Demand

Effects Orientation & Causality Centric ThinkingCustom / Configurable S/W (BoB: ASP or SaaS)

1:N Client / Industry-specificBundled Infrastructure (Utility Computing)

Open / Services Oriented Delivery

ManagedOff-PremiseCapability Orientation & Outcome Centric ThinkingFixed S/W & Processes (BPO / MBS)1:N Function-specificBundled Infrastructure (Grid Computing)Dedicated Delivery

Dec

reas

ing

Cos

t per

Uni

t Cap

abili

ty-M

atur

ity

In

crea

sing

Bus

ines

s A

gilit

y to

Res

pond

to C

hang

eD

ecre

asin

g R

isks

(O

pera

tiona

l, F

inan

cial

& T

echn

olog

y)

America West

US Airways

AA

Skybus

Southwest

Virgin America

Delta

Lufthansa

Sabre / Mxi eMergo

Boeing / Mxi Goldcare

Airbus Airman

Merlin

MEMIS

TPF

LHT manage/m (AMOS)

Boeing Ops Center (Mxi)

Lockheed ALIS (Mxi)

AMOS

Mxi Technologies

Russell Adams

HAECO FTM (RA) LHT / AMOS

TRAX

Sceptre

United

Ryan Air

Air Asia

Singapore

Air Arabia

Alitalia


26

CONFIDENTIAL

BOEING

Engineering & Maintenance

AIRBUS

Flight Operations

AIRTAC

IETM / IETP

S1000D

AirN@v

Airbus MRO Network Boeing Goldcare Network

SX0001

eLogbook / EFB

S1000D

PHM

S5000F

AIRMAN

In-service

Data Mgt

AirSparesServicesS2000M

AirPl@nS4000M

AHM

S5000F

Flight Deck

MIS

FOS

Collaboration

Network

Avioniques

CREW

Airline MIS (Maintenance

Information System)

Cabin

MIS

Aircraft Reliability

Management

Integrated Materials

Management S2000M

GoldcareS4000M

S1000D

A I R L I N E

Global OpsCentre

Collaboration Chokepoint

Aviation MRO Trends: Legacy carriers and Aviation MRO Trends: Legacy carriers and MROsMROs have a chokepoint to collaboration.have a chokepoint to collaboration.

27


Aviation MRO Trends: ASD SX0001 is the new standards for aviatioAviation MRO Trends: ASD SX0001 is the new standards for aviation MRO.n MRO.

Aviation Sustainment Lifecycle Management (SLM)

The Office of the Secretary of Defense, NATO, and ALL leading members of the AIA,

ASD and ATA have signed an agreement to converge on the ASD SX0001 standards.

28


Aviation MRO Trends: Collaboration architecture will be based onAviation MRO Trends: Collaboration architecture will be based on SX0001 and SOA.SX0001 and SOA.

MISMIS

MRO Information SystemMRO Information System

S5000FInternational

Specification for Service Data

Capture & Management

using ISO 13374 OSA-CBM,

ACARS, On-Board Systems & FOQA

S1000DInternational

Specification for Technical

Publications (IETP / IETM)

using a Common Source

Data Base (CSDB)

S2000MInternational

Specification for Materiel

Management (SCM) using EDI / XML Automated Processing

S4000MInternational

Specification and

Procedures

Handbook for RCM / MSG3

Scheduled Maintenance and

Reliability Analysis

S3000LInternational

Application and Procedures

Handbook for Logistics Support Analysis (LSA)

ISO 10303

AP 239Specification for Product Life Cycle

Management (PLCS) & Multi-

Dimensional Configuration Management

(MDCM)

ISO 10303International

Specification for Product Data Management

(PDM) & Computer Aided Design, Engineering & Manufacturing

(CAD, CAE, CAM)

ERP Finance,

Accounting & Controlling via

SAS 70 processes and procedures

compliance

SCORM International

Specification for Advanced Distributed

Learning using the Shareable Content Object

Reference Model

ERP Human Capital Management –

Recruiting, Succession, On-Boarding,

Talent, Training and Learning Management

Flight Operations

SystemsOperations Control

/ Maintenance Control, Air Traffic Control, Weight &

Balance and Dispatch

J2EE Web Service Universal Adapter (ESB / SOA)LDAP & PKI

Security Services

Dev

ice,

Pri

nte

r &

Wirele

ss

Ser

vice

s

29


J

Airlines

Defense

Evaluation Criteria

A

B

Third Party MROC

Airframe OEMD

Engine OEME

Aviation MRO COTS Software Products

A B C D E F

HelicopterG

Biz Jet / GAF

G H I

= Market Presence of 2 or more customers with full running implementations

Aviation MRO IT Market Segments ComparisonAviation MRO IT Market Segments Comparison

SaaS / On DemandH

30


System Economics Strategy

Total Solution Strategy Best Product Strategy

Microsoft

Wal-Mart Southwest

Incr

easi

ng B

ondin

g Q

uotien

t

Point of View: The Strategic Positioning of select Aviation IT VPoint of View: The Strategic Positioning of select Aviation IT Vendorsendors

31


Software as a Service dominates growth stocks and Wall Street IPSoftware as a Service dominates growth stocks and Wall Street IPOs.Os.

Fortune: Hot IPOs of ’08, “If 2007 was a good indicator, the kinds of private tech companies that will make it into the public markets this year feature either a technological innovation or a business model innovation or both that give customers lower costs and flexibility. On-demand software companies like Success Factors (SFSF), K12 (LRN) and more recently NetSuite (N) managed to get out the IPO door on the back of their business model innovation. In the wings are SugarCRM, PeopleClick, BlueRoads, BlueTie, Cloud9 and Dave Duffield’s Workday. Open-source (Red Hat, mySQL) is another category being welcomed by the Street, as is virtualization (VMware & XenSource.”

Goldman Sacks: Getting SaaS savvy is On-Demand in 2008, “Software-as-a-Service (SaaS) is one of the most important trends in business at present, and will become pervasive over the next several years. We expect SaaS to expand the total addressable market for enterprise software, with growth in SaaS outpacing growth of the overall software market for the next three to five years. Large on-premise only application vendors such as Microsoft, Oracle, and SAP will embrace the trend. Despite this, small and pure-plays should continue to dominate in the near term, with an ongoing rapid entry of new companies into the market, and a healthy IPO market.

32


IATA / McKinsey Aviation Eco-System Value Analysis

15

2.8

4.43.7

2.2

0.5

-0.2

-1.6

10.5

5.1

0.3

-1.2 -1.1-0.4

-1.8

-5.5

-10

-5

0

5

10

15

20

We

igh

ted

EV

A (

RO

IC -

WA

CC

) %

Re

turn

We

igh

ted

Sp

rea

d (

RO

IC -

WA

CC

) %

Services based companies deliver higher Economic Value Add (EVA)Services based companies deliver higher Economic Value Add (EVA) ……

CRS/GDS

Freight

Forwarders Leasors

Airframe

OEM

MRO

Services

Travel

Agencies Airports Airlines

Source: IATA and McKinsey & Co. “Aviation Value Chain Profitability – IATA Economics Report 2004”

1996-2000

vs

2000-2004

33


Enterprise Value to Revenue Multiples

0.13

4.10

0.450.810.91

1.85

5.90

2.80

0.00

2.00

4.00

6.00

8.00

10.00

12.00

ARBA WEBX TLEO KNXA RNOW ULTI CNQR VSCN CRM SAASAvg

SEGTop-10

Avg

S&P1000

Avg

EULCC

Avg

USLCC

Avg

EULegacy

Avg

USLegacy

Avg

US /LCC

EOY 2005

EOY 2007

S&P Avg 2.8

…… and higher EVR multiples due to predictable cash flows and lockand higher EVR multiples due to predictable cash flows and locked in EPS.ed in EPS.

Source: Capital IQ Data Services (a Division of Standard & Poor’s) dtd 8 January, 2008

Ente

rprise

Valu

e p

er

dolla

r R

evenue (

EV

R M

ultip

le)

34


On 20 December, 2007, open source technology leader Red Hat announced the election of James M. Whitehurst, as President, Chief Executive Officer and a member of the Board of Directors. Mr. Whitehurst was most recently Delta Air Lines’ Chief Operating Officer, responsible for Flight and Technical Operations, Marketing and Sales, Customer Service, Network and Revenue Management and Corporate Strategy. Prior to joining Delta in 2002, Mr. Whitehurst served as Vice President of The Boston Consulting Group (BCG). Between 1998 and 2002, Jim lead Delta’s eCommerce group, which planned IT strategy and evaluated IT investments for Delta Air Lines, Delta Technologies, DL’s wholly owned subsidiary, and collaborated with Worldspan, DL’s joint venture with Northwest Airlines and Trans World Airlines.

It was during this period that Jim and Vince Caminiti, SVP Sales for Delta, identified direct online marketing and sales channels as a value innovation for DL to simultaneously reduce the cost of sales by bypassing the monopolistic CRS/GDS vendors and travel agent commissions and increase load factors, reduce excess capacity and increase customer intimacy by demonstrating that DL was a fair value fare provider. Included in the agreement to open DL’s inventory to Priceline.com was a $18M warrant for 1.86M shares at $0.93 per share. Between 1999 and 2003, DL exercised warrants and options returning $1.134B in pre-tax cash to shareholders at a five year IRR(5) of 129%. It could be said that timing was everything in that DL luckily liquidated 62.7% of their investment in 1999 near the peak of the dot-com bubble. A downwardly adjusted post dot-com bust average price of $29/sh would still have yielded $199M in pre-tax cash to shareholders at a five year IRR(5) of 61.7%.

Priceline.com was one of several equity, debt and cash IT investments Delta Air Lines made over the past decade which, like American Airlines, the old US Airways and Lufthansa, yielded higher Economic Value Add than traditional IT sourcing methods and significantly higher Total Shareholder Return than other direct reinvestments in operations.

Source: Delta Air Lines annual reports FY2000, CY2000, 2001, 2002, 2003.

DeltaDelta’’s Billion Dollar Value Innovation: The Storys Billion Dollar Value Innovation: The Story

35


$711

$301

$127

$13

$1,134

$199

$(200)

$-

$200

$400

$600

$800

$1,000

$1,200

1999 2000 2001 2002 Actual Pre-TaxNet Cash Flow

Adjusted Pre-Tax Net @ Avg

$29/sh

Investment (Net Cash)

Return (Net Pre-Tax Cash)

Year

$ i

n M

illi

on

s

$18

$1134

IRR(5) = 129%

$199

IRR(5) = 61.7%

DeltaDelta’’s Billion Dollar Value Innovation: The Resultss Billion Dollar Value Innovation: The Results

Source: Delta Air Lines annual reports FY2000, CY2000, 2001, 2002, 2003.

36


The question is The question is ……

Where are you today and where do you want to be tomorrow?

Can you articulate your strategic competitive advantage in one sentence?

Which of the 15 aerospace sub-industries should you invest R&D, marketing & sales resources in - and when and - in what order and - in what geographies?

Which strategic forces are driving change in each sub-industry and geography?

Which bundle of process and technology services are most attractive in each sub-industry and in which geographies?

Which bundle of process and technology services are “cost of doing business” / low margin commodities vs “cost of winning business” / high margin innovations?

Which strategic position (Best Product, Total Solution, System Lock-In) can you pursue and which should you pursue and how?

Who could / should you partner with and develop alliances with?

What should your branding image be and how can your marketing material address the various strategic forces?

What is your go-to-market plan and schedule and how do you align marketing and the sales force in order to be ready to execute?

37


Successful companies

have a well defined

process to continuously

sense, interpret, decide

and respond (SIDR) to

industry change across

multiple long view

scenarios.

Successful companies

have architected their

businesses to be agile

(plug and play) in order to

efficiently adapt to

change, to effectively take

advantage of unique

situations and to

continuously measure

and mature capabilities.

Our approach is Our approach is …… Strategy is a cyclical analytical continuous improvement procesStrategy is a cyclical analytical continuous improvement processs

S

D

R I

S

O

P T

Critical Success (CSF) Key Process (KPI)

Strategy

Competitive Positioning

Industry Structure

Set the strategic agenda

Target customer value

Open collaboration

Peer innovation

Governance

Execution

Values & Metrics

Industry Analysis

Strategy Formulation 33

22

44

55

77

88

99

66

11

Competition Analysis Porter: Forces Model

Schwartz, Lindgren, Kim & Mauborgne: Blue Ocean / Scenarios

Womak, Harry & Breyfogle: 6σ / Lean

Haeckel, Cebrowski, Bradley & Nolan: Sense

Kanter, Christensen & Gottfredson: Collaborate

Sense & Observe

Hax: Bonding Theory

Senge, Kaplan & Norton: Balance

Peters, Keen, Smith & Khalsa: Focus

1010 Interpret & Orient

1111 Decide

1212 Respond & Act

OODA: Observe, Orient, Decide, Act John Boyd, COL/USAF ret.

SIDR: Sense, Interpret, Decide, Respond - Stephen P. Bradley & Richard L. Nolan; Stephan H. Haeckel

38


Accelerating the future

of Aviation Maintenance

Blue Water Solutions, Inc

2235 Bent Creek Manor

Alpharetta, GA 30005

O: 678.524.8289

F: 770.777.4759

E-mail: [email protected]

www.avioxi.com