Aviation MRO IT: Emergence of SaaS and Convergence of BPO

Blue Water Solutions
Aviation, Aerospace & Defense

Presented to: SVP Operations, XX Airlines

MRO Technologies & Services
Point of View

Presented by: Michael Wm. Denis, Senior Associate, Blue Water Solutions, Inc.
8 September, 2008

CONFIDENTIAL

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

Aviation MRO: Non-Defense Industry Size and Growth ~ 4.0% CAGR to $62B
2

Five & Ten Year Compounded Annual Growth Rate Projections $62B
70
Airframes & Mods = 4.7% slowing to 3.6% CAGR
Engines = 4.7% moderating to 4.5% CAGR
$58B
Components = 4.1% moderating to 4.0% CAGR
Line = 4.2% moderating to 4.0% CAGR
60
$51B 10.9

11.3
50
$41B 9.0
$42B 11.8
$41B $40B
$38B $37B

12.7
$36B
40
9.2 9.7
8.6
9 8.5
8.5 8.4
8.1
7.4
30 7 8.6
7.4
26.9
6.9 6.9
7.1
22.2
21.6
11.5
11
20
13.0
10.4 11.1 14.3
11.1

10
14.1
14 13.0
12.1
12 11.0 11.0 10.9
9.8 9.4

0
2000 2001 2002 2003 2004 2005 2006 2012 2016 2017

Airframes & Mods Engines Components Line

CONFIDENTIAL

Aviation MRO: Industry Structure / “Eco-System”
3

Regulatory Services
FAA, JAA/EASA, CAA, NTSB

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

Other Segments:
Commercial Aircraft BizJet / Corporate
Defense Operators & Depots
Fleet Operators Air Taxi / VLJ

Total Technical Services
Airframe, Engine, Component & Total Touch Services

GA: General Aviation

Country
USAF/USN UK MoD
Maintenance Services

LCC Net Out
Legacy Out
Legacy In

X
Military
Fleet 1

Fleet 2

Fleet 1

Fleet 2
... ... ... ...
Forces

3PMP & 3PL
Engine OEM
Component OEM
Airframe OEM

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

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

Financing & Leasing
Power x Hour Engine Bundling, ACMI Wet Lease, Performance Driven Outcomes
CONFIDENTIAL

Aviation MRO: Core Business Processes
4

Engineering,
Maintenance Programs
& Regulatory

Flight Operations
Maintenance

Airframe & Engine
Maintenance

Shop, Tool & GSE
Maintenance

Supply Chain
Management

Customer
Relationship
Management

Reservations, Airport
Pricing, Marketing Airport Flight Finance & Human Capital
Operations, Finance &
& Sales Operations Operations Accounting Management
Human Capital
CONFIDENTIAL

Aviation MRO: Core Business Processes vs. Industry Structure:
Collaboration Capabilities and Technologies are no longer an option!
5

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

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Industry Structure & Synchronization vs. Nature of Demand & Supply of Services
6

As the Nature of Demand & Supply of Services
Nature of Demand & Supply (Services)

increases so does:
Increasing Breadth or Depth of Services Demanded

Decreasing Sources of Supply Provided

Increasing Likelihood of Proprietary Standards
s
Increasing Likelihood of Vertical Monopolies
Increasing Risks to Margins

n
gi
ar
M
ng
i
as
e
cr
As the Structure and Integration of Services
In 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

Structure of Industry & Synchronization
Increasing Barriers to Competitor Entry and Customer Exit
CONFIDENTIAL

Aviation MRO Industry Structure vs. Demand & Supply of Services
7

Engine Power X Hour Airframe Performance Mgt Performance
Services
Bundled Acq + Eng + Mtc + Log PBL, PDO, Goldcare, TTS+
ns
gi
ar
M
Nature of Demand & Supply (Services)

g
in
as
re Engineering Services Knowledge Management Fleet Management Knowledge

nc
I Services
PMA, Mods, XML Task Cards MRO SaaS + CASS Reliability / BI Reg, Mx Program, Pln, MOC/MCC
Increasing Risks to Margins

3rd Party Logistics
Leasing Utility Computing Business Process Outsourcing Business
Services
Engine, Airframe, ACMI Hosting, Grid H/W, WAN/Comms FI, HR/Payroll, Call Ctr, CRM VMI, Warehousing, Dist / Trans

Engine Maintenance
Airframe Maintenance Component Maintenance Line Maintenance Maintenance
Services
Hangar / Heavy Check / RON Avionics, LRUs, Subs, Fab

Infrastructure Management Application Management System Engineering Technology
Services
H/W, LAN/WAN, Communications On-Premise Management Implementation, Integration

Technology Consulting Strategy Consulting Advisory
Process, Human Capital Consulting
σ Services
Application & Infrastructure Financial, Marketing, M&A
Org Design, Skills, Training, LEAN/6σ, Metrics

Structure of Industry & Integration
Increasing Barriers to Competitor Entry and Customer Exit
CONFIDENTIAL

Software as a Service / On Demand has two key differentiators:
8

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

CONFIDENTIAL

Just as Applications evolved via Abstraction, Virtualization and Outsourcing…
9


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… so too are Platforms moving to the SaaS / On Demand business model …
10


CONFIDENTIAL

… a business model that originated in the airline / aerospace industry.
11

CRS / GDS Catering SCM MRO MRO IT

CONFIDENTIAL

The three waves of adoption of a Disruptive Value Innovation in any industry are:
12

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).

Evolution of Software-as-a-Service
SaaS 2.0
SaaS 1.0 SaaS 2.0
High
Wave III: 2008-2014
Wave I: 2001-2006 Wave II: 2005-2010
Workflow-enabled
Cost-effective Integrated
Business Transformation
Software Delivery Business Solutions

Ubiquitous Adoption
• Optimized Business Ecosystems
• IT-targeted Ecosystems
Mainstream Adoption
Adoption

• Inter-enterprise Collaboration
• Integrated w/ Business Portfolio
• IT Utility / SaaS Infrastructure
• SaaS Integration Platforms
• Customized, Personalized Workflow
• Business Marketplaces
Early Adoption • Focus on Business Transformation
and SaaS ecosystems
• Stand-alone Apps
• Customization Capability
• Multi-tenancy
• Focus on Integration
• Limited Configurability
• Focus on TCO / rapid deploy
SaaS
Tipping-
Point
Low

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Saugatuck Technology, 2007, “SaaS Beyond the Tipping Point”
CONFIDENTIAL

SaaS and Business Process Outsourcing are on a collision course …
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.

New Collaboration Services Models

Business Infrastructure,
Process Hosting &
Outsourcing Application
(BPO) Management
SaaS CSP

SaaS BPO
SaaS SaaS
ASP
1.0 2.0
SaaS Infrastructure / SIPs

Pure Play Infrastructure / Communications

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

CONFIDENTIAL

… to create new business models around Collaboration Services Providers (CSP).
14

From tactical to strategic From 1:1 to 1:N
From commodity to industry specialized From client site to web site
From cost-reducing to profit-enhancing From SMB to global 1000

Strategic Increasing ROIC for an
Value Industry Collaborative
System
Shared Service
Collaboration
Systems Collaboration
Integration Services
Management Provider

Operational Optimal Single Company
Business Processes
Value Risk / Return Proposition
Business Business
Process Management Services Provider

Business Applications
Application Software
Management as a Service
Increasing Propensity to
Tactical Technology Infrastructure Outsource
Infrastructure Hosting
Value Management Services Commodity Activities
On-Demand Delivery
On-Premise Delivery
Configurable Solutions Shared
Fixed Solutions
Utility Pricing
Fixed Cost Plus Pricing
Transaction Oriented Event / Workflow Oriented
1:1 Company Standards 1:N Industry-standards
1:N Industry-specific
1:1 Client-specific
Ubiquitous Delivery
Dedicated Delivery
CONFIDENTIAL

Point of View: The Strategic Positioning of select Aerospace & Defense MROs
15

System Economics Strategy
Increasing Bonding Quotient

Microsoft

Wal-Mart Southwest

Total Solution Strategy Best Product Strategy

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
CONFIDENTIAL

Aviation MRO Trends: Supply Chain Management Business Process Outsourcing
(BPO) and Software as a Service (SaaS) are merging into Collaboration Services.
16

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 quot;Support Contractsquot; 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.
CONFIDENTIAL

Aviation MRO Trends: Bundled MRO Business Process Outsourcing (BPO) and
Software as a Service (SaaS) are merging into Collaboration Services.
17

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

CONFIDENTIAL

Lufthansa’s corporate strategy and execution already includes SaaS capabilities.
18

Lufthansa AG

Airlines
Cargo
Catering
Maintenance
Technologies
Finance & Investing

Lufthansa Airlines Lufthansa Cargo LSG SkyChef Lufthansa Technik Lufthansa Systems LH Holdings

LHT Logistics
Passenger Cargo Carrier Catering Customized Finance & Investing
LHT Philippians,
Services Freight Forwarding proprietary version Leasing
Sofia, Malta, Tulsa,
3PL Services of SAP A&D IS 3.0 Consulting
Alitalia, Budapest, Travel Mgt
Shannon, AMECO,
Airliance, Amadeus
Shenzhen, CSA

LHT Airline Customers
Swiss International

CONFIDENTIAL

Aviation MRO Trends: Total Services Business Process Outsourcing (BPO) and
Software as a Service (SaaS) are merging into Collaboration Services.
19

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.
CONFIDENTIAL

Aviation MRO Trends: Engineering Business Process Outsourcing (BPO) and
Software-as-a-Service (SaaS) are merging into Collaboration Services.
20

Boeing signs Long Term Agreement with Mxi Technologies
Ottawa, 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 quot;Software License Distribution Agreementquot; with Mxi
Technologies, a leader in aviation maintenance management software. Under terms of the agreement, Mxi Boeing’s Global Operations Center.
will supply Maintenix®, an intelligent, integrated software solution that will provide Boeing with meaningful © The Boeing Company
improvements to their labor productivity in after-sales product support.

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

CONFIDENTIAL

Aviation MRO Trends: Engineering Business Process Outsourcing (BPO) and
21

Goldcare Network Partners
Americas Europe / MENA AsiaPac

?
OR

Maintenance Back Office
(MIS) (ERP)

OR

OR
“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

CONFIDENTIAL

Aviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and
22

CONFIDENTIAL

Aviation MRO Trends: Sustainment Business Process Outsourcing (BPO) and
23

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,
The global sustainment operations centre in
says Kevin LeBeau, ALIS integrated product team director. Fort Worth, Texas, USA. © Lockheed Martin

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.

CONFIDENTIAL

Capability Sourcing Framework
24
Increasing
Business Agility to Respond to Change
Decreasing Risks (Operational, Financial & Technology)

Managed Leased
Decreasing Cost per Unit Capability-Maturity

On-Call
On- On-Demand
On-
Structure of Capability Delivery

Fixed S/W & Processes (BPO / MBS) Configurable S/W & Processes (On-Demand/SaaS)
(On- Demand/SaaS)
1:N Industry & Function-specific Solution
Function- 1:N Industry & Client-specific Solution
Client-
Fixed Version Capability Maturity Agile & Continuous Capability Maturity
External Infrastructure (Grid Computing) External Infrastructure (Utility Computing)
Dedicated Delivery Ubiquitous Delivery
Process Pricing / Shared Cost Subscription Pricing / Shared Cost

Buy Build
On-Premise
On- On-Premise
On-
COTS S/W (BoB or Suite)
(BoB Custom S/W (SDLC)
1:1 Industry or Function-specific Solution
Function- 1:1 Client-specific Solution
Client-
Fixed Version Capability Maturity Ad Hoc Capability Maturity
Internal Infrastructure (Data Centers) Internal Infrastructure (Data Centers)
Specialized Delivery Customized Delivery
Capital + Operations Pricing / Customer of 1 Cost Capital + Operations Pricing / Customer of 1 Cost

Structure, Agility & Functional Fit of Solution Product / Service
Increasing Business Agility to Respond to Change
CONFIDENTIAL

Aviation MRO Trends: LCCs are transitioning to more Managed or Leased Services.
25


Managed Leased
Off-Premise On-Demand
Air Asia
Capability Orientation & Outcome Centric Thinking Effects Orientation & Causality Centric Thinking
Fixed S/W & Processes (BPO / MBS) Custom / Configurable S/W (BoB: ASP or SaaS)
1:N Function-specific 1:N Client / Industry-specific
Structure of Capability Delivery

Bundled Infrastructure (Grid Computing) Bundled Infrastructure (Utility Computing)
Dedicated Delivery Open / Services Oriented Delivery
Virgin America
LHT manage/m (AMOS) Sabre / Mxi eMergo
Air Arabia
Skybus
Boeing / Mxi Goldcare
Boeing Ops Center (Mxi)
US Airways
Airbus Airman
Lockheed ALIS (Mxi)
Ryan Air LHT / AMOS
HAECO FTM (RA)

New US Airways

Southwest
AMOS Sceptre
Mxi Technologies Merlin
Singapore
Russell Adams MEMIS
AA
Lufthansa
TRAX TPF
Alitalia
America West
Buy Build
On-Premise On-Premise
Process Orientation Functional Orientation
United
Delta
Output Centric Thinking Input Centric Thinking
Fixed / Configurable S/W (Suite + BoB) Custom S/W (SDLC)
1:1 Industry-specific 1:1 Client-specific
Hosted Infrastructure (Data Centers) Internal Infrastructure (Data Centers)
Standardized Delivery Customized Delivery

Structure, Agility & Functional Fit of Solution Product / Service
CONFIDENTIAL

Aviation MRO Trends: Legacy carriers and MROs have a chokepoint to collaboration.
26

BOEING
AIRBUS

Cabin
eLogbook / EFB Flight Deck Collaboration
Global Ops
AIRTAC
Network
MIS
S1000D MIS Centre

Avioniques

AIRLINE
Goldcare
AirPl@n
S4000M
S4000M

Engineering & Maintenance Flight Operations

AIRMAN Aircraft
In-service Reliability
Data Mgt Management
PHM AirN@v IETM / IETP CREW
FOS
AHM
S5000F S1000D
S5000F

Integrated
AirSpares Airline MIS
Materials
Services (Maintenance
Management
S2000M S1000D
Information System)
S2000M
Collaboration Chokepoint
Airbus MRO Network
Boeing Goldcare Network
SX0001
CONFIDENTIAL

Aviation MRO Trends: ASD SX0001 is the new standards for aviation MRO.
27

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.

Aviation Sustainment Lifecycle Management (SLM)

CONFIDENTIAL

Aviation MRO Trends: Collaboration architecture will be based on SX0001 and SOA.
28

ISO 10303 S5000F Flight SCORM ERP ERP
S1000D S2000M
International International International Finance, Human Capital
Operations International International
Specification for Specification for Specification for Accounting & Management –
Specification for Specification for
Systems
Product Data Service Data Advanced Controlling via Recruiting,
Technical Materiel
Management Capture & Operations Control Distributed SAS 70 processes Succession,
Publications Management
(PDM) & Computer Management / Maintenance Learning using and procedures On-Boarding,
(IETP / IETM) (SCM) using
Aided Design, using ISO 13374 Control, Air Traffic the Shareable compliance Talent, Training
using a EDI / XML
Engineering & OSA-CBM, Control, Weight & Content Object and Learning
Common Source Automated
Manufacturing ACARS, On-Board Balance and Reference Model Management
Data Base (CSDB) Processing
(CAD, CAE, CAM) Systems & FOQA Dispatch

LDAP & PKI
J2EE Web Service Universal Adapter (ESB / SOA) Security Services
Device, Printer & Wireless

ISO 10303
S4000M S3000L
AP 239
Services

International International
Specification for
MIS Application and
Specification and
Product Life Cycle Procedures Procedures
Management Handbook for Handbook for
(PLCS) & Multi-
MRO Information System
RCM / MSG3 Logistics Support
Dimensional Scheduled Analysis (LSA)
Configuration Maintenance and
Management Reliability Analysis
(MDCM)

CONFIDENTIAL

Aviation MRO IT Market Segments Comparison
29

Aviation MRO COTS Software Products

Evaluation Criteria
A B C D E F G H I J

A Airlines

B Defense

C Third Party MRO

D Airframe OEM

E Engine OEM

F Biz Jet / GA

G Helicopter

H SaaS / On Demand

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

Point of View: The Strategic Positioning of select Aviation IT Vendors
30

System Economics Strategy
Increasing Bonding Quotient

Microsoft

Wal-Mart Southwest

Total Solution Strategy Best Product Strategy

CONFIDENTIAL

Software as a Service dominates growth stocks and Wall Street IPOs.
31

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.

CONFIDENTIAL

Services based companies deliver higher Economic Value Add (EVA) …
32 IATA / McKinsey Aviation Eco-System Value Analysis

20

15
15
1996-2000
vs
10.5 2000-2004
Return Weighted Spread (ROIC - WACC) % %

10
Weighted EVA (ROIC - WACC)

5.1
4.4
5
3.7
2.8
2.2

0.5
0.3
0
-0.2
-0.4
-1.1
-1.2
-1.6
-1.8

-5
-5.5
Freight Airframe MRO Travel
CRS/GDS Forwarders Leasors OEM Services Agencies Airports Airlines

-10

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

CONFIDENTIAL

… and higher EVR multiples due to predictableMultiples
cash flows and locked in EPS.
33
Enterprise Value to Revenue

12.00

10.00
Enterprise Value per dollar Revenue (EVR Multiple)

8.00

5.90 EOY 2005
6.00
EOY 2007

4.10
4.00

2.80
S&P Avg 2.8

1.85
2.00

0.91 0.81
0.45
0.13
0.00
ARBA WEBX TLEO KNXA RNOW ULTI CNQR VSCN CRM SAAS SEG S&P EU US EU US US /
Avg Top-10 1000 LCC LCC Legacy Legacy LCC
Avg Avg Avg Avg Avg Avg

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

CONFIDENTIAL

Delta’s Billion Dollar Value Innovation: The Story
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.

CONFIDENTIAL

Delta’s Billion Dollar Value Innovation: The Results
35

$1,200

$1134
IRR(5) = 129%
$1,000

$800
$ in Millions

$600
$1,134
Investment (Net Cash)
Return (Net Pre-Tax Cash)

$400
$711
$199
IRR(5) = 61.7%
$200
$301
$199
$127
$13
$-
1999 2000 2001 2002 Actual Pre-Tax Adjusted Pre-
Net Cash Flow Tax Net @ Avg
$18
$29/sh
$(200)
Year

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

CONFIDENTIAL

The question is …
36

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?
CONFIDENTIAL

Our approach is … Strategy is a cyclical analytical continuous improvement process
37

Successful companies
have a well defined
3 Strategy Formulation
process to continuously
Strategy
sense, interpret, decide
and respond (SIDR) to Hax: Bonding Theory
industry change across
multiple long view
4 Competition Analysis
Industry
Competitive
scenarios.
Porter: Forces Model
Structure
Positioning
2 Industry Analysis
Schwartz, Lindgren, Kim & Mauborgne: Blue Ocean / Scenarios
Governance
1 Set the strategic agenda
S Haeckel, Cebrowski, Bradley & Nolan: Sense
Successful companies 5 Target customer value
have architected their Peters, Keen, Smith & Khalsa: Focus
P T
businesses to be agile 6 Open collaboration
(plug and play) in order to Womak, Harry & Breyfogle: 6σ / Lean
O 7 Peer innovation
efficiently adapt to
Kanter, Christensen & Gottfredson: Collaborate
change, to effectively take
advantage of unique
Critical Success (CSF)
situations and to
8 Values & Metrics
continuously measure Key Process (KPI) Senge, Kaplan & Norton: Balance
and mature capabilities.

9 Sense & ObserveOODA: Decide, Act
Observe,
Execution S Orient,
John Boyd,
COL/USAF ret.
10 Interpret & OrientSIDR: Sense,
Interpret, Decide,
R I 11 Decide Respond - Stephen
P. Bradley &
Richard L. Nolan;
D 12 Respond & Act Stephan H.
Haeckel
CONFIDENTIAL

38

Blue Water Solutions, Inc

Accelerating the future
of Aviation Maintenance
2235 Bent Creek Manor
Alpharetta, GA 30005
O: 678.524.8289
F: 770.777.4759
E-mail: info@avioxi.com
www.avioxi.com Blue Water Solutions
CONFIDENTIAL

Aviation MRO IT: Emergence of SaaS and Convergence of BPO

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