M.H.A. Pijnappel April 2007
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Abstract
KLM Engine Services (ES) provides overhaul (O/H) on mainly General Electric (GE) aircraft engines, but most engines in their portfolio are in the end-of-life phase. For continuity, ES therefore needs to expand its portfolio. In 2008 a new GE engine, the GEnx will be
introduced to power the Boeing 787 and the 747-8 in following years. This thesis will analyze the consequences of incorporating the GEnx in ES’ portfolio.
The technical feasibility is determined first. By comparing the GEnx with current engines, the required O/H processes are forecasted. These processes are analyzed on their current feasibility at ES; leading to a list of critical processes that need investments for the GEnx. Next the market potential is determined, by forecasting sales and time between O/H.
A Nett Present Value (NPV) is then calculated to determine the financial consequence, which is € 380 mln until 2036. The annual free cash flows used for the NPV are defined as Sales minus Cost of Sales (CoS) minus Capital Expenditures (CapEx), see the following graph.
Graph: Annual cash flows that make up the NPV of € 380 mln until 2036; present values
The sales are based on the market potential; cost of sales is taken relative to sales at ES’ current percentage. The CapEx consists of GEnx specific and ES specific investments, where the last are based on the outcome of the technical feasibility.
Testing of the engine after O/H is financially and operationally preferred to be done in the current cell, which needs modification to fit the GEnx at an expected € 9 mln. This will result in a NPV of testing alone of approximately zero until 2036.
The GEnx market potential for ES is within the current limits of the shop and test cell and will therefore not result in occupancy problems.
