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					JetBlue’s Flight Hour Agreements

Cutting Costs and Aligning Incentives
            Cutting Outsourcing Costs through Fee Per
                     Flight Hour Contracting



The JetBlue Story
Tech Ops Strategy
Engine Sourcing
LRU Sourcing
Questions




                                                        1
       The JetBlue Story




 Mission: Bring Humanity Back to Air Travel

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1999       2000              2001             2002             2003              2004              2005             2006             2007             2008           2009              2010


                                                                                Major
                                                                                Airline



                                                                                                                                                                                                                2
                    Selected History to Bring Humanity
                    Back to Air Travel

Feb. 11, 2000: JetBlue launches operations with its first flight between JFK and Fort
Lauderdale, FL
June 13, 2002: TrueBlue customer appreciation program launched
Sept. 27, 2002: JetBlue acquires LiveTV, LLC: its in-flight satellite TV provider
Jan. 7, 2004: 100 channels of XM Satellite Radio and three movie channels announced
June 6, 2005: State-of-the-art training and support campus in Orlando opened
Sept. 13, 2005: JetBlue becomes first airline to take delivery of the
EMBRAER 190 aircraft
Feb. 20, 2007: JetBlue introduces industry’s first Customer Bill of Rights
Dec. 11, 2007: Free in-flight e-mail and instant messaging services
introduced on aircraft BetaBlue, a first among U.S. domestic airlines
Jan. 22, 2008: Lufthansa completes stock purchase transaction for a 19
percent stake in JetBlue
Oct. 22, 2008: T5 at JFK opens its doors to rave reviews



                                                                                        3
      Jetting By The Numbers




58 destinations
660 daily flights
150 aircraft by year end
11,500 Crewmembers
Started operations Feb. 2000
5-time J.D. Power &
Associates winner




                               4
5
                             JetBlue’s Product




– 36 Channels of live TV in every
  seat
– Comfortable, reliable
  new fleet
– Lots of legroom
– Unlimited free snacks




                                                 6
                          Focus on the Caribbean


Successfully growing in
Caribbean despite
economic downturn




                                                   7
                       Crewmembers and Culture



JetBlue’s Crewmembers and Culture are its main differentiators and reasons for
success




                                                                                 8
Jetting and Jettitude




We don’t “fly,” we “jet”
Crewmembers trained
  to have “jettitude”




                           9
                        Constant Communication




Maintaining our culture requires communicating with Crewmembers at every
opportunity
Earning trust through transparency, honesty




                                                                           10
                    Our New Customer Service System




We’re currently in the middle of changing our reservations software to Sabre for a
2010 launch



                                                  • Strong focus on
                                                 ongoing Crewmember
                                                 communication about
                                                       transition




                                                                                     11
                 Looking at Partners in a New Way




Finding creative ways to partner with other airlines
Partners: Lufthansa, Aer Lingus, Cape Air




                                                       12
                           Innovation




We value creativity and new ideas highly
A few industry firsts for JetBlue
 – Customer Bill of Rights
 – Free In-flight connectivity
 – Launch customer for Embraer E190




                                           13
Innovation: Terminal 5 at JFK




                                14
                   Tech Ops Strategy




In Source
    Line Aircraft Maintenance at Larger Blue Cities
           Positive Control
           Close to Customer




 Out Source                                   Out Sourcing Objectives
    Heavy Aircraft Maintenance
                                                High Quality
    Aircraft Component
                                                Low, sustainable cost
    Maintenance
                                                Predictable cost
           Avoid
                                                Transfer risk
                    Capital infrastructure         Variable costs
                    Large labor pool               Freight
                                                   FOD


                                                                    15
                                Diagnostic results
                                Results of the company’s spend diagnostic indicated the need to manage engine costs.




                                      Savings versus Ease of Implementation                                                                                                 Engine MRO costs
                                      Size of Bubble = Projected 2005 Spend ($ Millions)                                                                                    Large and Volatile
                                5.0

                                                                                                                Airframe
                                4.0
                                                                                                               Maintenance
                                         Rapid Sourcing
                                3.0
                                         Value Sourcing
Savings Estimate ($ Millions)




                                         Projected Growth
                                         Over Time1
                                2.5
                                                                                     Hotel                                                                 Powerplant

                                                             Hardware      New Buy
                                                             Expenses       Parts
                                2.0                                                                        Component                                Insurance
                                                                                                             Repairs
                                                                          GSE

                                1.5
                                                                        Janitorial
                                                                        Expenses                                             Workers                          Facilities
                                                                                                                           Compensation Catering Food        Construction
                                                                                                                                         & Beverage
                                                                                 Facilities Skycap
                                1.0               Promotional                   Maintenance Services                       People
                                                   Materials                                 Fees                          Services
                                                                                                                                        Aircraft Deicing    Benefits
                                                                                                     Aircraft
                                                 Printed Materials                                   Cleaning
                                                                                                                                                       Into Plane
                                0.5              Mail Services       Security &                 Ground         Advertising and
                                                                                                                                         Telecomm         Fees
                                                                     Screening                  Handling         Media Buy
                                      Crewmember Recurring Office                                                                Training
                                      Transportation Expenses                               Line
                                                                                         Maintenance                                                        Professional Services
                                                                                                   Furniture
                                 0
                                      EASY                 Crewmember                                                                                           DIFFICULT
                                                           Recognition                       Ease-of-Implementation

                                                                                                                                                                                                 16
         The Perfect Storm for Sourcing




JetBlue Profit




                                                   Strong Brand
                                          + Solid Business Plan
                                             Sustainable Airline


                                                           17
18
V2500 Engine Sourcing




                                     JetBlue’s Objectives


                        • Secure sustainable sources for high quality
                          maintenance

                        • Reduce costs throughout engine
                          maintenance overhaul and repair process

                        • Ensure timely delivery of engines and related
                          components

                        • Sustain strong reliability and performance in
                          our V2500 engine fleet

                        • Strengthen our competitive position




                                                                          19
Sourcing process
The sourcing process takes a team approach to create product and market research,
develop the RFP, and prepare for negotiations to maximize savings opportunities.



    Requirements          Market            Develop                                        Ongoing
                                                                  Implementation
     Gathering          Assessment     Sourcing Strategies                              Contract Management


  • Identify user   • Conduct market   • Identify opportunities   • Finalize supplier   • Manage supplier
         needs           analysis           • Develop and              agreements           relationships
  • Understand         • Perform           distribute supplier        • Implement         • Track internal
        current          supplier                 RFIs                    supplier          performance
   processes and         analysis             • Prioritize             agreements        • Track criteria to
        policies                              opportunities           • Implement
      • Identify                                                          process          indicate when
                                        • Develop, distribute
      constraints                             and analyze                changes          next re-sourcing
     • Perform                               supplier RFPs          • Build savings         should occur
    detailed cost                          • Negotiate with            into budgets
        analysis                                suppliers
     • Validate                          • Assess processes
    requirements                              and policies
                                              • Develop
                                          performance metrics


                                                                                                               20
We provided detailed information about the existing fleet




                                                            21
Detailed Bid Sheets



                      Costs varied with age




                                      22
JetBlue collected a great deal of data on the V2500


                                                        Develop                                      Ongoing
                 Requirement        Market
                                                       Sourcing               Implementation            Contract
                 s Gathering      Assessment
                                                       Strategies                                   Management
               • Identify user    • Conduct                                        • Finalize      • Manage supplier
                      needs      market analysis   • Identify opportunities           supplier          relationships
               • Understand       • Perform            • Develop and               agreements        • Track internal
                      current       supplier           distribute supplier        • Implement           performance
                    processes       analysis                  RFIs                    supplier      • Track criteria to
                  and policies                           • Prioritize              agreements
                                                          opportunities           • Implement          indicate when
                   • Identify                       • Develop, distribute             process         next re-sourcing
                   constraints                             and analyze               changes            should occur
                  • Perform                              supplier RFPs
                                                      • Negotiate with           • Build savings
                 detailed cost                              suppliers              into budgets
                     analysis
                                                    • Assess processes
                  • Validate                            and policies
                 requirements                             • Develop
                                                     performance metrics
                                                                              • Shop Visit Intervals
       Requirements                Market                                     • LLP replacement
        Gathering                Assessment                                   • Labor costs
                                                                              • Material costs




                                                                                                                          23
SVR by engine age and RFP participant
…




        Shop Visit Rate by Engine Age and RFP Participant                                                                        Legend:   Removals
        Rate per 1,000 Flight Hours                                                                                                        ‘05 - ‘14
                                                                                                                                           33 - 118



                                                                                                                                           39 - 139



                                                                                                                                           37 - 115



                                                                                                                                           31 - 94



                                                                                                                                           35 - 136



                                                                                                                                           22 - 103
                     IAE


                                                                                                                                           33 - 117



                                                                                                                                           33 - 121


                                                                              Engine Age
Source: V2500 RFP Responses;
* Estimate based on 0.02 UER and 18,000 hrs between performance restoration visits; excluded from the Average SVR calculations

                                                                                                                                                     24
JetBlue collected a great deal of data on the V2500


                                                       Develop                                      Ongoing
                Requirement        Market
                                                      Sourcing               Implementation            Contract
                s Gathering      Assessment
                                                      Strategies                                   Management
              • Identify user    • Conduct                                        • Finalize      • Manage supplier
                     needs      market analysis   • Identify opportunities           supplier          relationships
              • Understand       • Perform            • Develop and               agreements        • Track internal
                     current       supplier           distribute supplier        • Implement           performance
                   processes       analysis                  RFIs                    supplier      • Track criteria to
                 and policies                           • Prioritize              agreements
                                                         opportunities           • Implement          indicate when
                  • Identify                       • Develop, distribute             process         next re-sourcing
                  constraints                             and analyze               changes            should occur
                 • Perform                              supplier RFPs
                                                     • Negotiate with           • Build savings
                detailed cost                              suppliers              into budgets
                    analysis
                                                   • Assess processes
                 • Validate                            and policies
                requirements                             • Develop
                                                    performance metrics


                                                                                          Single provider of FHA
                                                  Develop Sourcing                        • Maximize  leverage
                                                     Strategies                           • Transfer risk
                                                                                          • Simply transactions &
                                                                                          administration




                                                                                                                         25
 Final Negotiations and Selection




Issued a RFP for FHA




                                    Several Rounds of Feedback
                                    and Negotiation




                                                                 26
Completed: Engines - FHA Negotiations Summary
The format of the two-day negotiations process helped achieve significant price
compression for JetBlue, including a 25% price decrease from MTU, the price leader.

NPV1 at Each Negotiations Stage by RFP Participant
$M; 10-year FHA contract; Calendar year NPV calculations (2005 to 2014)



 FHA Entry Bids
 (based on RFP)

Rank         10-yr NPV
                                  Revised Entry Bids
    1.            $638.0M
    2.            $814.8M
    3.            $830.8M         Rank         10-yr NPV
                                                                    End of Day One
                                      1.           $638.0M
    4.            $922.1M                                           Revised Bids
    5.         $1,141.8M              2.           $777.4M
                                      3.           $814.8M          Rank         10-yr NPV
    6.         $1,207.3M                                                                              Unsolicited Bids
                                      4.           $830.8M              1.           $577.9M
                                                                                                      (Received overnight)
                                      5.           $922.1M              2.           $605.1M
                                                                        3.           $614.0M          Rank        10-yr NPV
                                      6.         $1,141.8M                                                                    End of Day Two
                                                                                                          1.        $522.9M
                                                                        4.           $620.2M                                  Final Bids
                                                                        5.           $702.8M              2.        $556.8M
                                                                                                          3.        $577.9M   Rank       10-yr NPV
                                                                        6.           $733.1M
                                                                                                          4.        $605.1M     1.         $473.3M
                                                                                                          5.        $614.0M     2. MTU    $XXX.XM
                                                                                                                                3.         $529.0M
                                                                                                                                4.         $549.4M
                                                                                                                                5.         $565.2M
  Potential business partner received feedback that they did not make the cut to the next stage of negotiations




                                                                                                                                                 27
Completed: Engines - Estimated annual cash flows: calendar year
The team will achieve $354M in NPV savings over the life of the contract. In the short term,
savings will amount to $4.3M in 2005 and $17.4M in 2006.

  Estimated Annual Spend on Engine Maintenance* – 2005 to 2015
  $M; incl. LRUs and LLPs; based on MTU’s FHA final bid; calendar year results




                           10-Yr Savings
                          Avg of 42% savings




             (2nd half)                                                                                  (1st half)

  Annual       23%           34%       40%      45%        39%        44%        51%   38%   45%   49%      50%
 Savings

   JetBlue & MTU have negotiated a revised rate based on the V2500 Select and
   have extended the agreement by 5 years.                                  28
                                A320 Component Repair Costs was another growing cost factor




                                      Savings versus Ease of Implementation                                                                                                 LRU Repairs also
                                      Size of Bubble = Projected 2005 Spend ($ Millions)                                                                                      loomed large
                                5.0

                                                                                                                Airframe
                                4.0
                                                                                                               Maintenance
                                         Rapid Sourcing
                                3.0
                                         Value Sourcing
Savings Estimate ($ Millions)




                                         Projected Growth
                                         Over Time1
                                2.5
                                                                                     Hotel                                                                 Powerplant

                                                             Hardware      New Buy
                                                             Expenses       Parts
                                2.0                                                                        Component                                Insurance
                                                                                                             Repairs
                                                                          GSE

                                1.5
                                                                        Janitorial
                                                                        Expenses                                             Workers                          Facilities
                                                                                                                           Compensation Catering Food        Construction
                                                                                                                                         & Beverage
                                                                                 Facilities Skycap
                                1.0               Promotional                   Maintenance Services                       People
                                                   Materials                                 Fees                          Services
                                                                                                                                        Aircraft Deicing    Benefits
                                                                                                     Aircraft
                                                 Printed Materials                                   Cleaning
                                                                                                                                                       Into Plane
                                0.5              Mail Services       Security &                 Ground         Advertising and
                                                                                                                                         Telecomm         Fees
                                                                     Screening                  Handling         Media Buy
                                      Crewmember Recurring Office                                                                Training
                                      Transportation Expenses                               Line
                                                                                         Maintenance                                                        Professional Services
                                                                                                   Furniture
                                 0
                                      EASY                 Crewmember                                                                                           DIFFICULT
                                                           Recognition                       Ease-of-Implementation

                                                                                                                                                                                               29
   MTBRs Data highlights the impact of changes to engine MTBRs on the projected cost.




       Projected annual T&M LRU maintenance spend                                                         MTBR                 Total
       Annual Spend ($M); Based on various MTBR scenarios                                                 Used        NPV      Cost

                                                                                                                      $597M   $1,170M
$180     Factors:
         Key Variables         JetBlue     Bidder Date                                                                $557M   $1,084M
$160     1. MTBR
         2. Replacement rate
$140                                                                                                                  $427M    $840M
         3. Cost assumptions


$120                                                                                                                  $399M    $777M

$100
                                                                                                          Baseline    $316M    $628M

$80


$60


$40
                                                                                                   MTBRs also influenced replacement rate
$20


 $0
        2005       2006    2007     2008     2009        2010   2011   2012   2013   2014   2015


                   MTBRs make a substantial difference in bids.
                                                                                                                                   30
          Overview of bids soliciting both T&M and FHA rates in sequential phases.




           Segments




Bidders




                                                                                     31
Contract type discussion
Depending on the type of contract chosen, risks may or may not be shared between
JetBlue and its selected partner(s).




Contract Type   True T&M                 Material                  Not to Exceed              NTE & MMA                  Flight Hour
                                         Management                (NTE)                                                 Agreement (FHA)
                                         Agreement (MMA)

Risks           1. Labor rates                                     1. Labor rates             1. Labor rates             1. Labor rates
Transferred     2.Fixed labor charge                               2.Fixed labor charges      2.Fixed labor charges      2.Fixed labor charge
to Supplier
                                                                   3.Labor hours              3.Labor hours              3.Labor hours
                                                                   4.Transportation costs     4.Transportation costs     4.Transportation costs
                                         5.Material costs                                     5.Material costs           5.Material costs
                                                                                                                         6.Shop visit rate
                                                                                                                         7.Shop visit ratio

Pros              No PMA parts             Control MMA costs         Limits high end costs      Controls everything        Complete cost
                  Limited DERs                                                                  except shop visit rate     transparency
                                                                                                and ratio                  Incentives aligned

Cons              Limited cost control     No control over labor     Strategic negotiation      Strategic negotiation      May or may not pay
                  No incentive             costs or shop visit       of the ceiling instead     of the ceiling instead     a between 0 to 6%
                  alignment for            rates                     of the lowest price        of the lowest price        premium for FHA
                  material or labor                                  Incentives are not
                  hours                                              aligned
                  Increased JetBlue
                  workload



         MTBR can only be controlled via a FHA


                                                                                                                                                  32
Negotiation leverage points
Exclusivity, strategic importance, and volume create true leverage when negotiating deals




 Strong leverage

 Limited leverage                                                          Leverage strength

           Leverage   Exclusivity      Strategy                        Volume-related
           Elements
                                        Strategic
                      Minimal Out                        Future            Length          Volume/
                                     Importance of
                       Clauses                        LRU Purchases      of Contract    Single supplier
Contract Type                         Arrangement


True T&M


Material
Management
Agreement (MMA)

Not to Exceed
(NTE)


NTE and MMA


Flight Hour
Agreement (FHA)



Estimated Value         1 – 3%          2 – 5%                             5 – 15%

                                                                                                          33
A320 LRU Sourcing



                          JetBlue’s Objectives


             • Secure sustainable sources for high quality
               maintenance

             • Reduce costs throughout component life
               cycle

             • Control TAT

             • Service: GCP 2000 or better

             • Include freight

             • FOD

             • Scrap Replacement

             • Assign warranties to lower FHA rates

             • Maintain relationships & leverage with OEMs

             • Reduce administrative costs

             • Predictable costs
                                                             34
Key Dates




                                                                                                  Key Dates



     April 18th           April 19th      April 20th               April 21st           April 22nd



 Initial bids received


     April 25th           April 26th      April 27th              April 28th           April 29th

                                                                                       LRU workshop
                         IP package out                                            Determine top bidders to
                                                                                    invite to negotiations


      May 2nd              May 3rd        May 4th                   May 5th              May 6th


                                               Two day LRU negotiations            Begin evaluation IP
                          Draft MOU
                                               Select business partner(s)                offers


      May 9th              May 10th       May 11th                 May 12th             May 13th


                         Begin drafting                          Second round
                           contracts                           discussions on IP


                                                                                                              35
Quantitative Scorecard:
Please review your first round of bids and submit updated bids on or before the first day of
negotiations. Note that you are currently the leader in the Engine segment.




                                                                                               36
FHA Agreement Face-to-Face negotiations: Day two schedule
On May 5th 2005, we will hold the second day of negotiations with the five top suppliers
identified on Day One.



               Room TBA         Room TBA        Room TBA

                                                                    There will be a 35 minute meeting
11:00 am –                                                          for each of the top five Business
              Supplier #1
11:35 am                                                            Partners

                                                                    Five minutes before the start of the
11:40 am –
                              Supplier #2                           meeting, a JetBlue representative
12:15 pm
                                                                    will greet potential Business
                                                                    Partners in the downstairs lobby
12:20 pm –
                                               Supplier #3          We have planned for ten minute
12:55 pm
                                                                    intervals between each meeting

1:10 am –                                                           At the end of the day, we will
              Supplier #4
1:45 pm                                                             request the best and final offers
                                                                    from each of the potential Business
2:00 pm –
                                                                    Partners
                               Supplier #5
2:35 pm



4:00 pm               Receive best and final offers


               Senior Executive from selected Business
4:30 pm –
                Partner to meet with senior leadership
5:30 pm
                             Sign - MOU
                                                                                                           37
     A320 Components were segmented by OEM.




              Bids by segment, July 2005 – June 2015 ($M)
                               winning bidder

             Segment
                                                                                                             Hamilton              Kid-
                Messier          Honeywell           Liebherr          ACM           Goodrich       Airbus               Smith             Diehl   Engine   Other
Bidder                                                                                                       Sunstrand           Systeme

Baseline

Air Canada

Lufthansa

Air France

Barfield

ST
Aerospace
Goodrich

Honeywell
Hamilton
Sunstrand
Liebherr

Messier

Smith
Kid
Systeme

                                                                                                                                                                    38
             • Based on 4,190 effective flight hours (EFH) per year; assumes no price escalations
                          A320 LRU FHA




• Having made 12, ten year awards, we found contract
negotiations dragged on due to constraints from our contracts
negotiations team




                                                                39
                           A320 LRU FHA




•Eventually, all contracts were executed and remain in
place today

• Minor modifications have been made to one or two to add
or remove components

• Since 2005, JetBlue has negotiated several more FHA
rate agreements
     • APU
     • Nacelles
     • Thales avionics
     • E190 Wheel Tire& Brake




                                                            40
                      Achievements under FHAs




•   Nearly $750MM in savings
•   Highly predictable maintenance costs
•   Transfer of risk
•   Alignment of incentives with business partners
•   Eliminated thousands of quotes and invoices
•   Simplified warranty administration




                         Airport Services on Cost / Flight Pricing



                                                                     41
                                 Cost Per Flight (CPF)




                                                   Despite seasonality,
                                                    JB pays equal flat
                                                         monthly
                                                          fees




        Cost Per Flight (CPF) = Seasonal Troughs Cost Management
    CPF is a fixed rate that is multiplied by the total monthly flights to get the total cost for that specific month.
        •CPF addresses the seasonality factor where JB’s costs fluctuate based on the flight volume.
•With advance communication from JetBlue, Business Partner would be able to optimize their resource allocation.
 •CPF remains the same regardless the number of flights. This provides flexibility for the provider to have fix labor
                          rates and only adjust hours distribution based on JB’s demand.


                                                                                                                         42
                                Cost Per Flight (CPF) – cont.
              Resource Allocation
                 Fixed Hours


                                                                   Skycap &
                                                                    Skycap &
                                                                   Wheelchair
                                                                    Wheelchair
                                                                      RFP
                                                                       RFP

                                             Resource Labor Rate




                                                                   Cost Per Flight (CPF)




     Potential provider
    will adjust resources
       based on flight
     volume demand




(Resource Allocation Fixed Hours * Resource Labor Rate) / Monthly Flights = Monthly CPF
                                                                                           43
Service Level Agreements (SLA’s)




      Various financial penalties will be imposed in case the contractual SLA’s are not maintained

                                                                                               44
What’s Next?




               45
Thank you! Any questions?




                            46

				
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