Fleet Strategy

Investor Day 2007 Frankfurt, January 25th, 2007

Nico Buchholz SVP Corporate Fleet Deutsche Lufthansa AG
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Overview

Strategy

Evaluation

Implementation

Conclusion

Lufthansa Corporate Fleet

Is responsible for Fleet Strategy, Development of Aircraft together with the Manufacturer, as well as Aircraft Purchases and Sales within the Lufthansa Group. This includes passenger aircraft from 30 seats to 500 seats cargo aircraft This includes the same activities for the engine market. Additionally the Aircraft Asset Management is also performed along with Aircraft Leasing Activities.

Each market needs a different approach

market driven requirement possible aircraft types
A380 B747-8

83

550 Seater 400 Seater

Longhaul

30

53

200-300 Seater

A350/B787

2006

2010

298
73

150-250 Seater 80-150 Seater

A320Fam/B737Fam A320Fam/B737Fam CRJ/C-Series/EMB/Sukhoi CRJ/EMB/Sukhoi

Shorthaul

119

106

50-70 Seater

2006

2010

Life Cycle: The Airline perspective (> 30 years)

Aircraft Asset Management = Corporate fleet

Plan Buy Fly Sell
Phase-out & remarketing

Strategy/ Operational Rough Early Final Detailed Longterm Planning specification negotiation specification negotiation planning Aircraft evaluation and manufacturer discussions Aircraft evaluation and manufacturer discussions

Contract

Controlling

Finance
Tax Balance Sheet Financing

Source: Corporate Fleet

Life Cycle: The Manufacturer

Perspective

Action here has the most leverage on costs later on, here, in the business envelope of LH.

Concept Development

Program Definition

Detailed Design

Test & Evaluation

Production

Ops & Support

Disposal

80% of costs committed, <15% incurred 1. Engage the LC before acquisition / operations

20% of costs committed, >75% incurred Enhance Shareholder value 2. Acquisition process 5. Disposal process

The majority of leverage into LH s business case appears to be here. This means being proactive as an Airline, early in the LC.
Source: Corporate Fleet Strategy and Aircraft Evaluation

4. Feedback loop to transmit & secure targets set 3. LH b.c during acquisition process Ops process

The STRATEGY of today: focused on delivering the best value proposition for LH and linked to the output of the overall strategy process
Market driven corporate strategy
Maximize shareholder value (network, KSF s (fleet), restrictions (risk + finance)

Max. Value = Fleet Strategy Fleet Strategy

Opportunity, Risk, Scale, Buildup

Situation audit
Gap analysis level of fit (fleet) Potential scenarios fleet development

Benchmark Quantitative Evaluation of scenarios Qualitative

Source: Corporate Fleet Strategy and Aircraft Evaluation

Evaluation of Life Cycle Benefit

Delivery Date
nts

Ca

sh

Op

Technology

era t

Price

ing

Co

st

De ice r eP par S

vel

e opm

LH Strategy

-------

Aircraft Choice
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Definitions as used
Aircraft related MTOW: max permissible weight of the aircraft at the start of the takeoff roll MEW: weight of the structure, power plant, furnishings, systems and other equipment that are considered an integral part of the aircraft MZFW: maximum weight permitted before usable fuel is loaded into the airplane OEW: manufacturer's empty weight plus the operator's items COC: all cost to operate an aircraft (fuel, crew, maintenance, landing and air traffic control fees, except capital cost and insurance) Range: range in still air, in nautical miles SFC: Specific Fuel Consumption = the fuel efficiency of an engine design. It measures the fuel needed to provide a given thrust over a certain period of operation (in kg fuel per lbs thrust) Other expressions Evaluation of an Aircraft: considers technological impacts and COC over the operational life span is not related to price at the initial phase is not linked to strategy at the initial phase Lufthansa life cycle: From Entry Into Service (EIS) at LH until and including divestment from LH Original Equipment Manufacturer (OEM) life cycle = From conception of programme, through production phase, until fleet size has declined to a minimum operational fleet 9

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Passenger Airline: Where we are, how we got there

1970 ------ >>

And where to go
2006 >2014
A380

B747-8

16F/128C

Intercont
115 Seats

200 300 seats wide body

Cont

94 Seats

100 250 seats short haul

70 Seats

Regional Aircraft

Source: Corporate Fleet Strategy and Aircraft Evaluation

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The last long-haul aircraft rollover can be measured. It proved our assessment.
A340-300
TECHNOLOGY

DC-10
1989 Example: A340 vs. DC-10
2-Man vs. 3-Man Cockpit - 8% Fuel-Consumption-Reduction - 25% Maintenance - 9% Extended Range (A340 vs. DC-10) Commonality to A320-Fleet Less Noise More Comfort (unit cost reduction) .
Source: Corporate Fleet Strategy and Aircraft Evaluation

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Overview

Strategy

Evaluation

Implementation

Conclusion

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The target

OEW

Range =

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To manage cost is to understand the levers that impact each cost element
100%

Cost elements have to be measured for their competitive sustainability Fuel Total Maintenance Cost Landing Fees Handling Fees Navigation Fees Cockpit Crews Cabin Crews

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typical cash operating cost (COC) of long haul aircraft

Source: Corporate Fleet Strategy and Aircraft Evaluation

Technology assessment leads to cash operating cost sensitivities over our lifecycle
Progress is expected to focus on detail improvements of aerodynamics, engines, production and systems

Structural/Material
Carbon fibre; Composites New alloys; Glare Laser beam welding Maintenance cost

Aerodynamic/Flightmechanics
Larger laminar area Adaptive wing Riblets Optimized stability Reduction of noise

Cabin design
Lower deck seating New Entertainment systems New Catering Systemes

Engines

Pic-Source: NASA

Fuel burn reduction Slow rotating fan New compressor-/turbine profiles New alloys Variable pitch fan Low emission combustor / double stage burner Noise reduction
Source: Corporate Fleet Strategy and Aircraft Evaluation

Systems / ATC
New Cockpit-Architecture Fly by light Integrated networks & ground data exchange/link More electric / less hydraulic New APU technology / fuel cell Free flight concept

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Impact of Fuel price

Source: TECSON Source: TECSON

Source: TECSON Source: TECSON

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Current programs show a significant improvement in specific fuel consumption (sfc)

1980s 1990s 2000 >2007

Datum =>

Delta sfc (%)

~ 15 % improvement

Source: Corporate Fleet Strategy and Aircraft Evaluation

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Aircraft Maintenance

Engine:

i.e. materials, repair procedures, design of engines, less parts reduce cost i.e. landing gear and brakes, new materials, multiple source and the braking procedures reduce cost self diagnostic maintenance and optimised design reduce cost (i.e. simplified flap system, electrically instead of hydraulically activated)

Components:

Airframe:

*) slices not corresponding to absolut levels

Source: Corporate Fleet

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Dealing with the manufacturers

multiple supplier strategy for key elements

AIRBUS

GE

PW

RR

Bombardier
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Embraer

Sukhoi

Fees

for
Navigation

Landing

Handling

Input

MTOW

MTOW

Payload + Space

As payload is the only driver yielding revenues, thus weights are critical in any evaluation.

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The operating cost chart enables us to easily position comparable aircraft

15% 10%
relative unit cost per seat

Type X shortened
Decrease aircraft size

unattractive area

5% 0% -5% -10% -10%

Type X
New Technology -5% 0%

Increase aircraft size

Type X stretched
5% 10% 15% 20%
relative cost per trip

Source: Corporate Fleet Strategy and Aircraft Evaluation

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Overview

Strategy

Evaluation

Implementation

Conclusion

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Putting strategy and evaluation into practice

Decisions on fleet go beyond economics

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The B747-8 will be helping to optimize the capacity staggering of the Lufthansa long-range fleet, while also offering an attractive cost position

Long haul

550

A380-800 549

450

+ 34% approx. 410 B747-8

B747-400 344

350 + 34% 306 250 221 A340-300 A340-600

+ 38%

Source: Corporate Fleet Strategy and Aircraft Evaluation

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Quiet for Communities

Frankfurt/Main Airport, Germany RWY 25R 85 dBA NADP 1 (ICAO-A) Takeoff noise contours

6000nmi Mission

Hattersheim Kelsterbach

747-8 B747-8
Raunheim

747-400 B747-400
Walldorf

and reducing emissions

Source: Boeing
FRA-11152006001
COPYRIGHT 2006 THE BOEING COMPANY

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Competitive Positioning
Own assets
no cash out for leases and no worry on redelivery cost flexible dispositon and planning for replacement, growth and reduction well balanced mix between depreciated and new assets advantage over i.e. 767 fleets by using the A330 747-8 entry into service in 2010 offers a position close to the larger aircraft first on 747-8 unique fast delivery slot management within the September 2006 order: A320s end of 2007, A330s early 2008

Modern fuel efficient fleet to hedge against fuel price fluctuations

Early delivery dates

Capacity management harmonized through central unit allows less expenditure for requirements across the group Lufthansa, Germanwings, Swiss, use the same aircraft pool Aircraft sizes suited to allow operations on frequency driven routes and size driven routes

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To close: the constant challenge

Planning of invest and capacities requires a long term fleet strategy and a broad horizon. Fleet decisions on types have to satisfy multiple criteria such as taking into account

Homogeneous fleet Economies of Scale Fleet commonality Innovative aircraft

conflicting interests versus Operational flexibility versus Product differentiation versus Risk mitigation/-spread versus Low capital expenditure

The target of Fleet Development: Determine a low complexity fleet, market driven multiple aircraft sizes offering high flexibility in operation and performance while being state of the (technical) art and sustainable highly economical.

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Q&A
Nico Buchholz SVP Corporate Fleet Deutsche Lufthansa AG
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Disclaimer
This presentation is for informational purposes only, contains preliminary financial and other information about Lufthansa and is subject to updating, revision, amendment and completion. This presentation does not and is not intended to constitute or contain any offer of securities for sale or a solicitation of an offer to purchase any securities of Deutsche Lufthansa AG or any other company and neither this presentation nor anything contained herein shall form the basis of any contract or commitment. Certain statements contained in this presentation may be statements of future expectations and other forward-looking statements or trend information that are based on management's current views and assumptions and involve known and unknown risks and uncertainties. In addition to statements which are forwardlooking by reason of context, including without limitation, statements referring to risk limitations, operational profitability, financial strength, performance targets, profitable growth opportunities, and risk adequate pricing, as well as the words "may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, or continue", "potential, future, or further", and similar expressions identify forwardlooking statements. Actual results, performance or events may differ materially from those in such statements. Lufthansa assumes no obligation to update any such statements or any other information contained herein.

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