1. SATS and Life Cycle Cost Research, 1999-2004 Robert N. McGrath, Ph.D. Embry-Riddle Aeronautical University Daytona Beach, Florida

2. Presentation Agenda SATS Background Baseline Study Interim Studies Latest Study Conclusion

3. NASA’s Premise “One of the most significant emergent forces in the first decade of the 21 st century will be the value of human time … human/intellectual capital [will replace] physical capital as the basis for the creation of wealth.”

4. NASA (continued) “… significant advancement in doorstop-to- destination speed … is possible, if the challenges can be met for making small aircraft and airports more available to the traveling public … enabling technologies include a new generation of engines, avionics, airframe, navigation, communication and operator training.”

5. SATS Small Airplane Transportation System Airplane-based personal transportation Ultimate vision: substitute for autos Near term: industrial / govt. niches NASA+industry+academia+public sector

6. SATS System

7. SATS’ Classic Catch-22 Radical Technologies usually Come from new entrants Are costly Underperform early Favored by pioneers for the ‘sizzle’ Mature Technologies usually Are advanced by incumbents Are very cost effective Have run out of potential Favored by mass markets

8. Life Cycle Cost Studies 1999-2000: funded baseline to study aircraft costs - very abstract 2000-2002: unfunded independent research to include the value of time 2003: funded study into air taxi as a near-term niche

9. Baseline Study (1999-2000) Seven configurations of technology, method of ownership and operation About 75 independent variables CER’s mostly extrapolations NASA’s vision feasible … given theoretical constraints about pricing, production strategies

10. Baseline Conclusions Impressive gains in total cost of ownership But mass-market not in the near-term future Keys Aircraft prices Fuel and maintenance Business and operational assumptions

11. Interim Independent Studies … what about ‘time?’ Used the original model as baseline Modified to include value of time and compare SATS Bizjets to executive travel on airlines Modified to include value of time and compare autos and SATS Bizjets

12. What is the Value of Time? Extant research nonexistent Employee time assumed in Bizjets Aircraft modeled in Travel$ense Samples of city pairs capturing likely trip ranges Various levels of cost

13. Interim Conclusions Without considering the value of time SATS often appeared competitive in some costs When considering the value of time SATS often appeared superior in many costs by wide margins

14. Without “Time”

15. With “Time”

16. The 2003 Study One of several “business case” studies Not macro/market/economic … … Focused on an air taxi business Compared an entrepreneur’s choice of Beech Bonanza 33 (4 seats) Beech King Air 200 (8 seats) Eclipse 500 (6 seats)

17. Beech Bonanza 33 Eclipse Bonanza

18. Beech King Air

19. Eclipse 500

20. The 2003 Study (continued) Hypothetical Air Taxi Enterprise Today’s “rules of the game” Minimal “SATS” infrastructure Two strategic objectives Low overhead / organizational infrastructure Operating capacity large enough to exploit possible economies of scale … 10 a/c, 6 flights/day, 10 year life cycle

21. Life Cycle Costs $,000Bonanza 33King Air 200Eclipse 500 LCC71,293242,919101,524 ~Acquisition6,90454,10314,479 ~Operations64,389188,81587,044 ~~Variable49,787151,71467,067 ~~~Fuel13,95543,14849,212 ~~~Mtce.23,44499,57330,046

22. Cost-Effectiveness Analysis Three measures Cost per Mile Cost per Seat Mile Cost per Hour

23. Cost Effectiveness $DOC perBonanza 33 King Air 200 Eclipse 500 Mile.792.411.06 Seat Mile.20.30.18 Hour149762442

24. Cost Effectiveness (continued) Load factors affect business viability of a/c In the enterprise, the market was assumed constant … … i.e., regardless of a/c chosen, the same # of passengers would board

25. Varying “Load” $DOC perBonanza 33King Air 200Eclipse 500 Total Seats.20.30.18 … less pilot.26.34.22 … less 1 pax.40.27 … less 2 pax.79.48.35

26. Load Factor C-E Summary Extraordinary degradation as passengers removed The fewer the total seats, the greater the effect Eclipse emerged as the best, Bonanza and King Air became comparable Many “mental experiments” can change conclusions

27. Sensitivity Analysis Above pointed to uncertainty/risk in: price fuel maintenance capacity utilization (or scale economy)

28. Sensitivity Analysis

29. Air Taxi and SATS Technology must be aligned with capacity must be aligned with market share Business innovations (models) are needed as well as technological and marketing innovation

30. Conclusion Markets, technologies, etc. will show dynamic and recursive cause and effect SATS is proceeding in ways that business theory explains well … Models of technology / industry cycles are robust