Aerospace I n frastructu re at Tulsa I nternational Airport

Review of Proposed lmprovements and Equipment Acquisition

March 1,2012

Submitted to:

Tulsa Metro Chamber of Commerce

Submitted by:

ICF SH&E
Ohe Main Street, Cambridge, MA 02142

Onc Mairr Street

r 1.6 17.21 8.3500

; Clantbridgc. MA 02 l-ll i USA office i n t .617.2 18.3600 tar

ictl,cotrtlal'iation

infoiTi,icfi .conl

March 1,2012
Mr. James Fram Senior Vice President Tulsa Metro Chamber of Commerce Two West Second Street Suite 150 Tulsa, Oklahoma, 74103 Dear Mr. Fram,

to conduct a high level due diligence assessment of certain proposed aerospace facility
1.1 Spirit AeroSystems aircraft manufacturing complex (referred to as the "Spirit Complex") and,
1.2 American Airlines aircraft maintenance campus (referred to as the "AA Campus").

ICF SH&E ('the Consultant") has been engaged by the Tulsa Metro Chamber of Commerce ("TMCC") and equipment improvements located at Tulsa lnternational Airport (the "Airport") for two businesses:

On February 23'0,2012, jointly with TMCC staff, the Consultant conducted a visual inspection of the two facilities, the AA campus and Spirit complex, and reviewed the cost plans and equipment lists for facility improvements requested by these two organizations. On the basis of this high level review, and our general industry knowledge, the Consultant has assessed the proposed facility and equipment improvements. This letter provides our preliminary opinion regarding the reasonableness of the proposed costs, and the benefit that these improvements may have in increasing the marketability of these facilities for use in aircraft maintenance and/or aerospace manufacturing. The cost of the proposed improvements are as follows:

Tulsa lnternational Airport Aerospace lnfrastructure lmprovements (in US$ Milions)

Location
Spi rit Complex

Projects

Cos

t
1o% 38% 52%
LO0%

M Ca mpus M Ca mpus
Total lnvestment

structure Bui ldi ng lnf ra structure Eq ui pment I mprovements

Bui ldi ng lnfra

S lo.e S Bzs s L1,4.4 s 2L8.2

above, approximately 90% of the proposed improvements are for American Airlines, with 48o/a designated for modernization and improvement of aviation equipment. The balance of the improvements are proposed for the repair and maintenance of aviation facilities. A detailed list of improvements is presented in Attachment A of this letter.

As shown

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lnte.nalional Comoany

lmprovement to the Spirit Complex Facilities

Spirit AeroSystems occupies some nine buildings on the eastern portion of the Airport. The buildings comprise part of a larger compound originally built by the US Air Force in 1941 to manufacture military aircraft (referred to as "Air Force Building 3"). The manufacturing facilities are currently used by American Transportation for the manufacturing of school buses as well as by Spirit AeroSystems for the manufacturing of civilian and military aircraft components for a range of customers.

Air Force Building 3, some 70 years after construction, remains one of the largest aviation manufacturing facilities in the country, with significant wide span open space to facilitate the
manufacture, assembly and transport of large aviation components. The building appears to be well maintained by the tenant, with major investments in building infrastructure and state of the art manufacturing equipment. According to Spirit, the company has invested more than US$100 million in capital improvement in facilities improvements and equipment in Tulsa since 2005, and anticipate the need for an additional US$ 95 million between 2012 and 2017, of which US$ 21 million will be for the repair, maintenance and upgrading of facilities. The company will spend up to an additional US$ 195 million in capital improvements, if certain civilian and military aircraft contracts are won. The company currently employs more than 2800 employees at these facilities. The requested improvements fall into four categories, as described below.

Spirit AeroSystem lnfrastructure lmprovement Program 2012 to 2017, (in US$ Millions)
Type of Project

Cost s
S
S

Roof Replacement HVAC System Upgrade Electri ca I & Lighti ng Upgra de Other Ma intena nce/lmprovements
Tota
I

4.8
5.2

6.5 4.2 20.9

Spirit proposes approximately US$ 4.8 million in a roof replacement program. Some of the buildings possess original roofs, and other buildings have roofs that are past their planned life and need replacement. Similarly, HVAC systems, electrical and lighting systems in certain portions of the facilities are antiquated, in poor condition, in some cases inadequate or represent safety hazards. Spirit proposes approximately $1 1.8 million in upgrading these systems. The remaining US$ 4.2 million represents paving (US$ 1.7 million), door and bridge crane replacement of (US$1.7 million), and other improvements (US$ .8). The proposed investments in Spirit facilities are largely for building maintenance and systems upgrade necessary for Spirit or for any other aerospace manufacturing concern that might lease this space in the future. Attachment B includes a presentation provided by Spirit to the consultants which details the amount and timing of the required investments. The capital costs are to be used for sustaining existing operations and to address potential improvement required for specific manufacturing contracts, such as infrastructure to accommodate new production lines.

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Environmental issues such as asbestos and PCBs can have a significant cost impact on improvements to aged facilities like Air Force Building #3. Any modifications will need to include a contingency for abatement or containment of existing environmental conditions which could otherwise hinder enhancements, limit the use of the facility or diminish quality of the work environment. Specific lease language may be required to address terms of responsibility. lmprovement to the AA Campus Facilities
American Airlines occupies a large complex of aircraft hangars, back shops and storage buildings on the east side of the Airport, north of the Spirit complex. American has been located on these premises since 1946, and over the years has constructed a range of facilities to support the aircraft maintenance of the American Airlines fleet. For many years the Tulsa AA Campus has been largely dedicated to the maintenance of their narrowbody fleet (MD 80, 8737, and 8757 aircraft), as well as certain engines and components. American is in the process of upgrading and modernizing the AA Campus to support other aircraft. However, at present approiimately 60% of the maintenance work done at Tulsa is to support the MD 80 fleet which is anticipated to have their scheduled retirements accelerated in favor of more modern new generation aircraft.

ln total, the AA Campus requires approximately US$ 82 million in infrastructure improvements. The needed work ranges from electrical and utilities upgrade, roof repair, aircraft ramp repair, improvements to support environmental requirements, to consolidating certain composite operations in a single location to make American's operation more efficient. The AA Campus has 23 hangar bays to support narrow body aircraft maintenance of its fleet. Four of the hangars can support larger aircraft maintenance up to Boeing 757 type. The remainder of the hangars have historically been used for MD 80 and 8737 aircraft repair and overhaul. Since the MD 80 has a lower tail height that American's replacement aircraft (8737's and A320's) the hangar facilities must be modified to support the carriers' current fleet. American has started an initiative to modify hangars- but 5 hangars remain to modify at a cost of $10.8 million, which is included in their proposed capital investment program. AA Campus lnfrastructure lmprovement Program 2012to 2017, (in US$ Millions)
Proj ect Type
Cos

ectri ca I Upgra des Roof Ma intena nce Aircraft Ramp Repair Blast Fence Repair Fuel Farm Access Road Utilities Upgrade
El

s S S S S S $
$ $

t
2.0

1o.o 1s.o 0.6 0.8 2.s s.o

EnvironmentaI Capacity - Waste Water Envi ronmenta I Ca pa city - Pla ti ng 8737 Ha nga r Modificati on APU Test Cel I Upgra de Expa nd a nd Consolidate Composites Total lnfrastructure

Ls;
10.8
2.5

18.0 82.9

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A review of the specific infrastructure improvements are described below: Electrical lnfrastruct\re [Jparades: Existing switchgear and circuits in certain facilities are 25+ years old and are beyond the expected life for this infrastructure. Continuity of electrical systems from

substations to the branch circuits including the grounding is potentially suspect. As a result of the age of the systems, replacement components to support the existing electiical work are scarce and expensive. Grounding_of the building electrical system could be compromised due to the age and corrosion of conduits. Depending on the era of lighting systems and transformers, there may ilso be presence of PCB's. ln addition existing systems may not be in compliance with NFPA +0g and NFPA 70, the National Electric Code. This investment is part of an ongoing capital improvement plan to -Consistent

provide adequate power distribution for current operations. and clean power is instrumental to supporting aviation maintenance operations. However, we have been provided
insufficient detail to assess the reasonableness of the proposed cost.

RoQf Maintenance: A partial 2004 roof evaluation report was provided. The existing coal tar built up roof system, which in some areas may be +45 years, is well beyond the reasonaUtJtite span for this system. lt is anticipated full replacement is a high priority as multi-million dollar aircraft and equipment are maintained within the facilities. Significant capital costs dedicated to such improvements reduces the availability of resources to aircraft maintenance. Water penetration into hangars and shops can damage aircraft components and equipment. Deferring maintenance can limit the flexibility hor the use of space and diminish the value of the assets. Consideration must also be given to potential environmental hazards such as asbestos. Actual areas and costs will need to be vLrified. We have been provided insufficient detail to assess the reasonableness of the proposed cost.

Air.craft.Ramp Repair:The aircraft ramp which the Consultant inspected was initially installed in 1g44, with additional layers applied in 1968 and 1986. lt is acknowledged that poor ramp conditions can result in damage and additional aircraft maintenance costs from FOD (Foreign Objeci Debris). Due to the number of layers and age of the existing ramp, the extent of improvernents and areas of refurbishment will require additional assessment. Strategically located sample borings of the ramp composition will provide a better understanding of the extent of improvements required. Ramp costs need to include the cost of maintaining current operations and movement of aircraft during construction. ln addition, the proximity of the ramp area in question to the engine run ups increases the risk of aircraft damage. Ramps are visual indicators of the overall quality of aviation/MRo facilities. Refurbishment would have a positive impact in attracting third party opportunities. However, we were not provided sufficient information to have an informed opinion as to the reasonableness of the price.

financially evaluate the option of complete replacement. Consideration needs to be given to the type of aircraft that can be supported. Capacity for wide body aircraft engine run up areas can provide third party opportunities, but must be measured in consideration of environmental impacts, prevailing winds and engine criteria. We have been provided insufficient detailto assess the reasonableness of the proposed cost. Fue! Farm Access Road: Current method of accessing fuel farm is through the aircraft ramp with trucks operating on the secure portions of the airside. The cunent solution requires stationing oi a full time security person to secure the access point, which is costly to American Airlines. Basel on the proposed approach to maintain airport security, there is a TSA requirement for an infra-red monitoring

fences. A structural assessment may be needed to determine the life span of the systenis

Elast Fenqe Reoair: The improvements described are for immediate refurbishment to existing blast
and

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system of the airside access. Final costs to be confirmed upon approval of system by TSA. lmprovements should take into consideration the suggested ramp repair work and opportunity for efficiency and flexibility of operations. A master plan of aircraft movements, operation'sequencing and vehicular circulation is suggested. We have been provided insufficient detail to assess the reasonableness of the proposed cost.

will require further analysis of lost productivity to confirm cosVbenefit of project. A solution for
minimizing operational costs may include redundant power in the form of a dedicited generator and a stand-alone water tanUpump system. However, we have been provided insufficient detail to assess the reasonableness of the proposed cost.

Utilities Upqrade:lnclude redundant electrical and potable water service to the APU facility. This area

EnYiroqnlental Caoacitv - Waste Water: The list of improvements provided by AA includes maintaining compliance with current regulations and opportunities for reducing the annual operation cost for waste handling. Environmental compliance and capacity would be very attractive feaiures for potential tenants and those interested in offering maintenance services at this location. We have been provided insufficient detail to assess the reasonableness of the proposed cost.
Environmental Capacit:r -.Platino: The current facility was built in 1g87. An assessment provided by Wallace Engineering in 2011 described various structural issues to the building systems due to corrosion in addition to the plating system equipment. A capital request has also teen made for an exhaust air scrubber to terminate the release of chromic acid directly into the air to comply with environmental regulations. Consideration must be given to both the environmental and worker safety compliance when contemplating improvements to these systems. Material storage, material handling, waste handling, HVAC, electrical, underground plumbing may all require improvements in order to meet current regulations and standards. Capital plans will need to include a comprehensive assessment of the entire facility and system. We have been provided insufficient detail to assess the reasonableness of the proposed cost.

8737 Hanqar Modification: The planned modifications to the existing hangars to accommodate the 8737 will provide flexibility for both line and heavy maintenance operations. ln addition, the improvements afford the opportunity to maintain the A320 family and other manufacturers of narrow body aircraft. The existing costs are based on what American has paid for similar ongoing hangar modification. Therefore, while there is insufficient detail for us to assess the reasonabieneis of [ne proposed cost, we believe that American is able to estimate this based on past experience. APU Te.st Cell Uoorade: lmprovements to include hardware and software systems to support current levels of productions, new capabilities lor B777 APU's and potentially provide third party services. We have been provided insufficient detail to assess the reasonableness of the proposed cost.

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capabilities American provided a list of equipment which will be needed to upgrade and enhance the 80 rep_air and maintenance to of the AA Campus and move ti-re base capabilities from largely MD_ and Boeing 787)' A support the cariie/s future aircraft fleet (Boein g 73! : Airbus 320 and Boeing 777 generation aircraft, signiticant portion of the equipment locaied at ilre AA Campus cannot support new maintenance to be is-antiquated, and not efficient. ln order to prepare for the new generation aircraft done in-house, certain upgrades and new equipment will be required.

ffiUpgrade
Engi ne
La

Program 2012 to 2012, (in US$ Millions)

Cost
1,5.0

Proiect Tvpe Engi ne Test Cel I Upgra de Ma chi ni ng Equi Pment

5
S

3.0 0.7 1.9 2.2 2.0

ndi ng Gea r

Machine Shop
Components RePa i r
CTS-182 ATE Elec Power Generator Test Cell CRC Equipment WBC Equipment Expa nd CRJ La ndi ng Gea r Ca pa bi lities I mprove La nd i ng Gea r Performa nce 8757 /757 APU Capabilities CFM Dis k I ns pection Ca Pa bi I ities
Avi oni cs Test Equi Prnent

S S

0.4
2,6 2.8

s
$ $
S S S

4.8
L.2 0,5 2,0 3.0 3.3
f!

New ATE lRlS 1200 New ATE ATEC 6

$ $ $
S

Build Total
E

GENEX

Test Cell

GENEX

engine tooli ng & tra ini n

50.0 9.0 LL4.4

the AA Campus' lt Test Ceil tJpqrade: The existing Test Cell#"4 is the main engine testing facility on will is principally used to support existing MD 80 and Boeing 157 aircratt The proposed upgrade will 320 fleets which allow American to maintain new generation used on the Boeing 737 and Airbus for 3d party engine w.9t!1: lf American is unable *"ll as compete be American principal fleet type, not be they to upgrade this equipment, then "t will be forced to outsource thele activities and also will provided sufficient information to able to insource work. Regarding cost of this upgrade, we were not make a reasonable price comparison

in machining Machininq Eouipment: American is looking to purchase.approximately US.$.5.8 million million), ianding gear maintenance (US$ .7 million), equipment to support engine maintenanc" [usS 3 will and layout improvemenls to the machine shop (USS1.S million). The machining equipmant than 50%, improve the clean reduce the blast time to support certain engine maintenance by more party process and make it more environmentallyiriendly.and well as allow the potential to do third that is maintenance. The new landing gear equipment will replace old and antiquated equipment and cleaning tacing the end of its life. The layout impr'ov'ements will reduce the turn time in stripping

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components, increase capacity and make the process more efficient. While we were not provided a detailed equipment list for all items looking to be purchased, for those items that were presented, there were cost estimates which SH&E found to be reasonable. Component Repair Equipment: American is looking to purchase approximately US$ 4.6 million in new component repair equipment : Avionics Test Equipment (ATE) CTS 182 US$ 2.2 million, an Electric Power Generator Test Cell US$ 2 million and CRC Equipment US$ $.4 million. ICF SH&E has seen comparable prices for the CTS 182 of US$ 1 million in 2007. However, insufficient data was provided on the other two pieces of equipment to make a reasonable price comparison. Wheel and Brake Center (WBCI Equipment: American is looking to purchase approximately US$ 2.9 rnitlion of new (US$.a mittion; and replacement (US$ 2.6 million) equipment for their existing wheel and brake center. Wheel and brake overhaul is a process intensive activity that requires numerous pieces of equipment for break down, cleaning, grinding, milling and reassembly. The new equipment is intended to improve the cycle time of parts thru the shop, the replacements are for equipment that is anywhere from 10 to over 40 years old. All equipment was quoted separately and the cost quotes are found to be reasonable to lCF SH&E. Landino Gear Reoair Equioment: American is looking to purchase US$ 7.6 million in landing gear repatr equpment, $4.8 million to improve landing gear performance and US $ 2.8 million in equipment io expand CRJ regionaljet landing gear capability. Similar to the Wheel and Brake shop, landing gear is a process intensive shop with numerous types of equipment required. We were not provided with a detailed equipment list and are therefore unable to validate the cost estimates.

8T5T/8767 APu Capabitities: American is looking to purchase US$ 1.2 million of Auxiliary Power Unit

@equipmentwouldbeusedtoperformrequiredtestsonAPUsaftertheythe in house. !n addition,

ieturn from overhaul. This work is outsourced today and could be brought test equipment would allow the APU shop to solicit 3d party work that is not currently done by American. The specific type of test equipment was not specified, thus there is insufficient information to evaluate the reasonableness of the cost quotation.

CFM Disk lnspection Caoabitities: American is looking to purchase approximately US$ .5 million is engines'Thedisksonanenginearehighlyengineeredproducts inspection equipment to detect microscopic defects. The specific repair that require very specialized equipmenUcapanitities that American is seeking were not provided, thus a validation of estimated cost
is not possible.

ffiequipmentwillallowinhousetestingoflatergenerationBoeing be 231t75i1767t777 aircraft. lf the equipment is not purchased - this testing will continue to perform on newer
testing outsourced for existing components and restrict the ability of American to type of equipment to be purchased, thus fleet types. lnsufficient detail on the specific comparison was unable to be performed.

Avionics Test Eouioment: American is looking to purchase approximately US$ 2 million in avionics

a pricing

New ATE tRtS 12AA/ATE ATEC 6 Eouipment: American is looking to purchase US$ 6.3 million in

irrelnls1200atUS$3'3mi]lionandanATEc6atUS$

3.3 million. These price quotes appear high for both pieces of equipment. ICF SH&E has received price quotes about 50% lower for the basic units. However avionics test equipment is sold as the basic unit with software costs added onto the basic unit price. The software determines what fleet

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types can be tested and what parameters can be tested. There can be large variations in price especially when adding capabilities for new fleet types such as the 777 and 787 . lnsufficient data was provided to perform a more accurate comparison.
GEnx Test Cell/Toolinq and Traininq: This new test cell (designated as test cell#5) will allow capacity for American to support engine testing and maintenance on aircraft engines used in the Boeing 787 aircraft. American has firm orders for 48 of these aircraft with options for an additional 100 aircraft. There is also the intent to enter into a joint venture with General Electric to maintain third party engines. The test cell would be an enhanced capability for the AA Campus and potentially could attiact additional third party work. There are anticipated to be only a limited number of GEnx test cells in the US and this would encourage not just engine work, but also other leading edge airframe and component maintenance on next generation aircraft. However, we are uncertain regarding the cost of the test cell. We were provided only a summery level of information and would require a more detailed breakdown as to what is being proposed - before we could provide a realistic opinion of cost reasonableness.

Conclusion
Overall, the above referenced infrastructure improvements are necessary to repair, maintain, and upgrade the facilities to modern standards so that they can be more effectively used by the existing tenants, or any other party in conducting aircraft manufacture or maintenance. The buildings are well along in their useful lives and require investment simply to remain functional.
Regarding the equipment purchase, the list is important if American is to shift the focus of the Tulsa AA-campus from supporting its existing fleet to the fleet that the carrier is in the process of acquiring. Today approximately 60% of the maintenance work done at Tulsa is to support the MD 80, an aircraft type wnich will be retired over the next five years. Without facility and equipment upgrade of the Tulsa An Campus to support American's future fleet mix, the carrier will be forced to move a significant portion of the work to other bases, or contract the work to third parties. Much of the equipment proposed by American is sufficiently generic so that it could be used by other maintenance providers, should American discontinue operation at the AA Campus and would be an added selling point to other aircraft maintenance providers.

Because of time constraints and lack of detailed information we have only been able to provide our preliminary opinion regarding these investments. We would be pleased to provide a more detailed analysis once specific information and drawings become available'

Sincerely;

Vice President

Aerospace lnfrastructure at Tulsa lnternational Airport. Review of Proposed lmprovements and Equipment Acquisition

March 1, 2012

2,

Ltrurrnnoxs

In order to develop its analysis and conclusions SH&E considered information supplied by tlre TMCC, American Airlines and Spirit AeroSystems, as well as used publicly available data and in-house data
accumulated through other recent studies.

SH&E's opinions are prelimilrary based on our review of the information presented, our analysis, and experience with previous aerospace infrastructure and equipment sales. The information provided was highly incomplete and limited our ability to evaluate the reasonableness of costs. Some of the underlying
assumptions. including those detailed explicitly or implicitly in this report, may not materialize because of unanticipated events and circumstances. SH&E s opinions could, and would, vary materially, should any

ofthe above assumptions prove to be inaccurate.

The opinions expressed herein are not given for, or as an inducement or endorsement for, any financial transaction. They were prepared exclusively for the use of the addressee. SH&E accepts no responsibility

for damages, if any, that may result from decisions made or actions taken by any party. including third parties, based on this report. Any use that a third party makes of this report, its analysis, or the opinions
contained herein, is solely the responsibility of that party.

This report reflects SH&E's expert opinion and best judgment based on the information available to it at the tirne of its preparation. SH&E does not have, and does not expect to have, any financial interest in tlre
proposed irrvestments.

o2011

ICF SH&E