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AGIFORS

Airports Manpower Planning Case study and Best Practice Sadiq Gillani, Vice President May 2009

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Seabury Aviation & Aerospace


With over 175 professionals, Seabury is the largest global advisory practice dedicated to the aviation and aerospace industries
Founded in 1995, Seabury Group provides Management Consulting, Investment Banking and Corporate Reorganization advisory services to the aviation and aerospace industries Seabury professionals have an unparalleled range of expertise in:
- Strategy consulting; cost reduction; contract negotiations & outsourcing; organizational effectiveness; process improvement; supply chain optimization; M&A advisory; business planning; network and alliance optimization; fleet selection, acquisition and financing; and, investment and recapitalization

Recent or current clients include Airbus, Air Canada, Aveos, Etihad, jetBlue, Frontier, Goodrich, Northwest, Onex, Qantas, Malev, South African Airways, Safran, ST Aerospace, US Airways and Virgin Atlantic The majority of our recent consulting engagements relate to operational performance improvement, business planning and / or corporate-wide restructuring
Comprehensive operational benchmarking across all key functions and cost reduction implementation MRO productivity and supply chain optimization Manpower/labor cost optimization across MRO, Flight Ops, Airports, Catering and Call Centers Business plan development, review and revision for all types of airlines and investors, in all geographies Corporate-wide restructuring / transformation of both distressed and successful carriers

Seaburys proprietary suite of performance measurement and analysis, network, fleet and schedule p planning g tools are considered the best g globally y for in depth p analysis, y , multiple p scenario modeling and supporting rapid decision making

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Seabury Airports capabilities


Seabury has a wide range of Airports capabilities
Build comprehensive transformation plan to improve relative cost position Develop outsourcing strategy for functions within home market Develop labor or union negotiations strategy Identify cost savings or process improvements within: GSE: equipment levels & maintenance Cabin cleaning: cleaning spec, rostering & outsourcing Lounges: footprint, expenses & access Reduce labor cost through review of labor standards, leave planning process, absenteeism and rostering capabilities Improve rostering through optimizing labor mix, cross utilization, penalty hour staffing, shift lengths and shift patterns

Strategic advisory

Ancillary services

Manpower planning

Airports
Operational improvement Client profitability and pricing

M&A / due diligence Conduct due diligence g to assess value from acquiring competitor or merging with partner Evaluate disposal of inhouse Airports

Review airport flows, staffing g levels, , processes, p , productivity and efficiency Support implementation of automation and realisation of benefits Improve mid-handled bags and bag revenue collection

Evaluate client profitability to identify unprofitable clients Determine cost competitiveness of in-house Airports business
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Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Case study: Airports Turnaround


Seabury recently conducted a major transformation of a large network carriers i Airports Ai t division di i i Situation
Major network carrier with a large ground operations business business, also serving third party clients (5500 employees; $0.3B labor cost) Client faced a 25% pure labor rate disadvantage compared to other ground handlers as well as gaps in productivity Airline was about to go through labor negotiations Seabury was engaged to develop a plan to reduce labor cost and improve market competitiveness

Results
1. Identified $50M of profit improvement initiatives across the division 2. Implemented complete transformation of manpower planning at 6 major ports Identified a further 7% of labor cost savings from a port-by-port review Improved coverage of work to enhance service Developed and conducted skills transfer of a 4 person central manpower planning team Improved leave planning process 3. Developed a labor transformation strategy to outsource non-core non core functions and achieve market labor rates for all new hires 4. Demonstrated that third p party y Airports p contracts were priced at 15% below the parent airline and identified unprofitable clients to exit
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Approach
Conducted an in-depth 12 month review to identify, validate and plan initiatives to reduce d labor l b cost t across 4 major j hubs, h b as well as outstations Reviewed service levels, headcount levels, rostering, outsourcing and labor strategy Assessed financial benefits, , operational p impact and IR sensitivity of potential changes Developed implementation pan

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Levers to reduce labor cost


Seabury used a combination of strategies to improve the labor cost position
Labor cost control

Labor rate

Labor productivity

Labor negotiation

Labor sourcing

Process and service level design

Manpower planning

Operations management

Wage rate Benefits Work rules Labor caps Local roster agreements

Outsourcing strategy B-scale Part-time labor Temps

Automation Process reengineering Cross utilization Service level specification

Labor standards d d Demandcapacity matching Shift & roster design Leave planning (sick, training, vacation)

Day of ops planning l i Risk / disruption management Absenteeism Overtime usage Performance management

Client situation
The client faced up to a 25% pure labor rate disadvantage vs. other ground handlers (excluding productivity or seniority impact)
Average ramp employee payslip ($ per hour)
All Allowances
40

Shift penalties 36.1 Overtime 34.7 30 8 30.8 Benefits Base pay 27.8 25.3

30

20

10

0
Airline X Vendor A Vendor B Vendor C Vendor D

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Client situation
The parent airline was paying a 15% premium relative to other airlines using the carriers ground handling services subsidizing competitors
Cost per transit ($) City 1
7000

City 2

City 3

6245
6000

5360
5000 4000
21%

5579 4765
28% 6%

4557

4450 3269
23%

3540

3688 2682
22%

3818 3165 7%

3000 2000 1000 0


Client Airline X Client Airline Y Client Airline Z

Client Airline Y

Client Airline X

Client Airline Z

B747 Ramp

B767 Check-in

B747 Cleaning

B767 Load control

B747 Value add

B767

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Labor transformation plan


We developed a comprehensive labor transformation strategy to improve the competitiveness titi of f the th business b i Consolidate to a core set of services and ports where it can use scale and service advantage to be parent airlines airline s vendor of choice:
Deliver quality and scale of service which cannot be replicated by alternative vendors Deliver ongoing cost reductions to the airline, with the long-term goal of market competitiveness

Review and exit functions where it is unlikely to become competitive and where exit is feasible Implement a market rate for new hires as the driver of true long-term cost p for retained functions competitiveness Deliver airlines desired customer experience and operational performance, particularly through above-wing process redesign and infrastructure investment Address manpower planning and productivity as the primary drivers of short short- to medium-term improvements in service levels and cost Build a team and organisation which has the ability to deliver real and sustainable business improvement

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Labor transformation plan (1 of 2)


Seabury worked hand-in-hand with the client to develop and implement a comprehensive rationalization and internal improvement plan
1. Consolidate to core services and ports Examined each area of the business (by port, function, parent airline vs. 3rd party) to determine gap to full potential, including l d assessments of: f
- Baseline productivity - Labor rates vs. competitors

2. Exit functions where subscale and feasible Based on strategic plan developed, drew up detailed implementation plans for exit of selected non-core functions
- Cabin cleaning - Second tier port ramp handling - All third tier port services

3. Enhance manpower productivity Conducted port-by-port manpower planning reviews:


- Reviewed labor standards to ensure accurate assessment of demand - Optimized labor mix - Revised headcount levels to better cover demand - D Developed l d strategy t t to t exit it surplus employees without redundancies - Improved labor management processes (e.g. annual leave, sick leave, leave recruitment, recruitment training)

Accounting g for financial, industrial, political and operational factors, determined optimal strategy for each area
- Including which areas to retain in-house vs. outsource, where to change labor mix, which third-party contracts to retain vs. exit

Activities included:
- Analytical and strategic support for full RFP process in functions / ports to be exited - Financial evaluations of one time costs (redundancy and setup of new operator) and run-rate savings associated with each exit - Optimal timing and sequencing, political based on industrial and p factors

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

Labor transformation plan (2 of 2)


Seabury worked hand-in-hand with the client to develop and implement a comprehensive rationalization and internal improvement plan
4. Implement market labor rate for new hires C Conducted d db benchmarking h k of rates / grades of client airlines employees against those of their competitors Worked as part of a joint S b Seabury / client li t team t to t determine all potential options for introduction of market rates for new employees
- Regrade functions - New labor vehicle (new fleets or JV) - Wage concessions - B Scale for new hires - Wage freeze

5. Improve operational performance Client had recruiting freeze in place for 3 years
- Created higher cost position through reliance on overtime - Caused deterioration in service levels

6. Build team and organization Created central manpower planning team to conduct more analytical and standardized process across all ports Developed plan to improve quality of management team Setup project office to manage all ll initiatives centrally Substantially bolstered communications program to ensure that employees and stakeholders were kept well informed throughout change process

Developed plan to recruit 280 part-time staff Client had invested $50M in a new silver-bullet rostering system, but had not successfully implemented it
- Required skilling up of central manpower planning team - Ensured that work demand and staffing are systematically matched so as to enhance operational as well as financial performance

Evaluated each option against a matrix of legal, industrial and financial metrics Developed labor rate strategy

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

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Manpower optimization
Optimizing manpower productivity requires a comprehensive review across 4 main areas
Manpower optimization

1. Demand forecasting
Schedule

2. Labor supply

3. Rostering

4. Leave management
Vacation

Full-time

Shift patterns

Passenger behavior

Part-time

Relief lines

Training

Service levels

Temporary labor

Risk management

Absenteeism Performance management

Process design

Overtime

Systems

Standards

B-scale

Capabilities

Third party work

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1. Demand forecasting
Demand is generated from application of standards to the current flight schedule in dynamic areas and compared to roster
Ramp Demand

Key factors: p - Disruption - Load factors - Destinations - Passenger arrival profile - Time Ti of f day/week

Seasonal flight schedule

20

15

Heads

Demand Current 10 Proposed

0 5:00 8:00 11:00 14:00 17:00 20:00 23:00

Key factors: - Service levels - Airport layout - Accuracy of standards - Consistency of standards

Labor standards

Roster

Key factors: - Union agreements - Roster sociability - Fatigue

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

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2. Labor supply: part-time


There are 3 main sources of permanent labor and also have 5 other levers to manage the operation There are three main types of permanent labor available
Full-time, Part-time, Temporary Ramp example
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In addition, managers have other levers to manage the operation without adding permanent labor, which often result in higher cost:
Increasing overtime
Hea ads

60

50

Bringing in contractors, for which no approval is required Working part-time labor as full-time, providing sub-optimal usage of that group Not fully covering demand, demand deteriorating operational performance Denying leave requests, contributing to a build up in leave backlog

40

30

20

10

0 5:00 10:00 15:00 20:00

In most airport divisions there is a shortage of labor, resulting in higher cost through using these levers

8 hr shift better covered by PT 8 hr FT shift Demand 13

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

2. Labor supply: overtime


Overtime is often inappropriately used to cover sick leave rather than operational disruptions
Employees on OT (heads) 40

Other 5% Operational 19%

30

Sick+leave 49%

Uncovered work 27%

20

10 Other Oth Sick+leave Uncovered work Operational


8:00 12:00 4:00 8:00

0
4:00

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

3. Rostering tools
Seaburys experience with rostering tools is that they are powerful planning and operations management systems, but IT systems do not intrinsically produce savings
Benefits Limitations

Increased transparency and granularity of cost drivers and operational ti l performance f Ability to validate and cost rosters with a given set of parameters p Real time workforce management to adjust for operational changes Improved integration with other management information systems

Not an automated solution Rosters manually designed d strategies t t i highly hi hl and dependent on user controlled parameters (incl. work standards, shift structures) Significant benefits require a change in planning philosophy and procedures (e.g. relief coverage, overtime usage, service level tolerance) Talented planners and operational managers, not the system, are necessary to t translate l t d data t i into t savings i

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3. Rostering tools
Maximizing manpower planning benefits from new roster tools requires a complete reorganization
Prepare Revise standards and performance levels across ports to ensure consistency and best practice ti

Implement tool Provide in-depth training for resource planners and allocators and manpower planning and management Provide support during the initial period to make sure planners are able to use system effectively Define and implement leave planning best practice across all ports E Ensure central t l control t l of f new procedures and standards Define responsibilities within h planning l process and d develop central manpower planning team

Leverage tool Conduct a rigorous portby-port re-rostering to achieve a step change in manpower optimization Use the system to proactively monitor and manage performance of workforce and planners Keep standards up-to-date and consistent by regular revisions (e.g. for process, technology or passenger behavior changes) Hold regular training and best practice workshops for system y users

Conduct time-and-motion studies to determine standards for check-in, gate, baggage cabin and ramp baggage, activities Review passenger profiles and behavior (e.g likelihood of checking baggage) Review service levels (e.g. check-in wait times)

Revise manpower requirement for static work areas (e.g. ticketing, baggage room, ticketing)

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4. Leave management: absenteeism


Absenteeism is often highly predictable and can be actively reduced Port A example
Absence by time of day (Wash)
30%
Sick leave is highest on non-penalty day time shifts

Port B example
One day absences (Transport)

300 250 200 150


Fri Th Thu Wed Tue Mon

294
Sick leave is lowest on penalty weekends

25

20

188 141 139 156 98 58

15

10

100 50 0

0 2:00

6:00

10:00

14:00

18:00

22:00

Mon

Tue

Wed

Thu

Fri

Sat

Sun

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

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4. Leave management: absenteeism


Several initiatives can be introduced to reduce absenteeism
Initiative Issue clear communication of what is authorised th i d vs. unauthorised Launch first contact scheme Central leadership & tracking of improvement within each dept. Make supervisors accountable for reducing sick leave Send out letters to those with high Bradford scores or low sick leave Reduce overtime through increased relief staffing Details Ensure everyone understands the leave policy and that it will be strictly enforced going forward: reason, notice & proof t be b acceptable t bl must Provide nurse as point of contact for people that are sick Improve tracking and recording of sick by individual Port Manager to take ownership for f sick leave reduction Sick leave in each department by supervisor to be tracked Obtain supervisors signature after incident, providing employee accountability with face to face contact Send out regularly letters notifying that management is concerned with recent absences or grateful for their strong attendance There is clear correlation between working overtime and sick leave

Detailed staff communication is needed to inform employees of new enforcement and program should be driven from the Port Manager
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4. Leave management: vacation


Leave lines should be inversely y proportional p p to expected p p passenger g traffic factor throughout the year

Leave lines

Load factor

50 Load factor 2007

100%

40

80

30 PT leave lines FT leave lines

60

20

40

10

20

0
3/3/2008 6/2/2008 9/1/2008

0
12/1/2008

Manpower optimization: results


Savings from manpower planning optimization came from across all of these areas and amounted to an overall 10% reduction in labor cost
Sources of identified savings in a recent project (as % of baseline cost)
0.8% 1.0% 1.0% 1.3%
10.3%

0.7%

1.5%

1.9%

2 1% 2.1%

Headcount levels

Overtime

Parttime/fulltime mix

Policies & procedures

Shift penalties

Shift lengths

Re-grading

Process redesign

Total Savings

Confidential not for third party distribution Seabury Aviation & Aerospace 2009

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Questions?

Sadiq Gillani
Vice President, d C Consulting l

Seabury Aviation & Aerospace


1350 Avenue of the Americas, 25th Floor New York, NY 10019 Sgillani@SeaburyGroup.com Web: www.seaburygroup.com
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