Free Post Trial Brief - District Court of Federal Claims - federal

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3.~3N3~ "J.NI AH3BY

6~ ~

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TC-~?

SOME OBSERVATIONS ON MA~I~RG

1989

C002174

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D

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,

X

BASLER TURBO.67

('DC-3 CONVERSION)

VALUATION

For I~0 67, INC.

Nove.mbe~ 8, :1989

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Pa~ Number

INTRODUCTION BACKGROUND CON3,~5"RSION PROGKA~ES
11 12 12 21

VALUATION

A2P~.NDIX - AV~L~,K QUALII~CATION$

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AVMARK, Inc. was retained bN Turbo 67, Inc. to estim~t~ the value of converted DC-3 aircra~ Spec~ica~ly, h refer~ to the c~mversion of piston DC-Ss turboprops by B~Ier Turbo Convenio~, Inc. In d~terminin~ th~ value, A'v'MARK unqized company interns| data provided by. TuIbo 57, Ba$1~ Turbo Convc~ion~ and B~ler l:liEh~ Service. In addition, published da~a from variou~ source, carrier reports m the I~partment of Transportation, valuations of several other aircrah tTpes compiled by AVNfAR~ as well as price listens b7 others, were Teferencexl. Ore" es~ted value of the DC-3 ]~I'-67 ~.trcmf~ is $3.6 mfllio~ derived methodolo~es tI~ ¢zke ~to comidetatio~, m~om5 other f~cto~, the ~miq~e status of the DC-3. It should be noted that this is an imputed value based on projected economic ~ctors for the BT-dT, and ~-alues esmbFished in the market pl~c¢ for compefi~ve alternative aircraft types. With respect to the BT-67, there m'e no market tramactions against which the knputrd value can be assessed. Further, the valuation does not express an optuion concerning the marl~mbility of the modification. TH~ DF_,HNITIONS. TERMS AND L!MITATIONS SET FORTH IN EXHIBIT A ARE EXPRESSLY MADE A PART OF THIS APPRAISAL

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o.ooo
Japanese Russian Total The longeviD' of the DC-3 may bv a~tn'but~d to a vc~ sturdy ak~ame and ex~ensive ove~al~ engineering for its tTp¢. ].udeed, the ai~cr~'s pefformanc~ has co~i~t~tly ~xc~edcd i~ d~i!~ ~ecificafiom. I~ i~ e.nimated tha~ approximately 15

,)

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to 20 percent of the.models built suql survive. This represents about 2,000 zo 2,500 aircrafz, the majority of which are in military/government use in developing

In May of 1988 Dou~l~s Aircrah Company published the DC-~ Supplemental Inspe~on Document (SID). This document h~s the approval of the Fedcr~ Avian/on Adminisu'adon. Th~ Chairman of th~ SID Working Group, wrm~ of DC-3, %he airframe has no l~e linfted components," and added, "it ~ continue m pro.vid~ ~~llenz sere'ice for an indite period o~ time." With publlcat~on of ~e $ID, Douglas Ah'craf~ Company has rer.stablish¢~ a direct communicazion link m all owners/operators of DC-3 aircra~ and is asain supponlug the DC-3 With service bulletins and techrdcal information. In addition m th~ mcri~s of superior design and construction, other factors conm'outed to the su'uctural iragrit), and durabilit~ of the aL~'a~. These include the e.Jhnh~tlon of su~ss relazed to pressuri~tion, and the exclusion of high altitude~ high speed opera~ions. "!'~s r¢instat=mcnt of techniczl support and ~e life ~cct~nc~ not~thstandL~,, the continued u~don of the existing units ~s threatened by two

ma~or considerations:
0 the dec~ezs~n~ ava~ab~ity and relatively high cost of .v~,~t~on gaso]iu¢;

o the lack of spare pans, p~dcul~ly for the radial-type p~on R-1830
¢ngin~ which are no longer ~n produaion.

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Taus, a modific~tiaa prod'am wi~ic~ ~Idre~ses these two critical f~cto~ fuel cost ~ud 1~a-,'ts ~v-ail~bili~ - would e.'aead th~ lif~ expectmey of ~.u-~e~y operated ah'~-~& ~s well e.s re,nu-a w s~.~ric~ those modds ~ow in Tmdificma~., .the l~ory of aero~tic~l davelo1~m¢-a~ re.olac~.me.m of older typ~ ~" more tedmolo~c~ily adv~.nced modds. Ge.nez-.41y, t.h¢ ape.rotor has available viable alt~'n~.dve~ from amoz~j the w&dous other types. Howard, in e-,'alu~ting the DC-& note mu~ be ~.ken of the ab~liw...of this ~trcraf'~ xo ut~e ~ubsmudard takeoff and landing areas - a common condition iu many less~r-dcv¢lope.d counu-i~. Tais capability, i~ no~ found h~ mos~ of th~ more expemiv~ alte.mafives.

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i
CON'VERSION PROGKA.,~_S

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-- Pra~ & W~i~ney PT6A-67E. - Ha~zell 115" Diameter 5 alade Metal Propellers.

- Complete inspect-ion utilizin~ FAA app~ed Manual. Repair of no~-mal wear and tear ~tems included in onve=sion cos~. COS~ of additional repai.-s will be quoted separately.
- Fuselage st=etched 40" forward of ~5e wing to in~=ease cabin volume and payload. ~naddition ~ main~-~-ining center of g~-avity parameters. - Exhausts dlre~ed ~h_~uc.h engine nacelles and dispersed over the upper %-ing ~4~-face t~ eliminate infra-red signature.
- Center and outer wings reinforced to reduce loads on l~wer ~_ng a~ch angles,

- wing ieeding edge and ~ip modified ~o improve flight characteristics in a!l phases effligh~. - Contcol pedestal modifi~ for turbine engine controls.

- Electrical system replaced by c~mplete new system.

- Hydzaulic.sYSte= upgraded~improve gear terra,ion,.i me. - Fuel ~v~t~: upgraded Tm FAR Par~ 25, includin~ new filler caps o

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Fuse,lace E~aDsj.on: - 40

Manuals: - Main'.znanca ~.nua!, i~.i=h~ manual, st~umzl repair ~nua!, ~d ~i~~ p~ ~l~e supplied ~-i~
conv~lon

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Lngines
3 Blade ~8" Diameter Maximum Take--off Weigh'Basic Opa.-ating Weight* Maximum Ese£ul L~ad Maximum Useful Fuel s~andard Long Range Tan~ c~bin Length Cabin Volume M~xlmum ~-.,ise (I0,000 f~) sta~da_-d Clnlise (10,O00 Fuel Flo= (Ma.'~i=~ Cl-uise) Fuel ;low (SUandz--d Cruise) Range - 45 ~.in- Rese_-ve Range - i~ng R~ge Tanks (s~andar~ ~ruisa) Single Engi~.e ceiling 17,815 Ib

P&W ~T6A-67R 12S! $I Blade 115" Diamet 28,750 ib 15,827 ib

(26,200 ib} 9000 fe~t (28,750 .I~) I~,000 fee'

* Basic Ope_-~ting Welgh~: Empty wei~n~ pl~s ~-~w and ~ngime "oil. Weight ~pecified ~ based on ~a~o Cmnfiguration. ** Fo~-.~d "b~Ikhead at fnse!age ~ti~n 177. **~ For-,.,-~rd bulkhead at fuselages ~ti~h 77.

.j

.9

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1,000 F'¢. 1,000 1~1: 4,000 T~: 4,000 Ft: 6,000 ~F~: 6,000 F~

Z.$.A. +10 I.S.A. ÷20 Z.S.A. +10 Z.$.A. +20 Z.S.A. +10 I".S.A. ÷20

1,160 1,085 1,080 1,020 1,030 975

1,381 Sr.Z'P 1,255 1,245 1,150 1,170

1,424 SHP 1,420

1,415
1,32S 1,340

1,255

A!te_-~at~ Take-O~
1,000 1,000 4,000 4,000 6,000 6,000

1.5.A. +!0 I.S.A. +20 I.$.A. ÷I0 I.S.A. +20 Io$.A. +i0 Z.S.Ao +20 I.S-A~.$.AI.S.A.

1,160 1,085 1,080 1.020
1,030

1,220 1,145 1,145 1,050 1,080 998 c:ntinu~us 1,220 1,o8o

1,2Sl. 1,235 1,260 1,170 1,205 I,I15

5,000 F~I0,000 F~ 15,000 F~

1,020

1,220 1,220 1,075

825

980

5,000 Ft I0,000 ~t 15,000 Ft I.S.A. I.S.A.

920 810 710 .935 815

1,020 I~020 ~I0

I0

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VALUATION APPROACHES

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Term Base
i

S~ve:-~l altcmativ~ airc~a~t t~pe, were tmmai~ed ia order to d~,dop price/performanc~ ~atios which co~d thma b, a!:~lled to th, BT-67 Tmboprop ia order to derive an imputed value. The Shor'~s 360 was sele~ed because of ~ pov~rpI~m. ~ and weight (Table 2). The a.ssumptiom, factors aad xatios used w~re drawn from varioms sou.reds ia~udiag th, projected performmce of the BT-~7, mamffactm'er'$ claims, rand the operating .experience of carrie~ of ~tar ~ as reported to the U.S. DOT. la some cases, AVMARK's judgme.nt was use~L

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h should be nmcd, ncverthcl~r~ th~ the ~ercis¢ is gear¢d to produc= a ~ I~I o~ profitability based on a ¢onsir~.nt s¢t of factors and assuzz~do~, and rr.]ate this result to the cost o1~ the aircz'z.~,.

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Akcra~ Aircr~t Bc~h B2000 DHC-7-100 Model Transac'.ion 88 ~ 10/88 6/88 ),~

Monthly I.e~ss Term Rats ~ S22~30 46,500 30,062 ~,~0 I0 12 5 ~

Rate % of Valu__...~e 1.16 I_~7

~7.~oo
S~7AC Sho~ SD-360
~-550

6~
88 ~
87

~/~
1/89 3/89.
8/88

I.~

~,6~
~745 $7,140 29~ 7 7 1.62

~453
~-550 Fflcon-100 F~con-20F Av~

82
88 83 ~ ~

I0/~
12/~ 1/89

7/8~
~9

¯ I.e.ssoz"s Cost.

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_b-HORT$ _3~0 AND BASLER B"r-67

P&W I:q'6A-67P,

Hm~/6/108" 27,100
17,350 9,750 3,840 216 182 8,750

Hanzell /5 /llY

28,750
15,827 12,923 s j60 205 172

L025

SOURCE:

S-360: Jane's 1988-89 and Carder reports. BT-67: Basler Turbo Convrrdons.

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Table 3 provides an ~s'J.rr,,ate of the profitability of opcraring thc BT-67 in a sp~cit~c commercial rol~. An analysis of the design dmmc~eristics and psfformanc~ factors of both aircra£'t, as w~U as reponed fir~cial dam, shows tha~ ~a Sh~rm 360 =zpe.rien~s o!~rath:tg costs similar to thos~ projected for th~ BT-67. As nozed b=f~r=, both aix~--aft u~ilizs th, sam= powerplant and ar~ similar in siz= and w~ight. The slightly low=r weight (MTOW) of the Shorts 360 probably produce a ~h'ghtly hlghcr speed and iowea f~l burn. On the other hand, the BT-67 has a higher us=ful load capaciw, and longer range..

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Table 3

BASLER TURBO 67 AIRCRAFT .~TED OPERATING PROFFF

Per Fede~ aEreemem

To~

$Z,442~.00

OPERATFNG COST~ Crew
FBel

$ 9L100
109,600

Maimcnanc~
Insuran~

"76,800
36.000

ToM D~e~
Ind~~ & Owrh~d

513500
188200

OPERATING PROFIT

$ ~40,900

i

notes on following pages.

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~O~erations t~rojected u~tion by Badcr ~'~ht S¢,'~d¢= r~ Fed~x
720

780,000

.Crew Costs Salaries for 1 ~/,

67,500
. 23.62.5 9L12..5

]~n=fitsha.'t~s~exp..as~ @ 35

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,J

~5 8~Is~. ~r "R0 horn = 104,400 gals.

@
s~

~o0,000 Hot Se~on TBI 1,500 hour~ lO,O00 6,000

4~00

Prope~¢r Ov=rhaul: TBO 3~00 hour~ I_~oc _~ l~ @ ~
Spare usage

s~

23,4OO burden: per=m

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i
Indire~ and Over_head Based on rh~ reported ~. ~-ience d s~ ~ p~do~ domestic ~o s~c~. ~ted m 60 pe~m of ~ ~~ Cos~.

Besed on BFS' e~d~.,'~te of $50 pc: hour. Tz~ i~ for hull ir~ur~nce and is b~sed on appro.'dmzte!y 1 percent of ~crm~t v-alue_

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An alte,--nativ¢ zpproac.h in th~ valu~on process is relined to non-commer~ servia. In d~Rs conte..~ ix is not a~ropHa~ to relate m compe'..i~ve alte,,-rmr~v~s. The valuation is es~=ntially geared for operators of unmodi~ed DC-.3 air~'~ who must also consider the

altern~ve aircrdz types are op~raied.
The key ~acmr, th~n, is ~ne of indn¢~znenr What prlc~ level (mod~icafion osl) is perceived as reasonable so thai ~pe~d bcnda~s compensate for the ~ddkional invesuncnt. The ~xp¢c~d b~.ncfits (induc~mem) are la.~dy rclaled ope.r~dng cos~ savin~ and improved product/rio/which c~m b~ quan~ed, as well as intan~oles such ~s reEabili~. Lu the non-commr--dal omezt, the prJn~y objeaive is the accomplishmcn~ o~ specified Euncrions wizhin a given 0 o the operation of a given number o£ flig~tS; or ~e movement o'f a given volnme d Iraf~c (per~'anel and/or caxgo).

Thus, in the contex~ of fu~e missic]~s, an ~ that is ~.~er nr.d/or ]~as a ~r=ater payload, wRl require fewer hour~ (less c~sQ. Allernafiwly, if the nttmb~ of hou~ is fixed, the faster ~1;Id/or hif.herczpadry zircr-~, ~ have a ~:rent~r produc~dt7. I=-~ther function produc~s benefits ~-om the operation of the superior ~

21

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ORIGINAL AND CO~T£D DC-3 QPERATING COSTS

Annual Hours per cr~w l~.~ion required hours

88O 1.7

520 780

Total Crew Cost
~F~el & Oil

s~

i
i

Number o£ fl~ghts 210 Gallons Cost p~r gallon FuaI cost

520 200 104,400

om

s~
2 1,760

Gals. Cost per Oil Cost Tom! Fuel & O~ Cost ¯ Maintenancz Overhaul per FtighI Hour Direct per Flight Hour Dircc~ Cost Burden at 25

$___13

$12

0.65 510

$6A2o

52-80

s..11l~ $ ~,04o

61,420

Tot~ Maintananra
TOTAL VARIABI_~ COST P=r Block Hotu $469555

$283,640 s 365

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OKIGINAL ~'D C0N-VZ=~THD DC-~

BT-6~ ,,Tvrb~rop _ IrnLdn~ (modds)

R-1830-SIC~G 1,400

P&W PT6A-67/R

TBO (hours)
Weight (pounds) MTOW Basic OEW Max use&d Iozd Cruise speed (mph) Pr~ected ,O~. era~on Air~:t,~ miles

4,500
2&750

26,900

200

1~,000 520

144,000 52O 720 780

FIi~t Hours
Block I-Iotu'~

8OO

Payload (voundQ Max usehtl load Furl (including reserve~) Revenue payload available
10,035

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It should be noted that age md condition ar~ no~ the o~y favors influencing the wed air.aft prices, and the abov~ are f~rly young aircraft. In assessing the valu~ of the B'I'-67, a favor of 6.5 percenf of ll~¢ imputed new value

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is used. "Frds profl'ac~ an adjusted iznpuz~ ve!ue of $~,612,.000 in ~ comm~rcieJ

In the non-co~,m~r~al sector ~a~h as pr~'at~, gov~'~znent and miIit~. operators, ~amin~ ar~ not .sppli~bI~ in th~ valm~icra pro=m As noz~fl befor~ there is a cost savings of about $170 per hour b~ tb~ piston DC-3 md the BT-67 turboprop. In th-~ context of non-comme.rciaI missions, ~.ud based on pas~ exp~ri~nc= for this .~'oup, it is re.zsonabI~ m proje~ a ~-year period and an annusl uulizatlon of 1~00 hours. This produc~s to~ cost savin.~ of abou~ ~040,000. Fur~¢r, t,h¢ BT-67 provid~ additional u~eful payload of abou~ 4~ p~rcen~ over th~ DC.3 piton, bu~ i~ ~s di~cult to assign a s~lu~ for this added c~pability in a non-commercial However, th~ ism= may no~ be on~ of conq~aring fla~ t~=~,~..d b~n,'fi~s of t~e conv=~ion. As no~d before, the c~nti~d ope.,'afion of pi.~,ou DC-~s is thr~te.u~d by th~ in,easing un~.s-a~bflir! of pzr~ Thus, th~ tea1 comparison is bcm, ee.n t.h~ conw..,x~d DC-3 and an alt~.-nafiv~ r~Ia~.me.m for tb= piston Fm-ther, ~ vast nmjor~ty og the pr~ently o~.'-afing DC-~S ar~ in s~rvic-, in l~ss dev~op~d and generally re~not~ are..~ whe.r~ air~¢lds in many c~.qes cznnot support more modm'n air~.~ ve.--~ions of compzrable payload and rang~. N~w~r with sim~ar STOL p~rf, ormsn~ ~ Imv¢ ~th~ hrss~ p~load or ~ucl snd range c~pabRiri~, or ¢m-ry a h~avir.r pric~ bur~l~.

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AVMARK, Inc. (~A~VfARK") def:me~ "Fair Market Value" (tither cu=em or fumr~ ~ralues) as the pric~ a~ w'nich we bdicv~ the draaft would trade be~ee.n a wRling buyer and a wh'ling seller, both ~bdng informed of t.be relevant facts and neither bdug under ompulsion to buy or sell. In th,. ontex~ of our evaluation, th~ value we have de-.=.-'min~d as a Fair Market Value is such only when th~ specific conditions are me~. The appraised value is based upon AVMARK's knowledge of the industry and use of =rtain es~im.~tes, asmmp~a=s or definitions, some of which are more fizl~y described in the attached zeporu CIJ'RR~rNvI" FAIR ~ VALLrI~ OR IWJrLrR~ FAIR M-AXI~=T VALLr~ SHOULD NOT ]BE UTILIZED OLrI'$1DI~ ~ CONTEXT OF, OR WI'I'~OUT I~NOWI.EDGE OF THOSE ~=~HMATBS, ASS~ONE, OR
The appraisal report reflects AVM.A.RK's expert opinion znd bes: judgment based on the infarma'-'-'on ~v~Rable to h at ~ne of preparation. Tee appraisal report was pre.-pared by. AVMAP, X for the zc~ant of Tin-be @7, Inc. AVMAR~ does not have, and does not expec: to ~ any financial interest in the appraised property, nor is AVM.AP, K privy, to any. e:~or~ to induce a RnRndRI trzn.~ction, including solicimdo=, of loam or other i=~=nents on th: b~.~ of this report. AVMAP, K zcceprs no r~spmm'oRiri for damages, i~ any, r.~ffered by any. third party, as a remit of ded.sions m.~de or a~ons tak~ based on this repot',.

This apl~r~d was prepared for the nse af Turbo 67, Inc. and, ~s suc~., is entitled to onfidemL~l rr~.rmem by. AVMARI~ In~ and ~-Rl not be provided to other pa~des wizhout the express ~m~. of Turbo 67, Inc.

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AVMAP,~ Tm~. ~ founded in 1~62 and h~ ~ ~g ~ ~=d

n~ork o£ ~d~ ~nm~ ~d a s~ ~at ~ ~e ~ to pro~d~ a ~d~ ~g~ of e~o~c ~d tec~

~ore~ for ~ou~ 20 y~ ~d ~ rec~ ye~ have ~le~ ~en~

g~en~ bo~es. O~ ~si~ ~ge £om fl~:~ app~ ~d/or ~ ~e for~ Io ~ose for j~ one ~ A~K's

~ of ~om ~0 o~dom ~d

j~ fle~ of

o

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RECHNT AV~IARK APPR.A-~$AL ~

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A~RIJN~S ('Fore~'~ -ontinuedPan American World Ah'way~ P¢opl~ E:~press

Trznsavia (Holland) Tr'~shrasil u'rA Vadg, S.A. VL,-gin Atlantic Worldwzys (Can~)

i

T~ World ~ U~ed ~ ~

Wicn ~ ~ World AL~,~ys

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I=uors, Government, ~t~-)

.)

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Home.hold Comm~rdal Howard N~dles Tammen & B¢,"gendoff Int~rcredit Corporarfon International Air I.eas~ Int~rmfion~l Lease F'mance ~tch, Andemon & Wasserman Kroll -~sso~ates West !-~zard Frer=s Marine Midland Bank Maxsoa A.~sodat~s The Mellon Ban~ Merchants National Bank Ministry of T.-ansp. Quebc= MhsubL~d Trt~ Morgan Stanley N~M/..C Le'~'ing Assocs. Nichimen Northw~t Mnmal L~e lasm'm~ce Co. Paine Webber PE.PCO

Ph~p Mords Cr~dk Co~. Hmey Bowes Credk Corp.

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Mr. Tom Weigt .............. January 14, 199| Fax: 414-235-0381

Tom ZIMBABWE I met with Bob Dodds, General Manager and Barrie Owen, Engineering Manager of Affretair on January 4. They operate two DC8-55's and hope to order a DC-8-63 (with CFM56 engines) in 1991. They now have a letter from the government to the Airforce asking them to furnish Affretair with one DC3/C47. It is this aircraft that they would hope to eventually have converted to a Turbo-67. Although the order seems far off to me, please send Bob Dodds our current price list at:

Affretair PO Box 655 Harare, Zimbabwe FAX: 263-4- 731-706
I met with Honor Mkushi: our representative in Zimbabwe. He indicated that the Air Force had ordered US$1 billion of aircraft (MIG-29's), communications and anti-aircraft equipment from china --pre Tianamin Square. This has basically shut down the possibility of any further sales to the Air Froce. He will probably contact Mr. Mpabanga personally re the possible sale of two aircraft sales to Botswana Mr. Mpabanga has been away for plastic surgery after his ex-wife poured sulphuric acid on his face as punishment for philandering! = I indicated to Mkushi that our contract had expired and I was thinking of appointing Lonrho. He flet they could certainly do a good job for us in Zimbabwe, particularly in view of the CEO Tiny Rowland's good contacts with key government figures. You can assume our obligation to him has ended unless he plays a facilitating role in any future business. SOUTH AFRICA On Thursday, January 3 I contacted Mr. Denzil White, in the absence of Karel Van Heerden of Strallis to cover some issues relative to South Africa.

C000243

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Tom Weigt (cont'd)

* I asked him for written details of the Sandgate group and their plans on acquisition of Strallis. * I stated the importance of an early order from the new group and I indicated a letter of intent would suffice in the absence of a new corporate structure. * I reconfirmed we were considering appointing another agent for the "optional" territories (i.e. NAC) but that the agency would probablygo to the first company that ordered'an aircraft for those optional territories. I indicated again that a letter of intention might suffice. We should be hearing from the Strallis/Sandgate group and I would like to assess their proposal before writing to Grame Conlyn of NAC. OTHER I was very surprised to hear from, Bryan about the new price'list for the basic conversion. The huge increase proposed can only encourage Innovair to seek conversion outside of the USA. These matters should only be decided by Board/Shareholder meetings and might conceivably be agreed to if we follow through with the plan to combine BTC/Innovair/Oshkosh conversion center. In the meantime it will only give rise to further suspicions and misunderstandings amongst the various parties. I strongly suggest that nothing be implemented until our next meeting which I would like to propose be February 8/9 in Oshkosh or possibly on the East Coast. Kind regards,

Barry W. Wilson

C000244

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