A running ticker keeps visitors to Aviation Partners Boeing's (APB) home page updated on the estimated gallons of jet fuel saved by the 18-year-old joint venture’s wingtip devices. Each minute adds another 10,000gal (38,000l) of jet fuel unburned, with the projected total climbing well over 5.87 billion gallons by early March.

Fuel savings have propelled APB’s blended winglet systems from an industry novelty in the mid-1990s to sales of more than 8,000 kits over the past decade on 12 Boeing aircraft types.

But fuel prices have fallen for most of the last 18 months. The drag-reducing devices are now less valuable to airlines for at least the near-term, forcing the APB leadership to re-write the company’s business model and now to explore opportunities to supply structures to Boeing other than winglets.

“We’re looking at other things that the Boeing company doesn’t want to do itself because they’re not cost-effective, that we can do,” says Michael Zubovic, APB’s vice-president of finance and administration, speaking at the Pacific Northwest Aerospace Alliance conference on 11 February. Noting APB’s speciality is reducing drag and improving aerodynamic efficiency, Zubovic adds such opportunities are “not necessarily just on the wingtip”.

Boeing declined to comment, saying it typically does not on business discussions with suppliers.

Of course, APB is no typical supplier. Boeing and Aviation Partners Inc formed the company in 1999 to develop blended winglets for Boeing airliners ranging from the 737-300 to the 767-300ER, following successful trials in 1998 on a Boeing Business Jet. In late 2012, the partnership approved the launch of the split scimitar winglet for the 737NG family, with orders and options for around 2,000 systems already announced.

Blended winglets save fuel by reducing aerodynamic drag. Specifically, winglets are designed to increase the lift produced at the wingtip and reduce the drag caused by wingtip vortices. Adding a ventral strake to the blended winglet – forming a split-scimitar winglet – increases the wingspan in loaded conditions, adding to the overall lifting power of the wing.

The physics have not changed with the decline in oil prices, but the dollar value of the benefit has fallen dramatically.

Excluding installation costs, APB’s base price for a blended winglet system on a 737NG-series aircraft is $1.06 million. The cost rises to $1.12 million for the same equipment on a Boeing 757-200 and $2.4 million on a 767-300ER. A typical winglet assembly includes an aluminium interchangeable interface joint where the winglet meets the wingtip, graphite ribs and spars and three aluminium panels for the tip, leading edge and trailing edge.

According to APB, the 175kg (390lb) blended winglet system factory-installed on a 737-800 with a provisioned wing, improves block fuel burn by about 3.4% on an average 980nm stage length. Using those performance estimates, APB estimates the potential annual fuel savings for a 737-800 are “up to 130,000gal”.

Two years ago, the average price of jet fuel was hovering around $3 per gallon, offering APB’s customers a three-to-five year payback in fuel savings for a blended winglet system. But now the price of fuel has fallen to around $1 per gallon, according to IATA’s jet fuel monitor. The return on investment for a blended winglet system is now longer than five years, beyond the payback window for many airline capital spending decisions.

“Our business model has really changed in [the] last year and a half or so,” Zubovic says.

The business model was not based solely on fuel savings. By making the aircraft’s wings more efficient at generating lift, the winglet systems also improve range or payload. For take-offs at high-altitude airports, adding blended winglets can allow the pilot to take-off with an additional 5t, according to APB estimates.

But lower fuel prices mean many APB customers are reconsidering the value of a winglet system, he says. “They say, ‘You can’t charge us what you were charging for a winglet when we’re only going to get about a third of the savings’,” Zubovic says.

Despite the steady decline in oil prices, APB did not have a bad year financially. Sales remained essentially flat at 2014 levels, Zubovic says, even as the jet fuel prices plummeted by more than two-thirds.

But APB’s leadership team considers the 2015 results as a one-off financial “windfall”, rather than a long-term trend, Zubovic says. Revenues were artificially boosted last year by an unexpected new source of business. Airlines decided to upgrade many older, less efficient aircraft with winglets rather buy new models.

“Some of the airlines came to us and said, ‘We had airplanes that we really weren’t intending to fly. We’re going to refit them with your product and we’re going to fly them until they drop’,” Zubovic says.

As long as fuel prices remain at their current 10-year lows, APB may continue to collect new sales as airlines decide to continue operating older, less fuel-efficient aircraft. But demand for such retrofits is finite and fickle. A sudden increase in fuel prices could cause new orders to dry up overnight.

“There’s a question of whether or not it is sustainable over time,” Zubovic says.

So APB is changing the company’s marketing strategy. The running ticker on the home page showing gallons of fuel saved demonstrates a shrinking economic benefit at current fuel prices. But that same data also offers a different kind of incentive for airlines to invest in winglets that go beyond monetary savings from consuming less fuel.

“Airlines want the flying public to believe they are good corporate citizens. Advertising campaigns are geared toward that end as opposed to just purely, ‘here’s how much money we’ll save’,” Zubovic says.

The split-scimitar winglet for the 737NG family alone reduced carbon dioxide emissions by 61 million tonnes in 2015, he says. Many airlines also install winglets for performance benefits, such as extending range or take-off capacity in hot or high-altitude airports.

Finally, APB could diversify its revenue sources beyond winglet systems. The joint venture is partly Boeing-owned, so opportunities are limited to Boeing’s supply chain. APB has experience producing composite parts with complex shapes, not unlike other control surfaces and fairings on Boeing aircraft. The nearly 17-year-old partnership has proved beneficial to Boeing and Aviation Partners.

“I don’t think either one of them [wants] to see it end prematurely,” Zubovic says.

Source: Cirium Dashboard