Para.9.2.   - A340 VOLUMES/QUANTITIES

   - the basic logic (para 8.74 “Assuming a maximum 20-year amortisation period for the A340 programme and the 8-year average useful life of exhaust systems would imply the following : (a) production units delivered between FY2001 and FY2012 would need to be replaced or repaired twice by FY2021” and maths (para 8.75) for the PwC demand calculation of “Units to replace or Repair by FY2021 demand of “1572” was quite simply wrong.and that before the business/industry knowledge errors – i.e unsubstantiated units and sales revenues.             

{As for my team, three out of four 15 year-old students in my wife’s maths class in a local school also identified these basic mistakes after reading that page of the PwC report in a few minutes, as we had also noted on 24 June 2007 and I addressed through Mr Neill’s oral evidence on 27 July 2009 below. As one teenager, to paraphrase, said “surely a new plane delivered in 2012 would use the original and not require its first new exhaust to be replaced or repaired until 2020 and then its second in 2028?.  That should have been 2021 minus 8 years for 1 (2006 – 2013) and minus 16 years for 2 (1998 – 2005).  That 8.74 (a) statement is wrong. And that table at para 8.75 is wrong too, as it multiplies both of the first two lines by two.  Mrs Little – that sentence, those years and multiplication are all wrong”}

Based on the MAC/PwC assumptions the first period should have been for FY2001 – FY2005 (not FY2006) during which time 74    A340-500/600 (or 296 units x 2) entered flying service, whilst succeeding years from FY2006 to FY2013 should have shown only one repair/replacement by FY2021 (not the PwC multiplication X 2).  The result --- totally erroneous calculated demand of 1572 units and on which PwC would in part base their conclusion in PwC para 8.78 that the “units” inputs “is not unreasonable”.

Furthermore we now know from August 2009 that PwC had been provided with a spreadsheet by MAC on 14 March 2007 (which PwC or E&Y had requested)  which showed almost 50% less demand (3605H) for Spares and Repairs than they had calculated in their PwC para 8.75 table.

That enormous difference could not possibly have been accounted for by the additional 85 aircraft build (to 220 a/c) which PwC, astonishingly, also accepted as a “reasonable” forecast – see paras  9.3 - 9.9. 

Q9.2:    Why would PwC forensic accountants not have checked and corrected these?.

Extract from Mr Neill’s oral evidence in July 2009

Mr Little 

 And this is coming off the back of what Dr Thamburaj <of MAC> has done in the middle of March 2007 for yourself, on the useful life <referring to PwC Exhibit 8.5/Part D>

Mr Neill

Correct.

Mr Little

And this refers to a spares requirement in excess of 800 units to 2007 to 2021 as opposed to the 1572 calculated by PwC?

Mr Neill

If you make the assumptions for the forecast that we've just agreed on, then the numbers will generate whatever the numbers are, and if it's 800, it's 800. I was going to suggest that the 800 was likely over the life of the programme, and it was well in excess of the numbers that, at that point in time, we needed to recover all of the costs.

 

 

 

 

 

 

 

 

 

Mr Little

Rich, just so we're both on the same wavelength, the evidence you've given is that the PwC table (their calculation of 1572 Spares and Repairs in para 8.75), you didn't correct, and both of us believe that it's probably wrong.

 

Mr Little

You've said independently in this email (doc 3597. my report.page 67) that you've done a calculation that suggests 800+ units on a replacement basis on 40 thousand flying hours is what is in the EAC (Note: MAC disclosed document 3605H dated 14 March 2007 and which had been sent to PwC at the time. This document was disclosed after his oral evidence on 27 August 2009) and what I'm saying is,if that is true and everything has changed at 40,000 hours, purely for spares, that would meet the 1247, which is your point, but it's only in that situation that everything is getting replaced at 40 thousand hours without exception.     No repairs, nothing, straightforward replacement. That's what your emails are saying??         Website C, D Exh8.5,E and paragraph 9.9

AAnd from Mr Lynch QC for Magellan cross-examination on doc 3597/8      (you must also read paragraph 9.9)

 

Mr Lynch

We have Mr Neill's email to Mr Moore of PricewaterhouseCoopers.  I know it’s a bit compressed in its typescript. Tribunal, of course there is a bigger version in the bundle, if that's a bit small to read.  (Pause). 

 

 

Mr Bobbi, you can see, can't you, looking at the two substantive paragraphs -- it actually is a feature of both those paragraphs -- that Mr Neill makes it expressly clear that Magellan is simply basing its calculations for accountancy purposes on spares or replacements, he's not included anything to do with repairs.

 

Mr Bobbi

That's right.

 

Mr Lynch

Good.  

 

Mr Lynch      Dr Thamburaj's point was not a question that they will need repairs after that period, Dr Thamburaj's point was that around 40,000 flying hours was indeed the lifespan of the unit.  That after that, its lifespan was spent and should be replaced.  That was the point.”
 
As you will also have had the opportunity to read earlier in Para 4 Mr Dimma asserted in his evidence that effectively he relied on Mr Dekker and PwC. However he stated that the Audit Committee looked at the draft and final PwC report very, very carefully.  As ONE example we cannot understand why Mr Dimma or his colleagues (or indeed anyone at MAC) did not see the obvious “basic logic and simple maths” errors, which alone inflated their calculated demand by several hundred units or $100M+ revenues, made by PwC (“forensic deceit”) when they calculated a potential demand for A340 Spares and Repairs of “1572” units by FY2021. 

You can read this all in the management assertion:PwC table 8.74/8.75 quantities summary document.>