Aviation Q1 2009 Message

Chevron, May 11th, 2009

(From - now retired - VP of Aviation, Q1 msg, 2009)

Global Aviation Colleagues,

While there are sporadic signs of economic renewal, it has become clear that wide-spread recovery will be a slow process likely extending into next year. Economic activity declined through the first quarter in most of the globe, weakening energy consumption including the demand for aviation fuels.

Difficult Environment = Opportunity

In response to this development in the external environment, we are making appropriate adjustments in priorities, especially cost management. However, its critical we also maintain our commitment to strategy and long-term goals, including operational excellence and building organizational capability. Challenging times are an opportunity for strong companies to become stronger, and I believe Chevron's Global Aviation business is well prepared to take full advantage of this opportunity by focusing on what we can control.

OE/Safety

When it comes to "controllables" and priorities, safety and the well-being of our colleagues remains at the top of our list. I'm pleased to report that Global Aviation operated without a single recordable injury in the first quarter, and as of early May we have passed 500,000 hours since our last lost time injury. Congratulations and thank you for all of the dedicated effort to reduce safety risks in our business. As we discussed during Loss Prevention Week in January, ergonomics remains a high risk exposure for all of Global Supply & Trading representing more than half of all injuries in 2008. You’ll continue to see strong support from Dave Reeves and GS&T leaders here, but success depends on every one of us. Please continue to maintain a high level of awareness around RSI related safety risks, complete ergo assessments on a timely basis, seek out the help of our ergo buddies while being a good ergo buddy in return, and most importantly report even the slightest discomfort to the Early Injury Management (EIM) team immediately.

We also avoided any recordable spills in the first quarter and did not have any significant financial or credit related losses…everyone in CGA and Treasury that have contributed to our excellent progress in systematically reducing credit risk in our business deserves our appreciation.

Unfortunately, we had a poor quarter for motor vehicle safety with CGA suffering eight Motor Vehicle Crashes including two level 2 (at speed). Any additional MVCs in 2009 will result in CGA and GS&T failing to meet our 2009 business plan commitment for motor vehicle safety. A review of our Loss Preventive System data indicates that we continue to effectively utilize LPS tools to reduce the risk of motor vehicle related losses, so there is reason to believe that our continued vigilance in this area will result in fewer MVCs over time. We must remain focused on this goal.

Earnings and Cost Reduction

CGA delivered 12MM$ in Q1 vs. a plan of 23MM$. And although we expect to improve earnings vs. plan during the rest of the year, with shrinking volumes, differentials and margins it is clear our earnings will be lower in 2009 than they have been the last 3 to 4 years. Reducing costs has become one of our most important "controllables" in 2009. Everyone has a role to play in cost reduction, and we are beginning to make significant progress in identifying and capturing savings across our business with Q1 operating expenses more than 10% below an already challenging plan. I appreciate the good efforts in this area including the ideas submitted in our cost savings program: (link to spreadsheet).

Please take the time to submit your own cost saving actions so we can share ideas and accelerate savings. A important opportunity to reduce our costs is to work with our vendors and suppliers to secure lower prices, consistent with the current environment. We are addressing this on a centralized basis for our largest suppliers (i.e. Global and Regional suppliers such as transportation companies), but anyone that manages a supplier relationship in our business should be pursuing this opportunity. When it comes to cost management the greatest impact will be the accumulated benefit of many small actions. Everyone's efforts matter and they all add up to success.

Of course, nurturing the relationships we have with our airline customers also remains a priority and we have illustrated the value of those relationships as we enter the heaviest portion of this year's commercial tender season. Our Marketing Managers have done a great job defending core business and even securing attractive new business. We have increased share in some important markets that will expand earnings in the eventual economic recovery. We have also made meaningful improvements with the collaboration of PSAT and SOG, in enterprise decision making around channel management, and improving supply costs in challenged markets. This will ensure that over time Chevron captures the greatest possible value from the aviation fuels we manufacture in our refineries. Overall, everyone on our extended Marketing Team can be proud of our efforts and results so far in this year’s tender season.

Organizational Capability

Projects Merlin and Vector have better prepared us to respond to the current challenges in our industry in numerous ways, including enhanced organizational capability. We are redoubling our efforts to accelerate value capture from these projects and one of the ways we will make these improvements sustainable is the continued development of our skills and knowledge. Our Center of Operational excellence is finalizing extensive new learning and development tools for Aviation Fuel Product Quality that will contribute to this goal. If you have not done so already, please work with your supervisor to develop specific plans for your skill and knowledge development this year.

In summary, Global Aviation is making the appropriate adjustments in priorities, while maintaining our focus on strategy and long-term goals. By effectively addressing those things we can control, we will outperform our competitors in this difficult period and emerge into the next growth cycle a stronger, more efficient organization. Thank you once again for your ongoing hard work and commitment toward our collective success.

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