...Allegiant Air | From: | Kristen Harris, Senior Financial Analyst, SH&E | Date: | September 5, 2014 | Re: | Evaluation of Fleet Expansion – A-320 vs. MD-80 | | | SH&E conducted an intense, detailed and comprehensive analysis, that included thorough research and exploration into Allegiant Air’s fleet expansion needs. To complete this analysis we compared existing and current market statistics, which pertains specifically to the fleet expansion needs. It is the recommendation of SH&E, that Allegiant Air purchase the McDonnell Douglas MD-80’s at a price of $4,000,000. It is the belief of SH&E, that the purchase of the McDonnell Douglas MD-80’s, is a prudent and sensible decision, versus a price of $62,600,000 for the Airbus A-320. SH&E thorough research showed that given the net present value, also known as NPV, the expenses for the McDonnell Douglas MD-80 is estimated at $44,200,000, in comparison to the Airbus A-320’s NPV of $93,600,000. If Allegiant Air were to purchase the McDonnell Douglas MD-80, over the fifteen year lifespan, this would allow Allegiant Air to save approximately $50,000,000 in operating costs. There is a summary below of the analysis and research that includes the methodology and assumptions that were used to conduct and thus support SH&E’s recommendation. The McDonnell Douglas MD-80 has a different seating capacity than the Airbus A-320.To compare these aircraft, a Cost per Available Seat Mile, also known as CASM, was used as the...
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...An Analysis of McDonnell Douglas’s Ethical Responsibility in the Crash of Turkish Airlines Flight 981 The Memorial of Flight 981 at Ermenonville (Johnston, 1976). Executive Summary In 1974, Turkish Airlines Flight 981 experienced a mid-flight cargo door failure which led to the first total loss of a wide-bodied aircraft in history. The aircraft was a McDonnell Douglas DC-10, and this tragedy was compounded by the fact that sufficient corrective action had not been taken by the manufacturer after precursory failures had occurred over the four previous years. The purpose of this report is to evaluate the ethical nature of McDonnell Douglas’s decisions throughout this crisis, discerning their priorities with regard to safety and financial gain, and to assess if these qualities have changed in response. The origin of this catastrophe lay in a poor handling of design and manufacturing. The cargo door’s design employed faulty philosophies, and decisions regarding its manufacture were driven by savings at the expense of safety. However, though the door’s faults were later exposed, a more serious problem involving the tail control lines in the passenger floor was continually overlooked until the crash. This was due primarily to a policy of using old design strategies which met minimum federal requirements. The company oversimplified the control lines’ failure mode when confronted with it in ground testing and, being committed to their own design, were unable to...
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...Question 1 (i) Delta Air Lines need to update the residual value and depreciation of their aircraft over time in order to calculate the life of the aircraft. The calculation requires estimation and assumptions such as the long-term of usage, maintenance cost, residual value and economic conditions which need constant review. Technological changes in the industry are one of the reasons why Delta Air Lines decided to extend the useful lives of their flight equipment. Technological advances such as changing engines from pistons to jet engines allow aircrafts to function more efficiently with less wear and tear on the airframes and for longer period of times. With consistently updated with latest technology, aircraft are better maintained and can simply last much longer. In addition, Delta Air Lines decision to change in depreciation since 1986 had a positive impact on the company’s financial statements. Depreciation is a non-cash item which does not affect cash flows or revenue. However, it does have an effect on the net income. By stretching out depreciation, Delta will see a decrease in depreciation expense resulting in higher net income. This is crucial for not only for Delta Air Lines, but to all airlines companies as well as intense competition and deregulation in the industry were being pressured to show more profits and results. The disadvantage to decreasing in depreciation is taxes. With decreased depreciation and increased net income, Delta Air Lines’ income...
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