...2013 Lockheed TriStar Case Study Group 6 Leon Krolikowski Sitaram Koppaka Brian Manning Tushar Mahajan Ryan Maggiorini Nicholas Manning UNIVERSITY OF MASSACHUSSETS SUMMER 2013 SCH MGMT 640 PROFESSOR RAJ GUPTA Table of Contents Executive Summary 2 Introduction/Motivation 3 Data Analysis and Results 4 Conclusion 8 Appendix 9 References 10 Executive Summary Lockheed’s L-1011 Tri Star Airbus program was a long-term, capital-intensive endeavor projected to strongly position Lockheed to compete in the commercial aircraft market. The initial preproduction investments for the program were made in 1967, with continued investments occurring during the subsequent four years, until the program commenced production in 1972. However, during the intervening period, initial program assumptions began to unravel, and Lockheed, which was also a major contractor to the United States Department of Defense, was before Congress, requesting a $250 million bank loan guarantee to complete the L-1011 program. By 1971, over 80% of Lockheed’s market capitalization had already been lost. During the ensuing debate that followed, it appeared that Lockheed had not taken due diligence in the planning for the project, and that initial unit sales and revenue estimates would fall woefully short of being what Lockheed’s CEO termed as a “commercially viable endeavor”. As the continued difficulties of the program unfolded before the public and the investment community, it...
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...Lockheed Tri Star and Capital Budgeting Andrea Cunha D’ Arruda Financial Decision Making University of California San Diego – Extension Prof. George A. Haloulakos, CFA Executive Summary The commercial jet aircraft business is cyclical, and in need of huge amount of cash to invest and reinvest on its technology. During the 50’s Boeing, Airbus, and Lockheed were in a great competition for market share of the commercial and military aircraft market. This case illustrates the importance of NPV analysis in capital budgeting and the need of identification of competitive advantage with synergy with successful jet aircraft programs with new programs that can generate very large cash flows. The Lockheed TriStar Jet is a medium-to-long range wide-body trijet airliner and was the third to enter commercial operations, after Boeing 747 and DC-10. The program faced various issues during its operation, as the utilization of only one jet engine supplier (Rolls Royce), low estimated required rate of return 10%, and a misjudge of the break-even point of 210 aircrafts, that it is going to be shown on this analyzes that even with 300 aircrafts sold the project do not reach the break-even point. It is recommended by this study that the company need to embrace a business strategy of two end user, instead of only one, to the L1011 program. Concentrating only on the commercial market is not viable, but having the military market as a background of funds and positive cash flow can leverage...
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...Memo Recommendation I recommend that the investment decision made by Lockheed to embark on the Tri Star program was unreasonable. According to my analysis, the company could have terminated this project and invested its capital in a more profitable investment. Eventually, this poor decision resulted in dramatic loss of wealth for the Lockheed shareholders totaling a loss of $766 million in stock value. Rationale for Decision The Lockheed case illustrates the significance of NPV analysis in Capital Budgeting. Using discount rate of 10% in the given the scenario and with the project volume of 210 aircrafts, I found the NPV to be -$584 million. This was definitely an unacceptable NPV. The revised break-even analysis by Lockheed revealed that the project reached economic break-even with the production of 275 aircrafts at $12.5 million per unit. But as per my analysis, the break-even at this level of the production was not attained. Despite industry analysts predicting 300 units as Lockheed’s break-even sales point, the net present value remained insufficient to cover costs at negative $274 million. Source | Estimated Production Aircrafts (in units) | Estimated cost per Aircraft (in $ million) | NPV at r=10% (in $ million) | Lockheed | 210 | 14.00 | (584) | Lockheed | 275 | 12.50 | (312) | Industry Analysts | 300 | 12.50...
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...LOCKHEED TRI STAR Analysis & Recommendations Toby Odenheim 10‐OCT‐2013 Executive Summary With the L-1011 Tri Star program, Lockheed, well respected for military aircraft contracts, started to move into the civilian commercial aviation sector in direct competition with Airbus, McDonnell Douglas and Boeing. By 1971, having already invested $700 million in development costs, Lockheed was struggling with cash flow and sought $250 Million in federal loan guarantees, funding which was needed to complete development. Despite Lockheed’s assertion to the contrary, NPV analysis demonstrates that the project was never financially viable. However, given the sunk costs, Lockheed’s best option is to continue with production to minimize the project loss. Continuing to production yields an expected NPV loss of $584 million (assuming estimated sales of 210 aircraft) versus a loss of $900 million if production is scrapped outright. Recommendations: Secure the needed $250 million in funding to complete R&D and move into production. Pursue every option possible to boost total sales, including o Adding an option to lease the aircraft rather than purchase outright. This could help more customers afford the L-1011 thereby driving up sales on reducing unit production costs. o Pursue possible sale of the L-1011 to military and (international) government buyers, rather than focuses exclusively on the commercial market. o Attempt to voluntarily...
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...Ethical Issues in Business Thomas Donaldson and Patricia Werhane Some definitions: Ethics – the study of whatever is right and good for humans Business ethics – business actions etc in light of some aspect of human value. - it requires the evaluation of business practices. - Goes beyond facts to include the “ought to” of a situation. The two traditional issues involved with ethics: 1. Ethical Relativism – are there universal values that apply to everyone or is everything relative to individual, country, company etc. a. Relates to cultural relativism. This presumes that different peoples reason about morality varies by culture, education and religious traditions. b. Arguments for ER are: i. Empirical evidence of cultural relativism. ii. There is no viable universal standard that can be applied to everyone. c. Arguments against ER are: i. Just because finding universals is hard – that does not imply that ER is correct. ii. Just because a particular issues is not resolved does not imply that it is, in principle, not ever resolvable. iii. Taking ER to its full extent means that you can’t justify any moral judgements at all. d. The Foreign Corrupt Practices Act (1977) attempted to legislate that what we say is moral is how we should behave. This Act was driven by the issue that you are being inconsistent with yourself if you say something is immoral yet do it anyway just because you are in a foreign country. 2. Truth telling – can you ever justify...
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...OF THE COURSE: FINANCE II CREDITS: 4 Name of the Faculty Arnab Bhattacharya Gaurav Singh Chauhan Kousik Guhathakurta Radha M. Ladkani Faculty Block/ Room No. J BLOCK C-102 A-106 J BLOCK Email Telephone Number arnabb@iimidr.ac.in gauravs@iimidr.ac.in kousikg@iimidr.ac.in; radhal@iimidr.ac.in; 0731-2439589 0731-2439592 0731-2439518 0731-2439698 COURSE DESCRIPTION The second core course in Finance deals with the core corporate finance functions in an applied setting. The participants are exposed to real world corporate finance decisions to be taken up by managers for creating value. Such an exposure is accomplished through a mix of theory and practice. The pedagogy employed reflects a judicious mix of case discussions, lectures and problem solving approach. COURSE OBJECTIVES The objective is to familiarize participants with the three major decision areas of Corporate Finance, viz. the investments, financing and earnings distribution decisions. Subsequently the participants are to be offered an integrated view of the decision areas by discussing the issues in corporate valuations and risk management. The course aims at sharpening the financial decision making skills of the participants. EXPECTED LEARNING OUTCOMES AND ASSOCIATED MEASURES At the end of the course student is expected to accomplish the following learning outcomes. Alignment of Course Learning Outcomes (CLOs) with the Programme Learning Goals & Objectives and Assessment...
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...LOCKHEED TRI STAR CASE STUDY 10/18/2010 Group #8 Case Write-Up Lockheed Tri Star Case Study EXECUTIVE SUMMARY Although highly regarded by the military, Lockheed sought to move into the lucrative civilian commercial aviation sector and compete with Boeing, McDonnell Douglas and Airbus. Lockheed began design and testing in 1966 on their entry, the “Tri Star”, which boasted a range of over 6,000 miles with nearly 400 passengers and speeds of close to 600 mph. They had already invested nearly $900 million in development costs. Carried by state of the art Rolls Royce turbofan engines, the L-1011 was by all accounts, a technological winner and might be the company’s ticket back to solvency. The summer of 1971 found the once formidable company on the brink of disaster. Despite the nearly a $1 billion in sunk costs, Lockheed was in need of $250 million more to bring the plane to market, but its bankers would not commit without federal loan guarantees. Spokespersons for Lockheed claimed before Congress that the Tri-Star program was economically sound and that their problem was mere liquidity crisis. However, opposition to the guarantee focused on estimated break-even sales – the number of jets that would need to be sold for total revenue to cover all accumulated costs. This case illustrates the importance of NPV analysis in capital budgeting. We examined the decision to invest in the Tri-Star project by forecasting the cash flow associated with the project...
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...was declined an offer of $US20 billion from the state owned Chinalco, the arrest and sentence of Stern Hu and his colleagues in 2009 was occured for allegations of bribery about $US14 million and stealing business secrets from state-run steel company. Consequently the China Iron and Steel Association reflected by the action of stop buying iron ore for the next two months from Brazil’s Vale, BHP Billiton and Rio Tinto (Mascitelli&Chung, 2011). As a result the trade relationship between Australian and China is collapsed in some way that Foreign Minister Stephen Smith said transparency and openness could have facilitated Australia and the international business community in understanding and dealing with the matter (Sainsbury,M.2010). The case has raised the cold war tension between the essential economic relationship between Australia and China that the trial over the court’s decision was operated in a closed courtroom session. Regarding to the imprisonment of the...
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...SU HAN CHAN KO WANG HONG KONG DRAGON AIRLINES LIMITED (A): DETERMINING THE COST OF CAPITAL In early January 2006, a taskforce at Hong Kong Dragon Airlines (“Dragonair”) led by engineering manager John Walters and finance manager Bevis Ho was formed to evaluate ways to replace a spare engine that had been determined to be beyond economic repair (“BER”).1 A few potential options were on the table: either to purchase the engine outright or to lease the engine via a direct lease or a sale-and-leaseback arrangement. In order to assess and compare the attractiveness of each option, the taskforce first had to determine the appropriate discount rate to use. Dragonair: Company Background2,3,4 Hong Kong-based Dragonair was founded in May 1985 as a wholly owned subsidiary of Hong Kong Macau International Investment Co by local industrialist K.P. Chao. The airline started operations in July 1985 with a Boeing 737 and service between Hong Kong and Kota Kinabalu in Malaysia. With a fleet of only one aircraft, Dragonair was known in its early days as the “when-it’s-in-the-air-there’s-nothing-on-the-ground” airline. After much effort by Chao to rally support from both the Chinese central government and the British government, Dragonair began service to Phuket and six cities in mainland China in 1986. In 1990, CITIC Pacific, the Swire Group 5 and Cathay Pacific Airways (“Cathay Pacific”) acquired an 89% stake in Dragonair. After the acquisition, Cathay Pacific transferred...
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...Instructor Guide CORPORATE FINANCE COURSE NUMBER: MBA591 [pic] Jones International University®, Ltd. 1.800.811.JONES (5663) http://www.jonesinternational.edu ©2008 Jones International University®, Ltd. All rights reserved. 9697 East Mineral Avenue, Englewood, Colorado 80112, USA This workbook and all accompanying audio-visual material, manuals and software (collectively, the "Materials") are copyrighted with all rights reserved. Under the copyright laws, none of the Materials may be copied in whole or in part without prior written consent of Jones International University®, Ltd. (JIU™) You may permanently transfer all of your rights in the Materials, provided that you retain no copies, and provided that you transfer all of the Materials (including all component parts, media, documentation and any prior versions and upgrades). You may not copy or allow any copies of the Materials to be made for others, whether or not you charge anyone else for the copies. Limitation of Liability. JIU™ PROVIDES ALL OF THE MATERIALS “AS IS” WITHOUT WARRANTY OF ANY KIND. EACH OF JIU AND ALL ITS DEVELOPERS, TEACHING FACULTY, DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL JIU OR ITS DEVELOPERS, TEACHING...
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...Jumbo The closer approximation to the A380, from either the technical side as well as the type of market served, is the Boeing 747 “Jumbo”. In terms of size the two giants are comparable. Both over 70 meters in length two decks and targeting long distance routes (for both the maximum distance above 8000 nautical miles). Given those similitudes it will be interesting to compare the performances in sales and market penetration. However one caveat would be taking into consideration the different market characteristics of the prosperous markets of 60s and 70s compared to the actual stagnant scenario. Sales We compared the sales of the two models (specifically matching the orders received for the first 11 years). It is clear that in both cases after the initial saturation of the premium market segment, sales are slowing down. However in the subsequent years, new clients and new product configurations increased boosted sales again. The difference comparing the two volumes is pretty considerable (357 of 747 units vs 262 of A380 units). Figure 1 Sales first 11 years comparison Another approach that the industry is taking in consideration for the market success of an aircraft is the sales benchmarked to the first delivery. This different indicator compares the sales performance aligning data of the two airplanes considering as 0 the year of first flight. This info is fundamental because airline companies are often skeptical of placing orders without having seen the first plane...
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...7 â¤Ã§¡Òà WTO Watch (¨Ñº¡ÃÐáÊͧ¤ì¡ÒáÒäéÒâÅ¡) ËéͧàÅ¢·Õè 14 ªÑ¹ 4 ¤³ÐàÈÃÉ°ÈÒʵÃì ÁËÒÇÔ·ÂÒÅѸÃÃÁÈÒʵÃì é àÅ¢·Õè 2 ¶¹¹¾ÃШѹ·Ãì ࢵ¾Ãй¤Ã ¡ÃØ§à·¾Ï 10200 â·ÃÈѾ·ì 0 2613 2470 áÅÐ 0 2623 5510 â·ÃÊÒà 0 2623 5510 โบอิ้งกับแอร์บัส : กรณีพพาททางการค้าระหว่างสหรัฐฯกับสหภาพยุโรป ิ ¢é͵¡Å§¡ÒäéÒàÊÃÕÊËÃÑ°ÍàÁÃÔ¡Ò สุ น ทร ตั น มั น ทอง àÍ¡ÊÒÃà˵ءÒó컨¨Øº¹ËÁÒÂàÅ¢ 7 Ñ Ñ â¤Ã§¡Òà WTO Watch (¨Ñº¡ÃÐáÊͧ¤ì¡ÒáÒäéÒâÅ¡) ä´éÃѺ·Ø¹Íش˹ع¨Ò¡Êӹѡ§Ò¹¡Í§·Ø¹Ê¹ÑºÊ¹Ø¹¡ÒÃÇԨѠ(Ê¡Ç.) โบอิงกับแอร์บส : ้ ั กรณีพิพาททางการค้าระหว่างสหรัฐฯกับสหภาพยุโรป สุนทร ตันมันทอง àอกสารเหตุการณ์ปัจจุบันหมายเลข 7 เมษายน 2550 ได้รับทุนอุดหนุนจากสำนักงานกองทุนสนับสนุนการวิจัย (สกว.) โครงการ WTO Watch (จับกระแสองค์การการค้าโลก) àÍ¡ÊÒÃà˵ءÒó컨¨Øº¹ËÁÒÂàÅ¢ 7 Ñ Ñ âºÍÔ§¡ÑºáÍÃìºÊ : ¡Ã³Õ¾¾Ò··Ò§¡ÒäéÒÃÐËÇèÒ§ÊËÃѰϡѺÊËÀÒ¾ÂØâû é Ñ Ô ¼Ùàé ¢Õ¹ Êع·Ã µÑ¹Áѹ·Í§ ¨Ó¹Ç¹ 63 ˹éÒ ISBN 978-974-7334-38-8 ¾ÔÁ¾ì¤ÃÑ駷Õè˹Öè§ àÁÉÒ¹ 2550 ¨Ó¹Ç¹ 1,000 àÅèÁ ÃÙ»àÅèÁ ÂØÇ´Õ ä¢ÁÕྪà à¨éҢͧ â¤Ã§¡Òà WTO Watch (¨Ñº¡ÃÐáÊͧ¤ì¡ÒáÒäéÒâÅ¡) ËéͧàÅ¢·Õè 14 ªÑ¹ 4 ¤³ÐàÈÃÉ°ÈÒʵÃì ÁËÒÇÔ·ÂÒÅѸÃÃÁÈÒʵÃì é àÅ¢·Õè 2 ¶¹¹¾ÃШѹ·Ãì ࢵ¾Ãй¤Ã ¡ÃØ§à·¾Ï 10200 â·ÃÈѾ·ì 0 2613 2470 áÅÐ 0 2623 5510 â·ÃÊÒà 0 2623 5510 E-Mail: lekkygood@yahoo.co.th www.thailandwto.org ä´éÃѺ·Ø¹Íش˹ع¨Ò¡ Êӹѡ§Ò¹¡Í§·Ø¹Ê¹ÑºÊ¹Ø¹¡ÒÃÇԨ (Ê¡Ç.) Ñ ªÑ¹ 14 ÍÒ¤ÒÃàÍÊàÍçÁ·ÒÇàÇÍÃì é àÅ¢·Õè 979 ¶¹¹¾ËÅâ¸Թ á¢Ç§ÊÒÁàʹ¹Í¡ ࢵ¾-Òä· ¡ÃØ§à·¾Ï 10400 ¾ÔÁ¾ì·èÕ âç¾ÔÁ¾ìÁËÒÇÔ·ÂÒÅѸÃÃÁÈÒʵÃì ·èÒ¾ÃШѹ·Ãì â·Ã. 0 2224 7357-9 ÈÙ¹ÂìÃѧÊÔµ â·Ã. 0 2564 3105-11 ¤³Ð¡ÃÃÁ¡ÒùâºÒÂâ¤Ã§¡Òà WTO...
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...Ethical Issues in Business Thomas Donaldson and Patricia Werhane Some definitions: Ethics – the study of whatever is right and good for humans Business ethics – business actions etc in light of some aspect of human value. - it requires the evaluation of business practices. - Goes beyond facts to include the “ought to” of a situation. The two traditional issues involved with ethics: 1. Ethical Relativism – are there universal values that apply to everyone or is everything relative to individual, country, company etc. a. Relates to cultural relativism. This presumes that different peoples reason about morality varies by culture, education and religious traditions. b. Arguments for ER are: i. Empirical evidence of cultural relativism. ii. There is no viable universal standard that can be applied to everyone. c. Arguments against ER are: i. Just because finding universals is hard – that does not imply that ER is correct. ii. Just because a particular issues is not resolved does not imply that it is, in principle, not ever resolvable. iii. Taking ER to its full extent means that you can’t justify any moral judgements at all. d. The Foreign Corrupt Practices Act (1977) attempted to legislate that what we say is moral is how we should behave. This Act was driven by the issue that you are being inconsistent with yourself if you say something is immoral yet do it anyway just because you are in a foreign country. 2. Truth telling – can you ever justify...
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...Mod 7 * ------------------------------------------------- Question 13.6 out of 3.6 points | | | Prior to 1946, the airports of this country were financedAnswer | | | | | Selected Answer: | by state, county, or municipal governments. | | | | | Question 23.6 out of 3.6 points | | | Which of the following statements concerning the Federal Airport Act of 1946 is not correct?Answer | | | | | Selected Answer: | Smaller cities greatly benefited from the federal financial support. | | | | | Question 33.6 out of 3.6 points | | | The Airport and Airway Revenue Act of 1970Answer | | | | | Selected Answer: | imposed taxes on all users of the airport and airway system. | | | | | Question 43.6 out of 3.6 points | | | Under the Airport and Airway Development Act of 1982, theAnswer | | | | | Selected Answer: | All of the above | | | | | Question 53.6 out of 3.6 points | | | The National Transportation Safety Board (NTSB) was created by theAnswer | | | | | Selected Answer: | Department of Transportation Act. | | | | | Question 63.6 out of 3.6 points | | | Which of the following was not a reason for passage of the act creating the Department of Transportation?Answer | | | | | Selected Answer: | To promote the development of civil aeronautics. | | | | | Question 73.6 out of 3.6 points | | | The NTSB is charged with all of the following...
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...------------------------------------------------- British Airways From Wikipedia, the free encyclopedia For similar named airlines, see British Airways Ltd and British Airways Limited. | It has been suggested that British Airways Limited be merged into this article or section. (Discuss) Proposed since January 2013. | British Airways | | IATA BA | ICAO BAW SHT | Callsign SPEEDBIRD SHUTTLE[1] | | Founded | 31 March 1974 (after BOAC & BEA merger) | AOC # | 441 | Hubs | * Gatwick Airport * London Heathrow Airport | Frequent-flyer program | * Executive Club (for BA flights) Diamond Club (for British Midland International flights) | Airport lounge | * Concorde Room * Galleries First * Galleries Club * Galleries Arrivals * First Lounge * Terraces Lounge * Executive Club Lounge * International Lounge * UK and Ireland Lounge | Alliance | Oneworld | Subsidiaries | * BA CityFlyer * OpenSkies * British Airways Limited * British Airways World Cargo | Fleet size | 256 | Destinations | 169 not incl. subsidiaries and code-shares | Company slogan | * To Fly. To Serve. * Upgrade to British Airways(online marketing) | Parent company | International Airlines Group | Headquarters | Waterside, Harmondsworth, England | Key people | * Keith Williams (Chief Executive Officer)[2] * Sir Martin Broughton(Chairman) | Revenue | €11.482 billion (2011)[3] | Website | www.britishairways.com | British Airways (BA)...
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