EMIS 4395 – SENIOR DESIGN PROJECT BRODERICK MITCHELL TONY SANDERS Flying High with Southwest Airlines
Feb 25, 2016
EMIS 4395 – SENIOR DESIGN PROJECT
BRODERICK MITCHELLTONY SANDERS
Flying High with Southwest Airlines
Southwest Airlines Company Info
Based in Dallas, TexasLargest airline in U.S.September 27, 2010, Southwest Airlines
announced it would acquire AirTran Airways For about $1.4 billion Will not go into effect untill Q2 2011
Flights will remain separate until then
The Problem
Goal: Find the best method to obtain the highest value for parts coming off transition aircraft that are not effective for the SWA fleet. Determine the best in class process for surplus part management.
Scope of Project
3 Virgin Blue Aircraft Sitting in hangar (rented by AAR to Boeing)
2 AirTran option Aircraft Parts are available now
52 AirTran transition Aircraft Parts available over the next 2.5 years
Problem Details and Constraints
57 planes!Each plane consists of
Flight decks Lavs Seats Galleys
Each piece has unknown market value
Details and Constraints (Cont.)
“How do we get the most money?”3rd party consignment vendorOnsite contractorCreate SWA Employee positionOEM buyback for cash or credit
Time money value to avoid market saturation
Constraints (Cont.)
Tracking inventory that currently is not loaded in Wizard
Internal infrastructure to manage parts is currently not in place
Do we have liability for brokering parts?Marketing resources to sell the partsDetailed parts list to determine current
market value
Preliminary Ideas for Solving
Cost benefit analysis Which option gives best benefits vs. cost?
Based on each parts market value Real world constraints?
Time value for market saturationSpatial storage constraintsOther unforeseen constraints
Scenarios
- The options that were identified are as follows:
1. 3rd party consignment vendor2. Onsite contractor3. Create SWA Employee position4. OEM buyback for cash or credit5. AAR Consignment Service
#1: 3rd Party Consignment Vendor
Pros Possession 10-15% of what is sold 87.5% to Southwest
Cons Less control of parts Total revenue decreases
Calculations for Scenario 1.
($890,000 value per plane) * 57 planes * 87.5% = $44,388,750 (3rd party responsibility)
#2: Onsite Contractor
Pros Takes away small percentage of sells
Cons Parts storage Responsible for parts
Calculations for Scenario 2.
Costs = ($50,000 base salary costs) + (48.75 sq ft)(57 planes)($6.00) + (.05)($890,000 value per plane) * 57 planes
Revenue = ($890,000 value per plane) * 57 planes
Revenue – Costs = $48,126,827.50
#3: Create SWA Employee Position
Pros 100% of Sales More control over parts decision (distribution, sales,
etc.)
Cons Long-term vs. Short-term employee position?
Calculations for Scenario 3.
($890,000 value per plane) * 57 planes * 100% - (75,000) = $50,655,000
#4: OEM Buyback for Cash/Credit
Pros More revenue long-term
Cons Storage??? Market saturation Will Rockwell Collins be interested?
Calculations for Scenario 4.
= $50,429,000
#5: AAR Consignment Services
Pros Current option No excess
Cons Commission extremely high on parts(20%) Under contract
Calculations for Scenario 5.
($890,000 value per plane) * 57 planes * 87.5% = $44,388,750 (SW responsible for parts)
Conclusion
After running cost-benefit analysis on each scenario we determined that creating a SWA Employee Position within the company yielded the best results and would gain SWA the most revenue for the parts
Q & A
Questions, Comments, & Concerns