North South Airlines Essay

priming OF THE COMPANY sexual unionern Air telegraph hunts merged with Southeast air hoses to create the fourth largest U.S. carrier in January 2008. The new NorthSouth air lane inherited both an aging elapse of Boeing 727-300 aircraft and Stephen Ruth. Stephen was a tough former writing table of the Navy who stepped in as new president and chairman of the board. Peg Jones on the other sight is the vice president for operations and criminal forethought.DEFINE THE PROBLEMStephens objective is to gear the companys financial performance towards stability and continuous growth. This made him concern that the aging fleet of Boeing 727-300 aircrafts living cost may impede realization of this goal.The significant difference in the reported B727-300 maintenance cost (from ATA Form 41s) both in the airframe and engine areas between Northern Airlines and Southeast Airlines made him to probe through Peg Jones assistance on determining the quantitative and graphical report of the fol lowing Correlation of the second-rate fleet come on to direct airframe maintenance costs Linear relationship between the honest fleet age and direct engine maintenance costsCASE FACTS AND INFORMATION (INCLUDING LIMITATIONS & CONSTRAINTS)In addition to the aging formulas below, Peg constructed the average age of Northern and Southeast B727-300 fleets by quarter since the introduction of that aircraft to service by each airline in late 1993 and early 1994 respectively. good FLEET HOURS = TOTAL old age IN SERVICE X AVERAGE DAILY UTILIZATIONAVERAGE AGE OF EACH FLEET = TOTAL FLEET HOURS FLOWN OF AIRCRAFT IN SERVICEAVERAGE DAILY UTILIZATION = TOTAL FLEET HOURS FLOWNTOTAL DAYS IN SERVICEIn getting the average utilization, Peg used the actual fleet hours flown on September 30, 2007 from Northern and Southeast data, and dividing by the total days in service for all aircraft at that time. The average utilization for Southeast and Northern were 8.3 and 8.7 hours per day respectively. In a ddition, available cost data including the average fleet age were calculated for each yearly period ending at the end of number one quarter.Business asset dispraise depends on the cost of asset and its useful life-time. What is distinct about aircraft dispraise is that each component of an airplane is depreciated at different rates and depreciation rules. The North-South Airline problem for this authority may also be resolved by use depreciation methods as follows straightforward line with salvage value method = Asset Cost/ Useful Life The advantage of using the straight line method involves the ease of calculating the annual depreciation amount.The disadvantage of using the straight line method is that this method does not consider the rate the asset will actually depreciate in value. Declining balance method = Remaining Asset Value x Depreciation Rate The advantage of using this method is that it accelerates the depreciation recorded early in the assets life and thus reduc es the nonexempt income and the taxes owed during the early years. The disadvantage is that the method can be applied only when there is a remnant value of the asset.quantitative method/s employed and the solution to the problemNorthern Airlines DataAIRFRAME engineSouthern Airlines DataAIRFRAMESoutheast Airlineairframe maintenance costCost = 4.60 + 0 (airframe age) = 4.60Coefficient of determination = 0.39Coefficient of correlation = 0.62ENGINENorthern Airlineairframe maintenance costCost _ 36.10 _ 0.0025 (airframe age)Coefficient of determination _ 0.7694Coefficient of correlation _ 0.8771Northern Airlineengine maintenance costCost _ 20.57 _ 0.0026 (airframe age)Coefficient of determination _ 0.6124Coefficient of correlation _ 0.7825Southeast Airlineengine maintenance costCost __0.671 _ 0.0041 (airframe age)Coefficient of determination _ 0.4599Coefficient of correlation _ 0.6782ethical considerationsDEPRECIATION USED = SAFETYThe units of production method involves determining th e cost to depreciate and dividing that amount by the estimated production units the company expects to manufacture over the life of the asset. The advantages of using the units of production method include the ease of calculating the annual depreciation amount and that the depreciation is matched to the production quantity. The disadvantage of using the units of production method is that this method assumes the asset will depreciate evenly over its productive life.The graphs below portray both the actual data and the regression lines for airframe and engine maintenance costs for both airlines.Note that the 2 graphs have been drawn to the same scale to facilitate comparisons between the two airlines.Northern Airline There seem to be modest correlations between maintenance costs and airframe age for Northern Airline. There is certainly reason to conclude, however, that airframe age is not the only important factor.Southeast Airline The relationships between maintenance costs and airf rame age for Southeast Airline are much less sound defined. It is even to a greater extent obvious that airframe age is not the only important factorperhaps not even the most important factor.Overall conclusionOverall, it would seem that1. Northern Airline has the smallest variance in maintenance costs, indicating that the day-to-day management of maintenance is workings pretty well.2. Maintenance costs seem to be much a function of airline than of airframe age.3. The airframe and engine maintenance costs for Southeast Airline are not only lower but more(prenominal) nearly similar than those for Northern Airline, but, from the graphs at least, calculate to be rising more sharply with age.4. From an overall perspective, it appears that Southeast Airline may perform more efficiently on sporadic or emergency repairs, and Northern Airline may place more emphasis on preventive maintenance.Ms. Youngs report should conclude that1. There is evidence to raise that maintenance costs cou ld be made to be a function of airframe age by implementing more effective management practices.2. The difference between maintenance procedures of the two airlines should be investigated.3. The data with which she is presently working do not provide conclusive results.