North South Airlines Essay

BACKGROUND OF THE clubNorthern respiratory tracts merged with southeast Airlines to create the fourth largest U.S. carrier in January 2008. The new NorthSouth Airline inherited both an develop fleet of Boeing 727-300 aircraft and Stephen Ruth. Stephen was a tough former Secretary of the Navy who stepped in as new president and chairman of the board. arrest Jones on the separate hand is the vice president for operations and fear.DEFINE THE PROBLEMStephens objective is to gear the companys financial performance towards stableness and continuous growth. This do him concern that the aging fleet of Boeing 727-300 aircrafts criminal nutrition hail 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 railway locomotive areas between Northern Airlines and Southeast Airlines made him to probe through Peg Jones assistance on determining the quantitative and graphical report of the hobby Correlation of the average fleet age to instantly airframe maintenance cost Linear relationship between the average fleet age and direct railway locomotive maintenance beCASE FACTS AND INFORMATION (INCLUDING LIMITATIONS & CONSTRAINTS)In extension 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.TOTAL FLEET HOURS = TOTAL DAYS IN SERVICE X AVER epoch DAILY UTILIZATION intermediate AGE OF EACH FLEET = TOTAL FLEET HOURS FLOWN OF AIRCRAFT IN SERVICEAVERAGE DAILY UTILIZATION = TOTAL FLEET HOURS FLOWNTOTAL DAYS IN SERVICEIn getting the average engagement, Peg used the actual fleet hours flown on September 30, 2007 from Northern and Southeast info, and dividing by the chalk up 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 respect ively. In addition, available cost selective information including the average fleet age were calculated for each yearly percentage point ending at the end of first quarter.Business asset disparagement depends on the cost of asset and its useful spirit. What is distinct about aircraft dispraise is that each component of an airplane is belittled at different rates and depreciation systems. The North-South Airline problem for this instance may also be pertinacious by using depreciation methods as follows straight line with redeem value method = Asset Cost/ Useful Life The favor of using the straight line method involves the ease of calculating the yearbook depreciation amount.The disadvantage of using the straight line method is that this method does non consider the rate the asset will actually devaluate in value. Declining balance method = Remaining Asset Value x Depreciation Rate The advantage of using this method is that it accelerates the depreciation save early in t he assets life and thus reduces the taxable income and the taxes owed during the early years. The disadvantage is that the method can be applied hardly when there is a residual value of the asset.quantitative method/s employed and the solution to the problemNorthern Airlines DataAIRFRAMEENGINE gray 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 Airline locomotive 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 considerations dispraise USED = SAFETYThe units of turnout metho d involves determining the cost to depreciate and dividing that amount by the estimated production units the company expects to manufacture oer the life of the asset. The advantages of using the units of production method include the ease of calculating the yearbook 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 reverse lines for airframe and engine maintenance be for both airlines.Note that the two graphs have been careworn 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 think, however, that airframe age is not the scarce primary(prenominal) factor.Southeast Airline The relation ships between maintenance costs and airframe age for Southeast Airline are much less swell defined. It is even more than obvious that airframe age is not the only important factorperhaps not even the most important factor. general conclusionOverall, it would seem that1. Northern Airline has the smallest variance in maintenance costs, indicating that the day-to-day management of maintenance is working pretty well.2. Maintenance costs seem to be more a function of airline than of airframe age.3. The airframe and engine maintenance costs for Southeast Airline are not only lower but more nearly similar than those for Northern Airline, but, from the graphs at least, appear 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 suggest that maintena nce costs could be made to be a function of airframe age by implementing more potent 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.