Aircraft Selection and Acquisition - Literature review Example

Aircraft Selection and Acquisition Name: Course: Tutor: Date: Introduction One of the most critical areas of airline management is making decisions on the type of aircraft to be purchased to be part of the airline’s fleet and the number of each type of aircraft. According to O'Connor (2001), this is an area in which virtually all airlines are severely tested. Part of the test is attributed to the fact that commitments for delivery must be made for many years in the future and irrespective of the uncertainties involved, large sums of money must be obligated to securing the future projects. Just to sample a few cases from the United States, in1996 the American (an American airline) committed $6.5 billion for aircraft orders from Boeing, United ordered aircraft worth $4.4 billion from both Boeing and Airbus, and US Airways committed $4.5 billion for aircraft orders from Airbus (O'Connor 2001, p 89). The uncertainties in ordering and acquiring aircraft are compounded by that fact that while some orders may be made by an airline during prosperous times, changes may arise in the markets such that at the time of delivery of the orders the density of traffic may have dropped significantly such that the deliveries may not actually be deemed to be of necessity to the airline (O'Connor 2001, p 89; Holloway 2003). It is for this reason that both aircraft manufacturers and airlines are trying to avoid the inconveniences. Aircraft manufacturers are acting by reducing manufacturing lead times, and airlines are arranging for long term contracts that ensure that the deliveries are spread uniformly such that there are no peak deliveries (O'Connor 2001, p 89). In addition, airlines look beyond the impact of costs and investment and evaluate the operating efficiency of the fleets they own or intent to purchase. In particular, airlines evaluate aspects of efficiency such as payload and range characteristics of the aircraft to be purchased (O'Connor 2001, p 90; Edwards 2005, p. 68). This paper will address a case study of a famous airline that has a significant volume of traffic and which operates between the Middle East (the Gulf States) and Sydney and Melbourne in Australia. The airline’s aircraft also fly to the United States and the United Kingdom. The airline intends to replace its old fleet of aircraft with the latest technology aircraft, with an aim of maximizing provision of direct services to the various destinations as well as minimizing fuel burn. This in essence is the strategy employed by most airlines in order to survive in the highly competitive market (Penner 1999; Lee, 2006). In view of the above, the purpose of the paper is to present a preliminary study of the payload and range characteristics of some the latest wide body or twin aisle aircraft in the market. The airline aims to have the aircraft delivered within a period of the next four years. The study will therefore involve an analysis of the various models manufactured by leading manufacturers as well as the merits and limitations of the particular models discussed. The study begins by an analysis of the aircraft market, aircraft specifics and supply factors. Background information The aircraft market According to O'Connor (2001), the aircraft market is dominated by two major manufacturers of medium range as well a long range jets and these are Boeing of the United States and Airbus Industrie that is a European consortium. Most airlines plying long routes use either or both of the two aircraft models. Models produced by the two manufacturers are also of a wide range: a mix of the conventional single aisle aircraft as well as the latest advanced twin aisle aircraft. There are prospects of other aircraft manufacturers such Embraer of Brazil and Bombardier of Canada venturing in large long haul aircraft but as of the moment most attention is paid to the two aforementioned giants (Montgomery & Foster 2006, p. 188; Forsyth et al 2005). Other manufacturers include British Aerospace of Britain and Fokker of the Netherlands (O'Connor 2001, p 90). The wide body or twin aisle aircraft that are currently in the market are designed for long range flights and have seating capacities in the range between 200 and 500 or slightly more. Boeing 747 and Boeing 767 have proved to be efficient as proved by their popularity in use by many airlines. There is also the Boeing 777 that has a seating capacity of between 250 and 350 passengers (O'Connor 2001, p 92). On the Airbus side there are a variety of wide body aircraft including Airbus A-310, A-330, A-340, A-350 and A-380. The last three models have been designed for very long hauls (Endres 2001, p. 59). In fact the Airbus A-380 is the largest wide body aircraft with a four aisle cabin structure and a seating capacity of 555 (Endres 2001, p. 60). Before evaluating specific aircraft models that are undoubtedly appropriate not only for long haul flights in terms of their sophistication but also in view of their efficiency in minimizing fuel burn, it is prudent to understand some concepts related to aircraft and flight. These are discussed in the next sections. Why adopt wide body or twin aisle aircraft? Unlike the situation about four decades ago when singe aisle aircraft were dominantly used for long haul flights, the aviation market has been significantly transformed, with most airlines going for the latest thin aisle aircraft (Taneja 2004, p. 75). Since their introduction in the 1990s, twin aisle or wide body aircraft have proved to generate good returns that significantly exceed the cost expended by the airline in acquiring them over time. The popularity of twin aisle aircraft among passengers has been elevated so much that controversy has arisen that single aisle aircraft may no longer be use in long haul flights in the near future (Taneja 2004, p. 76). Some airline marketers have indicated that with the presence of twin aisle aircraft passengers are not going to travel long distances in single aisle aircraft. In addition, there is dire need by many airlines to have twin aisle aircraft that meets a variety of needs including cargo, catering, and providing a substantial crew workspace. In the same breath, some airlines point out that passenger acceptance is pegged on the available alternatives as well as cabin configuration and the services and facilities offered (Taneja 2004, p. 75; Iatrou, & Oretti 2007). Supply factors According to Kazda and Caves (2007), the factors that affect aircraft supply include cost per passenger kilometre, aircraft size, cost of input factors, technology, management, capacity constraints and fares (p. 37-39). Among these factors those that are of particular importance in this study are discussed in the following sections. Cost per passenger kilometre Airlines have to maintain a constant level of regularity, frequency, reliability, as well as other factors that affect ticket price. The price is dictated by the underlying cost of production coupled with the policies set to generate revenue. The general costs of production are directly determined by airlines’ operating policies vis-à-vis load factor, size of aircraft, input factor costs, and general productivity advances in technology (Kazda & Caves 2007, p.37), As earlier noted, wide body aircraft are operationally viable for long haul flights. Size of aircraft It is generally expected that aircraft size has to increase on the densest routes. Along this line, much attention is paid on size rather than frequency in order to lower costs involved in operating many aircraft as well as the competition for low fare passengers. In addition, using large aircraft (such as the latest giant twin aisle aircraft) considerably lowers airport congestion. It has been noted that the frequency of use of aircraft (mostly the conventional single aisle ones) and the competition involved seems to overcome competition for runway capacity (Kazda & Caves 2007, p.37). The solution therefore lies in using very large aircraft for long hauls, which will reduce traffic in most airports (Kazda & Caves 2007, p.37). It is for this reason that in its estimates between 2006 and 2025 Airbus projected demands for twin aisle and very large aircraft to be 5712 and 1263 aircraft respectively. Along the same line, Boeing projected the demand for its models in the same period to be 21470 and 8070 for twin aisle and very large aircraft respectively (Kazda & Caves 2007, p.37; Taneja 2004). It is also generally accepted that the new, modern and highly sophisticated aircraft impose new challenges in terms of the technology required to operate them as well as the management. Any airline arranging to acquire such aircraft therefore has to brace for new cost in management (Kazda & Caves 2007, p.38-39). Nonetheless, usage of such large aircraft may be hindered by airport characteristics since not all airports can support the large aircraft. Aircraft performance Cost-efficient aircraft are those that optimize the operational use of fuel. Factors closely related to this are capacity utilization, reducing operational weight as well as optimising the operational speed of the aircraft. In terms of capacity utilization, it has been proved that fuel efficiency in modern aircraft is greater at all payloads (Penner 1999, p. 280). According to Edwards (2005), payload is a very important feature in aviation since it is the factor that largely determines the operational efficiency of an airline, and rather not necessarily fuel consumption of aircraft (p. 68). Payload is a factor that is determined by the revenue generating load, that is, an aircraft’s carrying capacity in terms of passengers as well as freight. Along this line, modern jets are appropriate on routes that have a large number of passengers as well as a large amount of freight. In essence, payload represents roughly about a fifth of the total weight of an aircraft. This however varies on long journeys in which fuel may account for a third of the weight of the aircraft and payload about one sixth, but conventionally fuel load and payload may be equal, each representing 18 percent of the total aircraft weight (Edwards 2005, p. 68). Although payload is the revenue generating function of any airline, the limiting factor in the modern aircraft design is not weight but rather, space (Edwards 2005, p. 69). On passenger flights, and particularly the twin aisle aircraft, it is very rare for payload to reach maximum weight as permitted under international safety regulations because the aircraft’s seats and the aisles occupy huge chunks of space (Holloway 2003; Edwards 2005, p. 69). It for is this reason that there is need to consider acquiring aircraft that offer significant belly-hold volumes for freight. Along this line, the Boeing 747-400 model has a belly-hold capacity to carry more cargo than the Airbus A380-800 (Holloway 2003, p. 500). Analysis of specific aircraft models As seen above, going by payload the Boeing 747-400 model would be preferable to the Airbus A380-800 because it can not only carry a substantial number of passengers but also has a considerable amount of space for passengers’ cargo. This section will evaluate the features of more other twin aisle aircraft produced by both Airbus and Boeing. Airbus models Airbus A340 and A330 The Airbus A340-200 has a seating of between 250 and 300 passengers, and has the longest range capacity of any existing commercial airliner. It has proved to be the ideal aircraft for long haul flights since it is relatively more economical than most twin aisle aircraft. The A340 is also designed to serve very long routes. Another model closely related to this is the A330, which is ideal for high density routes. The advantages of A330 include a large seating capacity of 335, a range of 4500 nmi that provides a full complement for passengers and baggage, and 3200 nmi achieving maximum payload. These features make the A330 an ideal model to replace earlier aircraft and is an appropriate alternative for costlier jets (Spitzer 2004, p. 10-2). Like most Airbus models, the A330 and A340 have a fly-by-wire controlling mechanism. They also have horizontal stabilizers and vertical fins designed from plastic reinforced with carbon fibre, which greatly minimizes weight and improves payload (Spitzer 2004, p. 10-2). No significant limitations of the Airbus A330s and A340s have been noted (Spitzer 2004). Airbus A350 Airbus also has a range of wide body aircraft models labelled A350 XWB. There are three basic passenger versions: the A350-800, A350-900 and A350-1000. These aircraft accommodate between 270 and 350 passengers and have been designed to augment the latest A380 model. Passengers can accommodated in a typical three-class configuration, which makes the models ideal for offering both high cost and low cost fare services in one flight. The prime features of these models include a long range of 8,000 nm, and an effective fuel consumption capacity (30 percent more fuel-efficient). The models are also made of more advanced materials (greater than 60 percent) and have a cruise speed of Mach 0.85 (Airbus 2009). Although the are no significant limitations of the Airbus 350, of particular concern is the extreme length of the A350-1000, which implies that it requires longer runways. Airbus A380 Airbus A380 is the largest of the wide body aircraft manufactured by Airbus Industrie. The specifications of the Airbus A380-100 are dimensions: wingspan 79.80 m or 261 feet 9.75 inches; 73 m in length (239 feet 6 inches); and overall height of 24.10 m (approximately 79 feet) (Endres 2004, p. 60). It is a double deck carrier. This aircraft can attain a maximum cruise speed of more than Mach 0.85, which makes it more efficient on fuel than the A350s. In addition, the model has a good range with a maximum payload at 7650 nm or 14,165 km. This is augmented by the fact that the aircraft has a seating capacity of 555 passengers which makes it very efficient in terms of cost per passenger kilometre (Endres 2004, p. 60). Emirates was the first airline to commit itself to the Airbus A380 model (Endres 2004) and it has proved to be a success. The major limitation that has been observed with the A380 model is it huge size. In addition, it has proved to be inefficient among low cost carriers such as the Indian-based Kingfisher that made a commitment to the model in 2005. Thus, it is not as classic as the Boeing 737 or Airbus A319 in providing low cost services (Bennett 2006, p. 41). Boeing models Boeing 747 The Boeing 747 is regarded as the original “jumbo jet” with its unique upper deck profile. The model is also one of the fastest aircraft in service (Boeing 2009). The Boeing 747 is a four-engine aircraft and has a seating capacity of 400 passengers. Although the model has been in operation for a number of decades, the latest designs have the latest technological features. Boeing is also in the process of developing an advanced model of the 747 family dubbed 747-8 that will be larger and is projected to offer the lowest operating costs as well as best fuel efficiency ever seen of a passenger or freight plane. The Boeing 747-8 will also set a new level of environmental concerns with its cleaner and quieter operation features (Boeing 2009). This model is therefore appropriate for any airline that aspires to achieve a high level of efficiency and technology. However, the limitation for committing to this model is that it has not been tested and hence bears lot of uncertainties. Boeing 767 The Boeing 767 is a medium size twin aisle jet that is popular among airline operators across the Atlantic due to its proven range as well reliability and profitability. The model has a seating capacity of between 181 and 304 passengers and is preferable on all routes including intercontinental routes (Boeing 2009). Boeing 777 Boeing 777 is one of the leading models preferred by airlines for its unrivalled reliability, unmatched twin-engine capability and a spacious thin aisle cabin. There are many varieties of the 777 which allow many operators from across the continent to ply routes the world over. The model also offers ample space and a variety of interior configurations that increase comfort. Like the Airbus A350, the Boeing 777 offers a typical seating style for three classes for a passenger capacity between 301 and 368 (Boeing 2009). No limitations have been noted with respect to this model hence its popularity among many airlines (Endres 2004, p. 60). Boeing 787 Dreamliner The Boeing 787 Dreamliner is projected to be the most sophisticated of the Boeing models. The aircraft is one of the super-efficient planes that combine attributes of fuel efficiency (20 percent improvement) and unprecedented performance levels (Boeing 2009). The Boeing 787-8 and 787-9 are expected to carry between 200 and 300 passengers on journeys as long as 8,500 nautical miles or 15,750 km in a typical three-class system. Another model, Boeing 787-3 is expected to accommodate 300 passengers in a two class configuration. The initial Boeing 787 Dreamliner will be out in early 2010, hence airlines that make commitments now will be among the first to own it (Boeing 2009). The limitations perhaps also lie in the fact that the model will be in use for the first time, hence underlying uncertainties. Conclusion and recommendations There is a host of modern aircraft models manufactured by Airbus Industrie and Boeing, to which the airline in question can make commitments in the next four years. A number of factors will have to be considered when making the commitments, for instance the type class of passengers the airline would like to serve as well as payload characteristics. Airbus A330 and A340 models as well as Boeing 747s are ideal for offering all kinds of economical flight services. It has also been shown that the Boeing 747-400 model is ideal for passengers and cargo because of its large belly-hold volume. If the airline intends to offer more than two-class configurations in one flight, it should consider committing itself to Airbus A350s and Boeing 777s. For classier services the appropriate models include Airbus A380s and Boeing 787 Dreamliners. References Airbus 2009, Aircraft families, Available from http://www.airbus.com/en/aircraftfamilies/ (10th October 2009). Bennett, S 2006, A sociology of commercial flight crew, Ashgate Publishing, Ltd., London. Boeing 2009, Boeing commercial airplanes, Available from http://www.boeing.com/commercial/pdf/BCA_backgrounder.pdf (11th October 2009). Edwards, B 2005, The modern airport terminal: New approaches to airport architecture (2nd edition), Routledge, New York Endres, G 2001, The illustrated directory of modern commercial aircraft Zenith Imprint, London. Forsyth, P; Gillen, D W; Mayer, O G & Niemeier, H 2005, Competition versus predation in aviation markets: a survey of experience in North America, Europe and Australia, Ashgate Publishing, Ltd., London. Holloway, S 2003, Straight and level: practical airline economics (2nd edition), Ashgate Publishing, Ltd., London. Iatrou, K, & Oretti M 2007, Airline choices for the future: from alliances to mergers, Ashgate Publishing, Ltd London. Kazda, A & Caves R E 2007, Airport design and operation (2nd edition), Emerald Group Publishing, London. 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