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