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Alderney Airlines

Dr. Clive Vlieland-Boddy FCA FCCA MBA PhD. Alderney Airlines. Alderney Airlines. Group Review: As a board member, how would you evaluate the proposals and why? What is the difference between payback and NPV evaluation?. Key Issues. What is the Company? What is the Industry?

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Alderney Airlines

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  1. Dr. Clive Vlieland-Boddy FCA FCCA MBA PhD Alderney Airlines

  2. Alderney Airlines Group Review: As a board member, how would you evaluate the proposals and why? What is the difference between payback and NPV evaluation?

  3. Key Issues What is the Company? What is the Industry? What is the decision to be made? Who is to make the decision?

  4. The Company

  5. The Company Small regional airline. Well established. Management technical rather than finance. Relatively successful. Need to expand fleet.

  6. The Industry

  7. The Industry Many large players. But they are in a niche market. Difficult to differentiate. Relatively high barriers to entry.

  8. What is the decision to be made? Whether to buy 7 new planes or To buy 2 and keep most of existing fleet.

  9. What is the decision to be made?

  10. Who is to make the decision?

  11. Who is to make the decision? The Management. Mainly Mick McCormack.

  12. History & Background Started in the 1960’s Upgraded to Tri Islanders in the 1970’s Successful in a monopolistic situation. Gained high customer loyalty and satisfaction. Growing steadily. Bought Guernsey Airlines.

  13. Current Operations 9 aging BN Tri-islanders. 3 ready for scrap. Increasing passenger numbers putting pressure on fleet. Potential competitors could enter market to challenge position if they do not meet demand. Pressing fuel and other ecological issues.

  14. Compare The Two Planes BN Tri Islander 17 Seats Not fuel efficient Noisy Low pax comfort Beech Turbo Prop 27 Seats Uses less fuel per pax Longer range. Quieter New Technology High pax comfort

  15. Firstly lest look at 7 new planes and pay back 1 2 3 4 5 6 7 8 9 10

  16. What is Pay Back BASICALLY HOW MANY YEARS AND MONTHS IT TAKES TO RECOVER THE INVESTMENT

  17. Pay Back Yr 0 -14,000 1 1600 1600 2 1600 3200 3 1600 4800 4 1600 6400 5 1600 8000 6 1600 9600 7 1600 11200 8 1600 12800 9 1600 14400 10 6640

  18. So this says that after about 8 years and 9 months, we achieve pay back.

  19. What is Net Present Value If you were owed €100,000 due in 12 months what would you accept as a reduction of that amount to be paid today? May be €92,000? Well there is a “time value of money”. We desire money now not in years. We will put off the present desire for that so long as it is attractive.

  20. What about NPV

  21. Pay Back Disc factor PV Yr 0 -14,000 1 - 14,000.0 1 1600 1600 0.952 1,523.2 2 1600 3200 0.907 1,451.2 3 1600 4800 0.864 1,382.4 4 1600 6400 0.823 1,316.8 5 1600 8000 0.784 1,254.4 6 1600 9600 0.746 1,193.6 7 1600 11200 0.711 1,137.6 8 1600 12800 0.677 1,083.2 9 1600 14400 0.645 1,032.0 10 6640 0.614 4,077.0 NPV 1,451.4

  22. So What is the Decision? As it is positive then it represents a positive result.

  23. Lets Compare to Ralph’s Proposal! Buy 2 new Beechcraft 1900 and retain 6 Tri Islanders.

  24. The

  25. Pay Back Disc factor PV Yr 0 -2,000 1 - 2,000.0 1 458 458 0.952 436.0 2 458 458 0.907 415.4 3 458 458 0.864 395.7 4 458 458 0.823 376.9 5 458 458 0.784 359.1 6 458 458 0.746 341.7 7 458 458 0.711 325.6 8 458 458 0.677 310.0 9 458 458 0.645 295.4 10 1,898 0.614 1,165.4 NPV 2,421.2

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