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SATS and Life Cycle Cost Research, 1999-2004

SATS and Life Cycle Cost Research, 1999-2004. Robert N. McGrath, Ph.D. Embry-Riddle Aeronautical University Daytona Beach, Florida. Presentation Agenda. SATS Background Baseline Study Interim Studies Latest Study Conclusion. NASA’s Premise.

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SATS and Life Cycle Cost Research, 1999-2004

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  1. SATS and Life Cycle Cost Research, 1999-2004 Robert N. McGrath, Ph.D. Embry-Riddle Aeronautical University Daytona Beach, Florida

  2. Presentation Agenda • SATS Background • Baseline Study • Interim Studies • Latest Study • Conclusion

  3. NASA’s Premise • “One of the most significant emergent forces in the first decade of the 21st century will be the value of human time … human/intellectual capital [will replace] physical capital as the basis for the creation of wealth.”

  4. NASA (continued) • “… significant advancement in doorstop-to-destination speed … is possible, if the challenges can be met for making small aircraft and airports more available to the traveling public … enabling technologies include a new generation of engines, avionics, airframe, navigation, communication and operator training.”

  5. SATS • Small Airplane Transportation System • Airplane-based personal transportation • Ultimate vision: substitute for autos • Near term: industrial / govt. niches • NASA+industry+academia+public sector

  6. SATS System

  7. SATS’ Classic Catch-22 • Radical Technologies usually • Come from new entrants • Are costly • Underperform early • Favored by pioneers for the ‘sizzle’ • Mature Technologies usually • Are advanced by incumbents • Are very cost effective • Have run out of potential • Favored by mass markets

  8. Life Cycle Cost Studies • 1999-2000: funded baseline to study aircraft costs - very abstract • 2000-2002: unfunded independent research to include the value of time • 2003: funded study into air taxi as a near-term niche

  9. Baseline Study (1999-2000) • Seven configurations of technology, method of ownership and operation • About 75 independent variables • CER’s mostly extrapolations • NASA’s vision feasible • … given theoretical constraints about pricing, production strategies

  10. Baseline Conclusions • Impressive gains in total cost of ownership • But mass-market not in the near-term future • Keys • Aircraft prices • Fuel and maintenance • Business and operational assumptions

  11. Interim Independent Studies • … what about ‘time?’ • Used the original model as baseline • Modified to include value of time and compare SATS Bizjets to executive travel on airlines • Modified to include value of time and compare autos and SATS Bizjets

  12. What is the Value of Time? • Extant research nonexistent • Employee time assumed in Bizjets • Aircraft modeled in Travel$ense • Samples of city pairs capturing likely trip ranges • Various levels of cost

  13. Interim Conclusions • Without considering the value of time • SATS often appeared competitive in some costs • When considering the value of time • SATS often appeared superior in many costs by wide margins

  14. Without “Time”

  15. With “Time”

  16. The 2003 Study • One of several “business case” studies • Not macro/market/economic … • … Focused on an air taxi business • Compared an entrepreneur’s choice of • Beech Bonanza 33 (4 seats) • Beech King Air 200 (8 seats) • Eclipse 500 (6 seats)

  17. Beech Bonanza 33 Eclipse Bonanza

  18. Beech King Air

  19. Eclipse 500

  20. The 2003 Study (continued) • Hypothetical Air Taxi Enterprise • Today’s “rules of the game” • Minimal “SATS” infrastructure • Two strategic objectives • Low overhead / organizational infrastructure • Operating capacity large enough to exploit possible economies of scale • … 10 a/c, 6 flights/day, 10 year life cycle

  21. Life Cycle Costs

  22. Cost-Effectiveness Analysis • Three measures • Cost per Mile • Cost per Seat Mile • Cost per Hour

  23. Cost Effectiveness

  24. Cost Effectiveness (continued) • Load factors affect business viability of a/c • In the enterprise, the market was assumed constant … • … i.e., regardless of a/c chosen, the same # of passengers would board

  25. Varying “Load”

  26. Load Factor C-E Summary • Extraordinary degradation as passengers removed • The fewer the total seats, the greater the effect • Eclipse emerged as the best, Bonanza and King Air became comparable • Many “mental experiments” can change conclusions

  27. Sensitivity Analysis • Above pointed to uncertainty/risk in: • price • fuel • maintenance • capacity utilization (or scale economy)

  28. Sensitivity Analysis

  29. Air Taxi and SATS • Technology must be aligned with capacity must be aligned with market share • Business innovations (models) are needed as well as technological and marketing innovation

  30. Conclusion • Markets, technologies, etc. will show dynamic and recursive cause and effect • SATS is proceeding in ways that business theory explains well … • Models of technology / industry cycles are robust

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