Flying High with Southwest Airlines

1. Flying High with Southwest Airlines EMIS 4395 – Senior Design Project Broderick Mitchell Tony sanders

2. Southwest Airlines Company Info • Based in Dallas, Texas • Largest 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

3. 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.

4. 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

5. Problem Details and Constraints • 57 planes! • Each plane consists of • Flight decks • Lavs • Seats • Galleys • Each piece has unknown market value

6. Details and Constraints (Cont.) • “How do we get the most money?” • 3rd party consignment vendor • Onsite contractor • Create SWA Employee position • OEM buyback for cash or credit • Time money value to avoid market saturation

7. 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 parts Detailed parts list to determine current market value

8. 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 saturation • Spatial storage constraints • Other unforeseen constraints

9. Scenarios • The options that were identified are as follows: • 3rd party consignment vendor • Onsite contractor • Create SWA Employee position • OEM buyback for cash or credit • AAR Consignment Service

10. #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

11. Calculations for Scenario 1. ($890,000 value per plane) * 57 planes * 87.5% = $44,388,750 (3rd party responsibility)

12. #2: Onsite Contractor • Pros • Takes away small percentage of sells • Cons • Parts storage • Responsible for parts

13. 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

14. #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?

15. Calculations for Scenario 3. ($890,000 value per plane) * 57 planes * 100% - (75,000) = $50,655,000

16. #4: OEM Buyback for Cash/Credit • Pros • More revenue long-term • Cons • Storage??? • Market saturation • Will Rockwell Collins be interested?

17. Calculations for Scenario 4. = $50,429,000

18. #5: AAR Consignment Services • Pros • Current option • No excess • Cons • Commission extremely high on parts(20%) • Under contract

19. Calculations for Scenario 5. ($890,000 value per plane) * 57 planes * 87.5% = $44,388,750 (SW responsible for parts)

20. 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

21. Q & A Questions, Comments, & Concerns