Obtain and interpret operational cost data for commercial aircraft.
Use data to estimate future operating costs for new and older airline aircraft.
Learn how net present value analysis is used in capital acquisition decision-making.
WestJet, Canada’s second-largest airline behind Air Canada, has engaged the aviation consulting firm IFC International to evaluate whether it should continue
its expansion to Europe with used Boeing 767-300ERs (ER stands for extended range; this model entered service in 1988) or purchase new Boeing 787-9
aircraft. You are the senior financial analyst with IFC assigned to this project and will prepare a memorandum with your analysis and recommendations to Mr.
Harry Taylor, WestJet’s Chief Financial Officer.
WestJet was founded in 1996 based on the low-cost carrier model. It has since grown rapidly, expanding to the US and the Caribbean with a fleet of Boeing
737 aircraft. In 2016, WestJet began service to Europe utilizing used Boeing 767-300s. The start-up of European service was plagued by delays and
cancellations, in part due to the lower reliability of older aircraft. Mr. Taylor, new to WestJet, has questioned whether the operational problems might have
been avoided had the airline opted for new Boeing 787 aircraft rather the 25-year-old Boeing 767s. He believes that his staff may not be able to conduct an
unbiased assessment having participated in the selection of the Boeing 767, so he has contracted with IFC to develop a financial comparison of the two
aircraft types.
As with all older aircraft, the B-767 burns more fuel per available-seat-mile and requires more maintenance than new generation aircraft of equal mission
capability. Though well-used, the B-767 still has a remaining useful life of at least 15 years. The Boeing 787-9 Dreamliner is much more expensive to
purchase but promises better reliability and reduced fuel burn per seat-mile.
Note: WestJet did subsequently order new B-787-9s as a B-767 replacement, so imagine yourself conducting the analysis prior to this decision. Do not
assume, however, that your analysis will necessarily conclude that the B-787-9 is the best financial choice for WestJet. It may or may not.
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