A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7

Mengyuan Lu; Xiao Zhang; Tira Zhang

doi:doi:10.11648/j.ajtte.20220705.12

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A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7

Mengyuan Lu, Xiao Zhang, Tira Zhang

Published in American Journal of Traffic and Transportation Engineering (Volume 7, Issue 5)

Received: 12 September 2022 Accepted: 5 October 2022 Published: 11 October 2022

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Abstract

Commercial aircraft design and manufacture is known for the characteristics of high investment, high risk and high technology. Typically it is the number one priority to analyze financial feasibility on the manufacturer level to measure future risks and avoid strategic decision-making mistakes. Unlike the fruitful results in the research on technical feasibility of the engine and aircraft body, few studies have been conducted on financial feasibility of new aircraft. This paper formulated a three-step investment feasibility analysis and evaluation method based on multiple perspectives on the manufacturer company level, considering the determination of financial factors, capital structure, sensitivity analysis, economic attractiveness and comparative analysis. Based on the analysis and evaluation theory, this paper took Boeing 7E7 project for instance, demonstrated how a three-step method can be utilized to measure financial feasibility of a new aircraft project. In the first step, the determination of five financial indicators including beta, risk-free rate, market risk premium, cost of equity, cost of debt was illustrated for the project evaluation. In the second step, sensitivity analysis was conducted with @Risk software and comparative study between the financial indicators was clarified. In the third step, economic attractiveness analysis was demonstrated, where macro and micro environment assessment was explained. With the Boeing 7E7 project demonstration, the three-step method was proved to be an effective and applicable method for new aircraft project evaluation. The method proposed in this paper could offer references for general aircraft manufacturers when launching new commercial aircraft like COMAC C919, C929 and other homemade large aircraft.

Published in	American Journal of Traffic and Transportation Engineering (Volume 7, Issue 5)
DOI	10.11648/j.ajtte.20220705.12
Page(s)	84-92
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Financial Feasibility, New Aircraft, Project Evaluation, Sensitivity Analysis

References

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[3]	Boeing. (April 22, 2008). News Releases/Statements. Boeing. Retrieved from http://boeing.mediaroom.com/2008-04-22-Boeing-and-Airbus-Join-Forces-to-Improve-Aviations-Environmental-Performance
[4]	Tompkins, J., & Bruner, R. F. (April 8, 2016). The Boeing 7E7. Darden Business Publishing University of Virginia.
[5]	TIAN Li. Project Evaluation Decision Basis of "Large Aircraft Company" [J]. Finance Overview, 2008 (7) pp. 18.
[6]	ZHANG Cuifen. Research on Risk Management of Large Passenger Aircraft Projects in my country [J]. Research of Finance and Accounting, 2009 (17) pp. 47–48.
[7]	WANG Tianjie, ZHAO Wenhua. Risk Identification and Response in Large Aircraft Engine R&D Projects [J]. Theoretical Research, 2010 (11) pp. 56–57.
[8]	Falconer, B. (April 22, 2008). Boeing, Airbus Agree to Reduce Aviation's Environmental Impact. Mother Jones. Retrieved from http://www.motherjones.com/blue-marble/2008/04/boeing-airbus-agree-reduce-aviations-environmental-impact
[9]	Ibbotson, R. G., & Chen, P. (2003). Financial Analysts Journal: Long-Run Stock Returns: Participating in the Real Economy. Retrieved from Financial Analysts Journal
[10]	Norris, G. (September 24, 2014). 1987: A320 First Flight Remembered. Aviation Week. Retrieved from http://aviationweek.com/blog/1987-a320-first-flight-remembered
[11]	Cohan, P. (January 21, 2011). Boeing’s Dreamliner Delays: outsourcing goes too far. AOL. Retrieved from https://www.aol.com/article/2011/01/21/boeing-dreamliner-delays-outsourcing-goes-too-far/19808894/
[12]	Wilhelm, S. (July, 2014). Airbus unleashes the A330neo to hound Boeing’s 787 Dreamliner. Bizjournals. Retrieved from http://www.bizjournals.com/seattle/blog/2014/07/airbus-unleashes-the-a330neo-to-hound-boeings-787.html
[13]	Airliner Classic (n.d.). Airliner Classic: Airbus A300 – the beginning for a giant. Airliner Classic. Retrieved from http://www.airlinerworld.com/2009/12/airliner-classic-airbus-a300-the-beginning-for-a-giant/
[14]	Schmitt, A. (April, 2015). A SWOT Analysis of Boeing. Market Realist. Retrieved from http://marketrealist.com/2015/04/swot-analysis-boeing/
[15]	Yahoo Finance (n.d.). Boeing. Yahoo Finance. Retrieved from https://finance.yahoo.com/quote/ba/profile?ltr=1

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APA Style

Mengyuan Lu, Xiao Zhang, Tira Zhang. (2022). A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. American Journal of Traffic and Transportation Engineering, 7(5), 84-92. https://doi.org/10.11648/j.ajtte.20220705.12

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ACS Style

Mengyuan Lu; Xiao Zhang; Tira Zhang. A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. Am. J. Traffic Transp. Eng. 2022, 7(5), 84-92. doi: 10.11648/j.ajtte.20220705.12

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AMA Style

Mengyuan Lu, Xiao Zhang, Tira Zhang. A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. Am J Traffic Transp Eng. 2022;7(5):84-92. doi: 10.11648/j.ajtte.20220705.12

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@article{10.11648/j.ajtte.20220705.12,
  author = {Mengyuan Lu and Xiao Zhang and Tira Zhang},
  title = {A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7},
  journal = {American Journal of Traffic and Transportation Engineering},
  volume = {7},
  number = {5},
  pages = {84-92},
  doi = {10.11648/j.ajtte.20220705.12},
  url = {https://doi.org/10.11648/j.ajtte.20220705.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtte.20220705.12},
  abstract = {Commercial aircraft design and manufacture is known for the characteristics of high investment, high risk and high technology. Typically it is the number one priority to analyze financial feasibility on the manufacturer level to measure future risks and avoid strategic decision-making mistakes. Unlike the fruitful results in the research on technical feasibility of the engine and aircraft body, few studies have been conducted on financial feasibility of new aircraft. This paper formulated a three-step investment feasibility analysis and evaluation method based on multiple perspectives on the manufacturer company level, considering the determination of financial factors, capital structure, sensitivity analysis, economic attractiveness and comparative analysis. Based on the analysis and evaluation theory, this paper took Boeing 7E7 project for instance, demonstrated how a three-step method can be utilized to measure financial feasibility of a new aircraft project. In the first step, the determination of five financial indicators including beta, risk-free rate, market risk premium, cost of equity, cost of debt was illustrated for the project evaluation. In the second step, sensitivity analysis was conducted with @Risk software and comparative study between the financial indicators was clarified. In the third step, economic attractiveness analysis was demonstrated, where macro and micro environment assessment was explained. With the Boeing 7E7 project demonstration, the three-step method was proved to be an effective and applicable method for new aircraft project evaluation. The method proposed in this paper could offer references for general aircraft manufacturers when launching new commercial aircraft like COMAC C919, C929 and other homemade large aircraft.},
 year = {2022}
}

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TY  - JOUR
T1  - A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7
AU  - Mengyuan Lu
AU  - Xiao Zhang
AU  - Tira Zhang
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DO  - 10.11648/j.ajtte.20220705.12
T2  - American Journal of Traffic and Transportation Engineering
JF  - American Journal of Traffic and Transportation Engineering
JO  - American Journal of Traffic and Transportation Engineering
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PB  - Science Publishing Group
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UR  - https://doi.org/10.11648/j.ajtte.20220705.12
AB  - Commercial aircraft design and manufacture is known for the characteristics of high investment, high risk and high technology. Typically it is the number one priority to analyze financial feasibility on the manufacturer level to measure future risks and avoid strategic decision-making mistakes. Unlike the fruitful results in the research on technical feasibility of the engine and aircraft body, few studies have been conducted on financial feasibility of new aircraft. This paper formulated a three-step investment feasibility analysis and evaluation method based on multiple perspectives on the manufacturer company level, considering the determination of financial factors, capital structure, sensitivity analysis, economic attractiveness and comparative analysis. Based on the analysis and evaluation theory, this paper took Boeing 7E7 project for instance, demonstrated how a three-step method can be utilized to measure financial feasibility of a new aircraft project. In the first step, the determination of five financial indicators including beta, risk-free rate, market risk premium, cost of equity, cost of debt was illustrated for the project evaluation. In the second step, sensitivity analysis was conducted with @Risk software and comparative study between the financial indicators was clarified. In the third step, economic attractiveness analysis was demonstrated, where macro and micro environment assessment was explained. With the Boeing 7E7 project demonstration, the three-step method was proved to be an effective and applicable method for new aircraft project evaluation. The method proposed in this paper could offer references for general aircraft manufacturers when launching new commercial aircraft like COMAC C919, C929 and other homemade large aircraft.
VL  - 7
IS  - 5
ER  -

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Author Information

Mengyuan Lu

Developmemt and Planning, China Academy of Civil Aviation Science and Technology, Beijing, China
Xiao Zhang

Developmemt and Planning, China Academy of Civil Aviation Science and Technology, Beijing, China
Tira Zhang

Par Avion Global Ltd, Houston, USA

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APA Style

Mengyuan Lu, Xiao Zhang, Tira Zhang. (2022). A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. American Journal of Traffic and Transportation Engineering, 7(5), 84-92. https://doi.org/10.11648/j.ajtte.20220705.12

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ACS Style

Mengyuan Lu; Xiao Zhang; Tira Zhang. A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. Am. J. Traffic Transp. Eng. 2022, 7(5), 84-92. doi: 10.11648/j.ajtte.20220705.12

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AMA Style

Mengyuan Lu, Xiao Zhang, Tira Zhang. A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7. Am J Traffic Transp Eng. 2022;7(5):84-92. doi: 10.11648/j.ajtte.20220705.12

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@article{10.11648/j.ajtte.20220705.12,
  author = {Mengyuan Lu and Xiao Zhang and Tira Zhang},
  title = {A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7},
  journal = {American Journal of Traffic and Transportation Engineering},
  volume = {7},
  number = {5},
  pages = {84-92},
  doi = {10.11648/j.ajtte.20220705.12},
  url = {https://doi.org/10.11648/j.ajtte.20220705.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtte.20220705.12},
  abstract = {Commercial aircraft design and manufacture is known for the characteristics of high investment, high risk and high technology. Typically it is the number one priority to analyze financial feasibility on the manufacturer level to measure future risks and avoid strategic decision-making mistakes. Unlike the fruitful results in the research on technical feasibility of the engine and aircraft body, few studies have been conducted on financial feasibility of new aircraft. This paper formulated a three-step investment feasibility analysis and evaluation method based on multiple perspectives on the manufacturer company level, considering the determination of financial factors, capital structure, sensitivity analysis, economic attractiveness and comparative analysis. Based on the analysis and evaluation theory, this paper took Boeing 7E7 project for instance, demonstrated how a three-step method can be utilized to measure financial feasibility of a new aircraft project. In the first step, the determination of five financial indicators including beta, risk-free rate, market risk premium, cost of equity, cost of debt was illustrated for the project evaluation. In the second step, sensitivity analysis was conducted with @Risk software and comparative study between the financial indicators was clarified. In the third step, economic attractiveness analysis was demonstrated, where macro and micro environment assessment was explained. With the Boeing 7E7 project demonstration, the three-step method was proved to be an effective and applicable method for new aircraft project evaluation. The method proposed in this paper could offer references for general aircraft manufacturers when launching new commercial aircraft like COMAC C919, C929 and other homemade large aircraft.},
 year = {2022}
}

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TY  - JOUR
T1  - A Financial Feasibility Study on the New Aircraft Investment Based on Multiple Perspectives -- A Case Study of Boeing 7E7
AU  - Mengyuan Lu
AU  - Xiao Zhang
AU  - Tira Zhang
Y1  - 2022/10/11
PY  - 2022
N1  - https://doi.org/10.11648/j.ajtte.20220705.12
DO  - 10.11648/j.ajtte.20220705.12
T2  - American Journal of Traffic and Transportation Engineering
JF  - American Journal of Traffic and Transportation Engineering
JO  - American Journal of Traffic and Transportation Engineering
SP  - 84
EP  - 92
PB  - Science Publishing Group
SN  - 2578-8604
UR  - https://doi.org/10.11648/j.ajtte.20220705.12
AB  - Commercial aircraft design and manufacture is known for the characteristics of high investment, high risk and high technology. Typically it is the number one priority to analyze financial feasibility on the manufacturer level to measure future risks and avoid strategic decision-making mistakes. Unlike the fruitful results in the research on technical feasibility of the engine and aircraft body, few studies have been conducted on financial feasibility of new aircraft. This paper formulated a three-step investment feasibility analysis and evaluation method based on multiple perspectives on the manufacturer company level, considering the determination of financial factors, capital structure, sensitivity analysis, economic attractiveness and comparative analysis. Based on the analysis and evaluation theory, this paper took Boeing 7E7 project for instance, demonstrated how a three-step method can be utilized to measure financial feasibility of a new aircraft project. In the first step, the determination of five financial indicators including beta, risk-free rate, market risk premium, cost of equity, cost of debt was illustrated for the project evaluation. In the second step, sensitivity analysis was conducted with @Risk software and comparative study between the financial indicators was clarified. In the third step, economic attractiveness analysis was demonstrated, where macro and micro environment assessment was explained. With the Boeing 7E7 project demonstration, the three-step method was proved to be an effective and applicable method for new aircraft project evaluation. The method proposed in this paper could offer references for general aircraft manufacturers when launching new commercial aircraft like COMAC C919, C929 and other homemade large aircraft.
VL  - 7
IS  - 5
ER  -

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