ipl-logo

Hong Kong Dragon Airlines Case Study

2150 Words9 Pages

Hong Kong Dragon Air is Hong Kong-based international airline, belonging to of the Cathay Pacific Group. The airline was established in 1985, and operates a fleet of narrow-body A320s and A321s, which were both powered by V2500 engines manufactured by International Aero Engines AG (“IAE”) for both passenger and cargo service to destinations to destinations across the Asia-Pacific region, and China. Their vision is to be the World’s best regional airline serving China and beyond. Their missions; places emphasis on safety and operational excellence with customer focus. The airline seeks to embrace innovation by implementing ideas that improve their business. (REF). In January 2006, the management of Hong Kong Dragon Airlines …show more content…

The most significant component of cash outflows in case of purchase option was the cost of the replacement spare engine. Our cash flows included the tax shield on depreciation, and maintenances costs associated with the purchase and use of the engine. We determined the after tax cash flows under both options, in case of Hong Kong Air purchase option, the after-tax cash flows are, cost of the V2500 spare engine, the tax shield on depreciation and maintenances costs and the after tax discount rate was used. In case of the lease option, the after-tax cash flows are; include; monthly rental at 8% of engine price, rate per flight hour, rate per engine cycle all over the period of the lease not less than 10 years.(ref) The discount rate used was the after tax cost of debt. We worked out and the net present values of each option and thereafter picked the option that has lower present value of cash outflows.
Our NPV calculations for both options were backed with sensitivity scenario analysis of both the buy and leas options.
Sensitivity Scenario Analysis Sensitivity analysis scenario is used to show how changes in one or more variables below and above the used variables would affect the intended results. I our sensitivity analysis scenario for Dragon Air lease vs buy decision we varied the cost of capital between 1% and 5% as the main driver in the case. The tables below show the results. …show more content…

Maintenance records. Leased engine must be maintained to certain standards, and Dragon Air must keep accurate maintenance records to ensure they comply with lease requirements.
5. Dragon Air would take on the risk of engine return penalties if they do not meet the engine return conditions are not met at the end of the lease.
Having exhausted the financial analysis and sensitivity scenario analysis, we determined the best option for Dragon Air in their buy vs. leas decision.
Best option for Hong Kong Dragon Air in this case
5. Which option did you chose? Why? Provide quantitative support
Based on the financial analysis and sensitivity analysis scenarios the buy option has NPV cash outflow of ………… and the lease option has NPV cash outflow ……. . The sensitivity analysis scenarios in both the buy and lease option and the respective pros and cons of each option we found the best option for Dragon Air buy versus lease decision would be to buy the replacement spare engine.as opposed to leasing it. We attach the excel spreadsheet with supporting quantitative financial analysis.

Current updates on the

Show More
Related

  • Tootsie Roll Financial Analysis

    668 Words  | 3 Pages

    The Hershey manufacturer and the Tootsie Roll company both are firms in confection enterprise; they specialize in a vast form of chocolate sweet products. I compared each companies for the years 2002, 2003, and 2004 towards every different and in opposition to the enterprise averages so as to make a selection about which organization investors would decide on to put money into. The comparisons I used to make this decision were ratios for liquidity, solvency, and

    Read More

  • Book Reports On Outliers By Malcolm Gladwell

    829 Words  | 4 Pages

    It is now as safe as any airline in today’s world. The reason Korean Air succeeded was because it “acknowledged the importance of its cultural legacy.” Gladwell (2008) Plane crashes are rare, but they are often sad and tragic, we demand explanations for them. Korean Air turned itself around, but how did it manage to do so? This is why Gladwell discusses the importance of cultural legacies when it comes to avoiding tragedy and

    Read More

  • New England Seafood Company Risk Analysis Paper

    1015 Words  | 5 Pages

    TO: Dr. Jim Turner FROM: Tyler Mead DATE: October 20, 2015 SUBJECT: New England Seafood Company Risk Analysis Overview: Accompanying this memo is a risk analysis I have conducted for New England Seafood Company. The risk analysis I have conducted will show which weighted average cost of capital would be best to use in evaluating the project along with how New England Seafood Company could utilize the land if the project is accepted. A 10% cost of capital will result in a positive net present value but the coefficient of variation will be much higher than New England’s average coefficient of variation. A lower or higher cost of capital could under or over value the project and risks involved.

    Read More

  • Case Study Denso

    347 Words  | 2 Pages

    1. OSHA-Ranking 5 2. Department of Labor-ranking 5 3. Suppliers-Ranking 5 4. Bosch-Ranking 3 5.

    Read More

  • Analysis Of Chipotle's Sensitivity Analysis

    1385 Words  | 6 Pages

    In order to determine the impacts that changes in these two inputs may have in Chipotle’s valuation, a sensitivity analysis is conducted by varying the WACC and the perpetuity growth by 0.25% consecutively while keeping all other inputs constant. The next table shows how Chipotle’s price per share varies when the perpetuity

    Read More

  • Swot Analysis Of Air Canada

    1235 Words  | 5 Pages

    The competition between Air Canada, a traditional carrier, and West Jet, low cost carrier is rigorous in Canadian airline industry. Though Air Canada is Canada’s domestic and international airline and has dominant hold in the Canadian market, West jet is giving the airline tough competition with its effective price point, profitable routes with greater focus on domestic market. The rivalry competition is moderate to

    Read More

  • KNX Case Summary

    174 Words  | 1 Pages

    The most relevant risk factor pertaining to Knight-Swift Transportation is their ability to limit their risk exposure against volatile fuel costs. While fuel cost is currently lower than past years, fuel costs consists of 12% of its total operating costs . Given the volatile nature of oil prices KNX must stay up to date with modeling and analytics to accurately forecasts and hedge against rising costs. Incorrectly evaluating this risk or overlooking the threat can cause profit instability. KNX must continue to enact fuel surcharges into client contracts to help reduce the current risk exposure.

    Read More

  • Financial Analysis Of The Huffman Trucking Company

    1150 Words  | 5 Pages

    For the Huffman Trucking Company, strategic planning has been an important part of their functions for over 60 years. For a company like Huffman Trucking, financial planning is extremely important to maintain their continued growth and their overall health in the long term. When analyzing the financial statements for the last three years we looked and three separate types of financial statements: the income statement, balance sheets, and the cash flow budget, we will also try and make assumptions to identify the various risks involved in a business like Huffman Trucking. When looking at the various financial statements we attempt also review the cash flow statements and attempt to make recommendations on the implementation of various short-term working capital strategies on the long term cash flows, try and find an explanation of different corporate risk mitigation techniques capital budgeting, and make an analysis of what effect capital structure on strategic financial planning, and how it works to affect risks.

    Read More

  • Delta's Sustainability Study

    286 Words  | 2 Pages

    In order to strengthen its competitiveness and improve margins in the Pacific, Delta is replacing its B747-400s (inherited from Northwest) with smaller and more efficient aircraft currently serving the transatlantic routes. In addition, the new aircraft on order are expected to provide a 15-20% reduction in seats per departure and generate a significant improvement in operating cost per seat. Delta has also made investments in developing Seattle as a hub and international gateway to support the Pacific expansion and offer one-stop service to 95% of Delta’s West Coast to Asia traffic flows (Delta, 2015) including Tokyo Haneda and Narita, Osaka, Seoul, Hong Kong, Beijing and Shanghai (CAPA, 2013). These are joined from Seattle to London, Amsterdam

    Read More

  • Swot Analysis Of Virgin Australia Airlines

    2186 Words  | 9 Pages

    The inauguration of Virgin Australia Airlines, by Sir Richard Branson, as a domestic carrier in 2000 basically aimed at the convenience of the budget travelers. The Airlines was inaugurated as relaxed informal airline. Sir Richard was open-minded, amiable, and generous with his management team, imaginative, audacious and exclusive in his thoughtfulness. Initially started as a low-cost carrier, the company improved its services to turn itself into a “new-world carrier” as described by themselves (Virgin Blue media release, 2011, para. 2).However all these faltered when Qantas’ past marketing manager took over during 2011.

    Read More

  • Competitive Case Analysis Of Wilkerson's Company

    1770 Words  | 8 Pages

    Therefore on that basis, all products, including pumps would be generating substantial contribution to overhead and profits. Therefore, given the overhead allocation problems, Wilkerson’s best bet would be to adopt the variable costing method for various reasons, as follows: 1. This cost concept provides a better understanding of the effect of fixed costs on the net profits, due to the fact that total fixed cost for the period is shown on the income statement. 2.

    Read More

  • Business Strategy Case Study: Delta Airlines

    742 Words  | 3 Pages

    Delta airline was expanding its business into low-cost airline segment by launching new independent subsidiary by the name of Song. Song’s primary business model was to target women and the segment of business class people. In effect to reduce the cost, Song management decided to fly high load factor on the drag of 900 miles. Moreover, the company increased the number of

    Read More

  • Strengths And Weaknesses Of Hong Kong International Airport (HKIA)

    1254 Words  | 6 Pages

    Hong Kong International Airport (HKIA) is the winner of the 2017 Award for “World’s Best Airport Dining Experience” and 3rd place in “World’s Best Airport Shopping”, in the following I will discuss on the strength(s) and weakness(es) of HKIA in the area of dining and shopping when compared to the other airport listed in the question. Concerning dining, the strength of HKIA is their restaurants provide the food with comparatively low price. Some of the passengers may have an impression that it is expensive to eat inside the airport, but there are some restaurants in HKIA provide the food with the price lower HKD$50. With this price, passengers can choice either fast food or Chinese restaurants in which the size of food could let them feel full. Moreover, passengers can try for local food.

    Read More

  • Virtue Theory In Business Ethics

    958 Words  | 4 Pages

    Each and every goal should be analyzed to determine the potential impact on firm

    Read More

  • Singapore Airlines Case Study

    3552 Words  | 15 Pages

    1.0 Introduction to Strategic Management Strategic management practices the formation; achievement and reaching the major objectives executed by the management of the company, by considering the capital and a task of the internal and external environments in which the company wishes to compete. 1.1 Introduction to Singapore Airlines Singapore Airlines (SIA) is established in year 1972 with remarkable performance among its competitors in the industry throughout its 35-year-long history till date (Heracleous & Wirtz, 2009). According to Singapore Airlines (2014), SIA is one of the youngest aircraft fleets worldwide to destinations crossing a network of more six continents, with its iconic Singapore Girl providing excellent standard of service to customers. Throughout the years of operations, SIA has an impressive ever-growing list of industry 's leading innovations such as offering free headsets along with a choice of meals and drinks in Economy Class in the 1970s, followed by introducing satellite based in-flight telephones in year 1991, involving an ample panel of renowned chefs, the International Culinary Panel, to provide lush in-flight meals in year 1998, developing audio and video on demand (AVOD) capabilities on KrisWorld in year 2001, and lastly flying the airbus of A380 from Singapore to Sydney on 25 October 2007 (Singapore Airlines, 2014).

    Read More

More about Hong Kong Dragon Airlines Case Study

Open Document