Flying High with Southwest Airlines
EMIS 4395 – SENIOR DESIGN PROJECT
BRODERICK MITCHELL
TONY SANDERS
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
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.
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
Problem Details and Constraints
 57 planes!
 Each plane consists of
 Flight decks
 Lavs
 Seats
 Galleys
 Each piece has unknown market value
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
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
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
Scenarios
- The options that were identified are as follows:
1.
2.
3.
4.
5.
3rd party consignment vendor
Onsite contractor
Create SWA Employee position
OEM buyback for cash or credit
AAR Consignment Service
#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
Calculations for Scenario 1.
 ($890,000 value per plane) * 57 planes * 87.5% =
$44,388,750 (3rd party responsibility)
#2: Onsite Contractor
 Pros
 Takes away small percentage of sells
 Cons
 Parts storage
 Responsible for parts
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
#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?
Calculations for Scenario 3.
 ($890,000 value per plane) * 57 planes * 100% -
(75,000) = $50,655,000
#4: OEM Buyback for Cash/Credit
 Pros
 More revenue long-term
 Cons
 Storage???
 Market saturation
 Will Rockwell Collins be interested?
Calculations for Scenario 4.

= $50,429,000
#5: AAR Consignment Services
 Pros
 Current option
 No excess
 Cons
 Commission extremely high on parts(20%)
 Under contract
Calculations for Scenario 5.
 ($890,000 value per plane) * 57 planes * 87.5% =
$44,388,750 (SW responsible for parts)
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
Q&A
 Questions, Comments, & Concerns