Texaco Aviation Transport Services (a)
9 Pages Posted: 21 Oct 2008
The A case (see also the B [G-0540] and C [G-0541] cases) presents a unique setting for exploring issues of outsourcing, in general, and purchasing a fractional ownership of a corporate plane, in particular. The case provides opportunities for learning about some of the issues involved in managing a corporate flight department. It also affords an opportunity for an analysis of relevant cost and net present value. Lastly, the case is a good vehicle for challenging students to think through the qualitative versus quantitative reasons favoring one or more alternatives and how they would make some of the trade-off decisions that arise.
Texaco Aviation Transport Services (A)
Don Baldwin returned from his monthly meeting with the CEO with a specific goal to address before their next meeting. A new requirement for the corporate aviation department had recently arisen, where Baldwin needed to provide air transportation for a particular executive. Normally, this could be handled with minimal interruption of fleet services; however, this executive's regular travel route was from Chicago to Raleigh, North Carolina, two points that were not regular stops for the Texaco fleet. Attempts to serve this need from the existing fleet had caused deadhead time to rise to 26 percent of the department's flight time. Baldwin and the CEO realized that this was unacceptable, and their conversation ended with the CEO instructing Baldwin to investigate possible solutions for this new flight requirement.
Corporate Flight Departments
Over 10,000 companies operate turbine-powered aircraft, and 85 percent of those companies operate only one plane. The reasons for having company aircraft vary, but the most commonly cited reasons are the time savings for those who travel, the flexibility of scheduling, and the quality of the traveler's time that can be used on the airplane for work purposes.
The corporate flight department is responsible for all aspects of providing travel for authorized business passengers. This includes providing pilots, maintenance staff, weather reports, hangar facilities, and flight scheduling. These activities may all be in-house, or some parts may be subcontracted (e.g., maintenance) or leased (e.g., hangar space). Regardless of how the elements are structured, the valuable corporate aviation department must provide safe, reliable, convenient travel, so the company can meet its strategic and operational objectives.
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Keywords: aircraft justification, capital budgeting, capital investment, outsourcing
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