Tuesday, January 19, 2016

Build Slot vs Purchase Price (updated)

What moves an airline towards a deal is often marked by when it could receive an airframe in time, more than what price is paid for said aircraft. Delta Airlines recently purchased the A350-900 over the 787-9 because of having a favorable build slot from Airbus over Boeing, as it admitted that an offered Airbus price too, was a winning factor. 

Airbus pushed the price-line downward so it could claim supremacy in North America's air wars. Airbus Accounting might write-off the low sales price to advertising expense rather than a reduction to the A/R account. Boeing's list price and delivery slots failed in the bid, as indicated by Delta Airlines. The right time and the right price brings me to an acquisition award process, which was a part of my former life. 

Airbus will naturally take advantage of any win, as a validation for having the superior product! When infact other considerations were in play for choosing an Airbus product over Boeing product. The Boeing sales team missed the mark over which they had no control with this bid process. Time caused the defeat and Airbus lowballed the bid.

When a complex purchase solution was required with the government, my position required that I must build an acquisition attribute table supporting an award outcome. Much research went into preparing such a table. This example is a "mock" private sector submission.

Keeping it brief, the explanation of this concept will be brief.

First a memo goes out to concerned parties, CEO, CFO and the lot of VP's. On a scale of 1-10 what is most important to the airline. The staff figures this out for each participant and reports upward reaching the exec's. 

Next important question for attribute testing and product award:

What is most important to the Airline when considering the A-350-900 or 787-9?

Please go to your staff for a statistically sound responsive ratings and report back listing in order of Importance you conclusions.

Per example: 

If price has top importance then list it as a "one".

If fleet continuity is slightly less important, then list it as a "two" and so forth.

This mock attribute chart has five components: as Listed in order from an average of fantom response calculation, and here are the fake results for Delta's A350-900 and 787-9 mock purchase competition.

Order of importance submitted from all the Delta Executive Teams before weighted values are assigned by the execs using team analysis:

Mock Results: for Delta Airline in order of importance

1. Delivery Slot 
2. Price
3. Fleet Continuity
4. Fleet Efficiency
5. Passenger Amenity

Many other attribute/priorities could be added, but simplicity is the overarching exercise for the Attribute Weighted Average Awarding System (AWAAS).

A table will be provided for a decision making tool. The table is called AWAAS. Final decision is made on purchase selection summary and will go to the board for its approval and the Q&A's before selection is made with this mock world of Delta Airlines. A press release will follow the decision for purchase.

Legend for scoring and weighted value calculations below only move two numbers into the chart, since there are only two bidders. This exercise has the potential for five bid submissions. However, only two numbers are needed for potential rating numbers.

"Chart Hint for the curious: If Airbus had been rated a "1" for all criteria it would have received the maximum possible points of 1,000 and then Boeing's values equal a "2" by a Default rating and resulting in its points for a total of 800, and losing the bid award. The points rewarded, reflect the alignment with "Airline Vision and Mission emphasis", even through attribute awarding, and weighted values. The resulting number reflects the Airline position rather than most advanced aircraft offered. In other words, "Bang for the buck", meets Corporate time expectations. This mock presentation awarded accordingly from Delta's perceived (press reports) operational position, and not the Manufacturer excellence for product."

In this mock study Delta chooses the A-350-900. Because it's the Delta Airlines analysts setting the criteria, making Airbus the logical choice over common sense reaction, market impulse, or even the venerable 787.

As you may see, an attribute selection process can be designed from what a Vision statement projects or its Mission objective has assigned by having a weight or importance aligned for the purchasing company. The ending result may cause an outcome where the conditions existing for an airline has become more important than the price or the best Airplane available in the market place. It comes down to the condition setting of an airline and its solution for that condition. Delta Airlines choose accordingly.