Home  Journals  Financial Analytics: Science and Experience  45(231) - 2014 December

Method of assessing an introductory discount on the new types of civil aircraft

Available online: 6 December 2014

Subject Heading: EFFICIENCY OF ECONOMIC POLICY

JEL Classification: 

Pages: 2-11

As a rule, the early stages of the life cycle of a new type of high-tech industry products inevitably face a lot of design-manufacturing troubles (DMT), which are often detected only at operation stage. Technical failures, which cause forced downtime, lead to considerable losses of an operator. The latter may refuse to use this type of equipment. To compensate for these losses and ensure the competitiveness of its products, a manufacturer should implement initial modifications of new types of equipment with a significant discount. This paper describes an economic and mathematical model of evaluating the minimum discount rate, which a manufacturer of new type of aviation equipment should allow in order to ensure market competiveness of a new product with DMT. For this purpose, the authors view the acquisition of a new type of equipment during the first year of operation as an investment project and compare it with the project of mature and reliable product purchase. The authors consider discounted profit for the entire operating life of product as the main criterion affecting the operator's decision to purchase the new products in the long run. Based on the model, the authors made a parametric analysis using the data on the order of magnitudes, which correspond to real techno-economic parameters of regional jet operation. The parametric analysis showed that increasing the pace of DMT elimination significantly reduces the amount of necessary discount in the first years of operation, improves the financial indicators of manufacturer's project of the new type of product launch and development.

Keywords: aircraft industry, discount, early stage, operation, new, type, competitiveness

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