APW Financial and Value Analysis

Boeing Airline Planning
Workshop 2023
Financial & Value Analysis Proprietary: The information contained herein is proprietary to The Boeing Company and shall
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when such user possesses direct written authorization from The Boeing Company.
The statements contained herein are based on good faith assumptions are to be used for
general information purposes only. These statements do not constitute an offer, promise,
warranty or guarantee of performance.
Dubai, UAE | March 2023

Copyright © 2023 Boeing. All rights reserved. | BOEING PROPRIETARY | CSM | MARCH 23
Financial evaluation of projects Workshop 2023
How do we know what is a good How do we compare

investment and what isn’t? two competing investments?
Objectives Workshop 2023
1. __________
2. __________
3. __________
4. __________
5. __________
6. __________
7. __________
Calculate the Compare the Net Identify the Explain

present value of Present Value of critical assumptions sensitivity analysis
future cash flows two competing needed to compare and how it impacts
capital projects competing aircraft comparisons of
products competing aircraft
Time Value of Money Workshop 2023
Time Value of Money is one of the

most important (and basic) finance
concepts:
“X amount of Money you

have today is worth more
than X amount of Money
you will receive tomorrow”
Present Value definition Workshop 2023
PRESENT VALUE (PV) – a present value is a calculation to show a future cash

amount in equivalent terms to the present. An assumption is made about the
annual rate by which the future cash value decreases (the “discount rate”)
Present Value Example Workshop 2023
Calculate the Present Value (PV) using the following assumptions:
Future Cashflow = $100,000 Discount rate = 10% (or 0.1) per year
Period in the future = 3 years
100,000 100,000
𝑃𝑉 = =
1 + 0.1 3 1.331
= 75,131.5
Assuming a discount rate of 10% per year, $100,000 received 3 years into the future is only
worth $75,131.5 today
Net Present Value definition Workshop 2023
NET PRESENT VALUE (NPV) – a calculation that compares the amount invested
today to the present value of the future cash receipts from said investment.
It is a sum of present values for the different periods under consideration
NPV = 𝑃𝑉𝑌0 + 𝑃𝑉𝑌1 + 𝑃𝑉𝑌2 + ⋯
Net Present Value Example Workshop 2023
Calculate the Net Present Value (NPV) using the following assumptions:
Initial Investment = $10,000 Future Annual Cashflow = $4,000

Discount rate = 10% per year Period in the future = 3 years
EXAMPLE:
= ($52.59)
Value exercise – calculate NPV
Workshop 2023
Option 1 – Buy existing hotel Option 2 – Build new hotel

12 years old More efficient heating & A/C
120 rooms 130 rooms
$8M acquisition price $10M construction & land price
Will require a refresh after 2 years ($15,000/room) Will require a refresh after 4 years ($10,000/room)
Estimated nightly rate = $155.50 Estimated nightly rate = $150.70
Staff costs = $2M/year Staff costs = $2.1M/year
Other expenses = $1.2M/year Other expenses = $1.1M/year
ESTIMATE OCCUPANCY RATE IS 90% / 86% / 83%

CALCULATE 5YR NPV WITH 10% DISCOUNT RATE
Value exercise – calculate NPV
Workshop 2023
New
Discount Rate = 0.1 or 10% Fill Rate ______________ Existing
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Ct
Hotel Cost $
PV =
(1 + r ) t
(enter as negative)
Room Refurbishment
(enter as negative) (older Hotel) (new Hotel)
Revenue $
(Rate*Fill Rate*Rooms*365)
Staff Costs $
PV = Present Value
(enter as negative)
$
Ct = future value
Other Expenses
(enter as negative)
$ $ $ - $ - $ - $ -
r = annual discount rate
Cashflow
(sum all values)
$ $ $ - $ - $ - $ -
t = number of periods
PV
(calculation below)
Cashflow for year divided by x:
Cashflow Cashflow Cashflow Cashflow Cashflow Cashflow

1 1.1 1.21 1.331 1.464 1.611
NPV =
(sum of all values)
Value exercise – Existing Hotel @ 90% Occupancy Workshop 2023
Discount Rate 10% Fill Rate 90% Existing Hotel
Number of Rooms 120 Nightly Rate $ 155.5
(Amounts in '000s) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Hotel Cost ($8,000)
Room Refurbishment ($1,800)
Revenue $6,130 $6,130 $6,130 $6,130 $6,130
Staff Costs ($2,000) ($2,000) ($2,000) ($2,000) ($2,000)
Other Expenses ($1,200) ($1,200) ($1,200) ($1,200) ($1,200)
Cashflow ($8,000) $2,930 $1,130 $2,930 $2,930 $2,930
Present Value (PV) ($8,000) $2,663 $934 $2,201 $2,001 $1,819
Net Present Value (NPV) $1,618
Value exercise – New Hotel @ 90% Occupancy Workshop 2023
Discount Rate 10% Fill Rate 90% New Hotel
Number of Rooms 130 Nightly Rate $ 150.7
(Amounts in '000s) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Hotel Cost ($10,000)
Room Refurbishment ($1,300)
Revenue $6,436 $6,436 $6,436 $6,436 $6,436
Staff Costs ($2,100) ($2,100) ($2,100) ($2,100) ($2,100)
Other Expenses ($1,100) ($1,100) ($1,100) ($1,100) ($1,100)
Cashflow ($10,000) $3,236 $3,236 $3,236 $1,936 $3,236
Present Value (PV) ($10,000) $2,941 $2,674 $2,431 $1,322 $2,008
Net Present Value (NPV) $1,377
Hotel value exercise – Workshop 2023
results
Option 1 Option 2
Occupancy Existing New
90% $1.62M $1.38M
86% $0.59M $0.29M
83% ($0.19M) ($0.52M)
Value analysis example – compare two alternative aircraft Boeing Airline Planning
Workshop 2023
Weigh the value each aircraft provides

Measure the earning power of a capital asset such as a commercial airplane by estimating
its future cash flows and discounting them back using the airline’s cost of capital
vs
787-9 A330-900
What are the value elements to consider? Workshop 2023
Revenue Costs
Passenger Fuel Crew
Cargo Maintenance Passenger

& cargo
CREDIT
CARD
0000 0000 0000 0000
NAME 00/00
Ancillary Landing / Nav / Lease FOR

LEASE
Handling fees expense
Value analysis assumptions Workshop 2023
GENERAL ASSUMPTIONS
Number of years 15
Discount rate 10%
Average trip length (nm) 6,000
Annual trips 405
Annual cost & revenue escalation 2%
Average baseline fare $900 (+10% for ancillary)
Fuel price (USD/gal – no escalation) $2.30
CHARACTERISTICS
284,680 OEW (lb) 295,580
560,000 MTOW (lb) 553,350
GEnx-1B74/75 Engines Trent 7000
74,500 Thrust(lb) 72,000
296 (28/268) Seats 276 (28/248)
4,264 Gross Cargo Volume (ft3) 4,001
787-9 148,115 Fuel Use (lb) 153,927 A330-900

12.8 Block Time (hrs) 13.2
$1,200,000 Monthly Lease Rate $890,000
787-9 higher capacity generates additional Boeing Airline Planning
Workshop 2023
passenger revenue
NPV of: # of flights x trip length x passengers x yield Drivers:
Seat count
Cabin area
Interior configuration
Passenger preference
787-9 has 20 ADDITIONAL SEATS GENERATE MORE REVENUE
additional more more
6+ passengers
per trip $5,344 revenue
per trip $2.16M revenue
per year
using spill model $842 incremental fare 405 trips per year
$18.0M
N P V A D VA N TA G E
15 years 2% annual escalation 2% commissions 0% demand growth 10% discount rate
787-9 generates more cargo revenue Workshop 2023
NPV of: # of flights x trip length x tonnes x yield Drivers:
Structural limit
Volume limit
787-9 has 7% MORE VOLUMETRIC SPACE

more more more
3,321 cargo per
lb trip $3,486 revenue
per trip $1.4M revenue
per year
60% volumetric load factor Yield: $1.05/lb 405 trips per year
$11.7M
15 years 2% annual escalation 2% commissions 10% discount rate
787-9 higher efficiency translates in a fuel cost Boeing Airline Planning
Workshop 2023
advantage
NPV of: # of block hrs x fuel burn/block hr x fuel price/gallon Drivers:
Aerodynamic efficiency
Airplane integration
Engines
Weight
Thrust
NEW OPTIMIZED DESIGN SUPERIOR TECHNOLOGY
less lower lower
2.6 tonnes fuel
per trip $1,995 cost
per year
$2.30 / gal fuel price 405 trips per year
$6.1M
15 years 0% cost escalation 10% discount rate
787-9 designed for lower maintenance costs Workshop 2023
NPV of: cost per flight hr x # flight hours per flight x # flights Drivers:
Materials
Systems
Weight
Thrust / derate
Utilization
NEWER DESIGN, COMPOSITE FUSELAGE, FEWER MAINTENANCE TASKS, HIGHER THRUST DERATE
lower lower Environment

$4,950 cost
per trip $2.0M cost
per year
30% lower maintenance 405 trips per year Age
$17.9M
M A I N T E N A N C E A D VA N TA G E
Reliability

787-9 advanced technology has fewer days out of Boeing Airline Planning
Workshop 2023
service
Drivers:
Check length
Check interval
8.0 FEWER DAYS OUT OF SERVICE PER YEAR

profit more
$121,000 per
trip $1.0M profit
per year
8.8 more trips per year
$9.1M
M A I N T E N A N C E A D VA N TA G E
787-9 increased speed offsets increased crew Workshop 2023
NPV of: (flight crew + cabin crew cost per flight) x # flights Drivers:
Number of seats
Block time
Number of cabin
attendants
INCREASED SPEED SAVES = 160 HRS/YR

lower lower
$160 cost
per year
+0.5 additional cabin attendant 405 trips per year
24 mins less flight time
$0.5M
C R E W A D VA N TA G E
787-9 higher MTOW brings higher fees Workshop 2023
NPV of: (landing + navigation + handling fees/flight) x # flights Drivers:
MTOW
Number of passengers
Stage length
higher higher
$238 cost
per year
20 more seats higher MTOW 405 trips per year
$0.5M
N P V D I S A D VA N TA G E
787-9 passenger revenue advantage reduced by Boeing Airline Planning
Workshop 2023
cost of carrying them
NPV of: cost per flight x # flights Drivers:
More seats & passengers
Type of airport & onboard

services
Business model
Stage length
NEW OPTIMIZED DESIGN SUPERIOR TECHNOLOGY
higher higher
$390 cost
per year
20 more seats 405 trips per year
6 more passengers
$1.3M
N P V D I S A D VA N TA G E
787-9 cargo revenue advantage reduced by cost Boeing Airline Planning
Workshop 2023
of carrying it
NPV of: cost per flight x number of flights Drivers:
Cargo capacity
Short / long haul
Type of handling costs
Airport costs
higher higher
$182 cost
per year
3,321lb more cargo 405 trips per year
$0.6M
N P V C A R G O C O S T D I S A D VA N TA G E
787-9 advantage is reflected in higher lease rate Workshop 2023
NPV of: monthly lease payments Drivers:
Operator base
Ability to reconfigure
Residual value &

asset risk
higher
$310,000 monthly
lease rate
$28.3M
N P V L E A S E C O S T D I S A D VA N TA G E
15-year NPV per aircraft value comparison: Boeing Airline Planning
Workshop 2023
787-9 vs A330-900
9.1 0.5 (0.8) (1.3) (0.6) (28.3)

17.9
6.1 787-9
VA L U E A D VA N T A G E $32.3
11.7
18.0 $32.3M
INCLUDING OWNERSHIP
Value analysis – example conclusion
Workshop 2023
NPV OF ALL CASH FLOWS
$315.2M $282.9M
$32.3M
N E T 7 8 7 - 9 A D VA N T A G E
Based on this analysis (and assumptions),

787-9 investing in the 787-9 generates $32.3M A330-900
more value than the A330-900 over 15 years
Workshop 2023
Sensitivity analysis
It is important to look at NPV
calculations to determine critical
variables and assumptions that will
determine a project’s success or
failure…
Passenger & cargo yields
Load factors & demand
Maintenance cost
Fuel price
Ownership costs
787-9 value advantage is $32.3M including ownership: Boeing Airline Planning
Workshop 2023
What is the likelihood of that happening?
9.1 0.5 (0.8) (1.3) (0.6) (28.3)

17.9
6.1 787-9
11.7
18.0 $32.3M
INCLUDING OWNERSHIP
How does ownership cost affect your decision? Workshop 2023
787-9 vs. A330-900 ownership cost sensitivity
Sensitivity of other Key Elements Workshop 2023
• Labour
rates 9.1 0.5 (0.8) (1.3) (0.6) (28.3)
17.9
• Prices • Fuel
• Load factors Price
• No. of Flights
6.1 787-9
11.7
18.0 $32.3M
INCLUDING OWNERSHIP
Additional elements to consider Workshop 2023
Services offerings
Delivery availability Introductory costs
Passenger preference CO2 and noise charges

Range
Disruption during
airplane type rollover
Key takeaways Workshop 2023
Calculating the net present value of Sensitivity analysis enables you to

yearly cash flows is critical to making quantify the variability of assumptions
the right capital decision

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Boeing Airline Planning

Dubai, UAE | March 2023

How do we know what is a good How do we compare

Calculate the Compare the Net Identify the Explain

Time Value of Money is one of the

“X amount of Money you

PRESENT VALUE (PV) – a present value is a calculation to show a future cash

Calculate the Present Value (PV) using the following assumptions:

NPV = 𝑃𝑉𝑌0 + 𝑃𝑉𝑌1 + 𝑃𝑉𝑌2 + ⋯

Initial Investment = $10,000 Future Annual Cashflow = $4,000

Option 1 – Buy existing hotel Option 2 – Build new hotel

ESTIMATE OCCUPANCY RATE IS 90% / 86% / 83%

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cashflow Cashflow Cashflow Cashflow Cashflow Cashflow

Discount Rate 10% Fill Rate 90% Existing Hotel

Number of Rooms 120 Nightly Rate $ 155.5

(Amounts in '000s) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Hotel Cost ($8,000)

Room Refurbishment ($1,800)

Revenue $6,130 $6,130 $6,130 $6,130 $6,130

Staff Costs ($2,000) ($2,000) ($2,000) ($2,000) ($2,000)

Other Expenses ($1,200) ($1,200) ($1,200) ($1,200) ($1,200)

Cashflow ($8,000) $2,930 $1,130 $2,930 $2,930 $2,930

Present Value (PV) ($8,000) $2,663 $934 $2,201 $2,001 $1,819

Net Present Value (NPV) $1,618

Discount Rate 10% Fill Rate 90% New Hotel

Number of Rooms 130 Nightly Rate $ 150.7

(Amounts in '000s) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Hotel Cost ($10,000)

Room Refurbishment ($1,300)

Revenue $6,436 $6,436 $6,436 $6,436 $6,436

Staff Costs ($2,100) ($2,100) ($2,100) ($2,100) ($2,100)

Other Expenses ($1,100) ($1,100) ($1,100) ($1,100) ($1,100)

Cashflow ($10,000) $3,236 $3,236 $3,236 $1,936 $3,236

Present Value (PV) ($10,000) $2,941 $2,674 $2,431 $1,322 $2,008

Net Present Value (NPV) $1,377

90% $1.62M $1.38M

86% $0.59M $0.29M

83% ($0.19M) ($0.52M)

Weigh the value each aircraft provides

Passenger Fuel Crew

Cargo Maintenance Passenger

Ancillary Landing / Nav / Lease FOR

Handling fees expense

787-9 148,115 Fuel Use (lb) 153,927 A330-900

NPV of: # of flights x trip length x tonnes x yield Drivers:

787-9 has 7% MORE VOLUMETRIC SPACE

lower lower Environment

15 years 2% cost escalation 10% discount rate

8.0 FEWER DAYS OUT OF SERVICE PER YEAR

INCREASED SPEED SAVES = 160 HRS/YR

NPV of: (landing + navigation + handling fees/flight) x # flights Drivers:

More seats & passengers

Type of airport & onboard

Short / long haul

Type of handling costs

NPV of: monthly lease payments Drivers:

Residual value &

9.1 0.5 (0.8) (1.3) (0.6) (28.3)

NPV OF ALL CASH FLOWS

Based on this analysis (and assumptions),

Passenger & cargo yields

Load factors & demand

9.1 0.5 (0.8) (1.3) (0.6) (28.3)