In 1993 Morten Beyer & Agnew (mba) published a study entitled “What is Really Wrong with America’s Air Carriers, or The Secret of Southwest Airlines.” More than 500 copies were requested by Congressmen, airlines, analysts, consultants, and the media. The study was updated in 1998 and again in 2003.
At the time of the original study, the U.S. Major airlines were in the midst of the worst recession in their history, having lost more money in the previous three years than they ever made in their prior existence, except for Southwest, which continued its unbroken profitability. Again in 2003, they were deep into an even worse recession and crisis, and Southwest was still the only profitable Major carrier.
In this study, we compared Southwest with American Airlines, noting Southwest’s superior productivity, efficiency, and corporate culture. Only domestic operations were examined, with all data taken from air carrier reports to the DOT.
At the time of the study, American was on the verge of bankruptcy as it sought to reduce its exorbitant labor costs and achieve billions of dollars in other savings. Meanwhile, Southwest continued on its unique path, not cutting back after the terrorist attacks on September 11, 2001, continuing deliberate expansion and still making money.
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As more and more airlines move toward the MSG-3 type of maintenance programs, appraisers are faced with new challenges when valuating aircraft. We begin this paper by examining the evolution of maintenance programs based on economics and safety. Once this is understood we discuss the type of maintenance program affects the valuation of an aircraft, and how it affects the market and residual values.
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