Valuation techniques for commercial aircraft program design

Abstract

This research considers the commercial aircraft design process from the perspective of program value. Whereas traditionally, the conceptual design of aircraft has often focused on minimum weight, or sometimes minimum cost, this approach demonstrates the feasibility and usefulness of design based on maximum value to the aircraft manufacturer. A program valuation tool is developed and demonstrated that measures the overall program value associated with a set of either one or two new aircraft concepts. The tool is based on a combination of a performance model; a development and manufacturing cost model; a revenue model; and a dynamic programming-based algorithm that accounts for uncertainty in future market conditions and the program's ability to cope with such uncertainty through real-time decision-making. The cost model, using a component-based representation of the aircraft, allows for the consideration of the effects of part commonality on development and production costs. The revenue model, based on an analysis of existing commercial aircraft, estimates a market price and demand forecast for a new aircraft based on several key characteristics. The dynamic programming algorithm, used to find program value, treats annual aircraft quantity demanded as a stochastic process, evolving unpredictably with time. The algorithm borrows from Real Options theory to discount future cash flows using risk-neutral expectations and models the aircraft program as an actively managed project with real-time decision-making to maximize expected program value. Several examples are drawn from the Blended-Wing-Body aircraft concept to demonstrate the operation of the program valuation tool. The results suggest that the value of part commonality between aircraft may be strongly sensitive to the weight penalty and increased fuel burn resulting from a common derivative design. More generally, the example results illustrate the usefulness of the explicit consideration of flexibility in program valuation and the feasibility of a conceptual aircraft design tool based on the metric of program value.