FINAL PROJECT

The project is adapted from the Chapter 4 Case Study dealing with NorthSouth Airline In

January 2012, Northern Airlines merged with Southeast Airlines to create the fourth largest U.S.

carrier. The new NorthSouth Airline inherited both an aging fleet of Boeing 727-300 aircraft

and Stephen Ruth. Stephen was a tough former Secretary of the Navy who stepped in as new

president and chairman of the board.

Stephens first concern in creating a financially solid company was maintenance costs. It was

commonly surmised in the airline industry that maintenance costs rise with the age of the

aircraft. He quickly noticed that historically there had been a significant difference in the

reported B727-300 maintenance costs (from ATA Form 41s) in both the airframe and the engine

areas between Northern Airlines and Southeast Airlines, with Southeast having the newer fleet.

On February 12, 2012, Peg Jones, vice president for operations and maintenance, was called into

Stephens office and asked to study the issue. Specifically, Stephen wanted to know whether the

average fleet age was correlated to direct airframe maintenance costs and whether there was a

relationship between average fleet age and direct engine maintenance costs. Peg was to report

back by February 26 with the answer, along with quantitative and graphical descriptions of the

relationship.

Pegs first step was to have her staff construct the average age of the Northern and Southeast

B727-300 fleets, by quarter, since the introduction of that aircraft to service by each airline in

late 1993 and early 1994. The average age of each fleet was calculated by first multiplying the

total number of calendar days each aircraft had been in service at the pertinent point in time by

the average daily utilization of the respective fleet to determine the total fleet hours flown. The

total fleet hours flown were then divided by the number of aircraft in service at that time, giving

the age of the average aircraft in the fleet.

The average utilization was found by taking the actual total fleet hours flown on September 30,

2011, from Northern and Southeast data, and dividing by the total days in service for all aircraft

at that time. The average utilization for the Southeast was 8.3 hours per day, and the average

utilization for Northern was 8.7 hours per day. Because the available cost data were calculated

for each yearly period ending at the end of the first quarter, the average fleet age was calculated at

the same points in time. The fleet data are shown in the following table.

Airframe cost data and engine cost data are presented below (please note, I have altered the

number presented in the text so that online solutions cannot be used) paired with fleet average

age in that table.

The project is derived from a case study located at the end of chapter 4 dealing with regression

analysis. Please note, however that some of the numbers in the project tables in the text have

been changed so students should get their complete instructions from the Project area provided in

Getting Started section of the Table of Contents. Students should use the Data Analysis add-on

pack from the standard Microsoft Excel software available in every Microsoft Office software

since 2007.

Airframe cost data and engine cost data are presented below (please note, I have altered the

number presented in the text so that online solutions cannot be used) paired with fleet average

age in that table.

The project is derived from a case study located at the end of chapter 4 dealing with regression

analysis. Please note, however that some of the numbers in the project tables in the text have

been changed so students should get their complete instructions from the Project area provided in

Getting Started section of the Table of Contents. Students should use the Data Analysis add-on

pack from the standard Microsoft Excel software available in every Microsoft Office software

since 2007.

1. Prepare Excel Data Analysis Regression Tables demonstrating your excellence at

determining Northern and Southeast Costs to Average Age. Besides the data tables,

copied from the project instructions, four regression models are required each on a

separate tab. STUDENTS CANNOT USE MULTIPLE REGRESSION as this is not part

of Excel software. Place each regression model with supporting data labels, line fit plots,

and other required items on a separate worksheet tab.

2. On each worksheet tab (other than the data table tab) include:

a. a copy of your data entry screen (Use Alt+Print Screen to copy picture of

Regression Data Entry from Data Analysis in Excel and paste on correct

worksheet tab).

b. The regression model derived from the data tables.

c. Line Fit Plot for each Worksheet tab.

d. Labels of the data included.

e. Highlight with yellow and label the following four items on each regression

model:

i. Coefficient of determination

ii. Coefficient of correlation or covariance

iii. Slope, and

iv. Beta or intercept

3. Finally prepare a formal response, using Microsoft Word, from Peg Joness to Stephen

Ruth explaining your numbers and calculations. Which costs are correlated with the

average age of the aircraft? What is the slope and beta? Explain the coefficient of

determination and covariance. Explain how this information benefits each airline. Finally,

Stephen wants to know:

a. If Northerns average age gets to 20,000 hours how much will the Airframe and

Engine cost.

b. If Southeasts average age gets to 12,000 hours how much will the Airframe and

Engine cost.

Submit your Excel Worksheet with five tabs (data, plus 4 tabs for the regressions) to the

assignment drop box. Also include your formal response in a Microsoft Word document. Late

work will not be accepted. The Excel worksheet and Word documents must be submitted

5BEFORE then end of Unit 7. This project is worth 160 points.

Note: Dates and names of airlines and individuals have been changed in this case to maintain

confidentiality. The data and issues described here are real.

Northern Airline Data (numbers have been changed from text)

Year	Airframe Cost per Aircraft	Engine Cost per Aircraft	Average Age Hours
2001	61.80	33.49	6,512
2002	54.92	38.58	8,404
2003	69.70	51.48	11,077
2004	68.90	58.72	11,717
2005	63.72	45.47	13,275
2006	84.73	50.26	15,215
2007	78.74	80.60	18,390

Southeast Airline Data (numbers have been changed from text)

Year	Airframe Cost per Aircraft	Engine Cost per Aircraft	Average Age Hours
2001	14.29	19.86	5,107
2002	25.15	31.55	8,145
2003	32.18	40.43	7,360
2004	31.78	22.10	5,773
2005	25.34	19.69	7,150
2006	32.78	32.58	9,364
2007	35.56	37.07	8,259