The Chase Aircraft Company, a private company founded in 2009, is a China general aviation aircraft manufacturing company headquartered in Shanghai. In order to facilitate the production, the company has built production buildings on a piece of land in the rural area near Shanghai. The production buildings were built with latest technology and the value of the land and properties increased tremendously in the last decade. Besides, the land and buildings are not pledged to the bank for any financing arrangement during its initial purchase and construction.

The company had incurred huge costs for research and development to ensure the quality of private jets manufactured. The research team headed by Dr Wang Zhang spent around 20% of revenue generated from the business on the research and development including buying new facilities such as equipment and premises for the research and development activities. It is the company policy to amortize the research and development cost by five years i.e. to those periods the revenue is generated.  

The company sells the private jets with 2 years warranty, during which the company will provide full repairs and maintenance for the business jet within 2 years after the sale. If the jet cannot be repaired, the company is required replace a new one to the customer. Currently, the sale of jets would be recognized as revenue once the business jets are delivered. Furthermore, the company’s financial statements show that the company has borrowed a huge sum from the banks as facilities. The interest rate for loan is higher than market as there is no collateral provided to the bank for the loan except for Dr Wang Zhang’s personal guarantee.

As the company is engaged in manufacturing private jets, other than the buildings for the production, the company’s assets include a sizeable amount of production plant and equipment specially designed for the manufacturing of business jets. In view of the fact that the demand for business jets largely depends on the economy of China, the inventories at the end of each year fluctuate. It is reasonable to expect that, at the end of 2019, there are substantial inventories for the production of business jets including the engines, electronic device for the jets, etc.

Apart from the macroeconomic environment, the competition of the jet production industry is now more intense as technology develops rapidly in China and many young engineers educated in the overseas are joining the market, many new companies are formed to enhance the technology of private jets.

Required:

Assuming you want to show an upward trend in the profit from 2019 to 2021, Identify and discuss 5 possible ways you could achieve this target.

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The global aircraft and aviation industry are very capital intensive thus companies wait for years to break even The operational cost of manufacturing ... View the full answer