Investment Risk and Decision Analyses for Cargo Airline Operators

In the past Airfreight Operators have minimized their investment risk by purchasing used passenger aircraft converted to carry cargo. Their investment decisions have been made on a short-term planning horizon without considering the long-term effects. This trend will soon reverse itself because of the sharp increase in fuel costs the “cutthroat” competition resulting from deregulation and most importantly the Economic Recovery Tax Act of 1981 that provides new tax incentives which favor the purchase of new aircraft over used equipment.

The purpose of this paper is to describe the investment analysis and tools that have been recently developed at Lockheed-Georgia Company. These tools can be used to measure the economic worth and risk of alternative aircraft operating within the system of any given Air Cargo Operation. These investment decision models can be used by air cargo management as aids in making aircraft purchase decisions that will affect the future of their companies.