The Purchase of a New Boeing 787-9 Dreamliner by American Airlines

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Table of Contents Summary 2 Description of the Project 2 The Dreamliner 3 To Lease or to Buy 4 WACC 6 Discounted Cash Flow/Net Present Value 7 Conclusion 10 References 12 Summary This paper consists of several sections. The description of the project outlines the capital asset decision at hand, which in this case is the purchase of a new Boeing 787-9 Dreamliner by American Airlines. The second section of the paper highlights some of the information about the Dreamliner. Statistics about seat configuration are critical to the revenue projects used later in the net present value (NPV) calculation. The third section of the paper covers the lease or buy decision. American has both options and this section covers some of the financial aspects of each that are critical, such as depreciation. The fourth section is an explanation of the weighted-average cost of capital for American Airlines. The fifth section is an outline of the NPV calculation. The final section is the conclusion. The NPV compares directly the incremental cash flows associated with the lease option and those associated with the buy option. The final NPV figures are close to one another, but one option clearly adds more value to the company to the other. The "buy" option is therefore recommended. Description of Project The company being used for this project is American Airlines. The airline industry is frequently faced with the question of lease versus buy, and the scenario here is no different.
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