# 8.4 An airline is choosing between two engine systems for its planes. Each has the same…

8.4 Airlines have to decide between the two types of engines they want for their aircraft
planes. Both have the same service life, and each has the exact same repair records
Maintaining and repairing the property.

The System A is US\$2 Million and consumes 30,000 gallons for every 1,000
Stunden of operation with an average load for passenger service

US\$3 Million System B and 20,000 gallons of water per 1000
Hours of operation are the same for all levels of passenger service.

The following information applies to both.
Engine systems

The systems are good for four years before they need major upgrades.
required. Each system is able to salvage its equipment at the end of their fourth year.
Value equal to 10% its initial investment

Both systems are expected to consume more fuel.
Degrading engine efficiency can lead to a rate increase of up to 5% each year.

Jet fuel prices were US\$15/gallon on March 31, 2017. These are the facts
This price will be used by the airline to compare both systems.

An airline can operate for 2,000 hours per year.
Use a MARR value of 10%

To compare both engines, use the annual value (AW) method
systems. Which should an airline select? Your answers should be explained

a. Calculate the annual equivalent fuel cost for AWA(10%)fuel
For System A.

b) Determine the annual equivalent cost of total living (AWA (10%)).
System A.

c. Calculate the annual equivalent fuel cost for AFB(10%)fuel
For System B.

d) Determine the annual equivalent cost of total living (AWB (10%)).
System B.

e. State your conclusion.

F) The airline is expecting the jet fuel price to increase.
Will it continue to make this choice in the future?
Describe your answer in a short, uncomplicated way.

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