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Aviation History
1970
1970 - 0571.PDF
FLIGHT International. 7t March 1970 AIR TRANSPORT DEVELOPMENT ~szr Aircraft development and the growth of world aviation was the subject of the Sir Charles E. Kingsford-Smith memorial lecture delivered in Sydney, Australia, by Mr J. E. Steiner, vice-president commercial air plane group, requirements and marketing, the Boeing Company MIRCRAFT DEVELOPMENT had become an expensive business: JfcAthe resources required had created a situation which no * "private company could handle, said Mr Steiner. "First, it was individuals—then it was corporations. In the case of the SST it requires nations." In the time of Sir Charles Kingsford-Smith, the risks had been taken almost totally by individuals. There had often been financial risks many times the net worth of the individual. There had also been great personal risks involving the individual's life itself. Nowadays the financial risks were, said Mr Steiner. primarily taken by corporations. The financial involvement facing a manufacturer when starting an aircraft programme was great. If all went well, thought Mr Steiner. he could expect a peak risk when the initial commitment was made, followed by a recovery and. hopefully, a profit. But air too often additional investments and risks were necessary early in the programme and long before any recovery had been made. This expenditure was necessary because additional models had to be introduced. Such a programme had been the 707. with two wings, three body lengths, and three engines in its first two years of existence. This situation was now commonplace. In fact, when Boeing came to launch its second jet programme—the 727—the 707 was still $200 million (£83.4 million) in the red. A general measure of the financial strength of an individual or a company was net worth: that is the difference between assets and liabilities, shown on an annual basis. For a modern individual to risk all his net worth on a single investment was unusual yet the aircraft industry had repeatedly done just that. Mr Steiner further thought that no other industry seemed to call forth such a response to challenge. The aviation contests in the day of Sir Charles Kingsford- Smith had been between individuals using skills an piloting and navigation. Now, the skills were somewhat different but the contests were every bit as dramatic and just as real. Companies and the individual programmes are not identified in the graph of programme risk, but M r Steiner thought the sort of business he was in was quite apparent. And, like the aviation pioneers of 40 years previously, some of the participants had met with calamity. As with the 707 and 727, in many cases the individual risks were in such a sequence that one had not been eliminated before the next was taken. Thus the cumulative risk at any given time had frequently been greater than the individual risks for each programme. Significant in the assessment of investment risk was the question of whether to build a prototype, before committing oneself to production. Fifteen years ago an aircraft programme had rarely been attempted without first "hand-building" a prototype. The 707 had been such an aircraft—the last Boeing aircraft to be so built. The investment involved was a reason able financial burden when compared with the investment, risk 1 2 YEARS FROM GO-AHEAD 3 4 5 6 7 8 9 " 1 1 H^l Prototype I ^"~>^ 1 S^ 1 Unrecovered financial risk 1 1 1 1 1 Production Investment 707-TYPE PROGRAMME Investment and risk during a 707-type programme 9I— 1 f n — -T-" r u r1 i Forecast from Wharton School of Finance f r- ] \ 1955 56 57 58 59 60 61 62 63 64 65 66 67 68 69 1970 Prime commercial loan rate in the US 1 < Q. ^ £ ED FI N (plotte d 3 C UJ > O a o 1 — 3 4 5 6 7 PROGRAMME (example) Commercial risk for a number of typical programmes Possibilities of risk in commercial programmes
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