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In 1971, the American aerospace company, Lockheed, found itself in Congressional




Lockheed Tri Star;In 1971, the American aerospace company, Lockheed, found itself in Congressional hearings;seeking a $250 million federal guarantee to secure bank credit required for the completion of the;L-1011 Tri Star program. The L-1011 Tri Star Airbus was a wide-bodied commercial jet aircraft;with a capacity of up to 400 passengers, competing with the DC-10 trijet and the A-300 airbus.;Spokesmen for Lockheed claimed that the Tri Star program was economically sound and that;their problem was merely a liquidity crisis cause by some unrelated military contracts. Opposing;the guarantee, other parties argued that the Tri Star program had been economically unsound;and doomed to financial failure from the very beginning.;The debate over the viability of the program centered on estimated break-even sales the;number of jets that would need to be sold for total revenue to cover all accumulated costs.;Lockheeds CEO, in his July 1971 testimony before Congress, asserted that this break-even;point would be reached at sales somewhere between 195 and 205 aircraft. At that point, sales;would eventually exceed the break-even point and that the project would thus become a;commercially viable endeavor. Lockheed also testified that it hoped to capture 35% - 40% of;the total free world market of 775 wide bodies over the next decade (270-310 aircraft). This;market estimate had been based on the optimistic assumption of 10% annual growth in air;travel. At a more realistic 5% growth rate, the total world market would have been only about;323 aircraft.;Costs;The pre-production phases of the Tri Star project began at the end of 1967 and lasted four;years after running about six months behind schedule. Various estimates of the initial;development costs ranged between $800 million and $1 billion. A reasonable approximation of;these cash outflows would be $900 million, occurring as follows


Paper#26097 | Written in 18-Jul-2015

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