Lockheed

In: Business and Management

Submitted By dman32
Words 428
Pages 2
Memorandum for Lockheed’s L1011 Tristar Project

Recommendation
In 1967, Lockheed Corp., the American aerospace company that monopolized the military market for aircrafts, set out to compete in the commercial sector by replacing the Boeing 747 and the McDonnell Douglas DC-10. Lockheed invested tremendous resources into the Tristar thereby jeopardizing the entire corporation’s well-being on this singular project. Tristar distinguished itself from other aircrafts of its kind thanks to the highly-efficient, formidable Rolls-Royce RB211 engine that the L1011 would need to be constructed. In fact, this very engine, due to Rolls-Royce’s technical difficulties, created diminished sales because of its two year delay in production. My recommendation is that, Lockheed approach their Tristar project more peripherally while still remaining heavily anchored in military production and sales in order to offset cost and diminish the 35 target Tristar airplanes needed to break even.

Rationale

The reason for Lockheed having this approach is because by doing this Lockheed would be able to decrease the number of planes it would have to sell in order for it to have a positive NPV. Lockheed was put into this position because they started putting out their projections and asking for a loan before they had even secured a deal for their engine from Rolls Royce. Rolls Royce was in such disarray, that they were placed into receivership, and had to be resold to Rolls Royce Ltd. in order for the company to be kept alive. After this happened, Rolls Royce renegotiated with Lockheed and increased the price by 110,000 pounds per engine. This was after already delaying Lockheed by 2 years by producing an engine that did not live up to its supposed capabilities. If Lockheed does not do this, they end with a negative NPV.

Analysis
The NPV for the new direction of the company…...

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