Global Business Plan Hybrid Plane

Global Business Plan Hybrid Plane

Financial Viability

AKJRT Inc. is planning to launch a global venture, centered in Japan, which involves introducing innovative hybrid planes for passenger and freight transport. AKJRT Inc. believes that the venture has immense viability considering the fact that the non-renewable energy resources around the world are rapidly depleting and are getting more and more expensive with the passage of time. This has made transportation particularly air travel very expensive for most people. AKJRT Inc.'s hybrid planes focus on providing low cost passenger and freight transport facilities to not only Japanese people but also people around the world. Since there is negligible competition in the industry currently, AKJRT Inc. expects to enjoy a monopolistic existence therefore there will be little pressure on the company for decision making pertaining to pricing due to weaker influence of demand forces. Therefore the major decisive factor that will impact the firm's pricing strategy is going to be the costs. Being the first of its kind project, the major cost pressures will come due to extensive research and development. The key factors that can implicate the financial viability of hybrid aircrafts are discussed as follows.

Costs pertaining to technology and manufacturing of aircraft.

Costs pertaining to safety and security measures of the aircraft (this includes insurance).

Research and Development costs in order to bring in constant innovation and keep future competition away.

Purchase, construction and maintenance of factory premises.

Employee recruitment and training costs.

Legal costs where applicable.

Given the increasing popularity of luxurious aircrafts such as Airbus A -- 380, the margin of incorporating luxury, which includes on flight amenities.

The maximum distance that the aircraft can travel in one flight.

The number of passengers / freight that the aircraft can hold.

The expected life (number of flight hours) for one air craft.

Costs pertaining to routine maintenance

Marketing costs, which include convincing mainstream international airlines such as American Airlines, Air France, Emirates, British Airways and Japan Airlines to include these hybrid planes in their fleet.

Interest expenses payable for loans.

Economic factors such as fluctuations in exchange rates, interest rates and inflation rates.

In order to maintain the financial viability of the hybrid aircrafts, it is important that AKJRT Inc. keeps the overall business activity as cost efficient as possible, that costs must be minimum while revenues must be maximum. This can be done by cutting down on wastages and ensuring quality assurance and total quality management practices. While some costs such as research and development cannot be compromised upon, therefore AJKRT Inc. will have to look out into other areas for cost cutting. A potential cost cutting area can be keeping interest expense low.

Exchange Rate Risks

Considering the fact that AKJRT Inc. will be operating in a global environment across transnational boundaries, AKJRT Inc. might face eminent exchange rate risks. The current international exchange rate for Japan is U.S.$1 = 80.38 JPY (Japanese Yen). However, the current economic crisis in the United States and in major world economies including the European Union, combined with the post-tsunami economic consequences within Japan has made the exchange rates highly volatile and fluctuating. In order to avoid exchange rate risks, the company will make all transactions in one standard currency that is U.S. dollars. Moreover, in order to avoid exchange rate risks AKJRT Inc. will use hedging approach, while netting approach will also be used where necessary. Hedging approach will be more pragmatic for the company as the company will be taking financial loans from international financial institutions (IXGW, 2011).

Generation of Financial Resources

Given the highly capital intensive nature of the business, generation of financial resources remains a major concern for AJKRT Inc. Since the retained profits of the company are expected to remain relatively lower in the initial years, the company's retained profit cannot be considered dependable enough to finance the entire business all by itself. In order to finance its capital intensive structure, the business will have to depend on diverse sources of finance. The three main sources of finances are as follows:

Finance generated through share capital

Loan Capital which primarily includes bank loans

Government Assistance

As stated earlier, AKJRT Inc. is a highly capital intensive venture. While retained profit alone cannot be depended upon, depending too much on the loan capital can be negative for the company as well due to the increase interest expenditure. Therefore the most viable option is the generation of finance through issue of shares. The company can sell its stocks in the stock exchange and can give dividend to the shareholders (Gawthrope, 2005). However, this source of finance is only dependable if the firm manages to attract enough investments.