Fly-By-Night Airline

Fly-by-Night Airlines is a major commercial air carrier offering passenger service between

most large cities in the United States. One of its more profitable routes is between Los Angeles and

New York. Competition on this route is intense, and James Baron, supervisor of transcontinental

operations for Fly-by-Night, is considering upgrading the quality of the fleet of aircraft used on the

Los Angeles – New York run.

As it has in the past, Fly-by-Night plans to purchase all its planes from P&J Aircraft

Company. P&J markets three aircraft: (1) the old reliable PJ-1, for the last ten years the workhorse

of the airline industry; (2) the soon-to-be-introduced PJ-2, currently in the test flight stage; and (3)

the technologically advanced PJ-3, still in the design stage. Although PJ-2 and PJ-3 will not be

available for service until sometime in the future, P&J is now taking contingency orders for these

planes. If Fly-by-Night is to have any hope for prompt delivery, it must order the planes today, even

though it will not take delivery or pay for them until sometime in the future. Fly-by-Night is very

interested in the newer models because they are more fuel efficient and less polluting, require less

maintenance, and are much quieter than the old PJ-1.

Fly-by-Night currently uses five PJ-1 planes to service its Los Angeles – New York route.

These planes were purchased 10 years ago for a cost of $15 million per plane; each is being

depreciated