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(9) Mr Warrington said that Lockheed's financial position had to be clarified before the end of the month and that Lockheed were having very active consul- tations with their Bankers to that end. Mr Swire said that Lazard's had been to see them in London and Swire's had got the distinct impression that the arrangements now being made would only concern the relatively short-term future of Lockheed. CPA's interest is in Lockheed's long-term future, assuming that the short-term position is held. Mr Warrington said that this would inevitably take a few months to be firmly established.
Longer Range Version
(10) CPA require a wide-bodied aircraft whose makers will have available, in a relatively short time, a longer range version. Mr Swire had no time for the long range version of the TriStar currently being offered to Air Canada. Its range was gained at the expense of capacity and this was quite unacceptable for CPA's operations.
Financing Terms
(11) CPA can acquire either the DC10 or the TriStar with a loan from the Exim Bank providing 45% of the cost over ten years at 62% pa. They could also borrow the rest of the cost, and financing terms or methods (eg leasing) do not materially affect the choice.
Timing
(12) CPA consider that they have already left their switch to wide-bodied aircraft late in the day. They cannot see that they can delay delivery of their first wide bodied planes beyond September 1975, the date promised by Douglas. In addition, they expected that Douglas would impose a penalty if CPA did not confirm acceptance of the Douglas offer made at the end of January, and that regardless of any penalty they would be moved back in the delivery queue. CPA's lead time to introduce any new wide-bodied aircraft is 15 months. They can see no way of reducing this and are not willing to delay their decision significantly beyond the end of February. (13) Mr Swire doubted the notion that Lockheed might possibly be able to guarantee either (i) delivery of the TriStar with assurances that Lockheed's future in the commercial field is established beyond question, or (ii) that if the assurances are not provided in a matter of months, then Lockheeds would be responsible for supplying DC10's in place of the TriStars.
CPA Comparison of DC10 vs TriStar
(14) The Cathay Pacific board and the airline had been very sensitive to the British interest in sales of the TriStar. For example, in their evaluation CPA had taken the TriStar's fuel consumption at only 21% more than that of the DC10, although all the US operators CPA had spoken to at the end of 1973 had said that the consumption was 10% more. (These figures apparently assumed use of the "hot thrust reverse engine").
(15) The Direct Operating Cost (DOC) of the DC10 was estimated to be HK Ø 1.25 million per plane per year below that of TriStar. CPA's calculation showed that the lower Direct Operating Cost overtook the lower capital cost of the TriStar after between 2 and 4 years, depending on the assumptions. Anyhow, the DOC/Capital Cost balance was not the crucial point in their evaluation, and it would not become the crucial point until such time as Lockheed's long-term financial viability was assured.
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