A framework for value-driven aircraft family design for dynamic market systems under uncertainty and strategic competition

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Tetik, Halil Sahin
Mavris, Dimitri N.
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Aircraft family design and production is a complicated process that includes numerous decisions across various disciplines, where these decisions should be made in a coordinated manner to maximize the program value. Successful commercial aircraft programs hint that increasing the commonality between different products is not necessarily the goal, but a common and a useful tool for aircraft manufacturers to introduce multiple products to the market with reduced research, development, and production time, uncertainty, and costs. However, in order to make sound and value-adding decisions throughout the family program lifecycle, engineering aspect of the family design problem should be considered concurrently with the manufacturing and marketing aspects. The large commercial aircraft market, specifically the narrow-body market, consists of unique features that must be captured in order to provide a realistic model. Most importantly, due to high entry costs, there are only a few firms that offer a variety of products sharing common parts to serve different segments. Historically a duopoly, over the last years, new firms have been entering the narrow-body market encouraged by the fast growth of the total market demand. From an entrant’s perspective, the evolution of the market must be analyzed for multiple decades before an entry decision is made as any value-oriented firm will try to ensure, even before initiating the R&D investment, some anticipation for a positive balance at the end of a program. These observations extend the market-focused product family design problem, which naturally includes the commonality and commercial value considerations, to also account for segment-level entry/exit options, competitive reactions, as well as endogenous and exogenous uncertainty associated with the firm-specific and market-specific dynamics. The analyses required for such a complex problem are not included in the traditional design methodologies. To bridge this gap, a competitive product family design methodology is created. At the core of the framework is a multi-product, multi-firm dynamic market simulation featuring two types of players: the incumbent firms and the new entrants. The main motivation of these players is to maximize the family program value by making economic and financial decisions under uncertainty and strategic competition. The stochastic game in that stage is modeled as a competitive Markov Decision Process in which the players act non-cooperatively and make value-maximizing decisions based on the fore-mentioned elements. The model utilized in this stage is an Ericson-Pakes class Industrial Organization model which allows the firms to enter/exit at segment level and decide on strategic control variables for the in-production aircraft. It is hypothesized that the combination of an Industrial Organization model with Monte Carlo Simulations will allow the designers to better estimate the expected program value and quantify risk in the early design phase. In the example case study, an experiment was conducted to test the hypothesis via comparative assessment. It is demonstrated that the standard Net Present Value methods, the benchmark, would lead to different decisions compared to the outcomes of the methodology presented in this thesis. It is also shown that the existing methods fail to quantify the risk which is defined as the probability of the program not breaking even. For certain technology scenarios, it is also demonstrated that the benchmark method could result in opposite signs of perceived returns for the program possibly influencing the top-level decisions. From a managerial perspective, the capability to estimate the added program value related to a new technology or a certain design change, before the information is clearly revealed, can yield a significant strategic advantage. Within this context, a Value-Driven Design paradigm is well-suited to the aircraft family design problem since increasing the overall market success of the family is the default goal of such family-oriented studies; the program value can work as a single and meaningful representation as a metric for success. The capability of the framework to directly and indirectly handle both exogenous and endogenous uncertainty will enable the top-level decision makers to avoid risky platform designs with insufficient competitive strength for different market scenarios.
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