Airbus
Case Study: Airbus A3XX
1. Airbus considers building the A3XX a great opportunity to help the company enters VLA market, in order to increase competitive ability and make profits. There are three main perspectives to support this project:
(1). A3XXX is the solution to meet increasing demand;
As for increasing the according carrying capacity, Airbus believes that it is more realistic to develop “Very Large Aircraft” rather than to increase aircrafts frequency or to enlarge airport size. Industry analysts predicted that 735 A3XX are needed through 2019, such number means a huge developing opportunity in the following 20 years.
(2).The only project right now;
So far the main competitor in VLA market is merely Boeing. While Boeing has no incentive to develop aircrafts seating 500 or more, building A3XX right now will make Airbus the monopolist in the VLA market if the future market goes as Airbus predicted.
(3).A3XX has unique advantages;
Compared to Boeing 747, A3XX is designed to have more space per seat and wider aisles. Moreover, it is safer and more luxurious for passengers and less costly for airline companies. It is very likely that A3XX is able to replace 747 once launched on the market.
2. All of the calculation is shown in Exhibit 1.
In order to calculate the break even number of A3XX sold per year since it was at full production, we divided the project into two different parts, the ramp-up period from 2001 to 2008 and the stable operating period thereafter.
To get the free cash flow of year 2001 to 2008, we assumed that 1) planes sold are sold at cost, therefore no cash inflow emerged from selling planes in this period; 2)Expenses in 2000 are regarded as sunk cost and are neglected from calculation; 3)Research and development expenditure are also considered as expense; 4) The expenses are tax deductible rather count as tax credit or deduct from other projects; 5) Depreciation are calculated at 10 years straight-line method from the total
1. Airbus considers building the A3XX a great opportunity to help the company enters VLA market, in order to increase competitive ability and make profits. There are three main perspectives to support this project:
(1). A3XXX is the solution to meet increasing demand;
As for increasing the according carrying capacity, Airbus believes that it is more realistic to develop “Very Large Aircraft” rather than to increase aircrafts frequency or to enlarge airport size. Industry analysts predicted that 735 A3XX are needed through 2019, such number means a huge developing opportunity in the following 20 years.
(2).The only project right now;
So far the main competitor in VLA market is merely Boeing. While Boeing has no incentive to develop aircrafts seating 500 or more, building A3XX right now will make Airbus the monopolist in the VLA market if the future market goes as Airbus predicted.
(3).A3XX has unique advantages;
Compared to Boeing 747, A3XX is designed to have more space per seat and wider aisles. Moreover, it is safer and more luxurious for passengers and less costly for airline companies. It is very likely that A3XX is able to replace 747 once launched on the market.
2. All of the calculation is shown in Exhibit 1.
In order to calculate the break even number of A3XX sold per year since it was at full production, we divided the project into two different parts, the ramp-up period from 2001 to 2008 and the stable operating period thereafter.
To get the free cash flow of year 2001 to 2008, we assumed that 1) planes sold are sold at cost, therefore no cash inflow emerged from selling planes in this period; 2)Expenses in 2000 are regarded as sunk cost and are neglected from calculation; 3)Research and development expenditure are also considered as expense; 4) The expenses are tax deductible rather count as tax credit or deduct from other projects; 5) Depreciation are calculated at 10 years straight-line method from the total