Airbus A380 and Potential Airbus Threat

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Assignment Questions

1. Why is Airbus interested in building the A3XX? What are its objectives?

Because of the increasing demand in air transportation and rising traffic in many airports, VLA segment will grow up significantly, so this will be a huge advantage for Airbus. Airbus’s researches show that compared to others, A3XX will help Airbus to get more profit.

2. How many aircraft does Airbus need to sell in order to break even on the investment? Is this number greater or less than your estimate of total demand for very large aircraft (VLA) over the next 20 years?

Hint: Consider all capital providers as a single entity and calculate the break-even return to them collectively. To calculate the break-even number of planes, calculate the present value of the required investment, and compare it to the present value of a growing perpetuity of cash flows from planes sales beginning in 2008. Please assume an equity risk premium of 6% in your analysis.

Although the A3XX would have a higher list price than the 747-400, Airbus claimed the combination of increased capacity and reduced cost would provide superior economics. The operating cost per flight would be 12% more than the 747'’ cost, but given the plane’s 35% greater capacity, it would provide almost %25 more volume for free. According to Airbus, the A3XX need only 323 passengers to break even, on the other hand 747 needs 290.

3. As Boeing, how would you respond to this situation? How does your answer depend on what you think Airbus is likely to do?

If Airbus starts to produce A3XX, I think it would be successful, so the best option would be launching a bigger version of 747. Also, using fourth strategy that means ignoring potential Airbus threat into the segment can be a good option, since I believe most probably it would be a disappointment for Airbus to enter this new segment (VLA).

4. Should Airbus commit to build the A3XX? How many orders should Airbus have before...
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