1. Purpose And Objective Of Report
2. Background Case
1. Analyzing Airbus’ Objectives
2. Analyzing Boeing
2. Capital Structure
1. Assumption Of No Interest Payments
3. Demand Forecast
1. Key Competitive Characteristics Of the Commercial Jet Aircraft Industry 2. Boeing’s Response
3. Forecasting Demand In The Very Large Aircraft (VLA) Market
4. Net Present Value Analysis
1. Data Given and Assumptions Made
1. Financial Data Given
2. Assumptions On The NPV Calculation
3. Assumptions On The Rates Of Return
2. Base Case Calculation
3. Conclusions Of NPV Analysis
5. Breakeven Analysis
1. Breakeven Quantity
2. Conclusions Of Breakeven Analysis
6. Sensitivity Analysis
1. Analysis Of Changes In Operating Margin Against Changes In Discount Rates 2. Analysis Of Changes In Operating Margin Against Changes In Steady State Number of Planes 3. Analysis Of Changes In Operating Margin Against Changes In Inflation Rate 4. Conclusion of Sensitivity Analysis
7. Decision Tree Analysis
1. Rationale Behind Assigning Probabilities
2. Decision Tree Analysis
3. Conclusions Of Decision Tree Analysis
1. Current Developments
1. Purpose And Objective Of Report
On June 23rd, 2000, the Airbus Industrie’s Supervisory Board has a critical situation at hand. They would have to decide if they were to commit to an industrial launch of the new superjumbo, the A3XX. This is the point where they have already sunk in $700million and a decision to abandon this project would result in the loss for the expense of these preliminary studies and efforts. However, with a decision to commit in launching the superjumbo in an attempt to seize market demand in the Very Large Aircraft (VLA) market, it also indicates the stage where much significant expenditures would begin.
Many implications would thus have to be considered before taking on a rational course of action. Most importantly, we have to study the competitive nature of the industry, the profit potential of the launch of A3XX and the volatility that may negate benefits. Our report aims to provide insights to the case scenario (that is, placing ourselves in the Year 2000, the point before the decision was made) and thus, hoping to provide a thorough analysis of whether there was evidence of sufficient long-term profit potential then.
We first studied the nature of competition within the commercial aircraft industry and from which, we will draw conclusions of how Boeing would respond in accordance to the launch undertaken by Airbus. This in turn translates to the plausible scenario for Airbus’ A3XX to investigate if the market was to be shared with Boeing, and will it be substantial enough to support the full utilization of capacity for the Airbus Industrie’s production of A3XX.
After which, we could safely assume that after the Year 2008, when Airbus reach their maximum production capacity, they can then fully utilize their capacity and sell at maximum output. This would thus constitute our base case scenario where the Net Present Value of the future cash flows is the most viable.
The Breakeven analysis and Profitability Index reveal more insights into the justification of what the management of Airbus had actually believed and attempts to reason out results that the launch can achieve. We would by then brought our analysis to another level by studying the volatility of market factors like the discount rates, tax rates, and inflation rates and how it would affect the calculated net present value against the backdrop of a scenario analysis of the attainable operation margins for Airbus.
The Decision Tree Analysis attempts to bring forth the most likely occurrences and their relative probabilities of occurrence. This would paint a clearer...