Airbus A3Xx Case
Executive Summary
In fierce competition with Boeing, venture into VLA segment – as a rather neglected segment by Boeing – could pose as a strategic opportunity for Airbus which it could utilize to build a competitive advantage combined with its technological resources and capabilities. However, its assumptions of a drastic increase in VLAs demanded in next 20 years along with its ability to satisfy most of this are too optimistic. Provided that these assumptions (inc. breakeven points, initial order requirements) are normalized, A3XX is a project worthy to pursue for Airbus in order to exploit a neglected spot on the perceptional map – long-haul + big capacity. When we hold the market itself continues to grow as proposed in the case, this can be win-win case for Boeing as well, which can concentrate on its existing operations.
When we look at the category, Airbus’s venture of A3XX into the existing market of commercial jet aircrafts is an example of product development. As of end of 1999, when we say commercial jet aircraft manufacturing and sales market, we’re talking of an oligopolistic $56.5 billion market, which is expected to double by 2019. It is evident from the case that this is a highly regulated market, both by national and international institutions, where states are among the major stakeholders (direct investments by states, employment creation, military affiliations, launch aid restrictions, etc.). However, due to investment intensive (R&D, capital) nature of the market, projections - esp. ones concerning launches - need to be comprised of accurate net present value calculations (as opposed to undiscounted cash flows) which in turn are based on realistic demand forecasts. Given the admonitory cases of Boeing 747’s initial launch disappointment (yet later reversal of fortune) and the “faithfully departed” due to failing launches, to predict in this market is particularly hard. We can also bear in mind the market’s linkage to tourism, an industry with
In fierce competition with Boeing, venture into VLA segment – as a rather neglected segment by Boeing – could pose as a strategic opportunity for Airbus which it could utilize to build a competitive advantage combined with its technological resources and capabilities. However, its assumptions of a drastic increase in VLAs demanded in next 20 years along with its ability to satisfy most of this are too optimistic. Provided that these assumptions (inc. breakeven points, initial order requirements) are normalized, A3XX is a project worthy to pursue for Airbus in order to exploit a neglected spot on the perceptional map – long-haul + big capacity. When we hold the market itself continues to grow as proposed in the case, this can be win-win case for Boeing as well, which can concentrate on its existing operations.
When we look at the category, Airbus’s venture of A3XX into the existing market of commercial jet aircrafts is an example of product development. As of end of 1999, when we say commercial jet aircraft manufacturing and sales market, we’re talking of an oligopolistic $56.5 billion market, which is expected to double by 2019. It is evident from the case that this is a highly regulated market, both by national and international institutions, where states are among the major stakeholders (direct investments by states, employment creation, military affiliations, launch aid restrictions, etc.). However, due to investment intensive (R&D, capital) nature of the market, projections - esp. ones concerning launches - need to be comprised of accurate net present value calculations (as opposed to undiscounted cash flows) which in turn are based on realistic demand forecasts. Given the admonitory cases of Boeing 747’s initial launch disappointment (yet later reversal of fortune) and the “faithfully departed” due to failing launches, to predict in this market is particularly hard. We can also bear in mind the market’s linkage to tourism, an industry with