The idea of a jumbo airliner being capable of seating over 500 people almost seemed unreal. That is, until Airbus came along. This idea for the jumbo plane started as a joint venture with Boeing, but after it started Boeing backed out because of high costs and speculation of demand. Airbus pushed along and in 1999, they completed to rough draft of this plane. The problem with this plane that was obvious was first the overall cost of the plane. It was estimated to cost about 13 billion to launch. This included money for research and development, property, plant, and equipment, prototype planes and working capital. The second problem facing Airbus was the demand for such a large plane. Its initial goal was to secure 50 – 100 orders for this new jumbo plane. While both Airbus and Boeing forecasted the potential demand for future planes, Airbus was significantly higher than compared to Boeing. This could be in part because of conflicting assumptions regarding the relative importance of flight frequency.
Calculation of Market Debt to Equity, Debt to Value, Equity to Value Ratios
* Assumption: market and book value of debt are the same
Market value of equity in EADS: (18.35)*(807,157,667) = 14.8 billion
-Case states 16 billion; roughly the same but we will use 16
Book Value Debt EAD: 5.6 billion
1.0 Euro = .6209 pounds sterling
Market value of equity in BAE: (382p/100p/pound)*(1,876,000,000) = 7.2 billion pounds 7.2 billion pounds converted to Euros = 5.1 billion Euros
Book Value debt BAE: 5.1 billion Euros
Debt/Value: 5.1/(5.1+11.5) = .31
Overall debt/value for Airbus: .8(.26) + .2(.31) = .27
Since Airbus has had risk partners, Launch Aid, and BAE/EADS financing before (this is not there first project) it is reasonable to assume that the money fronted by BAE and EADS will be partially debt financed (as it has in the past) through debt held by BAE and EAD firms. The following analysis is based off...
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