Airbus Case Analysis
Project Economics/ Feasibility
The demand for very large aircraft (VLA) which is forecasted to be around 1550 planes including passenger jumbo jets and freight carriers in the next 20 year period provides an opportunity for Airbus to capture this market with its A3XX.
The cash flow and commercial viability is analysed below.
Discount Rate: 6% + 0.84*6 = 11.04%
Growth Rate: 2% = inflation
Tax Rate = 38%
Year
Units Sold
Free Cash Flow
PV of Cash Flow
2001
0
$ -682.00
$ -682.00
2002
0
$ -1,457.00
$ -1,312.14
2003
0
$ -1,525.00
$ -1,236.83
2004
0
$ -1,490.00
$ -1,088.30
2005
0
$ -847.40
$ -557.40
2006
24
$ 131.00
$ 77.60
2007
36
$ 653.29
$ 348.52
2008
48
$ 1,158.50
$ 556.60
2009
48
$ 1,459.17
$ 631.35
2010
48
$ 1,487.59
$ 579.65
2011
48
$ 1,516.59
$ 532.20
2012
48
$ 1,546.16
$ 488.63
2013
48
$ 1,566.82
$ 445.93
2014
48
$ 1,584.29
$ 406.07
2015
48
$ 1,602.37
$ 369.87
2016
48
$ 1,632.48
$ 339.36
2017
48
$ 1,665.13
$ 311.73
2018
48
$ 1,698.43
$ 286.35
2019
48
$ 1,732.40
$ 263.04
Net Present Value of the Project = $760 mn
By a conservative assumption of 41% market share of this VLA airplane segment the A3XX project still presents a positive Net Present Value. Therefore our recommendation is that Airbus should go ahead with the launch of this airplane.
Note: The commercial viability & NPV calculations are done in the attached Excel spreadsheet and the data is taken from the Airbus 3XX case study.
Demand Dynamics
Airbus was predicting that the market for very large aircraft (VLA) would exceed 1500 aircraft over the next 20 years and would generate sales in excess of $350 billion. According to Airbus, it needed to sell 250 aircraft to break even on an un-discounted cash flow basis, and could sell as many as 750 aircraft over the next 20 years. Boeing, however, was predicting that the VLA market would be less than 400 aircraft over the next 20 years.
The demand for very large aircraft (VLA) which is forecasted to be around 1550 planes including passenger jumbo jets and freight carriers in the next 20 year period provides an opportunity for Airbus to capture this market with its A3XX.
The cash flow and commercial viability is analysed below.
Discount Rate: 6% + 0.84*6 = 11.04%
Growth Rate: 2% = inflation
Tax Rate = 38%
Year
Units Sold
Free Cash Flow
PV of Cash Flow
2001
0
$ -682.00
$ -682.00
2002
0
$ -1,457.00
$ -1,312.14
2003
0
$ -1,525.00
$ -1,236.83
2004
0
$ -1,490.00
$ -1,088.30
2005
0
$ -847.40
$ -557.40
2006
24
$ 131.00
$ 77.60
2007
36
$ 653.29
$ 348.52
2008
48
$ 1,158.50
$ 556.60
2009
48
$ 1,459.17
$ 631.35
2010
48
$ 1,487.59
$ 579.65
2011
48
$ 1,516.59
$ 532.20
2012
48
$ 1,546.16
$ 488.63
2013
48
$ 1,566.82
$ 445.93
2014
48
$ 1,584.29
$ 406.07
2015
48
$ 1,602.37
$ 369.87
2016
48
$ 1,632.48
$ 339.36
2017
48
$ 1,665.13
$ 311.73
2018
48
$ 1,698.43
$ 286.35
2019
48
$ 1,732.40
$ 263.04
Net Present Value of the Project = $760 mn
By a conservative assumption of 41% market share of this VLA airplane segment the A3XX project still presents a positive Net Present Value. Therefore our recommendation is that Airbus should go ahead with the launch of this airplane.
Note: The commercial viability & NPV calculations are done in the attached Excel spreadsheet and the data is taken from the Airbus 3XX case study.
Demand Dynamics
Airbus was predicting that the market for very large aircraft (VLA) would exceed 1500 aircraft over the next 20 years and would generate sales in excess of $350 billion. According to Airbus, it needed to sell 250 aircraft to break even on an un-discounted cash flow basis, and could sell as many as 750 aircraft over the next 20 years. Boeing, however, was predicting that the VLA market would be less than 400 aircraft over the next 20 years.