Airbus A3Xx

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Contents

1. Introduction 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

8. Conclusion 1. Current Developments

9. References
10. Tables
11. Exhibits

1. Introduction

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



References: • Airbus vs. Boeing in Superjumbos: Credibility and Preemption Report by Benjamin C. Esty (HBS) and Pankaj Ghemawat (HBS), Current Draft: August 3, 2001 • Strategic Management: Competitiveness and Globalization, Fifth Edition, Michael A |  |  |5 |10 |15 |20 |25 | |Discount|9 |(3292.17) |366.47 |4025.11 |7683.75 |11342.39 | |Rate (%)| | | | | | | | |10 |(3445.40) |(181.45) |3082.50 |6346.45 |9610.40 | | |11 |(3562.65) |(644.15) |2274.35 |5192.85 |8111.35 | | |12 |(3649.82) |(1034.41) |1581.00 |4196.41 |6811.83 | | |13 |(3711.82) |(1362.97) |985.88 |3334.73 |5683.58 | | | | | | | | | |Steady |28 |(4778.70) |(3076.24) |(1373.78) |328.68 |2031.14 | |State # | | | | | | | | |38 |(4170.68) |(1860.20) |450.29 |2760.77 |5071.25 | | |48 |(3562.65) |(644.15) |2274.35 |5192.85 |8111.35 | | |58 |(2954.63) |571.89 |4098.41 |7624.93 |11151.46 | | |68 |(2346.61) |1787.93 |5922.48 |10057.02 |14191.56 | |  |  |5 |10 |15 |20 |25 | |Inflatio|0 |(3566.53) |(651.91) |2262.72 |5177.34 |8091.97 | | |0.01 |(3564.59) |(648.03) |2268.53 |5185.10 |8101.66 | | |0.02 |(3562.65) |(644.15) |2274.35 |5192.85 |8111.35 | | |0.03 |(3560.72) |(640.28) |2280.16 |5200.60 |8121.04 | | |0.04 |(3558.78) |(636.40) |2285.98 |5208.36 |8130.73 | |  |  |5 |10 |15 |20 |25 | |Tax Rate|30 |(4250.13) |(1488.76) |1272.60 |4033.96 |6795.33 | |(%) | | | | | | | | |34 |(3906.39) |(1066.46) |1773.47 |4613.41 |7453.34 | | |38 |(3562.65) |(644.15) |2274.35 |5192.85 |8111.35 | | |42 |(3218.92) |(221.85) |2775.22 |5772.29 |8769.36 | | |46 |(2875.18) |200.46 |3276.10 |6351.74 |9427.38 | 12 Source: Dresdner Kleinwort Benson, Aerospace and Defense Report, May 8, 2000 -----------------------

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