Airbus Case Study
Airbus A3XX case study
Group E10, MBA 2011
Airbus A3XX case study, Group E10
Airbus objectives
Both Airbus and Boeing, as well as industry experts expected worldwide passenger traffic to grow at an average annual growth rate of 4.8-4.9% for the next 20 years (up until 2019). Given that the traffic was expected to almost triple in volume, both manufacturers expected a significant increase in aircraft sales, although their views on the market structure were different. Airbus expected hub-to-hub routes to become the dominant type of transportation in key regions (transatlantic and transpacific), opposing Boeing’s preference for point-topoint routes. Therefore, Airbus forecasted high growth rates in very large aircraft (VLA) segment, that was expected to reach 1,235 aircraft by 2019. Although Airbus had considerably increased its market share by 1999, it still did not have a product to compete with Boeing’s 747 in the highly-promising VLA market segment. Introduction of A3XX could help Airbus capture more than a half of this segment, and given the segment’s very positive prospects, it could position Airbus as the commercial aviation industry leader.
FCF model
The model estimates Airbus free cash flows associated with the potential implementation of A3XX project in 2001-2020. All calculations are performed in US dollars, net present value is calculated as of December 31, 2000. Given the uncertainty of model assumptions and the long-term nature of the model itself, additional sensitivity analysis was performed in respect of (a) operating margins, (b) discount rate, (c) inflation rate, (d) aircraft sales, (e) investment expenditure, and (f) sale price.
Key assumptions
Sales & production
• Sale price: $216m as of 2006, rising afterwards at the inflation rate. Although some of the first contracts are expected to be executed with a significant discount, this is not factored into the model due to low data availability. • Operating margin: 15%, learning curve
Group E10, MBA 2011
Airbus A3XX case study, Group E10
Airbus objectives
Both Airbus and Boeing, as well as industry experts expected worldwide passenger traffic to grow at an average annual growth rate of 4.8-4.9% for the next 20 years (up until 2019). Given that the traffic was expected to almost triple in volume, both manufacturers expected a significant increase in aircraft sales, although their views on the market structure were different. Airbus expected hub-to-hub routes to become the dominant type of transportation in key regions (transatlantic and transpacific), opposing Boeing’s preference for point-topoint routes. Therefore, Airbus forecasted high growth rates in very large aircraft (VLA) segment, that was expected to reach 1,235 aircraft by 2019. Although Airbus had considerably increased its market share by 1999, it still did not have a product to compete with Boeing’s 747 in the highly-promising VLA market segment. Introduction of A3XX could help Airbus capture more than a half of this segment, and given the segment’s very positive prospects, it could position Airbus as the commercial aviation industry leader.
FCF model
The model estimates Airbus free cash flows associated with the potential implementation of A3XX project in 2001-2020. All calculations are performed in US dollars, net present value is calculated as of December 31, 2000. Given the uncertainty of model assumptions and the long-term nature of the model itself, additional sensitivity analysis was performed in respect of (a) operating margins, (b) discount rate, (c) inflation rate, (d) aircraft sales, (e) investment expenditure, and (f) sale price.
Key assumptions
Sales & production
• Sale price: $216m as of 2006, rising afterwards at the inflation rate. Although some of the first contracts are expected to be executed with a significant discount, this is not factored into the model due to low data availability. • Operating margin: 15%, learning curve