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    Airbus A3XX

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    shags
    The document discusses Airbus' proposal to develop the A3XX, a super jumbo jet that would seat 550-990 passengers. It would cost $13 billion to develop. Airbus forecasts demand for over 1,500 super jumbos over 20 years, generating $350 billion in sales. The development would be funded through vendor investments, government launch aid, and Airbus partners. If successful, Airbus predicts the A3XX would earn 15-20% operating margins and be profitable once full production is reached. A decision to proceed with the risky A3XX development must be carefully considered.

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    Airbus A3XX

    Uploaded by

    shags
    395 views18 pages
    The document discusses Airbus' proposal to develop the A3XX, a super jumbo jet that would seat 550-990 passengers. It would cost $13 billion to develop. Airbus forecasts demand for over 1,500 super jumbos over 20 years, generating $350 billion in sales. The development would be funded through vendor investments, government launch aid, and Airbus partners. If successful, Airbus predicts the A3XX would earn 15-20% operating margins and be profitable once full production is reached. A decision to proceed with the risky A3XX development must be carefully considered.

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    The document discusses Airbus' proposal to develop the A3XX, a super jumbo jet that would seat 550-990 passengers. It would cost $13 billion to develop. Airbus forecasts demand for over 1,500 super jumbos over 20 years, generating $350 billion in sales. The development would be funded through vendor investments, government launch aid, and Airbus partners. If successful, Airbus predicts the A3XX would earn 15-20% operating margins and be profitable once full production is reached. A decision to proceed with the risky A3XX development must be carefully considered.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    395 views18 pages

    Airbus A3XX

    Uploaded by

    shags
    The document discusses Airbus' proposal to develop the A3XX, a super jumbo jet that would seat 550-990 passengers. It would cost $13 billion to develop. Airbus forecasts demand for over 1,500 super jumbos over 20 years, generating $350 billion in sales. The development would be funded through vendor investments, government launch aid, and Airbus partners. If successful, Airbus predicts the A3XX would earn 15-20% operating margins and be profitable once full production is reached. A decision to proceed with the risky A3XX development must be carefully considered.

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    You are on page 1of 18
    At a glance
    Powered by AI
    The key takeaways are that Airbus is analyzing whether to develop the A3XX, a super jumbo jet that would seat 550-990 passengers at a cost of $13 billion to develop. They are hoping to secure orders for 50 jets from major airlines.

    The main considerations for forecasting demand are long-term projections over 20 years, annual growth rates in the transportation industry, expected demand on new passenger routes, and confidence that capacity increase will lead to more demand.

    Funding for developing the A3XX will come from three sources: $3.5 billion from risk sharing partners, $3.6 billion in launch aid from partner governments, and $5.9 billion from Airbus partners based on ownership shares.

    Airbus A3XX: Developing World’s Largest

    Commercial Jet (A)


    Background
    • As supervisory Board of Airbus Industries we are
    analyzing if we can Authorize to Offer (ATO) the A3XX,
    a proposed super jumbo jet that would seat from 550
    to 990 passengers, have a list price of $216 million,
    and cost $13 billion to develop.
    • We are hoping to secure orders for 50 jets from as
    many as five major airlines.
    Background Cont’d
    • The real question is whether there is sufficient long-
    term demand to justify industrial launch.
    • We believed we will break even on an undiscounted
    cash flow basis with sales of 250 planes, and sell as
    many as 750 over the next 20 years!
    • We predict that there will be demand for more than
    1,500 super jumbos over the next 20 years that will
    generate sales in excess of $350 billion.
    Forecasting Demand

    • Since large jet aircraft will take years to design and


    develop, large investment is required.
    • Long-term demand projections have to be
    developed.
    • 20-years forecasts are to be prepared.
    Forecasting Demand
    Forecasting Demand cont’d

    • A forecast on average annual growth rate in


    transportation industry of 4.9% is reported for
    Airbus and 4.8% for Boeing.
    • Additionally, an annual demand for a new aircraft is
    expected on each of 10000 passenger routes linking
    200 airports.
    • We are confident in our forecast analysis that
    capacity increase will eventually prevail.
    Forecasting Demand cont’d
    Forecasting Demand cont’d
    Financial Strategy

    • The A3XX will cost approximately $13 billion to


    launch: $11 billion for research and development, $1
    billion for property, plant, and equipment, and $1
    billion for working capital.
    • An estimated $700 million that is expected to have
    been spent by the end of 2000 is not included in the
    13 billion investment.
    Financial Strategy cont’d
    • Funding will come from three sources: $3.5 billion
    from vendors referred to as "risk sharing Partners"
    (RSPs); $3.6 billion of "launch aid" from the partners'
    national governments; and $5.9 billion from the
    Airbus partners themselves in proportion to their
    ownership interests.
    • Additionally, there will be early cash flows from
    progress payments made by airlines prior to delivery.
    Financial Strategy cont’d
    • Launch aid repayment is expected to come through a
    per plane fee.
    • For this reason, plus the fact that non-repayment does
    not trigger default, launch aid more closely resembles
    cumulative preferred stock than debt.
    Financial Strategy cont’d
    Project Economics
    • If the project is successful, the cost will remain at $13
    billion and our first expected delivery of planes will be
    in 2006.
    • We will have an average realized price of approximately
    $225 million and operating margins of ranging from
    15% to 20% when our full production capacity of just
    over four planes per month is met.
    Project Economics cont’d

    • These margins are based on earnings before


    repayment of launch aid and risk sharing capital.
    • The project is likely to have an effective tax rate
    equal to 38%.
    Project Economics cont’d
    • In general, larger planes are expected to earn bigger
    margins predicting that the companies will make
    virtually all of their profits on wide body jets.
    • Among other factors, financial success depends on
    getting enough early sales to drive down costs
    through learning curve effects.
    Project Economics cont’d
    • The basic idea is that unit costs, such as direct labor,
    declines as a function of cumulative output.
    • As a result, the faster Airbus sells planes, the more
    profitable it would become.
    Conclusion
    • There is need to put the company on the line every
    three or four years in this business.
    • If there is a chance of a launch to fail, it could cause a
    company to exit the industry.
    • A decision of proceeding with the A3XX is an
    extraordinary risk and it has to be very well thought
    through by a conservative, no nonsense team of
    people.
    Thank you

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