Airbus Case Flashcards
Jumbo jet specifications
550 to 990 passengers, $216 million price, $13 billion to develop.
Early secure of firm orders
Started taking orders 1990 with delivery starting 2006, hoped to secure 50 jets from as many as five major airlines.
How many jets to sell and determining factors?
breakeven on an undiscounted cash flow basis with sales of 250 planes, can sell as many as 750 over next 20 years. Industry demand is potentially 1500 super jumbos in next 20 years to generate 350 billion.
Market of airlines
90% annual deliveries from large aircraft (70 or more seats). VLAs are defined as planes that carry more than 400 passengers.
Boeing advantages
85% of industry’s current fleet. 60 to 70% of new orders.
Development of Boeing 747
in the 1965 it started develop it and predict generating 700 planes by 1980. However, had to refinance initially and had serious cash flow problems. Now getting many more steady orders.
Airbus advantages
CCQ technology to allow flying and certification of similar aircrafts, increasing crew utilization. Journals predict Airbus will become leading producer of commercial jets.
Advantage of the A3XX
more space per seat, wider aisles, four-engine plane, CCQ technology, Greater operating cost but even greater capacity.
Demand forecasting
World passenger traffic would triple, and annual growth rate of 4.9%. Growth prompt larger airplanes because smaller ones cannot be scheduled more frequently. See page 5 middle graph for number required. Most demand increase for VLA would be in Asia.
Difference in prediction
Airbus aims to use increased capacity to reduce conjestion, claiming that opening new airport is difficult. Boeing aim at opening new lines and using mid-sized aircraft to fill in the role rather than large aircrafts. Smaller aircraft can be used for cross-ocean travels are well and has been demonstrated so.
Neutral opinions
A3XX will replace boeing 747 and its new features would hold appeal to top airlines and high-yield passengers.
Cross-subsidization?
If we have a high margin in A380, we can price the other smaller planes more competitively to squeeze Boeing out of the market.
Why does staging under estimate the true cost?
Because there is the optionality implied, we can’t truly estimate how much the project will run five years into the future.
When evaluating project NPV, what beta and leverage must we use?
Beta and leverage for the project! Not for the firm. It depends on how the project is financed.
Why do we want an all equity financing project?
So when it fails it does not affect the rest of the firm.
