Airbus A3Xx Essay

1920 Words8 Pages
Airbus A3XX: Developing the World’s Largest Commercial Jet 1. What are the main factors determining the profitability of the A3XX project? Number of planes sold per year – The first and most important factor determining the profitability of the A3XX project is long term demand. This is measured by the number of planes sold/year. In 2000, both manufacturers believed that Asia would register the world’s highest growth rate over the next 20 years. This is a big part of the reason why Airbus decided to develop the A380. The Boeing’s competitive response against the A3XX will affect the sales of the plane. Initial sales of plane – Financial success depended on getting enough early sales to drive down costs through learning curve effects. The basic idea was that unit costs, such as direct labor, declined as a function of cumulative output. As a result, the faster Airbus could sell planes, the more profitable it would become. This was especially true in the early years when cumulative output doubled relatively quickly. Discount rate and operating margins – Using a discount rate of 11.0% and operating margin of 15% the factors in Table 1 imply a NPV of negative $296 million and NPV of free cash flows (FCF) of negative $5,139 million. Assuming 2% growth, the terminal value has a NPV of $4,843 million for 2009 and beyond. Note that without the terminal value for sales after 2009, the investment has a negative NPV of $296 million. Discount rate is calculated by; R = Rf + (Rm – Rf), so the US bonds rate (Risk-free rate, Rf) and the evaluated riskiness (), and Market riskiness (Rm) all affect the discount rates. Also note that the operating margins are computed before repayment of capital contributions from vendors or risk sharing partners (RSPs) and launch aid from the partner national governments. 2. Given the information provided in the case study, should Airbus launch the

More about Airbus A3Xx Essay

Open Document