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    Arundeep Singh Walia
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    Airbus wants to build the A3XX superjumbo jet for several reasons: 1) To enter the market for very large aircraft above 400 seats and capitalize on expected growth in air travel. 2) To allow airlines to increase flight capacity within constraints of airport infrastructure. 3) To create a more cost effective aircraft with more passenger capacity. Boeing could respond by lobbying about subsidies, developing its own larger 747, cutting 747 prices, or focusing on profitability of its existing aircraft lines rather than developing a competitor. An analysis of sales volumes and profit margins is needed to determine if the A3XX project would be financially viable for Airbus.

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    Airbus wants to build the A3XX superjumbo jet for several reasons: 1) To enter the market for very large aircraft above 400 seats and capitalize on expected growth in air travel. 2) To allow airlines to increase flight capacity within constraints of airport infrastructure. 3) To create a more cost effective aircraft with more passenger capacity. Boeing could respond by lobbying about subsidies, developing its own larger 747, cutting 747 prices, or focusing on profitability of its existing aircraft lines rather than developing a competitor. An analysis of sales volumes and profit margins is needed to determine if the A3XX project would be financially viable for Airbus.

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    394 views2 pages

    Airbus

    Uploaded by

    Arundeep Singh Walia
    Airbus wants to build the A3XX superjumbo jet for several reasons: 1) To enter the market for very large aircraft above 400 seats and capitalize on expected growth in air travel. 2) To allow airlines to increase flight capacity within constraints of airport infrastructure. 3) To create a more cost effective aircraft with more passenger capacity. Boeing could respond by lobbying about subsidies, developing its own larger 747, cutting 747 prices, or focusing on profitability of its existing aircraft lines rather than developing a competitor. An analysis of sales volumes and profit margins is needed to determine if the A3XX project would be financially viable for Airbus.

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    Assignment: What should Airbus do? Why? 1. Why is Airbus interested in building the A3XX?

    What are its objectives?

    Airbus Interests in A3XX Creating a Market Niche: Introducing a new market of Boeings 747+ VLA Aircrafts Expected Increase in Demand For Higher Range and Capacity The worldwide passenger traffic estimated to triple by 2019 Increased Air Traffic across Asian countries e.g., China Expected Demand of 727 New Aircrafts Seating from 400-500 Expected Demand of 1550 New Aircrafts Seating from 500-600 Increased Air Traffic across Asian countries e.g., China Countering Constraints On Growth of Air traffic in Commercial Aviation: Increase in Flight Frequency limited by Airport Curfews, Gate and Runway Capacities New Route Development limited by low growth in number of Airports Countering the above constraints by Increasing Aircraft Size and Aircraft Range Ensuring More Economical Operation: 12% more operational cost but 35% more capacity than 747 Advance orders for A3XX a welcoming gesture: Air France, Emirates, and ILFC promise to buy 10, 7, and 5 jets 30 more orders lined up Optimistic view of Aviation Industry on Airbus Creating a better Passenger Travel Experience: Safer Travel: 4 engines compared to 2 in Boeing 747; wider aisles for easy evacuation Greater Comfort: More space per seat and wider aisles Reduced Travel Time: Long range travel with minimal stopovers Premium Services: Greater space creating possibilities for premium services Using the A3XX to replacing Boeings 747 as Queen of the Air Becoming an Overall Aircraft Market Leader Airbus Objectives: Convince Airlines of the need for Airbus A3XX Secure Orders for the new Airbus Locate Cheapest Financing Options for the A3XX development Start rolling out the Aircraft for Airline use by 2008 Achieve a Production Capacity greater than 4 Aircrafts per month Project the demand for the Aircraft Ensuring all technological, safety, and physical standards are met by the new Aircraft

    2. How could Boeing respond to the A3XX and what would be the impact of Boeings actions on the A3XX project of Airbus? Reaction: Complaint to WTO about illegal Launch Aid to Airbus Impact: Infeasible in view of offense taken by Foreign Governments Partnering with Boeing Boeing itself has received illegal launch aids for military aircrafts and foreign sales corporations

    Reaction: Develop a stretch version of Boeing 747 Impact: Idea scrapped in view of Increased costs for Boeing but very less customer interest Airbus A3XXs technology no match for Boeing 747+

    Reaction: Cut the price of Boeing 747 Impact: Diversion of sales away from A3XX, but simultaneously fall in profits of Boeing Equally destructive for both Aircraft Manufacturers

    Reaction: Development of own super jumbo jet by Boeing Impact: Scrapped in view of great financial risk Potential Investment of $13-15 billion, only to share VLA market with Airbus

    Reaction: Enhance Profitability On Boeings existing Aircrafts Impact: Most Feasible Strategy Boeing can give Airbus Tough Competition on existing products Boeing has more resources to dedicate to development of existing aircrafts while Airbus is busy with development of A3XX

    3. Use the model built yesterday to carry out a sensitivity analysis. Compute NPV with number of planes sold per year of 10, 20, 30, 40, i.e., multiples of 10, and operating margin of 10%, 20%, and 30%.The easiest way is to use the EXCEL Data Tables feature (see Data/What-if-Analysis). 4. Should Airbus commit to build the A3XX?

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