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Airbus A3XX: Developing the World's Largest Commercial Jet


Harvard Business School Case N9-201-028
Case Software 2-201-714
Copyright 2000 by the President and Fellows of Harvard College
Dean's Research Fellow Michael Kane and Professor Benjamin Esty prepared this case with
assistance from Research Associate Fuaad A. Qureshi as the basis for class discussion rather than
to illustrate either effective or ineffective handling of an aministrative situation. The case was
prepared from public sources of information only.

Exhibit 1
Exhibit 1

Sales of Commercial Airplane and Aviation Support Services ($ 1999, billions)


1999
Annual Sales
(Actual)

2019
Annual Sales
(Estimate)

2000-2019
Cumulative Sales
(Estimate)

Aircraft Deliveries
Regional Aircraft
Airbus
Boeing
Total Aircraft Deliveries

$3.8
16.0
36.7
$56.5

NA
$60.6
56.9
$117.5

NA
$729.5
692.5
$1,422.0

Aircraft Support Services


Airplane Servicing
Heavy Airplane Maintenance
Engine Repair (off wing)
Airframe Component Repair
Major Airplane Modification
Airframe and Engine Repair Parts
Flight Crew Training
Airport and Route Infrastructure
Used Airplane Remarketing
Total Support Services

13.8
18.5
8.4
12.3
1.8
8.1
1.7
21.4
0.7
$86.7

32.3
43
19.6
28.8
3.5
18.8
3.4
43
1.4
$193.8

441
588
268
394
43
257
49
622
20
$2,682

$143.2

$311.3

$4,104

Total Deliveries and Services

Sources:

Boeing Current Market Outlook, 2000; The Airline Monitor, July 2000.

Exhibit 3
Exhibit 3

Orders and Deliveries for Select Passenger Aircraft

737
Average Number of Seats

140

Actual Deliveries
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999

4
105
114
37
29
22
18
47
51
41
25
40
77
92
108
95
82
67
115
141
161
165
146
174
215
218
152
121
89
76
135
274
295

Total
Average Yearly Deliveries
Current Order Book by
Scheduled Delivery Date
2000
2001
2002
2003
2004
2005
2006
2007
2008
Total

Sources:
Note:

Boeing Aircraft
7477671/2/300
2/3/400
390

3
40
40
17
19
15
19
21
18
28
60
67
53
24
22
15
24
35
23
24
4
8
2
0

220

Airbus Aircraft

747400

7772/300

A-300

A-310

A-320

A-330

A-340

410

350

265

220

150

310

300

17
26
26
18
19
28
23
18
19
23
22
2
2
2
2
1
0

14
57
57
119
111
72
48
32
38
57
80
101

1
9
30
10
14
23
44

21
25
19
28
33
24
20

20
55
29
25
24
36
53
35
60
62
63
51
40
36
42
41
47
44

41
62
62
61
55
40
25
25
39
53
47

13
32
59
74
83

1
6
10
10
18
31
37
37
19
17
15
10
10
17
24
18
23
22
22
23
17
14
6
13
8

3,531
107

581
25

763
42

510
46

261
52

428
17

248
15

786
66

131
19

170
24

285
255
188
125
95
40
25
0
0

0
0
0
0
0
0
0
0
0

41
34
21
10
3
1
0
0
0

18
24
18
6
3
3
1
1
0

41
54
37
18
17
9
8
0
0

4
8
11
9
3
0
0
0
0

0
0
3
1
1
0
0
0
0

82
139
126
96
46
22
8
4
0

33
49
25
14
19
13
0
0
0

14
21
32
31
14
5
1
0
0

1,013

110

74

184

35

523

153

118

The Airline Monitor, May 2000 (deliveries); CSFB Global Commercial Aerospace Monthly, May 2000 (orders).

The Boeing 737 includes three model versions: 737-200 (1967-1988), 737-3/500 (1984-present), and 737-6/900 (1997-present).

Exhibit 4A
Exhibit 4A

Financial Statements ($ millions)

1995
Balance Sheet
Cash and Short-term Investments
Total Assets
Total Debt
Income Statement
Sales
Depreciation and amortization
EBIT
Net Income
Market Value
Number of Shares (millions)
Stock Price (year end)
Bond Rating
Market Share (% by Units)
Deliveries
Orders

Sources:

The Boeing Companya


1996
1997
1998

1999

$3,730
22,040
2,615

$5,469
37,880
7,489

$4,420
38,024
6,854

$2,741
36,672
6,972

$3,554
36,147
6,732

32,960
1,306
(316)
(36)

35,453
1,267
2,618
1,818

45,800
1,458
(355)
(178)

56,154
1,622
1,567
1,120

57,993
1,645
3,349
2,309

344
78
AA

347
107
AA

973
49
AA

938
33
AA-

871
41
AA-

67.5%
NA

68.1%
71.1%

67.3%
56.1%

70.7%
53.6%

66.9%
45.2%

1995

Airbus Industrie
1996
1997
1998

1999

$9,600

$8,800

$11,600

$13,300

$16,700

NA

NA

335

579

896b

32.5%
NA

31.9%
28.9%

32.7%
43.9%

29.3%
46.4%

33.1%
54.8%

Boeing Annual Reports; Airbus Industrie Website; The Airline Monitor, July 2000; The Wall Street Journal, June 26, 2000, p. A28.

Boeing acquired McDonnell Douglas on August 1, 1997. The income statement and balance sheet data (except for 1995 balance sheet) reflect the combined financial statements.

EADS Offering Memorandum dated July 9, 2000, p. 48. Because launch aid was ganted to the partners, not to Airbus, the partners recognized the effects of launch aid on their own
financial statements. In 1999, BAE Systems (a 20% owner) reported a loss of 42 million ($67 million) after launch aid repayment.
b

Exhibit 4B

Exhibit 4B

Airbus Partners at Year-end 1999 ( millions)a

BAE
Systems
PLC
(U.K.)
Ownership of Airbus Industrie
Balance Sheet
Cash and Short-term Investments
Fixed Assets
Total Assets
Total Debt
Stockholders Equity
Income Statement
Revenues
Cost of Sales
Gross Margin
Income before income taxes
Net Income (loss)
Ownership

Market Capitalization (e)b


S&P Bond Rating

Source:

Aerospatiale
Matra S.A.b
(France)

EADS Participants
DaimlerChrysler
Construcciones
Aerospace AG
Aeronuticas SA
(DASA)b
(CASA)b
(Germany)
(Spain)

EADSc
(pro forma)

20.0%

37.9%

37.9%

4.2%

80.0%

e1,306
13,742
28,079
5,122
11,991

e759
8,218
16,194
3,681
1,778

e3,958
1,576
9,737
217
2,397

e570
192
1,268
110
507

e3,175
19,591
35,640
5,696
8,123

14,381
8,823
789
739
522

12,236
(9,624)
2,612
750
(644)

7,455
(5,914)
1,541
461
(39)

931
(735)
196
114
74

22,553
(18,278)
4,275
815
(1,009)

100% Public

48% French State


3% Lagardere
17% Public
2% Employees
8.6
A-

18.5
A

100% Publicd

59.1d
A+d

100% Spanish
State

NA

EADS Offering Memorandum, July 9, 2000; BAE Systems 1999 Annual Report.

The e/$ exchange rate on June 30, 2000 was e1=$0.9545; The e/ exchange rate on June 30, 2000 was e1=0.6209.
Presented in accordance with International Accounting Standards (IAS).
c
Unaudited, pro-forma consolidation of Aerospatiale Matra, DASA, and CASA after accounting adjustments and eliminations. Different forms of accounting
recognition (full consolidation vs. equity method) prevent the amounts from summing across the EADS participants. EADS net loss is due to an
extraordinary charge of e1.9 billion related to foreign currency hedging positions.
d
This figure refers to the parent corporation, DaimlerChrysler AG.
a
b

Exhibit 6
Exhibit 6

Comparison of Boeing and Airbus 20-Year Market Forecasts (by year of forecast)

1995

1996

1997

1998

1999

2000

to 2014

to 2015

to 2016

to 2017

to 2018

to 2019

5.1%
5.1%

NA
5.1%

5.2%
4.9%

5.0%
4.9%

5.0%
4.7%

4.9%
4.8%

Commercial Aircraft in Operation (in 20 years)


Airbus
Boeing (including regional jets <70 seats)

16,588
20,683

NA
23,080

17,184
23,600

17,920
26,200

22,506
28,400

22,620
31,755

Deliveries of New Comm. Aircraft (over 20 years)


Airbus
Boeing

12,933
15,462

NA
15,900

13,758
16,160

15,518
17,650

15,500
20,150

15,364
22,315

Value of 20-Year Market for New Aircraft ($ billions)


Airbus
Boeing

NA
$1,000

NA
$1,100

NA
$1,100

$1,170
$1,250

$1,290
$1,380

$1,310
$1,490

Deliveries of VLA Passenger Aircraft (500 seats)


Airbus
Boeing

1,374
NA

NA
NA

1,442
460

1,332
405

1,208
365

1,235
330

NA
NA

NA
NA

NA
NA

NA
NA

301
275

315
270

Forecast Period
Passenger Traffic Growth (per year)
Airbus
Boeing

Deliveries of Large Cargo Aircrafta


Airbus
Boeing

Sources: Boeing Current Market Outlook, Airbus Global Market Forecast, and casewriter estimates. (Airbus did not issue a GMF in 1996 and did not publish data on the cargo
market until 1999).
Includes both the Boeing 747-400 and the Airbus A3XX.

Exhibit 8
Estimated Market for Very Large Aircraft (VLA, >500 seats) by 2019

Exhibit 8

Seats in
Commercial
Fleet in 1999
(A)

Aircraft

A-330
A-340
777-2/300
747-1/2/300
747-400
Total

Sources:
Notes:

40,300
48,300
90,650
134,550
191,907
505,707

Estimated
Annual
Growth
(B)
5.00%
5.00%
5.60%
6.00%
7.00%

Seats Needed
in 2019
(C=[1+B]20)

Estimated
Retirements
and
Conversions
(D)

Total New
Seats
Required
(E=C-A+D)

106,928
128,154
269,554
431,520
742,620

1,000
1,000
1,500
127,697
34,935

67,628
80,854
180,404
424,667
585,648

1,678,776

166,132

1,339,201

Assumed
Conversion
to VLA
Aircraft
(F)

Potential
Market for
VLA
Aircraft
(G=E*F)

10.0%
10.0%
10.0%
35.0%
85.0%

6,763
8,085
18,040
148,633
497,800
679,323

Casewriter estimates; Lehman Brothers Equity Research Report, December 6, 1999; Airbus Industrie Global Market Forecast 2000.

(D) Retirements are based on current fleet age and composition.


(H) The number of seats per VLA is a function of the mix of plane types.
(I) Does not include VLA freighters, which could represent another 315 new aircraft to be delivered by 2019, according to Airbus.

Seats
per VLA
(H)

Estimated
VLA
Market
(I=G/H)
12
15
33
270
905

550

1,235

Exhibit 9
Exhibit 9

Fleet Composition for the 15 Largest Boeing 747 Operators in 1997

1997 Widebody Fleet


Headquarters'
Location

Airline
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Japan Airlines
British Airways
United Airlines
Singapore Airlines
Korean Air
Air France
Northwest Airlines
All Nippon Airlines
Cathay Pacific
KLM
Qantas
Lufthansa
Saudi Arabian Airlines
China Airlines
Air China International
Total

Source:
Note:

Asia
Europe
US
Asia
Asia
Europe
US
Asia
Asia
Europe
Australia
Europe
Mid-East
Asia
Asia

747's

747's as
% of
Total
Total

2001 Widebody Fleet

747's

747's as
% of
Total
Total

1997-2001
Growth in
Widebody
Fleet Size

79
69
51
48
45
43
43
38
38
32
30
30
28
18
18

130
117
153
83
86
74
80
109
59
51
60
67
65
34
31

60.8%
59.0%
33.3%
57.8%
52.3%
58.1%
53.8%
34.9%
64.4%
62.7%
50.0%
44.8%
43.1%
52.9%
58.1%

73
71
45
53
39
33
42
34
33
33
34
29
26
22
22

136
140
161
104
89
86
86
113
68
53
63
83
64
41
44

53.7%
50.7%
28.0%
51.0%
43.8%
38.4%
48.8%
30.1%
48.5%
62.3%
54.0%
34.9%
40.6%
53.7%
50.0%

4.6%
19.7%
5.2%
25.3%
3.5%
16.2%
7.5%
3.7%
15.3%
3.9%
5.0%
23.9%
-1.5%
20.6%
41.9%

610

1,199

50.9%

589

1,331

44.3%

11.0%

Aviation Week and Space Technology Aerospace Sourcebook 2000.

Widebody jets include Boeing's 747, 767, MD-11, L10-111, and 777, and Airbus' A300, A310, A330, and A340.

Exhibit 10
Exhibit 10

Airbus Development Expenditure by Year ($ millions)

Investment

2001

2002

2003

2004

2005

2006

2007

2008

Total

R&D Expenditure
Capital Expenditures
Working Capital

$1,100
0
0

$2,200
250
150

$2,200
350
300

$2,200
350
300

$1,320
50
200

$880
0
50

$660
0
0

$440
0
0

$11,000
$1,000
$1,000

Total R&D Cost

$1,100

$2,600

$2,850

$2,850

$1,570

$930

$660

$440

$13,000

Source:

Dresdner Kleinwort Benson, Aereospace and Defense Report, May 8, 2000.

Exhibit 11
Airbus A3XX Orders as of July 26, 2000

Exhibit 12

A3XX Orders
Announced Orders
Air France
Emirates
International Lease Finance Corp. (ILFC)
Total
Probable Orders
Atlas Aira
Federal Expressa
Singapore Airlines
Virgin Atlantic
Total
Potential Orders
Cathay Pacific
Cargoluxa
Korean Air
Malaysian Airways
Qantas
Total
Total Potential Orders

Orders

Options

Total

10
7
5

5
5

10
12
10

22

10

32

8
10
10
6

6
5
6
4

14
15
16
10

34

21

55

6
6
6
6
6

4
4
4
4
4

10
10
10
10
10

30

20

50

86

51

137

Source: Lehman Brothers Aerospace and Defense Report, June 23, 2000; The Wall Street Journal,
July 26, 2000, p. A21.
a

Denotes cargo operator.