Airbus A3XX: Developing the

worlds Largest Commercial Jet

Progress Report

Airline Industry overview

Airline industry is highly competitive industry which is sensitive to
many factors such as Fuel Prices, market demand and Price
prevailing in the market. Competitiveness of this industry
depends on1. Revenue- it depends on the ability of the company to fill the
seats in the plane.
2. Costs- Apart from Labour cost, Fuel cost and maintenance
cost, other costs include administrative cost, opportunity
costs and enroute charges.

Boeing Company
It is the worlds leading producer of commercial aircraft. It is in
the sales of commercial aircraft and military aircraft. It had unique
importance in US economy and was very well known for its VLA
segment. Out of its 14 models, the flagship model of Boeing is
B747. B747 was bought for range and not capacity.
Revenues
1. Commercial aircraft- 66%
2. Military aircraft- 33%

Airbus Industry and A3XX

Airbus was founded in 1970 with its headquarters in Toulouse,
France. It was known for producing fly-by-wire technology
equipped planes such as A320 and largest airliner A380. In 1990,
they planned out to launch a jumbo jet that could compete with
B747 and had more space per seat and wider aisles. The major
issues were noise, emissions, turnaround time, taxiway
movements and evacuation. However, Airbus claimed that
increased capacity and reduced costs would definitely provide
better economics than before.

Financing the A3XX

Total Cost = $ 13 billion
R&D =$ 11 Billion
Plant and Equipment = $1 billion
Working Capital = $ 1 billion

Funding
Risk sharing partners = $ 3.5 billion
National Govt. = $3.6 billion
Airbus Partners = $ 5.9 billion
Launch aid were second source of funds but were subject to
controversy between US and EU.

Project Economics

Full production capacity = 4 planes/month or 48 planes/year

Average realized price = $225 million
Operating margins = 15% - 20%
Tax rate = 38%
Target pre-tax IRR = 15%
Inflation of the year = 2.0%
Asset betas of airline companies = 0.84

In the initial phase, financial success depended on getting enough

orders to meet up costs through Learning Curve effects which
accounts for decrease in per unit costs with increase in
cumulative output.

Analysis of project through financial data in

case study
The initial orders were a positive though not unexpected sign. But
Airbus management faced a critical situation: should they commit
to launch the A3XX?
The real question was whether there was sufficient long term
demand to justify industrial launch. To solve this dilemma, we will
do the financial analysis of the project by using following tools:1.
2.
3.
4.
5.

Horizontal analysis
Vertical analysis
Examination of trends
Interpretation of ratios
Cash flow statements and statements of source and
application of funds

Submitted by

Gaurav
Singla(20132053)
Ashish jain (20132059)
Parvesh saini (20132078)