Airbus Case
1. Excel sheet in next page shows the calculation on break even analysis and NPV. Based on the assumption that discount rate 11%, inflation rate 2%, and tax rate 38%, different scenarios are as follows. Airbus’s forecast demand for VLA by 2019 is 1,550, while Boeing’s is only 600. To put it simple, I would suppose real demand is near 1,075 (=(1,550+660)/2). Since Boeing holds conservative attitude toward VLA market and I suppose Airbus can successfully provide the product and dominate over half VLA market, I think it is very likely for Airbus to reach break-even. But in addition to projected sales, I think cost structure maintenance matters a lot, too. As we can see from following column, if operating margin falls down to 15% while other conditions stay the same, it is very hard to get positive NPV even with full utilization of capacity.

# of planes sold by 2019
Utilization
Operating Margin
After-tax IRR
1,614
16.9%
14.2%
11.3%
-1,491
2. Boeing gets few options to respond if Airbus goes ahead. I think Boeing will choose to wait because from its market forecast VLA market is too small to get profit and it will definitely be even harder if Airbus is already there as competitor. Boeing believes medium sized aircrafts would be mainstream for more and more point-to-point routs. Also, Boeing can’t enjoy “cross crew qualification” benefits from “fly-by-wire” technology as Airbus do, so will be exposed to higher risk environment to join VLA market.

3. Generally speaking, Airbus’s financing way (risk sharing partners and launch aid) is to sacrifice some possible profits in the future

Get Your Essay

Cite this page

Airbus Case And Airbus’S Forecast Demand. (July 7, 2021). Retrieved from https://www.freeessays.education/airbus-case-and-airbuss-forecast-demand-essay/