Airbus A3xx Case Study

1970 Words 8 Pages
Register to read the introduction… But there are some points that should be taken into consideration. First is the operating margin. As we mentioned before, we choose a relatively small operating margin in order to get a conservative estimation. If we increase this margin, we would get a more positive outcome on both analyses. In exhibit 13, we found there is a positive relationship between NPV (in both methods) and operating margin. Second is the prepaid money from airlines’ ordering the Airbus3XX. It would also increase the total value of the project since we the cash inflow was occur earlier. Third is identity of launch aid. We treat it as a preferred stock in this case, however, it also have unique characteristic similar to debt. As governments want to support the company, they would require a low rate of return (probably lower than risk-free rate). In that case, weighted average cost of capital rate would decrease, which means the value of the project would ultimately …show more content…
The risks and uncertainties facing Airbus management far outweigh it potential to gain in market share and financial success. Whether or not there would be sufficient demand for the A3XX was uncertain and forecasts varied greatly between Airbus and Boeing, as well as industry reports. In addition, Boeing’s daring, “bet-the-company” gamble launch of the 747 in 1965 turned out to be very difficult and almost caused the company to fail. Airbus would likely face similar problems in the launch of their A3XX including paying penalty fees for late deliveries, receiving large cash installments in the future, and most importantly experiencing a shortage of funds while faced with a huge financial obligation to debtors. If the A3XX launch failed, it could force Airbus to exit the industry. Despite the lack of available information in this case, it is clear that the A3XX is a high-risk project both in terms of up-front investments and uncertainty of

Related Documents