Case Analysis: Airbus A3Xx: Developing the World’s Largest Jet

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Case Analysis:
Airbus A3XX: Developing the World’s Largest Jet
In 2000, Airbus Industrie’s Supervisory Board was making the biggest decision in the company history: whether Airbus should commit to develop world’s largest jumbo jet. At that time, there are only two major commercial jets manufactory companies: the younger Airbus and the bigger Boeing. Boeing had been at the forefront of civil aviation for over half century. Airbus was founded in 1970as a consortium and merged into a new company known as European Aeronautic Defense and Space Company. Airbus developed “fly-by-wire” technology and “cross crew qualification” technology to compete with Boeing in large jets (those with 70 or more seats) market. While Airbus was booked more than
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Boeing supported to increase flight frequency at existing airports and to introduce new point-to-point routes using medium-sized long-range aircrafts. Airbus considered the above solutions were temporary and short-term solutions. Airports in metropolitan Asian like Japan and Singapore lacked of the secondary urban center to support these solutions. Singapore Airline clearly showed their high demands and interests on VLA passenger aircrafts.
There was certainly a need for super jumbo jets, but the question was how big the market would be and how many A3XX need to sell in order to break even on the investment. The investment includes $700 million on research and development before 2000, $5.9 billion from Airbus partners themselves, $3.5 billion “risk sharing partners” (RSP) from airlines and supplier partners, and $3.6 billion of “launch aid” form the partners’ national governments. The RSP and launch aid are supposed to repay through a per plane fee basis, so both two investments would not count for Airbus investment. Let’s assume growing cash flows from planes sales beginning in 2008 and equity risk premium of 6%. At 2008, the Airbus investment is (700 million+5.9 billion)*0.06 rate*8 year +700 million +5.9 billion), which is $9,768 million. The total investment including RSP and launch aid is $16,768 million.
Airbus A3XX has a list price of $216 million, and a realized price of $225 million. Let’s assume the margin to be 15-20% before repayment of

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