Scribd
Upload
165 views

A380

The document discusses Airbus' plans to develop the A3XX, which would be the world's largest commercial jet. It proposes a $13 billion budget for the project, with $11 billion allocated for research and development. The rationale for developing the A3XX includes addressing airport congestion through higher passenger capacity on fewer flights. However, some argue the market for very large aircraft is small as the industry shifts toward more direct, point-to-point routes using smaller planes. Financing the massive development costs poses challenges, but government support and partnerships with suppliers could help the project proceed.

Uploaded by

Jacob Jack Yosha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
165 views

A380

The document discusses Airbus' plans to develop the A3XX, which would be the world's largest commercial jet. It proposes a $13 billion budget for the project, with $11 billion allocated for research and development. The rationale for developing the A3XX includes addressing airport congestion through higher passenger capacity on fewer flights. However, some argue the market for very large aircraft is small as the industry shifts toward more direct, point-to-point routes using smaller planes. Financing the massive development costs poses challenges, but government support and partnerships with suppliers could help the project proceed.

Uploaded by

Jacob Jack Yosha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 33

Airbus A3XX:

Developing the World’s Largest


Commercial Jet

Presented By:
Akash Jauhari – DCP056
Alok Mishra – DCP057
Karan Verma – DCP072
Lokesh Chaudhary – DCP075
Raghav Agarwal – DCP087
Airline Industry – An Overview
• Highly competitive
• Capital and Labor intensive
• Seasonal industry – increased revenues in 2nd
and 3rd quarters
• Sensitive – Fuel Prices, Price of airfares and
customer demand
Industry Trends
• Growth in the industry
YTD (2004 over RPK ASK PLF FTK ATK
2000) Growth Growth Growth Growth
Africa 17.00% 13.60% 1.9 11.50% 4.00%
Asia Pacific 11.70% 14.90% -2.0 25.30% 21.80%

Europe 1.80% -0.20% 2.6 6.90% 3.00%


Middle East 48.40% 43.20% 2.6 53.50% 51.20%
North America 4.10% -0.50% 3.4 2.00% 3,20%
South America 11.70% 7.60% 2.7 13.90% 18.80%
Industry 8.10% 7.20% 0.6 15.90% 11.80%

Where RPK : Revenue per Passenger Kilometer


ASK : Available Seat Kilometers
PLF : Passenger Load Factor
FTK : Freight Ton Kilometer
ATK : Available Ton Kilometer
Source : www.iata.org
Dynamics of Airline Industry
Competitiveness of an Airline depends on two factors:

1. Revenue - ability of a firm to fill the seats in an airplane


Break Even Load Factor (BLF) which measures the percentage of capacity
needed on a plane to cover its costs. BLF for profitable airlines has
generally fluctuated between 60% and 65%.

2. Costs – mostly uncontrollable


• Labour – Competitive Wage Structure

• Fuel

• Maintenance

Costs are also attributed to flight time, flight distance, landing fees, en-
route charges, handling, administrative costs and opportunity costs of not
flying.
Dominant Business Models
Currently 2 dominant business models in the airline industry
• Hub and Spoke Model –
used by traditional / dominant airlines who concentrate their long
haul and international flights at a hub while branching out short
haul services to other cities.
A long haul flight out of the hub typically waits for passengers
from connecting flights to board. Since the volume of passengers
is significantly higher, there is a need for Very Large Aircrafts.

• Point to Point Model –


used by regional or budget airlines who deploy their aircrafts on a
specific route between 2 airports
the airplane typically does not need to wait for connecting flights;
which results in a faster turnaround time as compared to the 1st
model
The Boeing Company
Founded in 1916.

Forefront of Civil Aviation for almost a century


• From B17s and B29s during World War II,
B52 during Cold War to Boeing787.

Is into sales of:-


▫ Commercial Aircrafts
▫ Military Aircrafts
▫ Missiles
▫ Space System Controls
Revenues:-US$ 64.306 billion (2010)
▫ Commercial Aircraft -2/3
▫ Military Aircraft ,missiles, space systems- 1/3

Boeing unique importance for US


It Supplies:-

▫ F-15 fighter aircraft to Air Force One


▫ Space Shuttle to support its political strength

Largest contributor to the US BOP in terms of exports


Boeing fleet consists of 14 models

Flagship of Boeing fleet :-747-400, held 420


passengers in the standard three-class
configuration.

B747 bought for its range and not its capacity


AIRBUS INDUSTRIE

Founded in 1970 by consortium of principle


agencies:

• DASA—Germany
• BAE Systems—England
• Aerospatiale Matra –France
• CASA—Spain

Later become simplified joint-stock company in


2001, owned by EADS (80%) and BAE
Systems (20%).
Employs around 57,000 people

Revenue: €27.45 billion (FY 2008)

Known for producing and marketing:-

▫ First commercially viable ’fly-by-wire’ airliner,


the Airbus A320, and
▫ World's largest airliner, the A380.
A380 Vs B747

 The A380 is much bigger than the B747

 The A380 is a true double Decker while the B747 is not.

 The A380 can accommodate 33% more passengers


than the B747

 The A380 has more powerful engines than the B747

 The B747 comes in a lot more variants than the A380


Strategies of Airbus &
Boeing
Developed countries are seeing a decrease in traffic
but new markets are exploding.

Customers seem to want more comfort but are not


willing to sacrifice speed and price for it.

Airbus tends to treat these changes by designing


large aircraft and tinkering with them to adapt them
to the market, while

Boeing invests in research and innovation hoping to


recoup the costs through early replacement .
Viability of A3XX
Its all about money honey?

Investment Total

R& D Expenditure $11bn

Capital expenditure $1bn

Working capital $1bn


Rationale Behind the launch of A3XX
 Worsen of congestion problem at major hubs due to
growth in air traffic

 Airbus Views: -
▫ Increased frequencies and number of routes is temporary

▫ Increasing point-to-point routes is not a feasible solution (e.g.


the lack new destinations in Asia)

 A need for bigger planes with higher capacities (A3XX)


How A3XX relates to consumer &
Market preferences
• Advantages
 More space and a wider aisle

 Usage of fly-by-wire technology (reduce costs)

 Has 4 engines (more safety)

• Disadvantages

 slower turnaround time due to large capacity

 slower evacuation time

 landing fees of plane is determined by weight

 higher noise emission


How A3XX relates to consumer&
Market preferences
How large the market of VLA is?

• It’s a small market


 Increase of point-to-point routes
Increasing demand for small & medium capacity planes
B747 bought for its range and not its capacity
Airplanes not flying at full capacity
More point- to- point routes….

Increased services at secondary airports


More direct routes that bypass major hubs
 E.g.. Manchester - Chicago route
Limit to how much plane size can increase
Safety, fuel consumption, slower turnaround time etc
In Asia, lack of urban centers BUT, more point to point by
using smaller planes that’s compatible with smaller
airports
Eg. Penang Airport
B747 was bought for range & not capacity

60% of the airlines that bought the 747 , have


bought them for their range and not their
capacity.”

3 planes of a higher range of 8000 m and above


B747, A340-500 ,B777

Only B747 has seating capacity of 400 and


above
• Base: All Respondents
• (Survey done by Boeing on General Preferences)

• AIRPLANE PREFERENCES BY REGION


• U.K. Hong Kong Tokyo
• Plane preferences for non-stop flight % % %

• Economy Business Travelers preferring 250-passenger airplane 65 54 64


• Economy Business Travelers preferring 550-passenger airplane 21 40 22

• Economy Leisure Travelers preferring 250-passenger airplane 71 60 63


• Economy Leisure Travelers preferring 550-passenger airplane 17 37 28

• Preferences for direct flights via smaller plane


• vs. transit flights involving larger plane

• Economy Business Travelers preferring 250-passenger airplane 73 75 76


• Economy Business Travelers preferring 550-passenger airplane 14 19 11

• Economy Leisure Travelers preferring 250-Passenger airplane 80 81 78


• Economy Leisure Travelers preferring 550-passenger airplane 9 16 11
B747 was bought for range & not capacity contd….

deliveries of the B747 have actually declined from


510 to 74

orders for the A340 remained strong at 118

If the B747 was in demand more for its seating


capacity and not its range

we would not see such low current orders as


compared to theB777 and A340, which have lower
seating capacity.
Airplanes not flying at full capacity

Large capacity planes economical as fixed cost is spread


over a larger number of passengers
A3XX has a higher list price and 12% more operating
cost per flight as compared to the B747,
the 35% increase in capacity makes it more economical

BUT,
On condition a decent Passenger Load Factor is achieved
Industry average PLF is between 60%-70%
easier to achieve decent PLF with smaller capacity planes
especially in times of recession

Airline industry increasingly more competitive

Harder to achieve decent PLF

A3XX is not economical for most airlines


Financing the A3XX
• Total cost = $ 13 billion
R&D = $ 11 billion; Plant, equipment = $ 1billion
WC = $ 1 billion.
• Sources of Fund -
Risk Sharing Partners : $ 3.5 billion
National Govt. : $ 3.6 billion
Airbus partners : $ 5.9 billion

• Risk sharing partners to become exclusive


suppliers.
• Controversy over launch aid.
Project Economics
• Max production capacity of 48 planes per year.
• Operating margin of 15 – 20%.
• Tax rate = 38%.

• Questions to be answered :
a) R&D capitalization and depreciation.
b) Tax status and Tax rate.
c) Operating margin.
• Target IRR is 15 – 20 %.
WHY SHOULD
AIRBUS GO AHEAD
WITH AIRBUS A3XX
??
• COMPETITIVE
ADAGE

MANUFACTURER OF WORLD’S LARGEST


COMMERCIAL JET

• INTERNATIONAL
SUPPORT
Low cost loans & subsidies from
Britain, German & French
Government
MARKET TESTING
Loss of Opportunity Lack of penetration
Cost in medium size
market
Adverse
implications
of Airbus
A3XX

Technical Issues like


Lack of
turnaround time,
Infrastructure
noise emission
• DELAY THE LAUNCH OF A3XX
1.
• CONSOLIDATE THE R&D OF THE
A3XX PROJECT TO ENSURE 1ST
2. MOVER’S ADVANTAGE

• WORK ON A LOWER CAPACITY AND


3. LONG RANGE AIRCRAFT LIKE A 318
THANK YOU

You might also like