1. Why is Airbus interested in building the A3XX? What are its objectives? Airbus predicts that there would be demand for more than 1500 super jumbos over the next 20 years that would generate sales in excess of $350 billion. And they could sell as many as 750 over jumbos over the next 20 years with a break even on undiscounted cash flow basis with the sales of only 250 planes. There is a huge profit in this business if Airbus succeeds in the industrial launch of A3XX jumbo jets. In addition, Airbus has received over half of the total large aircraft orders for the first time in 1999 thanks to the “cross crew qualification” feature. Capturing more than half of the very large aircraft (VLA) market with the A3XX would constitute an enormous financial success and would position Airbus as the commercial aviation industry leader. Despite the gains in the market share, Airbus still did not have a product to compete with Boeing’s 747 in the VLA market. Airbus wants to break the monopoly of the 747. The A3XX would have more space, be safer, and offer a higher operational margin for the Airlines. And it is especially attractive on longer routes.
Once introduced, A3XX would have higher sales than 747. Moreover, Airbus believed it had solved all of the problems due to the large size of the plane and had begun the necessary procedures for regulatory approvals in the United States and elsewhere. Based on its Airbus’s Global Market Forecast (GMF), the company believes Airline would attempt to increase aircraft size when it was no longer feasible to increase flight frequencies. Hence, there is an increasing demand for super jumbos. Airbus predicts the growing economy in Asia like China will contribute greatly to the demand for VLAs in the future. Airbus felt confident in its analysis that capacity increases would eventually prevail. Airbus wants to embrace the same success in the A3XX as 747 had before.
4) The growth in the perpetuity comes from rising prices. Hence, the growth rate equals to the inflation rate. Airbus needs to sell 39 aircrafts annually in order to break even on the investment.The total demand for very large aircraft is 1,235 over the next 20 years (GMF 2000). The annual demand from 2009 to 2019 would be 62. So the breakeven point is much less than the total demands. 3. As Boeing, how would you respond to this situation? How does your answer depend on what you think Airbus is likely to do? Please provide some calculations to support your answers.
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