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  • 1. Airbus A3XX:Developing the World’s LargestCommercial Jet
    Presented By:
    AkashJauhari – DCP056
    AlokMishra – DCP057
    Karan Verma – DCP072
    LokeshChaudhary – DCP075
    RaghavAgarwal – DCP087
  • 2. 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
  • 3. Industry Trends
    • Growth in the industry
    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
  • 4. 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
    • 5. Fuel
    • 6. Maintenance
    Costs are also attributed to flight time, flight distance, landing fees, en-route charges, handling, administrative costs and opportunity costs of not flying.
  • 7. 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.
    • 8. 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 airlineswho deploy their aircrafts on a specific route between 2 airports
    • 9. 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.
    • 10. 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
  • 11.
    • 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
    • 12. Flagship of Boeing fleet :-747-400, held 420 passengers in the standard three-class configuration.
    • 13. B747 bought for its range and not its capacity
  • AIRBUS INDUSTRIE
    • Founded in 1970 by consortium of principle agencies:
    • 14. DASA—Germany
    • 15. BAE Systems—England
    • 16. Aerospatiale Matra –France
    • 17. CASA—Spain
    • 18. Later become simplified joint-stock company in 2001, owned by EADS (80%) and BAE Systems (20%). 
    • Employs around 57,000 people
    • 19. Revenue: €27.45 billion (FY 2008) 
    • 20. Known for producing and marketing:-
    First commercially viable ’fly-by-wire’ airliner, the Airbus A320, and
    World's largest airliner, the A380.
  • 21. A380 Vs B747
    • The A380 is much bigger than the B747
    • 22. The A380 is a true double Decker while the B747 is not.
    • 23. The A380 can accommodate 33% more passengers than the B747
    • 24. The A380 has more powerful engines than the B747
    • 25. 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.
    • 26. Customers seem to want more comfort but are not willing to sacrifice speed and price for it.
    • 27. Airbus tends to treat these changes by designing large aircraft and tinkering with them to adapt them to the market, while
    • 28. Boeing invests in research and innovation hoping to recoup the costs through early replacement .
  • Viability of A3XX
  • 29. Its all about money honey?
  • 30. Rationale Behind the launch of A3XX
    • Worsen of congestion problem at major hubs due to growth in air traffic
    • 31. 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
    • 32. Usage of fly-by-wire technology (reduce costs)
    • 33. Has 4 engines (more safety)
    Disadvantages
    • slower turnaround time due to large capacity
    • 34. slower evacuation time
    • 35. landing fees of plane is determined by weight
    • 36. 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
    • 37. Increasing demand for small & medium capacity planes
    • 38. B747 bought for its range and not its capacity
    • 39. Airplanes not flying at full capacity
  • More point- to- point routes….
    • Increased services at secondary airports
    • 40. More direct routes that bypass major hubs
    • 41. E.g.. Manchester - Chicago route
    • 42. Limit to how much plane size can increase
    • 43. Safety, fuel consumption, slower turnaround time etc
    • 44. In Asia, lack of urban centers BUT, more point to point by using smaller planes that’s compatible with smaller airports
    • 45. Eg. Penang Airport
  • B747 was bought for range & not capacity
    • 60% of the airlines that bought the 747 , havebought them for their range and not their capacity.”
    • 46. 3 planes of a higher range of 8000 m and above
    • 47. B747, A340-500 ,B777
    • 48. Only B747 has seating capacity of 400 and above
  • For medium & Small capacity planes
    Increasing Demand
  • 49. 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 airplane71 60 63
    Economy Leisure Travelers preferring 550-passenger airplane17 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 airplane80 81 78
    Economy Leisure Travelers preferring 550-passenger airplane9 16 11
  • 50. B747 was bought for range & not capacity contd….
    • deliveries of the B747 have actually declined from 510 to 74
    • 51. orders for the A340 remained strong at 118
    • 52. If the B747 was in demand more for its seating capacity and not its range
    • 53. 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
    • 54. A3XX has a higher list price and 12% more operating cost per flight as compared to the B747,
    • 55. the 35% increase in capacity makes it more economical
    BUT,
    • On condition a decent Passenger Load Factor is achieved
    • 56. Industry average PLF is between 60%-70%
    • easier to achieve decent PLF with smaller capacity planes especially in times of recession
    • 57. Airline industry increasingly more competitive
    • 58. Harder to achieve decent PLF
    • 59. 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.
    • 60. Controversy over launch aid.
  • Project Economics
    • Max production capacity of 48 planes per year.
    • 61. Operating margin of 15 – 20%.
    • 62. Tax rate = 38%.
    • 63. 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 ??
  • 64.
    • COMPETITIVE ADAGE
    MANUFACTURER OF WORLD’S LARGEST COMMERCIAL JET
    • INTERNATIONAL
    SUPPORT
    Low cost loans & subsidies from Britain, German & French Government
  • 65. MARKET TESTING
  • 66.
  • 67.
  • 68. RECOMMENDATIONS
  • 69. THANK YOU