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Airbus A3 xx


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Airbus A3 xx

  1. 1. Airbus A3XX:Developing the World’s LargestCommercial Jet<br />Presented By:<br />AkashJauhari – DCP056<br />AlokMishra – DCP057<br />Karan Verma – DCP072<br />LokeshChaudhary – DCP075<br />RaghavAgarwal – DCP087<br />
  2. 2. Airline Industry – An Overview<br />Highly competitive<br />Capital and Labor intensive<br />Seasonal industry – increased revenues in 2nd and 3rd quarters<br />Sensitive – Fuel Prices, Price of airfares and customer demand<br />
  3. 3. Industry Trends<br /><ul><li>Growth in the industry</li></ul>Where RPK : Revenue per Passenger Kilometer<br />ASK : Available Seat Kilometers<br /> PLF : Passenger Load Factor<br /> FTK : Freight Ton Kilometer<br /> ATK : Available Ton Kilometer<br />Source :<br />
  4. 4. Dynamics of Airline Industry<br />Competitiveness of an Airline depends on two factors:<br />1. Revenue - ability of a firm to fill the seats in an airplane<br />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%.<br />2. Costs – mostly uncontrollable<br /><ul><li> Labour – Competitive Wage Structure
  5. 5. Fuel
  6. 6. Maintenance</li></ul>Costs are also attributed to flight time, flight distance, landing fees, en-route charges, handling, administrative costs and opportunity costs of not flying.<br />
  7. 7. Dominant Business Models<br /> Currently 2 dominant business models in the airline industry<br />Hub and Spoke Model – <br /><ul><li>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. 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.</li></ul>Point to Point Model – <br /><ul><li>used by regional or budget airlineswho deploy their aircrafts on a specific route between 2 airports
  9. 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</li></li></ul><li>The Boeing Company<br /><ul><li>Founded in 1916.
  10. 10. Forefront of Civil Aviation for almost a century</li></ul> From B17s and B29s during World War II,<br /> B52 during Cold War to Boeing787.<br /><ul><li>Is into sales of:-</li></ul>Commercial Aircrafts<br />Military Aircrafts<br />Missiles<br />Space System Controls<br />
  11. 11. <ul><li>Revenues:-US$ 64.306 billion (2010)</li></ul>Commercial Aircraft -2/3 <br />Military Aircraft ,missiles, space systems- 1/3<br /><ul><li>Boeing unique importance for US</li></ul>It Supplies:-<br /> F-15 fighter aircraft to Air Force One<br />Space Shuttle to support its political strength<br /><ul><li>Largest contributor to the US BOP in terms of exports</li></li></ul><li><ul><li>Boeing fleet consists of 14 models
  12. 12. Flagship of Boeing fleet :-747-400, held 420 passengers in the standard three-class configuration.
  13. 13. B747 bought for its range and not its capacity</li></li></ul><li>AIRBUS INDUSTRIE <br /><ul><li>Founded in 1970 by consortium of principle agencies:
  14. 14. DASA—Germany
  15. 15. BAE Systems—England
  16. 16. Aerospatiale Matra –France
  17. 17. CASA—Spain
  18. 18. Later become simplified joint-stock company in 2001, owned by EADS (80%) and BAE Systems (20%). </li></li></ul><li><ul><li>Employs around 57,000 people
  19. 19. Revenue: €27.45 billion (FY 2008) 
  20. 20. Known for producing and marketing:-</li></ul>First commercially viable ’fly-by-wire’ airliner, the Airbus A320, and<br />World's largest airliner, the A380.<br />
  21. 21. A380 Vs B747 <br /><ul><li> The A380 is much bigger than the B747
  22. 22. The A380 is a true double Decker while the B747 is not.
  23. 23. The A380 can accommodate 33% more passengers than the B747
  24. 24. The A380 has more powerful engines than the B747
  25. 25. The B747 comes in a lot more variants than the A380 </li></li></ul><li>Strategies of Airbus & Boeing<br /><ul><li>Developed countries are seeing a decrease in traffic but new markets are exploding.
  26. 26. Customers seem to want more comfort but are not willing to sacrifice speed and price for it.
  27. 27. Airbus tends to treat these changes by designing large aircraft and tinkering with them to adapt them to the market, while
  28. 28. Boeing invests in research and innovation hoping to recoup the costs through early replacement .</li></li></ul><li>Viability of A3XX<br />
  29. 29. Its all about money honey?<br />
  30. 30. Rationale Behind the launch of A3XX<br /><ul><li>Worsen of congestion problem at major hubs due to growth in air traffic
  31. 31. Airbus Views: -</li></ul>Increased frequencies and number of routes is temporary<br />Increasing point-to-point routes is not a feasible solution (e.g. the lack new destinations in Asia)<br /><ul><li>A need for bigger planes with higher capacities (A3XX)</li></li></ul><li>How A3XX relates to consumer & Market preferences<br />Advantages<br /><ul><li>More space and a wider aisle
  32. 32. Usage of fly-by-wire technology (reduce costs)
  33. 33. Has 4 engines (more safety)</li></ul>Disadvantages<br /><ul><li>slower turnaround time due to large capacity
  34. 34. slower evacuation time
  35. 35. landing fees of plane is determined by weight
  36. 36. higher noise emission</li></li></ul><li>How A3XX relates to consumer& Market preferences<br />How large the market of VLA is?<br />It’s a small market<br /><ul><li>Increase of point-to-point routes
  37. 37. Increasing demand for small & medium capacity planes
  38. 38. B747 bought for its range and not its capacity
  39. 39. Airplanes not flying at full capacity</li></li></ul><li>More point- to- point routes…. <br /><ul><li>Increased services at secondary airports
  40. 40. More direct routes that bypass major hubs
  41. 41. E.g.. Manchester - Chicago route
  42. 42. Limit to how much plane size can increase
  43. 43. Safety, fuel consumption, slower turnaround time etc
  44. 44. In Asia, lack of urban centers BUT, more point to point by using smaller planes that’s compatible with smaller airports
  45. 45. Eg. Penang Airport</li></li></ul><li>B747 was bought for range & not capacity<br /><ul><li>60% of the airlines that bought the 747 , havebought them for their range and not their capacity.”
  46. 46. 3 planes of a higher range of 8000 m and above
  47. 47. B747, A340-500 ,B777
  48. 48. Only B747 has seating capacity of 400 and above</li></li></ul><li>For medium & Small capacity planes<br />Increasing Demand<br />
  49. 49. Base: All Respondents <br />(Survey done by Boeing on General Preferences)<br />AIRPLANE PREFERENCES BY REGION<br />U.K. Hong Kong Tokyo<br />Plane preferences for non-stop flight % % %<br />Economy Business Travelers preferring 250-passenger airplane 65 54 64<br />Economy Business Travelers preferring 550-passenger airplane 21 40 22<br />Economy Leisure Travelers preferring 250-passenger airplane71 60 63<br />Economy Leisure Travelers preferring 550-passenger airplane17 37 28<br />Preferences for direct flights via smaller plane<br />vs. transit flights involving larger plane <br />Economy Business Travelers preferring 250-passenger airplane 73 75 76<br />Economy Business Travelers preferring 550-passenger airplane 14 19 11<br />Economy Leisure Travelers preferring 250-Passenger airplane80 81 78<br />Economy Leisure Travelers preferring 550-passenger airplane9 16 11<br />
  50. 50. B747 was bought for range & not capacity contd….<br /><ul><li>deliveries of the B747 have actually declined from 510 to 74
  51. 51. orders for the A340 remained strong at 118
  52. 52. If the B747 was in demand more for its seating capacity and not its range
  53. 53. we would not see such low current orders as compared to theB777 and A340, which have lower seating capacity. </li></li></ul><li>Airplanes not flying at full capacity<br /><ul><li>Large capacity planes economical as fixed cost is spread over a larger number of passengers
  54. 54. A3XX has a higher list price and 12% more operating cost per flight as compared to the B747,
  55. 55. the 35% increase in capacity makes it more economical</li></ul>BUT,<br /><ul><li>On condition a decent Passenger Load Factor is achieved
  56. 56. Industry average PLF is between 60%-70%</li></li></ul><li><ul><li>easier to achieve decent PLF with smaller capacity planes especially in times of recession
  57. 57. Airline industry increasingly more competitive
  58. 58. Harder to achieve decent PLF
  59. 59. A3XX is not economical for most airlines</li></li></ul><li>Financing the A3XX<br /><ul><li>Total cost = $ 13 billion</li></ul> R&D = $ 11 billion; Plant, equipment = $ 1billion<br /> WC = $ 1 billion.<br /><ul><li> Sources of Fund - </li></ul> Risk Sharing Partners : $ 3.5 billion<br /> National Govt. : $ 3.6 billion <br /> Airbus partners : $ 5.9 billion<br /><ul><li> Risk sharing partners to become exclusive suppliers.
  60. 60. Controversy over launch aid.</li></li></ul><li>Project Economics<br /><ul><li>Max production capacity of 48 planes per year.
  61. 61. Operating margin of 15 – 20%.
  62. 62. Tax rate = 38%.
  63. 63. Questions to be answered :</li></ul> a) R&D capitalization and depreciation.<br /> b) Tax status and Tax rate.<br /> c) Operating margin.<br /><ul><li> Target IRR is 15 – 20 %.</li></li></ul><li> WHY SHOULD <br /> AIRBUS GO AHEAD WITH AIRBUS A3XX ??<br />
  64. 64. <ul><li>COMPETITIVE ADAGE</li></ul>MANUFACTURER OF WORLD’S LARGEST COMMERCIAL JET<br /><ul><li> INTERNATIONAL</li></ul>SUPPORT<br />Low cost loans & subsidies from Britain, German & French Government<br />
  65. 65. MARKET TESTING<br />
  66. 66.
  67. 67.
  68. 68. RECOMMENDATIONS<br />
  69. 69. THANK YOU<br />