Airbus A3XX: Developing the Worlds Largest Commercial Jet (A) Harvard Case Solution & Analysis

CASE EVALUATION

The biggest single segment of the commercial aviation industry was the aircraft sale, which was around $143 billion. There were two market giants in the industry one was the Boeing Company and the second giant was the Airbus. The combined sales made in 1999 were recorded as 889 aircrafts as the final product with the passenger seats of around 100 to 200.

airbus a3xx case solution

airbus a3xx case solution

The Boeing Company had decided to develop the 747 in the year 1965 and this was viewed as a riskier investment made the Boeing as the product was never tested before. The plane was bigger than the 707 and at that time the Boeing Company had only 25 orders in line and when the production plan was announced the share price of the company increased about 5.1%.  The cost was predicted to be around $1.5 billion that would generate the sale of 70 planes till 1980. Boeing failed to fulfill the committed production capacity and paid heavy penalty on the failure and it didn’t get paid the large amount of installment that was due at the time of delivery. On the other hand, the Airbus was reputable for the innovation in design with technological advancement and its first plane was A300, which served as the platform for the various derivative models under various combination of range and capacity.

The Airbus was also reputable with respect to the training of the pilots as the company was prone to give training to it pilots in such a way that these pilots could serve to fly various planes such as A3XX, A340 and A330. By doing so, it created value for the company in terms of utilization of pilots, which reduced the training costs and this also incorporated to become the leading jet producing company in the commercial jets industry.

Even though Airbus had gained the large portion of the market but didn’t have the product to compete with the Boeing in the large plane industry. For that Airbus was considering to manufacture very large aircrafts so as to compete with the Boeing in very large aircraft market. Airbus was already involved in the research to manufacture the large jets and in 1999 the company finalized decided the final design and proposed the family of aircrafts that consisted of passengers and cargo models in it. Both the passenger and cargo version were proposed in such a way that, these two would have passenger decks and additional deck with the capacity to accommodate the baggage’s, cargo, and passenger facilities for example cocktail lounge, an exercise room and showers.

Airbus was motivated to manufacture a compatible product in order to compete with the Boeing and they came up with the A3XX. The main issue that concerned the company was that the future aspect of the orders were received by the company when it announced the launch of the A3XX. The concern was that either these orders would continue in future or not. To evaluate this uncertain future demand, the new product management had decided so as to make the breakeven analysis on the undiscounted cash flows based on the sales if it exceeded to 250 planes and was sold to as many as over 750 planes in the next 20 years. This sale would incorporate to make the sales of around $350 billion. The management seemed to have an optimistic feeling about the financial success of the product.

Boeing had the monopoly in the VLA market in terms of its 747-xxx airplanes. As already mentioned earlier that, Airbus didn’t have any product to compete with the 747’s and therefore Airbus wanted to go along with this new segment. It was predicted on the basis of the market research conducted by the Airbus that the very large aircraft segment would have extraordinary growth because of its larger demand of air travel and increasing traffic at its major airports globally. The increase in passenger or cargo traffic could be attained by providing the higher capacity aircrafts facility.........................................

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