Airbus Launch in July 2000 Case Study

1.Commitment to Launch Airbus in July 2000

As a senior member of Airbus management, it is necessary to launch immediately in July 2000 because the company would break even at 250 planes and it would also sell not less than 750 over the next 20 years. At 250 planes the Airbus would neither make profit nor loss but its total sales revenues would be equal to total cost (Jens, 2018). Furthermore, it also anticipates that there was an increase in demand for more than 1500 super jumbo which would increase sales revenues at the end of 20 years. It is therefore important to launch the Airbus immediately so that the company would maximize its profit when there is high demand. The potential risk for launching Airbus immediately in July 2000, it is not sure of the future cash fluctuation and loss of purchasing power that would weaken their currencies. This would make the company face some financial difficulties in the long run. The potential reward for accepting to launch the Airbus is that it would start generating revenues and developing its goodwill and brand image. Noncommital to launch would make the Airbus suffer some financial loss because it will not raise some revenues and profits. Furthermore, it would not develop the company goodwill and brand image which is important in improving customer retention ability (Pandey,2010). The company will also lose sales revenues and profit it would have acquired for booking more than half of the orders for new passenger aircraft which would make it succeed financially. As a result, it would make the Airbus a commercial aviation industrial leader. Waiting and non-committal to launch would make it lose all these financial benefits it would have gained.

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2. Comments on the customer demand for A3XXX to justify spending

The demand for A3XXX is very high than its supply. Its annual demand is more than 1500 but Airbus expects to break even at the undiscounted cash flow of 250 planes. This means that the company would start making a profit before it meets the number of planes that customers require and willing to buy from the company. Because the demand is higher than a breakeven point in units, it is therefore easy for the company selling A3XXX to breakeven because there are very many people willing to buy A3XXX at an appropriate price. Due to high demand, the price of A3XXX must increase because many people are willing and able to buy it. The demand for A3XXX is low because there is a low supply of A3XXX because it is only produced by one company. Undiscounted cash flow breakeven point is low because the price of A3XXX is very high as compared to variable cost. This reduces the breakeven point and ensures that the company starts making profits before selling many items or units.

3. Can Airbus achieve sales at or more than break even quantity?

It is possible for Airbus to achieve sales more than breakeven quantity because it has a higher demand of 1500 which when its sales covers breakeven quantity of 250 planes. Breakeven quantity is equal to fixed costs over contribution margin while contribution is the price per unit minus variable cost per unit. Because of high quantity demanded, it is easy to reach the break-even point in units. When there is high demand for a given product, sales revenues and prices increases thus increasing the contribution. A bigger contribution reduces the breakeven point in units and as a result, it is easy to achieve sales at more than breakeven quantity.

4. Why are Boeing and Airbus disagreeing on the size of the VLA market segment? What is your advice to Boeing?

There was a disagreement between Boeing and Airbus because each one of them believes that their planes are the best. Boeing has the assumption that their planes are performing better than that of Airbus and as a result, there is a battle for the market share by offering aircrafts with good fuel consumptions so that each one of them saves cash for other use. On personal grounds, Boeing should improve the quality of its Aircrafts and also reduce their prices so that they can also develop a stronger competitive advantage than Airbus. Boeing is also necessary to produce a new model of aircraft with unique features that Airbus cannot imitate. This will also prevent unnecessary competition from Airbus and other smaller companies.

5. Considering the fact that Boeing is a for-profit company and Airbus is a government-backed company, analyze the options for Airbus. Available.

Because Boeing is for profit making it is important to produce a plane which consumes less fuel and has more seats than Airbus which is backed by the Government. It must have more seats because it should be able to carry many passengers on each trip so that the company can maximize profits (Orton, 2000). It is important to choose a very large aircraft which can carry very many passengers and ensure that the company breakeven at a lower quantity. On the contrary, Airbus is backed by the Government thus there is no need to make a profit. Airbus has an option of not competing with Boeing because its aim is to make a profit but Airbus is only to provide quality services to the people. It is therefore upon the Government to develop anti-competition laws that encourage different business to compete freely without interfering with the right of others.

6. Please research what happened and how it has led to the current global airline industry travel picture. You should base your narrative on quantitative analysis of financial statements and economics. Excel spreadsheets must be interactive to get full credit

The disagreement between Airbus and Boeing companies have led to an increase in competition. It also led to the growth of the airline industry because there were other companies that also entered the industry and start producing their own aircrafts. The competition also improved the quality of aircraft each company produces (Clark, 2016). The current global airline industry travel picture is very good because there are different aircrafts that have been produced to meet every need of customers. Because of competition, large aircrafts and small ones with low fuel consumption are now available and as a result, the prices of air ticket have gone down as compared to previous years (Orton, 2000). The cost of acquiring airline is also not as expensive as it was before 1999 and this helps different countries to buy airlines either from Airbus and Boeing. Low cost makes the airline industry to be profitable because these companies produce airlines with very many seats but consume less fuel. It is, therefore, profitable to buy aircraft or to do business in the airline industry because it is cost effective and profitable.

References

Newhouse, John (2007), Boeing versus Airbus, USA: Vintage Books, ISBN 978-1-4000-7872-1Pandey, Mohan (2010). How Boeing Defied the Airbus Challenge. Createspace. p. 86. ISBN 978-1-4505-0113-2.

Clark, Nicola (2016). "Airbus to Sharply Cut Production of A380 Jumbo Jets". Nytimes.com. Retrieved 13 January 2018.

Jens Flottau (2018). "Airbus And Boeing Consider Higher Narrowbody Production". Aviation Week & Space Technology.

Orton, D. (2000). Emergent Commercial Trends and Aviation Safety. Risk Management, 2(3), 85-86. doi:10.1057/palgrave.rm.8240063