Plane

Situation:

Airbus was formed by a consortium of various corporations in Europe. Over time the consortium became too complex and in January 2001 Airbus Integrated Company (AIC) was formed. AIC is owned by two corporations: 80% by European Aeronautics Defense and Space Company (EADS) and 20% by BAE Systems. Airbus’s main competitor is Boeing. Airbus is competitive with Boeing in all product categories except very long range (VLA) high capacity commercial aircraft - this segment is dominated by Boeing’s 747 series. Airbus sees an opportunity in this space and plans to build their own VLA aircraft which, compared to the Boeing 747, will have more capacity, longer range, and be more cost-effective.

Airbus is calling this new aircraft project A3XX. The A3XX project is extremely complex with manufacturing and design of the A3XX spread across 85 countries, dozens of Airbus facilities, and hundreds of suppliers. The effort to coordinate across various teams and suppliers will be immense.

Airbus estimates that the market for VLA aircraft will grow at 7% every year. It forecasts demand for 727 new aircraft seating from 400 to 500 passengers, the mainstay of the 747 market, and 1,550 new aircraft seating 500 or more passengers fueled by the economic growth of Asia. Airbus sees the market opportunity here and wants to make the A3XX plane to cater to the 2 segments: 400-500 seats airplane, and greater than 500 seats airplane.

Boeing agrees with Airbus over the growth of airplane market but disagrees with Airbus on the growth of VLA segment. Boeing predicts that much of the demand will be fulfilled by increasing flight frequency and new routes.

Airbus believes Boeing’s forecasts to be incorrect and is researching the A3XX project. Airbus estimates that the A3XX project will cost approximately $13 billion to launch. That is a huge amount and Airbus should perform its due diligence before undertaking such a huge investment.

Opportunity:

Though there are many...