Nicholas Barnard EC200 - Journal #3 MWF 1-1:50
Airbus Industrie's summer announcement of their intent to build the A3XX a gigantic, 555-seat cruise ship-like airplane surprised me. It is projects like this that some analysts have said will either make or break the future of any company.
Airbus is saddled with $15 billion of fixed development costs. Airbus might not need to build a new factory, to produce this airplane the massive A3XX; they will have considerable design costs, which must be paid before the first revenue is received.
Airbus has estimated that they will ship 768 super jumbo A3XX airplanes over a fourteen-year period, following the estimated 2006 launch of the airplane. Airbus's prime competitor, Boeing has estimated that the same demand for the jumbo (smaller than the A3XX) is only 1000 planes. Airbus may be overestimating the demand side of the law of Supply and Demand.
Airbus's estimates may be sweetened to allow it to justify the fixed costs in the fourteen year short-run production cycle. There are no estimates on what the variable cost for each plane is going to be, and this is an important issue as copper is thought to run out within the next 10-20 years creating a continuing shortage, and Airbus's planes are traditionally electronics based. (Their first plane was crashed by the onboard computer at the Paris Air Show.) The continuing development of electronics may allow Airbus to offset the increased costs of copper supplies.
What is most important for Airbus is to assure they have enough orders to offset the fixed development costs, or they may have to optimize production at MR=MC just to obtain a minimal loss.
The airplane production business is a high stakes business and Airbus has taken an entrepreneurial stance, deciding to risk the company to bring together the massive 555-seat A3XX
Works Cited
Stetkiewicz, Chris, “Airbus big Bird Seen Modest Threat to Boeing”, Reuters, 02 OCT 00, Available online: <http://dailynews.yahoo.com/h/nm/20001002/bs/transport_boeing_dc_1.html>
“Airbus superjumbo sales forecast aggressive—CSFB”, Reuters, 05 OCT 00, Available online: <http://biz.yahoo.com/rf/001005/n0573417.html>
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