Airbus vs. Boeing in VLA market.
result, all is summarized in sale forecasts factor.
A-3) Production costs
The assumption of the financial model is that the operating margin is 25%. However, if we refer to the operating margin estimated by Boeing on the 747s which is 15 to 20% then it has a consequence on the Airbus projection. For example, with a 15% operating margin, we need an additional 10 years of full production capacity to get a positive NPV. Even with a 20% operating margin (consistent with Lehman-Brothers estimate) an extra 6 years of full production/demand (we assume that Airbus sells all the aircraft produced) is needed to make the project viable.
As the operating margin is a direct consequence of the Aircraft price (which is taken into account) and the production cost, we chose to study the effect on production cost (that remains the same whatever the A/C price is, whereas the operating margin changes).
A-4) Investment expenditure
Increasing the R&D investment from $11 billion to $13 billion, an additional 3 years of full capacity (150 aircraft) will be required to get a positive NPV with a total number of aircraft about 1250…
Therefore, the investment expenditure is also a key factor, all the more as in 2001, as the aircraft was not fully defined yet, the precise investment could not be definitely known.
A-5) Tax rate
The taxes paid on OPBT have an influence an NPV. Within the next 20 years, what will be their evolution? To make a rough estimate, the tax rate was defined as a linear function increasing from 38% every year.
B – Study: Between hell and heaven.
B-1) Process
Those key factor being defined, a third study was achieved in 5 parts. These 5 parts (3.1 to 3.5) are released in Appendix 4.
The purpose of this study is to determine "radar graphs" that indicate areas defining the "Heaven" area where NPV>0.
As these key factors consist of many other parameters, they had to be simplified by taking their average value, expressed in percentage increase relative to a reference value.
Each study changes one of these 5 parameters so that it can represent a "bad situation" for the project. As a result, the NPV decreases and becomes negative. During the study, the other parameters are adjusted so that they remain at an "acceptable" value for the project, until the NPV equals 0 (or be as close as possible from 0).
As a result, we obtain the limit value between Hell (NPV>0) and Heaven (NPV!