From: Joseph Edward Nemec <email@example.com> Date: 16 Oct 1998 19:17:39 GMT Organization: Massachusetts Institute of Technology Followups: 1 2
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I have to say, it is looking more and more likely to me that the A3XX will not be launched. I just don't think that they can make any money on it. They seem determined to go ahead with the project, but the numbers do not seem to add up. Airbus now admits that the development cost is going to be at least $10 billion, and I think we can be confident that this is likely to be an underestimate (perhaps a severe one). Since the European taxpayer will fund 33% of this, we can put the development cost to Airbus at $7 billion. I have yet to see Airbus come up with a large partner to share that cost. There were rumors about Lockheed-Martin, but they don't seem to have panned out. Mitsubishi Heavy also does not seem interested. Add to this the fact that AI is going to spend $2 billion of its own money, and $1 billion of the taxpayer's money to develop the A340-500/600, and one sees a heavy debt burden developing. (No wonder Noel Forgeard told the WSJ that he saw no need for a public listing of Airbus Industrie stocks --- I wouldn't want to go to shareholders with this amount of debt either!) If we figure that net margins on aircraft of the size of the A340-500/600 and A3XX are about 5-7%, then Airbus would have to sell about 350 A345/6 to recoup those development costs, and a whopping 700 A3XX to recoup those development costs. This seems to be a _very_ optimistic forecast, especially since much of the growth was projected to be in Asia. Given the fact that EVA has already canceled its LOI for 12 A345/6, Garuda has cancelled 6 772ERs, and Singapore, Korean, and Malaysian have already all canceled or deferred widebody orders, one wonders about the need for an aircraft that can carry 550 people, when orders for those that can carry 380-420 pax are being sent to dry places. I suspect that Airbus will not cancel the project, but I doubt that they will go ahead with it. I can imagine them getting some orders from BA, United, or Singapore, but I would be amazed if they got a total of 50 firm+options between them. I just don't see any economic reason for the project to go ahead. It seems to be mostly political --- part of Jean Pierson's crusade to be bigger, better, and flying farther than Boeing --- and I don't see it happening. Comments? -------------------------------------- This is a pain which will definitely linger. -- Brain, after something Pinky did. Joseph Edward Nemec Operations Research Center Room E40-149 Massachusetts Institute of Technology Cambridge, MA 02139 firstname.lastname@example.org http://web.mit.edu/nemecj/www/ No Canadians were harmed in the making of this .sig.