Re: Airbus on a roll

Date:         04 Dec 96 02:42:18 
From: (C. Marin Faure)
Organization: Northwest Nexus Inc.
References:   1 2 3 4 5
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In article <airliners.1996.2632@ohare.Chicago.COM>, wrote:

> I still have a bit of trouble understanding the 45% of list price
> quoted for the USAir Airbus order.  Isn't a major portion of the cost
> of a plane made up of components bought in, not produced by the
> airframe monger?  By the time that you've paid for engines and
> electronics, how much of the selling price is available to actually
> bend the metal or to give away as a purchase incentive?

I have heard it said around my place of employment that the final assembly
costs of a commercial jetliner amount to only 10 percent of the total cost
of the airplane.  There is a huge amount in the cost of a plane that can
be "played" with, from R&D to design to painting the walls of the new
assembly building.  Forty-five percent of the "normal" cost is the number
I've heard for the USAir purchase price.  Exactly what costs Airbus
includes in the their "normal" or "list" price I have no idea.  I'm not
even sure if it actually represents a financial "loss" to them in the
conventional sense of the word.  But at this point, with several
governments underwriting their current projects to at least some degree,
it might be worth it to "lose" money in order to place aircraft in a
critical market.

It is my understanding, perhaps incorrectly, that it is much more
difficult for companies in France such as Aerospatiale to rapidly
fluctuate the size of their workforces in response to product demand.  And
even if they can send large numbers of employees out the door during a
downturn, I believe the government picks up a sizeable tab to support
these unemployed workers.  So keeping the workers employed may be a much
more important issue in France and other European countries than it is in
the US, where overnight "downsizing" is a common practice with few
economic penalties (to the companies anyway; usually their stock goes up
the more people go out the door).  So weighed against all these
far-reaching financial and political issues, perhaps the low selling price
of the USAir planes is actually the best possible scenario for the
governments and consortium members involved.  Or I may be totally out to
lunch.... wouldn't be the first time.

C. Marin Faure
   author, Flying a Floatplane