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Airbus and Boeing Case Study

Airbus and Boeing Case Study - Jennifer DePuy 402469832...

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Jennifer DePuy 402469832 Chris Knight 203592705 Stella Lee 403657324 Andrew Boggeri 103497153 Boeing and Airbus Case Study Analyses Net Present Value (NPV) analysis The expected price of the A380 is $198 million/plane and the expected sales of these planes is calculated in the IRR section Financing cost for loans Airbus will have to pay interest on the loans that it takes in order to invest in the development of the A380. The case study does not provide the interest rates for the loans. Cost of Research & Development (R&D) This is a direct cost upon Airbus that historically amounted to 6-10% of annual sales. The article states that 6 to 10% of annual sales goes to research and development. Airbus invests more in research and development since according to the article, Boeing dedicated less than 3% of sales for R&D at the end of the 1990s. The article does not provide the gross sales number for Airbus so we do not know how much money is allocated to R&D. Operating cost incurred by this particular project Labor is about 10% of sales but because we do not know the gross sales number of Airbus we cannot know the total cost. Pilot training (to be used by replacement analysis from airlines' perspective) The article does not give information about the learning curve to improve manufacturing costs. Maintenance costs are also included but not given in the article. Cost of materials We assume that the A380 will be made mostly of aluminum alloy so the cost of aluminum alloy will play a role in NPV. The article does not mention how much Airbus will spend to purchase the materials. The most expensive part of the aircraft is the turbo engine. The article states that in 1996, Airbus had partnered with GE and Pratt & Whitney to build a completely new engine with a $1 billion development cost. Sunk Cost The article listed that by 1999, Airbus had made a previous investment of $500 million into the project.
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