Airbus 3XX: developing the world’s Largest Commercial Jet Team 2 Break-even analysis Greg Roy, Eric Johnson, Shweta Hire, Karen Delton, David Mahzonni, Yusuf Akkoca, Tom Bloom
Team Assignments – Team 2 • Break-even analysis • How many planes/year will Airbus have to sell to break-even? • Do they have the capacity to produce that many? • How sensitive is the B/E point to R&D and Operating Margin changes? • How does the B/E compare to B747 volumes?
Assumptions • Prices per plane is $225 million • Operating margin is 15% or 20% • R&D cost is $13.7 billion or $15.7 billion • Production capacity is 4 planes per month beginning in 2008 (48 per year) • One plane were produced each month in 2006 (12 total) • Two planes were produced each month in 2007 (24 total)
How many planes/year will Airbus have to sell to break-even? • There are four data sets to consider • High R&D ($15.7 billion) • Low R&D ($13.7 billion) • Low operating margin (15%), meaning higher operating costs ($191.25 million) and lower profit ($33.75 million) • High operating margin (20%), meaning lower operating costs ($180 million) and higher profit ($45 million) • The break-even equation is (q=number of planes): • R&D cost + operating costs * q = profit * q
Data Combinations Four data combination sets to analyze Number of planes needed for break-even: Years to break-even after 2007 (48 planes per year):
Do they have the capacity to produce that many? • Years to break even assumes they are able to produce four planes per month, beginning in 2008. Thirty-six planes total are produced in 2006 and 2007.
How sensitive is the B/E point to R&D and Operating Margin changes? The break-even point changes dramatically based on the R&D and Operating Margin changes. The change may be as many as 160 planes, over 50% of the lowest number!
How does the B/E compare to B747 volumes? • Boeing produces only 46 planes per year • Airbus will need to produce 48 planes per year to break even by 2016 (depending on the numbers) • For other plane models, Boeing produces 25 to 107 planes per year • For other plane models, Airbus produces 15 to 66 planes per year • If the Airbus reorganization succeeds, they may produce this number of planes; but it is not guaranteed.