1. 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

2. 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?

7. 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)

8. 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 ($13.7 billion)
Low operating margin (15%), meaning higher operating costs ($ 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

9. Data Combinations Four data combination sets to analyze
High R&D and Low Operating Margin
High R&D and High Operating Margin
Low R&D and Low Operating Margin
Low R&D and High Operating Margin
Number of planes needed for break-even:
465 planes
349 planes
406 planes
305 planes
Years to break-even after 2007 (48 planes per year):
8.9 years (2016)
6.5 years (2014)
7.7 years (2015)
5.6 years (2013)

10. Low R&D and High Operating Margin

11. High R&D and Low Operating Margin

12. 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 Thirty-six planes total are produced in 2006 and 2007.

13. How sensitive is the B/E point to R&D and Operating Margin changes?
High R&D and Low Operating Margin: 465 planes
High R&D and High Operating Margin: 349 planes
Low R&D and Low Operating Margin (406 planes)
Low R&D and High Operating Margin (305 planes)
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!

14. Sensitivity Analysis (one R&D, 2 margins)

15. 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.