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Term Paper on Airbus
In December 2000, Airbus formally committed to develop and launch a super jumbo plane known as the A380 at a launch cost of $13 billion. Prior to and after Airbus’ commitment, Boeing started and canceled several initiatives aimed at developing a “stretch jumbo” with capacity in between its existing jumbo (the 747) and Airbus’ planned super jumbo.

In addition to making the super jumbo one of the largest product launch decisions in corporate history, this figure represented 26% of total industry revenues in 2000 ($45.6 billion) and more than 70% of Airbus’ total revenues in 2000. The inherent risk associated with this major strategic commitment is magnified by the fact that Airbus must spend the entire
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$185 million. Developing the first passenger model and the freighter version of the super jumbo is expected to cost $13 billion.

Between June 2000, when the Airbus supervisory board gave approval to begin marketing the plane, and December 2000, airlines placed orders for 50 super jumbos and bought options on another 42 planes. With these orders in hand, including a number from important 747 customers such as Singapore Airlines and Qantas Airlines, the Airbus board officially launched the new plane. According to its internal projections, Airbus forecast a need for more than 1,500 planes of this size over the next 20 years, expected to capture up to half the market. In addition, Airbus estimates it will break even with sales of 250 planes (on an accounting, but not cash flow basis) and they currently have 100 firm orders and extra 100 options.

On March 29th, 2001, Boeing announced it was stopping the development of its stretch jumbo and would begin development of a new aircraft known as the sonic cruiser (7E7). This plane would fly faster (Mach 0.95 vs. Mach 0.80), higher, and more quietly than existing aircraft. It would also be significantly smaller than the stretch jumbo (200 passengers vs. 520 passengers), though it would cost more to develop ($9 billion vs. $4 billion). The sonic cruiser is not only more consistent with Boeing’s predictions regarding industry evolution towards greater point-to-point travel, but also adds a third dimension—speed—to the

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