leelaw
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Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 5:28 pm

Quote:
LONDON (Dow Jones)--European plane-maker Airbus expects to sell 20 more of its double-decker A380 airplanes during 2007 from at least two new customers, John Leahy, Airbus' chief operating officer for customers, told financial television channel CNBC Europe Wednesday.

In an interview at Airbus' headquarters in Toulouse, Leahy said technical problems that caused about a two-year delay in A380 deliveries now appear to have been resolved.

"We're back on track ... We'll get the job done and get these airplanes out the door," Leahy said...

http://online.wsj.com/article/BT-CO-20070207-701923.html (Subscription)

Mr. Leahy remains confident regarding potential A380 sales, although it's fair to note that in 2006 he did fail to achieve his goal since the launch of the program to sign-up at least one new customer per year before EIS.
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scouseflyer
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 5:34 pm

Quoting Leelaw (Thread starter):
Mr. Leahy remains confident regarding potential A380 sales, although it's fair to note that in 2006 he did fail to achieve his goal since the launch of the program to sign-up at least one new customer per year before EIS

That is true but I would of been gob-smacked if he'd pulled that off last year with nothing but talk of delays, cock-ups and disaster.

I'll be impressed if he can get 20 sales this year. Start the speculation now as to who he's talking about:

3 more for Thai
2 more for QR
10 for the unidentified Indian airline
5 for China

or maybe the biggie - 20 for BA?
 
kappel
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 5:38 pm

How does this tie up with the other thread about Airbus talking to two Indian airlines? Maybe he is (partly) referring to them.

Quoting Scouseflyer (Reply 1):
That is true but I would of been gob-smacked if he'd pulled that off last year with nothing but talk of delays, cock-ups and disaster.

Indeed, the fact that they even received more orders than cancellations is an achievement IMHO.
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scouseflyer
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 5:39 pm

Quoting Kappel (Reply 2):
Indeed, the fact that they even received more orders than cancellations is an achievement IMHO.

Agreed!
 
slz396
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 6:03 pm

Quoting Scouseflyer (Reply 1):
Start the speculation now as to who he's talking about:

3 more for Thai
2 more for QR
10 for the unidentified Indian airline
5 for China

or maybe the biggie - 20 for BA?

2 for QR is a given; they've said themselves they'd order 2 more once the compensation issue is settled.

10 for an Indian airline (Jet Airways) seems like a good possibility indeed, Air India maybe too, although I doubt such a deal could still be concluded this year...  Smile

LH, together with SQ and QF, was accidentally mentioned by Mr. Leahy as having ordered more A380s recently, until he realized his slip of the tong and corrected it... Supposing he was not completely talking out of his neck, but just didn't realise it was fully concluded yet, it can't but mean the German flag carrier is negotiating a follow up order... fully in line with their own comments they have never placed an order without a follow up order later on.

And don't forget the order count could also include the first order for the VIP version of the A380, called the Flying Palace... Wasn't there talk about not less than 2 customers who were about to sign for one each recently?
 
scouseflyer
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 6:07 pm

Good point - forgot about LH!
 
CXfirst
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 6:18 pm

Hopefully BA will order some A380's, but I don't think they will order until after EIS if they ever order.

As an other thread says, Airbus are talking with 2 Indian Airlines, so if they have made a deal (and waiting for an air show to say it in), this statement will be good publicity, as they predicted it correctly and are gaining more orders.

-CXfirst
 
leelaw
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 6:55 pm

Quoting Scouseflyer (Reply 1):
Quoting Leelaw (Thread starter):
Mr. Leahy remains confident regarding potential A380 sales, although it's fair to note that in 2006 he did fail to achieve his goal since the launch of the program to sign-up at least one new customer per year before EIS

That is true but I would of been gob-smacked if he'd pulled that off last year with nothing but talk of delays, cock-ups and disaster.

To challenge "conventional wisdom" a bit, Mr. Leahy was not totally hamstrung in terms of signing-up new customers in 2006. Just one-year ago Mr. Leahy saw "new" customers just over the horizon, and Airbus was offering similar assurances that the A380 program was on-track for deliveries to commence in late-2006; in fact, such guidance officially remained in place until June 13, 2006. Arguendo, for nearly six-months of 2006 the "marketing" landscape Mr. Leahy faced was essentially the same as what will confront him for much of 2007.
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manni
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 7:05 pm

Quoting Leelaw (Thread starter):
European plane-maker Airbus expects to sell 20 more of its double-decker A380 airplanes during 2007

Airbus remains very modest. After predicting only 200 A350XWB orders/commitments (I believe it wasn't specified), they now only predict 20 A380 sales. BA is not ,will they order but when will they order IMO. If they order this year the number of new A380 orders will likely exceed 20. Unless Mr. Leahy was reffering to new orders from new customers or customers without options.
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scouseflyer
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 7:45 pm

Quoting Manni (Reply 8):
Unless Mr. Leahy was reffering to new orders from new customers or customers without options.

He's just making sure that he sets and acheivable goal - don't say that you're aiming high as you will miss your target!
 
manni
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 8:09 pm

Quoting Scouseflyer (Reply 9):
He's just making sure that he sets and acheivable goal - don't say that you're aiming high as you will miss your target!

That sounds very plausible. I can already see the headlines, next year januari... Airbus sells twice as much A380s as predicted in 2007!  bigthumbsup 
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FCKC
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 8:58 pm

If Airbus gains 20 orders , and 2 new customers (as mentionned in the article) this year , it will be nice , but i suggest to wait for 2008 to see many more orders a year , after the EIS.
 
katekebo
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 10:28 pm

Airbus needs to sell around 40-50 A380s per year to make the project profitable. At 20 sales per year it will be a big looser.
 
leelaw
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 10:33 pm

Quote:
...Airbus sales chief John Leahy reiterated that he expected 20 new orders for the aircraft from two customers in 2007.

"We have a lot of interest in the aircraft despite the problems we experienced last year," Leahy said.

The Airbus officials were speaking ahead of the first media demonstration flight of the world's largest airliner.

Leahy told Reuters on board the plane that Airbus expects to sell 800 or 900 A380 aircraft over the life of the programme.

Leahy said he did not expect further A380 cancellations after U.S. express service FedEx cancelled 10 planes last year...

http://today.reuters.com/news/articl...A380-UPDATE-1.XML&rpc=66&type=qcna
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scouseflyer
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 10:49 pm

Quoting Leelaw (Reply 13):
Leahy said he did not expect further A380 cancellations after U.S. express service FedEx cancelled 10 planes last year...

That's very significant - it suggests that they've kissed and made up with UPS
 
slz396
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 10:50 pm

Quoting Katekebo (Reply 12):
Airbus needs to sell around 40-50 A380s per year to make the project profitable. At 20 sales per year it will be a big looser.

I don't see where that idea comes from.

Just because Airbus will increase production to the maximum of 45 to cope with delays, doesn't mean their line needs to run at maximum capacity for it to be worth wile.

If fact, since most of the expenditure on the A380 is uncapitalized (and thus accounted for in the profit + loss accounts of EADS over the past 7 years), Airbus will most likely book profits on A380 sales with sales numbers well below what you seem to think.

Remember it is only the capitalised part of the expenditure on the A380 which still needs to be accounted for (i.e. depreciated) over let's say 25 years.

Airbus sells 20 planes for €X BN, with a cost of €Y BN to build them.
X-Y is what is called the operating profit.
Some operating profit will be consumed in that year's P+L accounts covering depreciation of the capitalized investments from the past.
Any operating profit left over in that year will appear in the accounts as profit on A380 sales.

It has been assumed roughly €3BN to 4BN of the total investment on the A380 is capitalized, thus Airbus will need to offset an annual depreciation of about €120M to €160M only through sales, the rest is pure profit from an accounting basis. In short: anything North of a modest follow up order more than covers the bills.
 
leelaw
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RE: Leahy Expects To Sell 20 More A380s In 2007

Wed Feb 07, 2007 11:09 pm

Quoting Slz396 (Reply 15):
Airbus will most likely book profits on A380 sales with sales numbers well below what you seem to think.

True in terms of financial accounting. However, the financial performance of a long-term project is measured using cost accounting/capital budgeting techniques. By these metrics Airbus will need to deliver 420 A380s to "break-even," 750 units to achieve a sub-par IRR of 13%, and 900-1000 units to achieve an IRR of 19%, still below the 20%+ IRR promised at the time of the program launch. The A380 program has a long way to go to be the cash and profit cow that was hoped for in 2001.

[Edited 2007-02-07 15:11:25]
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airfrnt
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 3:20 am

Quoting Leelaw (Thread starter):

Mr. Leahy remains confident regarding potential A380 sales, although it's fair to note that in 2006 he did fail to achieve his goal since the launch of the program to sign-up at least one new customer per year before EIS.

A important note is that 20 a year won't get it done (20 year life cycle = 400 frames, which is under the 420 orders needed for operational break even and far short of the 550-650 frames needed to meet their ROI to investors) And if Y3 launches five years after the 787 launches, it won't have a shot at even 20 a year.

Quoting Slz396 (Reply 15):

If fact, since most of the expenditure on the A380 is uncapitalized (and thus accounted for in the profit + loss accounts of EADS over the past 7 years), Airbus will most likely book profits on A380 sales with sales numbers well below what you seem to think.

I would love to see your sources on this statement because the contradict what everyone including Airbus is saying.

Airbus self funded a large portion of this project, true. Airbus therefore doesn't have as much debt on this project, true. But the money that Airbus spent was a "capital" investment. In other words, the money that Airbus spent building facilities, purchasing parts, etc is not counted as a Profit or Loss. It's counted as a investment, with a depreciation schedule etc. Therefore you can see the impact in the cash flow statements and the minimum operating capital, but not the profit and loss estimates. When do you see it against the P+L? When Airbus has to take charges reflecting that capital is lost and can not be recovered by profit.

In other words, Airbus has spent the money, but they also left a IoU on their books saying that they will recover this cash when the A380 sells above the break even threshold. Airbus self funding means that they won't be killed by the banks, but it will still be very ugly on the books.

(The 1/3rd of the project that was financed by launch aide, and probably another 1/3rd that was funded by banks is another matter)

Don't believe me, go look at Airbus's cashflow problems the next few years.

You can verify this by looking at the break even numbers. Airbus had to raise the break even number from 270 to 420. 420-270 = 150 or almost exactly the number of orders that Airbus had when the debacle occurred. Airbus effectively had to write off any profit from their entire A380 orderbook, still make up the operational costs with the next 270 frames and then start making a return on their investment.

Quoting Slz396 (Reply 15):
It has been assumed roughly €3BN to 4BN of the total investment on the A380 is capitalized

Assumed by whom? Airbus is probably easily blowing through 3-4BN US right now per year on this project. That money has to come from somewhere.

Quoting Slz396 (Reply 15):
anything North of a modest follow up order more than covers the bills.

270 new frames on top of 150 frames (which Airbus states is the break even) is hardly a follow up, and that would only cover the bills, not make a profit.

Quoting Leelaw (Reply 16):
By these metrics Airbus will need to deliver 420 A380s to "break-even," 750 units to achieve a sub-par IRR of 13%, and 900-1000 units to achieve an IRR of 19%, still below the 20%+ IRR promised at the time of the program launch.

The 420 number is correct according to Airbus, but I think the 13% IRR number and the 20% IRR number is about 100 higher then it actually is. Of course, Leahy is now stating that he expects to sell 800-900, and if he is still being driven by the IRR number, that's correct.
 
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Stitch
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 3:49 am

A fleet of 25 A338s and 40 748Is (assuming LH converts their 10 A388 and 20 748I options) would make LH a force to be reckoned with on long-haul, to be sure...
 
Boogyjay
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 4:44 am

Quoting Slz396 (Reply 4):
Air India maybe too

I doubt it. They are focused on the merger with IA that should officially be announced very soon (this month). And after that, they'll be busy swallowing this merger (not just AI, IA too).

AI is upgrading its 6 owned B744 and it'll received lots of 773 in the near future.

They might order the A380 one day, but not yet.


People are citing A380 customers whereas the article states 2 NEW customers.

I'd say 9W and a big bet : SA.

Cheers !
 
EI321
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 5:01 am

Quoting Katekebo (Reply 12):
At 20 sales per year it will be a big looser.

20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.
 
flysherwood
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 5:07 am

Quoting Scouseflyer (Reply 1):
I'll be impressed if he can get 20 sales this year. Start the speculation now as to who he's talking about:

Why? With the kind of money that Airbus has tied up with this program, he better do better than 20 this year. At that rate it would take him another 15 years just to break even on the frame? OUCH!!! Talk about setting his sights low.
 
Rbgso
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 5:36 am

Good to see John talking to the press again. That's another sign things are slowly returning to normal at Airbus.
 
airfrnt
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 5:42 am

Quoting EI321 (Reply 20):

20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.

Sales cycles are shrinking not expanding. There is no way the A380 (in it's current form) will have a 30 year cycle.
 
jacobin777
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 6:17 am

Quoting EI321 (Reply 20):
Quoting Katekebo (Reply 12):
At 20 sales per year it will be a big looser.

20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.

1)It's called "time value of money"...the further out the project goes, the less of a profit it will get...
2)I'm open to a debate...maybe you can explain to me where Leahy gets his 1600+ VLA's of which Airbus will get 50% (700-800) sales....how about a quick rundown... Smile

Cheers.
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flysherwood
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 6:37 am

Quoting EI321 (Reply 20):
20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.

You are forgetting that they are already into this project for seven (7) years!
 
sacamojus
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 6:53 am

I love it when a.netters talk about finance. I don't know the accounting principles in the EU but in the U.S. Research and Development is an expediture and cannot be capitalized. Also, Corporations don't care about Internal Rate of Return nor Break Even Point( unless it is NPV Break Even). Companies use the Net Present Value approach which discounts all the future CASH FLOWS(not net income) at the cost of capital (cost of debt and equity) to time period zero to see if the project is going to be profitable. I imagine Airbus will have to sell a ton of A380's for this project to be a profitable endeavor.

sacamojus
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bbobbo
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 6:59 am

Quoting Sacamojus (Reply 26):
I don't know the accounting principles in the EU but in the U.S. Research and Development is an expediture and cannot be capitalized.

EADS is governed by IAS 38, which allows development costs to be capitalized (research costs must still be expensed).

[Edited 2007-02-07 23:01:58]
 
EI321
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 7:01 am

Quoting Flysherwood (Reply 25):
Quoting EI321 (Reply 20):
20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.

You are forgetting that they are already into this project for seven (7) years!

Er, No. I stated production life. The A380 has not been in production 7 years, it hasent even entered service yet.

Quoting Jacobin777 (Reply 24):
2)I'm open to a debate...maybe you can explain to me where Leahy gets his 1600+ VLA's of which Airbus will get 50% (700-800) sales....how about a quick rundown...

Im not sure about this, are you talking about over 20 yrs or what? I tend not to listen to Leahy to be honest. Leahy gets whatever figures he gets from research that is not done by him, he is relaying information and forcasts compiled by people who are experts the field of jetliner sales forcasts, unlike you or me. And yes these guys were aware that aircraft with a higher CFRP content (50% Vs 25-30%) were only years away.

Quoting AirFrnt (Reply 23):
Quoting EI321 (Reply 20):

20 a year would equate to 600 over a 30 year production life. That would mean sales of 750 approx.

Sales cycles are shrinking not expanding. There is no way the A380 (in it's current form) will have a 30 year cycle.

Nobodys suggesting that the A380 will be in production in its current form for 30 years, like all aircraft it will be updated. Future versions will have the A350 next gen engines, increased composite content and a stretch varient which if Im not mistaken EK has been after.
 
airfrnt
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 7:02 am

Quoting Sacamojus (Reply 26):
.S. Research and Development is an expediture and cannot be capitalized

Building factories isn't R&D.

Quoting Sacamojus (Reply 26):
Corporations don't care about Internal Rate of Return nor Break Even Point( unless it is NPV Break Even)

True, but banks do still look at IRR, and Airbus's only published metrics are IRR at this point.

Quoting Sacamojus (Reply 26):
Companies use the Net Present Value approach which discounts all the future CASH FLOWS(not net income) at the cost of capital (cost of debt and equity) to time period zero to see if the project is going to be profitable.

And the last report I read speculated that the NPV is far worse then IRR because of the huge cash flows problems for the next 10 years.

Quoting Sacamojus (Reply 26):
I imagine Airbus will have to sell a ton of A380's for this project to be a profitable endeavor.

True.
 
TeamAmerica
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 7:11 am

Quoting Sacamojus (Reply 26):
Corporations don't care about Internal Rate of Return

I've been working on projects for a Swiss company. All proposed capital projects are subject to IRR review and approved on that basis (18% IRR required for approval). They seem to care very much! smile 
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OA260
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 7:25 am

Hmm I think he said 20 and deliberatley set his sights low, so If this year he sells 30 or 40 it will look alot better for them. I do however think that many airlines will wait until EIS to see how SQ get on with it so we may not see anymore significant orders until close of 2007. I do however think that once in service the A380 will prove itself and bring in orders.

Ive never been asked by friends and clients before about aircraft but people keep asking me about the A380 and have a genuine interest in its size etc.. when I ask them about the delays they just tell me that they are glad they are sorting out all the problems before they fly on it . Thats from the everyday passenger on the street!!! So its good news for the A380 that the public have a good opinion about it.
 
sacamojus
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 7:48 am

"And the last report I read speculated that the NPV is far worse then IRR because of the huge cash flows problems for the next 10 years."

After 10 years you take the expected cash flow divided by the discount rate subtracted from growth rate.


"I've been working on projects for a Swiss company. All proposed capital projects are subject to IRR review and approved on that basis (18% IRR required for approval). They seem to care very much!"

Determing the IRR for such a risky business as building an airline will most likely yeild multiple IRRs.

Forcasting beyond 5 years is very dangerous grounds for companies given all the variable that change. That is why most models don't go beyond five years leaving the fifth year as a projected discount cash flows for the coming years.
 
leelaw
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 8:27 am

Quoting Sacamojus (Reply 26):
I don't know the accounting principles in the EU but in the U.S. Research and Development is an expediture and cannot be capitalized.

This is true as a general proposition in financial accounting under the accounting principle of conservatism, as research may not "bear any fruit." However, the OEMs use "program accounting" whereby typically 20-30% of the R&D budget + CAPEX is capitalized and amortized over a "production run" of a predetermined number of units.

Quoting Sacamojus (Reply 26):
Also, Corporations don't care about Internal Rate of Return nor Break Even Point( unless it is NPV Break Even). Companies use the Net Present Value approach which discounts all the future CASH FLOWS(not net income) at the cost of capital (cost of debt and equity) to time period zero to see if the project is going to be profitable.

I agree that break-even (cost-volume-profit) analysis and IRR aren't the best metrics, but that's what the OEMs have used in their public disclosures evaluating the financial performance of their long-term projects/aircraft programs for decades. In the case of Airbus, "break-even" has added significance because the repayment of "launch aid" and various "royalty schemes" benefiting the sponsoring governments are based upon reaching "break-even."

Quoting Sacamojus (Reply 26):
I imagine Airbus will have to sell a ton of A380's for this project to be a profitable endeavor.

 checkmark 
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sacamojus
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 8:50 am

"This is true as a general proposition in financial accounting under the accounting principle of conservatism, as research may not "bear any fruit." However, the OEMs use "program accounting" whereby typically 20-30% of the R&D budget + CAPEX is capitalized and amortized over a "production run" of a predetermined number of units."

I believe you are talking about the Percentage of Completion Method which "As contractors recognize portions of the contract price as revenues, they recognize corresponding proportions of the total estimated costs of the contract as an expense."

I will quote "Controversy surrounds application of the general principles of intangible-asset accounting to research and development costs. Financial reporting requires firms to expense immediately all R&D costs incurred internally because of the inherent uncertainty in determining whether research and development activities will produce sufficient future economic benefits to warrant being capitalized as an asset. The nature of most research and development activities involves uncertain outcomes. For industries with R&D expenditures is especially troublesome because financial reporting requires firms to assume that the economic value of R&D expenditures is zero. Thus, a major asset never appears on the balance sheet." Source: Financial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective by Clyde Stickney, Paul Brown, and James Wahlen

"I agree that break-even (cost-volume-profit) analysis and IRR aren't the best metrics, but that's what the OEMs have used in their public disclosures evaluating the financial performance of their long-term projects/aircraft programs for decades. In the case of Airbus, "break-even" has added significance because the repayment of "launch aid" and various "royalty schemes" benefiting the sponsoring governments are based upon reaching "break-even."

Very insightfull and fully appreciated
 
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 9:11 am

Quoting EI321 (Reply 28):
Er, No. I stated production life. The A380 has not been in production 7 years, it hasent even entered service yet.

"Production life" is inconsequential. The product's sales life is what drives production, and that clock starts ticking the day the launch order is placed.

Quoting OA260 (Reply 31):
Hmm I think he said 20 and deliberatley set his sights low,

If recent history is any indication, that would be very un-Airbus...
 
jacobin777
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 9:44 am

Quoting EI321 (Reply 28):
Im not sure about this, are you talking about over 20 yrs or what? I tend not to listen to Leahy to be honest. Leahy gets whatever figures he gets from research that is not done by him, he is relaying information and forcasts compiled by people who are experts the field of jetliner sales forcasts, unlike you or me. And yes these guys were aware that aircraft with a higher CFRP content (50% Vs 25-30%) were only years away.

20 years is an arbitrary number....it doesn't have to be Leahy or anyone else. For the A380 program to "break even" (I'll use that term loosely), Airbus has to sell at least 420 frames (above 450 by my calculations, but that's not the point)....

My question is how is Airbus going to hit those numbers?

On a side note, maybe I had misinterpreted what you stated, happens quite often on A.net.. Smile
"Up the Irons!"
 
airfrnt
Posts: 1992
Joined: Fri Jul 02, 2004 2:05 am

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 9:50 am

Quoting Sacamojus (Reply 32):

Forcasting beyond 5 years is very dangerous grounds for companies given all the variable that change. That is why most models don't go beyond five years leaving the fifth year as a projected discount cash flows for the coming years.

Not in the airline biz, for reasons detailed below.

Quoting Sacamojus (Reply 34):
Controversy surrounds application of the general principles of intangible-asset accounting to research and development costs

Everything in the airline business is controversial. Billion dollar products that may or may not have any market to them whatsoever. Therefore you have to plan at least 10 years old, because there is now way that you will break even on a clean sheet design in 10 years.

It's as simple as that.
 
Dougloid
Posts: 7248
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 11:16 am

Quoting Sacamojus (Reply 26):
Also, Corporations don't care about Internal Rate of Return nor Break Even Point( unless it is NPV Break Even). Companies use the Net Present Value approach which discounts all the future CASH FLOWS(not net income) at the cost of capital (cost of debt and equity) to time period zero to see if the project is going to be profitable

Not nearly as complicated as it sounds. Even I understood it and I'm not a finance major. And when you figure it out what it's saying is

future cash flow from the A380 (or any other project). Discounting it for the cost of money, is it a winner or a loser?

To reduce it to human terms: if I buy a new pickup truck for my plumbing business, is the additional money that it brings in worth it when you factor in what it cost to borrow the cash to buy it.

Of course, how well you come out there depends on how accurate your projections were before you cut a single piece of metal or spent your first dime.
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
PlanenutzTB
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 12:41 pm

OK, let the countdown begin. It's February 7 and the current order total for this year is zero. Each cancellation should count as -1. Let's start a betting pool if the number is + or - 20. My bet is it will be -8 under 20.
I am extraordinarily patient, provided I get my own way in the end.
 
jacobin777
Posts: 12262
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 12:58 pm

Quoting PlanenutzTB (Reply 40):
OK, let the countdown begin. It's February 7 and the current order total for this year is zero. Each cancellation should count as -1. Let's start a betting pool if the number is + or - 20. My bet is it will be -8 under 20.

I think it will certainly be a positive net number...Airbus will certainly have a few A380 sales.....
"Up the Irons!"
 
racercoup
Posts: 349
Joined: Sun Jan 28, 2007 10:48 pm

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 1:25 pm

So help me understand this, 420+ orders to break even. 159 orders now, 20 more expected this year......that's supposed to impress me if I own EADS stock?

If UPS cancels this year net gain = 0
 
racercoup
Posts: 349
Joined: Sun Jan 28, 2007 10:48 pm

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 1:28 pm

Quoting Racercoup (Reply 41):
So help me understand this, 420+ orders to break even. 159 orders now, 20 more expected this year......that's supposed to impress me if I own EADS stock?

If UPS cancels this year net gain = 0

Even Leahy must be having a problem spinning this as good news......
 
manni
Posts: 4049
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 1:41 pm

Quoting Racercoup (Reply 41):
If UPS cancels this year net gain = 0

If, and that's all it is at the moment, if UPS cancels Airbus will lose 10 orders, not 20.
SUPPORT THE LEBANESE CIVILIANS
 
WingedMigrator
Posts: 1767
Joined: Wed Oct 26, 2005 9:45 am

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 1:42 pm

Quoting Jacobin777 (Reply 36):

My question is how is Airbus going to hit those numbers?

Does it have to? So what if it can't?

Two important points bear repeating. (1) the program will generate positive cash flow starting in 2010, regardless of break-even or ROI considerations. Those considerations are important before a decision to launch a program is made, but that time is long past. They are now purely academic considerations analyzed with 20/20 hindsight, hence my rhetorical questions. The milk has been spilled, and one must accept it (along with the usual a.net Schadenfreude). Finally, (2) the launch decision was based on a 270-frame break-even. The intervening cock-up could not have been foreseen at that time, and does not in any way invalidate the original launch decision.

Now let's see what happens... 2007 is a bellwether year for the A380.
 
jacobin777
Posts: 12262
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RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 2:17 pm

Quoting WingedMigrator (Reply 44):

Does it have to? So what if it can't?

Two important points bear repeating. (1) the program will generate positive cash flow starting in 2010, regardless of break-even or ROI considerations. Those considerations are important before a decision to launch a program is made, but that time is long past. They are now purely academic considerations analyzed with 20/20 hindsight, hence my rhetorical questions. The milk has been spilled, and one must accept it (along with the usual a.net Schadenfreude). Finally, (2) the launch decision was based on a 270-frame break-even. The intervening cock-up could not have been foreseen at that time, and does not in any way invalidate the original launch decision.

It absolutely does...even if it will generate positive cash flow...in its simplistic form, Airbus was touting that $1 dollar in would eventually be $1.20 out (with the A380 program specifically-not EADS/Airbus as a whole)...at $19 billion dollars now, it doesn't even seem remotely close...especially with the B748 nipping at its heels..

As an EADS investor, I would be furious..

Obviously with so much sunken costs into the program, there isn't too much in terms of flexibility-in other words, they basically have to go with the program.......also, I don't know what kind of math Airbus has done with 270 break even frames (I would like to see the breakdown in numbers-as I'm highly skepitcal of their numbers).. In fact, many analysts have questioned Airbus 270 break even numbers..many had figured around 300-350 frames...

Also, their $billions of dollars in tax payer money was at stake when the program was launched..as a possible EADS investor as well as possible tax-payer, I would like to know if my $1 investment would indeed be an ROI of $1.20 (or whatever positive amount-again, I'm only talking about the A380 ROI, not EADS/Airbus in total) after "x" amount of years.

Not only has the A380 become a financial sink hole....1)Airbus must keep selling A380 frames, otherwise the expenses (as well as losses) on the program will keep on mounting (their 2010 cash flow positive is predicated on the fact they will have lots of sales and keep the assembly line moving) 2)lost opportunities..how much financial and engineering talent has EADS/Airbus lost trying to fix this problem? It completely distracted them from other market situations (witness the B787/A350 situation), especially given that twins started to become more dominant..they had to look no further to see that their A330's were selling like hot cakes (as well as B777's)...3)Airbus themselves have said that losses for the A380 are not completed yet....

...and if I'm off on my comment, then here is something to ponder about..

""Airbus' 2006 nightmare with PLM can actually be traced back to the giant company's difficult birthing process in 2001. "This issue dates back to the historical structure of Airbus," recalls former Airbus financial executive Massey. A loose consortium of French, German, British and Spanish companies formally spun out Airbus in 2001 at the same time the A380 program was being launched.

Massey well remembers the infighting among the partners over jobs, and over which country would get the bulk of the mammoth aircraft's production work. Some executives, in fact, expressed the feeling that, as Massey puts it, "We shouldn't be launching this aircraft put together by four different nations." Such disputes can have a downside, resulting in a level of distrust or, at best, erratic coordination. "Because there was an awful lot of debate about the way to create this single-company structure, the A380 was held hostage to that," he says. "*

*baseline Feb, 2007

Will it be a successful plane? Maybe, no one really knows, but history (and time) is not on its side (IMHO)... no 
"Up the Irons!"
 
WingedMigrator
Posts: 1767
Joined: Wed Oct 26, 2005 9:45 am

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 2:31 pm

Quoting Jacobin777 (Reply 45):
As an EADS investor, I would be furious..

Exactly, and rightly so.

And there's nothing you could do about it. Except to sell and take the loss. And there's nothing Airbus can do about it. Except to build the damn airplane.

Quoting Jacobin777 (Reply 45):
their 2010 cash flow positive is predicated on the fact they will have lots of sales and keep the assembly line moving

They will still be working down their existing backlog through 2010 and 2011. They have a little bit of a grace period but really do need to rack up some orders this year.

I can't agree more with your other points. The opportunity costs are staggering and will continue to make themselves felt for years to come. I am simply pointing out that it's important to separate concerns that apply before a program is launched from those that apply afterwards. Every two weeks we prognosticate A380 sales (which do matter very much!) but rehash the same break-even discussion (which doesn't matter!)
 
2wingtips
Posts: 487
Joined: Fri Jul 21, 2006 12:42 pm

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 2:36 pm

Quoting Manni (Reply 43):
If, and that's all it is at the moment, if UPS cancels Airbus will lose 10 orders, not 20.

It's about as "if" as your opinion it's a "matter of if and not when BA order the A380". If they can't snag BA this year, the A380 is in real trouble........and that's my opinion
 Wink

Although, again IMO, the A380 is already in real trouble.
 
jacobin777
Posts: 12262
Joined: Sat Sep 11, 2004 6:29 pm

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 2:46 pm

Quoting WingedMigrator (Reply 46):

I can't agree more with your other points. The opportunity costs are staggering and will continue to make themselves felt for years to come. I am simply pointing out that it's important to separate concerns that apply before a program is launched from those that apply afterwards. Every two weeks we prognosticate A380 sales (which do matter very much!) but rehash the same break-even discussion (which doesn't matter!)

.I see your point  thumbsup ..I guess we actually agree on the subject then.. Smile

Quoting 2wingtips (Reply 47):

It's about as "if" as your opinion it's a "matter of if and not when BA order the A380". If they can't snag BA this year, the A380 is in real trouble........and that's my opinion
Wink

..well, here is something of interest..

http://news.independent.co.uk/busine...is_and_features/article2248795.ece

"" Airbus Industrie is set to lose out to its arch-rival Boeing on a $2bn (£1bn) order from British Airways to expand the UK carrier's long-haul fleet.

The order for 10 wide-bodied aircraft is due to be placed by BA in the next four weeks and Airbus executives appear to be resigned to the airline selecting the Boeing 777 jet rather than its A330 model.

Airbus was always second favourite for the BA order - the first it has placed for new aircraft in more than six years - as the airline's existing long-haul fleet is made up exclusively of Boeing jets. But the European manufacturer expects a bigger BA order to replace a large chunk of its wide-bodied fleet to go down to the wire. The order, potentially worth in excess of $10bn, is due to be placed before the end of the year and pits the new Airbus A380 superjumbo and the A350 XWB against Boeing's stretched 747-8 and 787 Dreamliner.

John Leahy, Airbus's chief operating officer for customers, said yesterday that he expected a very tight competition between the two plane makers for the prestige order.""
"Up the Irons!"
 
leelaw
Posts: 4520
Joined: Sat May 29, 2004 4:13 pm

RE: Leahy Expects To Sell 20 More A380s In 2007

Thu Feb 08, 2007 3:09 pm

Quoting WingedMigrator (Reply 44):
the launch decision was based on a 270-frame break-even. The intervening cock-up could not have been foreseen at that time, and does not in any way invalidate the original launch decision.

The "launch decision" in 2000 was based on a "break-even" of 250 units delivered and IRR of 20%+, which was officially revised by Airbus to a break-even of 270 units and an IRR 19% in the spring of 2005, before the first major program delay was announced in the June of 2005, as the first cost overrun projections began to come in.

Interestingly, at the dawn of the widebody age, the "launch decisions" for the 747, DC-10, and L1011 were based on a break-even of 200 units delivered and an IRR of 20% based on production runs of 400-500 units. I happen to know this because as a child in the early seventies I wanted to find out how many commercial aircraft were being ordered by and delivered to the airlines. A librarian at my local public library kindly directed me to the S&P Stock Reports which were chock full of this information presented in a concise manner, as well as the related financial data, updated on a quarterly basis. Thus, as an unintended consequence, I had a gleaned this financial data long before I knew what "order backlog," "break-even," and IRR really meant. I will say because of the straightforward narrative writing style of the S&P editors of the time, even a child could figure out that e.g., Boeing wouldn't "make any money" on the 747 program until they had delivered two-hundred aircraft.

Like many here, my obsessive "nerdiness" with everything about aviation began as an innocent, and continues today unabated.

[Edited 2007-02-08 07:19:50]
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