Check out this story which hit Reuters today.
SEATTLE, Oct 5 (Reuters) - Airbus Industrie [ARBU.UL] has
overestimated demand for its proposed 555-seat A3XX megajet,
which may not generate positive cash flow before 2017, analysts
at Credit Suisse First Boston said on Thursday.
The A3XX will offer big technological advances over today's
commercial fleet but Airbus will struggle to meet its sales
forecast of 768 copies over the next 20 years, CSFB analysts
said after meeting officials from Airbus earlier this week.
Airbus, a joint venture of European Aeronautic Defence &
Space Co. (EADS) and BAE Systems Plc ,
will probably book the 50 to 60 orders needed to begin A3XX
production by the end of 2000, the analysts said.
But the second wave of buyers -- which would likely not be
given the fat discounts typically offered to launch customers
-- may prove much harder to find, the analysts wrote in a
report to clients.
"Airbus's 20-year A3XX sales forecast appears to be quite
aggressive," the report stated. "Is there a decent financial
return at reasonable risk? Who knows? The current business case
assumptions appear to be extremely optimistic."
CSFB agreed with Airbus's projections for selling about 250
A3XXs to airlines serving major hub-to-hub routes like New
"This is a base case we can live with. The other 500
aircraft sales are rather more speculative," the report said.
Airbus will not compete with Seattle-based rival Boeing Co.
in the market for jets seating 400 to 480 passengers,
leaving room for Boeing's flagship 416-seat 747, CSFB said.
With Airbus not expected to ship A3XXs before 2006, the
jetmaker will have to deliver its projected 768 superjumbos
over a period of 14 years, meaning it would have to capture 70
percent of the large jet market in that period, CSFB said.
Under Boeing's more conservative market estimate of 1,000
jumbo jet sales in the next 20 years, the Airbus goal looks
even more ambitious, CSFB said.
"No background information was given to support this view,"
the report said.
Even assuming A3XX sales reach the goal of 768, Airbus will
not take in the $175 billion in revenues it projects from those
sales, which would require a sales price of $227 million, above
the list price of $216 million, CSFB said.
"This does not work. There is no inflation in prices, and
discounts are commonly 20 percent. How can they generate an
average price of $227 million against catalogue of $216
million," the report said.
Last week Singapore Airlines Ltd. said it would
buy 10 A3XXs and take options on 15 more, valuing the deal at
$8.6 billion, or $344 million per plane, including spares and
Airbus and Boeing have waged a spirited battle for
commercial jet orders for years, and CSFB estimated that the
customers that have ordered the first 32 A3XXs have enjoyed 30
percent discounts from list price.
Airbus recently lowered its estimate for A3XX development
costs to $10.7 billion from $12 billion and expects to generate
cash flow of $60 billion from the project over 20 years,
breaking even by 2011, the CSFB report said.
CSFB said those projections were too optimistic, noting the
cash flow estimates ranged from $20 billion to $100 billion
over 20 years.
"Airbus analysis shows cash flow neutral position could be
delayed to 2017. Who knows," CSFB said.
Some analysts peg A3XX development costs at $15 billion to
The project's technical risks are low, and Airbus's heavy
use of advanced computer-aided design techniques will help rein
in production costs, CSFB said.
"We believe the aircraft works and will be the most
advanced aircraft in the world in 2006, by some margin," the