Financial evaluation of the Airbus A380Neo program

  • David Freimuth (Student)

Student thesis: Master's Thesis

Abstract

In the foreseeable future aircraft manufacturer Airbus will face the decision on investing into the A380Neo, a successor product from the world’s largest passenger aircraft, the A380. The A380’s total costs were approximately e 25 billion, however only 319 orders were gained of which 193 are already delivered until June 2016. The market did not develop as Airbus anticipated towards large wide body aircrafts. In the past decade airlines were much more interested in small and medium wide body aircrafts, which achieve with just two engines better economics, have a higher operational flexibility and are less risky to deploy. The A380Neo program would cost an estimated e 3 billion and the plane could be available as early as 2021. Due to its high specialization the aircraft faces limited demand while being subject to low margins, as it fails to provide most airlines with a competitive advantage thereby not justifying any willingness to pay a premium for the jet. A discounted cash flow valuation results that it is in the current market environment not financially justifiable to commit to the A380Neo investment. A real-option valuation shows that postponing the decision and holding the out-of-the-money call option is only optimal for Airbus if costs associated with waiting are low. Consequently, Airbus should not decrease the production rate in order to win time over the decision. Due to political interests, a revamping of the series is still likely even if the project will be a negative NPV investment.
Date of Award26 Oct 2016
Original languageEnglish
Awarding Institution
  • Universidade Católica Portuguesa
SupervisorJanis Berzins (Supervisor)

Designation

  • Mestrado em Gestão: Programa Internacional

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