The impact of Airbus’s “asset value guarantees” for the Airbus 340

An article in Bloombergbusinessweek titled “Airbus May Need a Plaid Jacket” (December 9,2013) describes asset value guarantees that Airbus provided for buyers of the A 340 – which promised to compensate buyers of resale values were below a specified level. The rise in fuel prices means that A340s cost 30% more in fuel costs compared to newer airplanes like the Boeing 777X and A350. Resale prices for airplanes purchased for $120 million are now around $20 million, but guarantees are for $60 to $70 million. Airbus is thus forced to find new users for the old planes so that its customers can upgrade to A350s. But will the rising flood of A340s drive down their value even further ? Are such asset value guarantees a necessary evil to drive production volumes, and thus cost decreases, for new airplanes ? Will Airbus have to take back the A340s and lease them to users for short term leases as a way to prop up the market ? How will the engine manufacturer, Rolls Royce, which depended on flight miles to recover costs, have to adjust to face these new realities ?

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About aviyer2010

Professor
This entry was posted in Global Contexts, Operations Management, Service Operations, Supply Chain Issues and tagged , , , , , , , , , . Bookmark the permalink.

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