netrashetty
Netra Shetty
Madrid-based Endesa S.A. (ELE) is the largest electricity and energy company in Spain, with significant operations in Europe (Italy, France, Poland and Portugal) and Latin America (Chile, Brazil, Argentina, Peru, and Colombia). Of the group's electric generation capacity of more than 190,000 Gigawatt hours (GWh), approximately 47.6% is located in Spain and Portugal, while Latin America and Europe account for 33.3% and 19.1%, respectively. Input fuels for the generation assets include hydroelectric, coal, nuclear, oil/gas and others. Endesa is also involved in other activities, such as natural gas supply and distribution, where it has become a leader in Europe. Approximately 53.7% of the company's earnings before interest, tax, depreciation and amortization (EBITDA) in 2006 came from Spain and Portugal, while the rest of Europe contributed 15.6%, and Latin America contributed 30.6% of operating earnings. Input fuels for generation assets include hydroelectric (approximately 5.2% of the total generation in 2006), coal (67.1%), combined cycle-CCGT (10.3%), nuclear (13.1%), oil/gas (3.0%), renewables/CHP (1.3%), and wind (0.02%). The company has also moved into Poland through its SNET stake, and has signed a joint venture with Mytilineos Holdings and has entered the Greek market. The company is a subsidiary of Italian enery company Enel since 2009.
The European Aeronautic Defence and Space Company (EADS.PA) is the dominant aerospace company in Europe today. Its largest subsidiary, Airbus S.A.S., is an aircraft manufacturing company based out of several European nations, with the majority of its operations in France, Germany and Spain. The majority of EADS's profits arise from Airbus' operations.
Airbus and its primary competitor Boeing control most of the commercial airplane industry. Recently, Airbus has faced a barrage of difficulties stemming from delays with both the A380 and A350. These delays could cost Airbus more than $4B in the form of penalties, higher production costs and order cancellations. As a result of these delays Airbus is also significantly behind Boeing in terms of its current production cycle. It may be years before they can launch a new model that can effectively compete with Boeing's latest aircraft. In a positive development for EADS, the company beat 1Q08 sales and earnings forecasts on the strength of strong sales across all major divisions other than Airbus.
Business Drivers
Product Lines
Commercial
Airbus has revved up A320 production to record levels of 32 aircraft per month. This is expected to rise to 36 per month in 2008 and to 40 per month in 2009 with the opening of a plant in China. While margins are thin with this aircraft, Airbus hopes to generate a strong cash flow through high volume sales, with 2019 order backlog. This is greatly needed for Airbus to fund new projects, but comes with the risk of a meltdown resulting from the high stress placed on the production process.
Contents
1 Business Drivers
1.1 Product Lines
1.1.1 Commercial
1.1.2 Military
1.2 Future Aircraft
1.2.1 A380
1.2.2 A350XWB
1.2.3 Future Narrowbody Single-aisle Aircrafts
2 Trends and Forces
2.1 Future of Aviation: Hub and Spoke vs. Point to Point
2.2 Fuel Costs
2.3 Strength of the Euro vs. the Dollar
2.4 Aviation Sector Demand
2.5 International Demand
3 Competition
4 References
Military
In 1999, EADS spun off a military-product specific company from Airbus S.A.S called Airbus Military S.A.S. This move diversified its risk structure making the company less dependent on the cyclical nature of the Civil Aviation Industry. The success of the military component of the corporation is dependent upon defense spending. The performance of this aircraft in the coming years will greatly dictate the fortunes of the military portion of EADS.
EADS and Northrop Grumman are presently involved in a partnership bid for the US Air Force's 20 billion dollar project to replace the aging KC-135 and KC-10 refueling tanker fleet. This huge contract could potentially be worth 100 billion dollars over the next decades as the Air Force plans to replace over 600 aging planes. The Northrop-EADS backed KC-30 (using an A330 plane) is competing against a Boeing 737 based proposal. \ The Air Force's decision is expected later this year and will play a large role in the fortunes of EADS's military operations.
EADS's other concentrations include the Eurocopter, Space, Defense and Security Systems.
Future Aircraft
A380
Over the course of the late 1990's Airbus developed the A380 Super-Jumbo aircraft to replace the aging Boeing 747 as the largest civilian aircraft. Launched in 2002, the four engine, twin aisle jet has a seating capacity of 555+, the largest for a commercial aircraft ever. The A380 currently has 159 orders and 75 options of which 45 are with Air Emirates. Unfortunately, orders have stagnated since the 85 orders of 2001, with only 54 orders to follow over the next four years. Over the past year, the A380 has been plagued with launch delays that have tarnished the aircraft's launch. Airbus has lost billions of dollars through penalties, higher production costs, and a slower learning curve with the A380. EADS has even begun paying customers for lost revenue as a result of the delays: Emirates Air has received over $100 million from Airbus for the delays.[1] Boeing plans to launch a retrofitted version of its jumbo jet, the B747-8, to compete in this segment of the market.
A350XWB
In response to the success of Boeing Company (BA)'s 787s and 777s, Airbus has unveiled plans to introduce the new A350XWB to be released by 2013. With a capacity of 270-350 passengers this will become Airbus' primary product in the medium capacity, long range market. Along with the A380, this aircraft would play a large role in determining Airbus' future. Question marks loom over Airbus' plans to finance the 10 billion Euros of R&D required for the project. Unfortuantely delays and heightened costs associated with the A380 have diverted and delayed Airbus' attention towards this project, giving the B787 a large advantage in the Small/Medium Widebody sector.
Comercial Aircraft Orders
Model Family Total Orders Total Deliveries In Operation Unfilled Orders
A318/A319/A320 5,076 3,092 3,060 1,984
A300/A310 821 813 634 8
A330/A340/A350 1,190 812 806 378
A380 756 0 0 756
Future Narrowbody Single-aisle Aircrafts
Single-aisle aircraft demand accounts for the majority of aircraft sales. Presently, the Airbus A320s and Boeing 737s are the two competitors in this important segment. It is expected that Boeing will attempt to introduce its new model in this segment by 2013. In this case, Airbus may struggle to keep pace with Boeing as it struggles with delays and high development costs for the A380 and A350XWB.
Trends and Forces
Future of Aviation: Hub and Spoke vs. Point to Point
In investing such a great deal of its resources towards the development of the A380, Airbus has made a bet on the growth of the Hub and Spoke model of transport. If this model takes hold in the future, it will bode well for the A380 as it can cater to high-density routes. If a point-to-point model of transport takes hold, the existance of extremely high volume routes will be minimized thereby lowering the demand for the A380.
Fuel Costs
Airplane fuel costs account for a large part of airline operating costs. Fuel prices move in tandem with oil prices, their primary determinant. When fuel costs rise airlines have two choices: pass on higher fuel costs to passengers, decreasing consumer demand for travel, or absorbing costs direct order fewer aircraft. Rising fuel costs can also lead to greater demand for more fuel efficient aircraft.ly .
Strength of the Euro vs. the Dollar
Airbus' production is largely based in Europe, making the majority of its costs Euro denominated. Most of Airbus' sales are dollar denominated. This means that the company is sensitive to the movements of the Euro-Dollar exchange rate. While the airline has attempted to hedge some of this risk, the possibility of a continued decline in the dollar would drive up production costs relative to revenues from sales, thereby hurting profits. As of May 08, this has started to come to fruition. Airbus has begun to raise the price of their order book to offset the Euro's strength. More specifically, they have raised the price of the new A380 by $4 million.[2]
Aviation Sector Demand
Demand for Airbus Aircraft is determined by the success comercial airlines, which is in turn related to the fortunes of the individual airline and the state of the Aviation industry as a whole. The Aviation industry is extremely cyclical in nature, with downturns resulting from freak occurrences such as terrorist attacks. In taking orders for Aircraft, Airbus takes a risk that orders may be later cancelled. Generally, when airlines place orders, they pay between 3-5 percent of the total costs on order, and the next 20% in installments over the next year or two, while the final 75% is paid upon delivery. This backlog represents a potentially high risk in the event of a recession or large default.
International Demand
The commercial aircraft industry currently lies at a turning point in the dynamics of international aircraft demand. Traditionally emerging markets have accounted for less than 5% of commercial aircraft demand but over the course of the next twenty years, 1 in 5 aircraft deliveries will be to emerging markets. With traffic growth rates of 10% a year, markets like India and China will be crucial to the successes of Airbus.
Aircraft Fleet Growth in India and China
Country Passenger Fleet Size in 2005 Passenger Fleet Size in 2025 Freighter Fleet Size in 2005 Freighter Fleet Size in 2025
India 190 959 8 134
China 758 26666 33 409
This trend continues to the rest of the emerging world in Eastern Europe, Latin America, the CIS, and Africa. Traffic Growth rates in the developed world will average 4-5% compared to 8-10% for the emerging world.
Competition
Airbus and Boeing dominate the manufacturing of commercial aircraft. Currently Airbus has 48% of future orders in terms of value and 51% percent of orders in terms of total aircraft. Airbus dominates in the category of narrow-body aircraft orders with its workhorse A320. Boeing dominates in the more lucrative category of small/medium wide-body orders.
The European Aeronautic Defence and Space Company (EADS.PA) is the dominant aerospace company in Europe today. Its largest subsidiary, Airbus S.A.S., is an aircraft manufacturing company based out of several European nations, with the majority of its operations in France, Germany and Spain. The majority of EADS's profits arise from Airbus' operations.
Airbus and its primary competitor Boeing control most of the commercial airplane industry. Recently, Airbus has faced a barrage of difficulties stemming from delays with both the A380 and A350. These delays could cost Airbus more than $4B in the form of penalties, higher production costs and order cancellations. As a result of these delays Airbus is also significantly behind Boeing in terms of its current production cycle. It may be years before they can launch a new model that can effectively compete with Boeing's latest aircraft. In a positive development for EADS, the company beat 1Q08 sales and earnings forecasts on the strength of strong sales across all major divisions other than Airbus.
Business Drivers
Product Lines
Commercial
Airbus has revved up A320 production to record levels of 32 aircraft per month. This is expected to rise to 36 per month in 2008 and to 40 per month in 2009 with the opening of a plant in China. While margins are thin with this aircraft, Airbus hopes to generate a strong cash flow through high volume sales, with 2019 order backlog. This is greatly needed for Airbus to fund new projects, but comes with the risk of a meltdown resulting from the high stress placed on the production process.
Contents
1 Business Drivers
1.1 Product Lines
1.1.1 Commercial
1.1.2 Military
1.2 Future Aircraft
1.2.1 A380
1.2.2 A350XWB
1.2.3 Future Narrowbody Single-aisle Aircrafts
2 Trends and Forces
2.1 Future of Aviation: Hub and Spoke vs. Point to Point
2.2 Fuel Costs
2.3 Strength of the Euro vs. the Dollar
2.4 Aviation Sector Demand
2.5 International Demand
3 Competition
4 References
Military
In 1999, EADS spun off a military-product specific company from Airbus S.A.S called Airbus Military S.A.S. This move diversified its risk structure making the company less dependent on the cyclical nature of the Civil Aviation Industry. The success of the military component of the corporation is dependent upon defense spending. The performance of this aircraft in the coming years will greatly dictate the fortunes of the military portion of EADS.
EADS and Northrop Grumman are presently involved in a partnership bid for the US Air Force's 20 billion dollar project to replace the aging KC-135 and KC-10 refueling tanker fleet. This huge contract could potentially be worth 100 billion dollars over the next decades as the Air Force plans to replace over 600 aging planes. The Northrop-EADS backed KC-30 (using an A330 plane) is competing against a Boeing 737 based proposal. \ The Air Force's decision is expected later this year and will play a large role in the fortunes of EADS's military operations.
EADS's other concentrations include the Eurocopter, Space, Defense and Security Systems.
Future Aircraft
A380
Over the course of the late 1990's Airbus developed the A380 Super-Jumbo aircraft to replace the aging Boeing 747 as the largest civilian aircraft. Launched in 2002, the four engine, twin aisle jet has a seating capacity of 555+, the largest for a commercial aircraft ever. The A380 currently has 159 orders and 75 options of which 45 are with Air Emirates. Unfortunately, orders have stagnated since the 85 orders of 2001, with only 54 orders to follow over the next four years. Over the past year, the A380 has been plagued with launch delays that have tarnished the aircraft's launch. Airbus has lost billions of dollars through penalties, higher production costs, and a slower learning curve with the A380. EADS has even begun paying customers for lost revenue as a result of the delays: Emirates Air has received over $100 million from Airbus for the delays.[1] Boeing plans to launch a retrofitted version of its jumbo jet, the B747-8, to compete in this segment of the market.
A350XWB
In response to the success of Boeing Company (BA)'s 787s and 777s, Airbus has unveiled plans to introduce the new A350XWB to be released by 2013. With a capacity of 270-350 passengers this will become Airbus' primary product in the medium capacity, long range market. Along with the A380, this aircraft would play a large role in determining Airbus' future. Question marks loom over Airbus' plans to finance the 10 billion Euros of R&D required for the project. Unfortuantely delays and heightened costs associated with the A380 have diverted and delayed Airbus' attention towards this project, giving the B787 a large advantage in the Small/Medium Widebody sector.
Comercial Aircraft Orders
Model Family Total Orders Total Deliveries In Operation Unfilled Orders
A318/A319/A320 5,076 3,092 3,060 1,984
A300/A310 821 813 634 8
A330/A340/A350 1,190 812 806 378
A380 756 0 0 756
Future Narrowbody Single-aisle Aircrafts
Single-aisle aircraft demand accounts for the majority of aircraft sales. Presently, the Airbus A320s and Boeing 737s are the two competitors in this important segment. It is expected that Boeing will attempt to introduce its new model in this segment by 2013. In this case, Airbus may struggle to keep pace with Boeing as it struggles with delays and high development costs for the A380 and A350XWB.
Trends and Forces
Future of Aviation: Hub and Spoke vs. Point to Point
In investing such a great deal of its resources towards the development of the A380, Airbus has made a bet on the growth of the Hub and Spoke model of transport. If this model takes hold in the future, it will bode well for the A380 as it can cater to high-density routes. If a point-to-point model of transport takes hold, the existance of extremely high volume routes will be minimized thereby lowering the demand for the A380.
Fuel Costs
Airplane fuel costs account for a large part of airline operating costs. Fuel prices move in tandem with oil prices, their primary determinant. When fuel costs rise airlines have two choices: pass on higher fuel costs to passengers, decreasing consumer demand for travel, or absorbing costs direct order fewer aircraft. Rising fuel costs can also lead to greater demand for more fuel efficient aircraft.ly .
Strength of the Euro vs. the Dollar
Airbus' production is largely based in Europe, making the majority of its costs Euro denominated. Most of Airbus' sales are dollar denominated. This means that the company is sensitive to the movements of the Euro-Dollar exchange rate. While the airline has attempted to hedge some of this risk, the possibility of a continued decline in the dollar would drive up production costs relative to revenues from sales, thereby hurting profits. As of May 08, this has started to come to fruition. Airbus has begun to raise the price of their order book to offset the Euro's strength. More specifically, they have raised the price of the new A380 by $4 million.[2]
Aviation Sector Demand
Demand for Airbus Aircraft is determined by the success comercial airlines, which is in turn related to the fortunes of the individual airline and the state of the Aviation industry as a whole. The Aviation industry is extremely cyclical in nature, with downturns resulting from freak occurrences such as terrorist attacks. In taking orders for Aircraft, Airbus takes a risk that orders may be later cancelled. Generally, when airlines place orders, they pay between 3-5 percent of the total costs on order, and the next 20% in installments over the next year or two, while the final 75% is paid upon delivery. This backlog represents a potentially high risk in the event of a recession or large default.
International Demand
The commercial aircraft industry currently lies at a turning point in the dynamics of international aircraft demand. Traditionally emerging markets have accounted for less than 5% of commercial aircraft demand but over the course of the next twenty years, 1 in 5 aircraft deliveries will be to emerging markets. With traffic growth rates of 10% a year, markets like India and China will be crucial to the successes of Airbus.
Aircraft Fleet Growth in India and China
Country Passenger Fleet Size in 2005 Passenger Fleet Size in 2025 Freighter Fleet Size in 2005 Freighter Fleet Size in 2025
India 190 959 8 134
China 758 26666 33 409
This trend continues to the rest of the emerging world in Eastern Europe, Latin America, the CIS, and Africa. Traffic Growth rates in the developed world will average 4-5% compared to 8-10% for the emerging world.
Competition
Airbus and Boeing dominate the manufacturing of commercial aircraft. Currently Airbus has 48% of future orders in terms of value and 51% percent of orders in terms of total aircraft. Airbus dominates in the category of narrow-body aircraft orders with its workhorse A320. Boeing dominates in the more lucrative category of small/medium wide-body orders.
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