Airbus Industrie: PEST Analysis Essay Example

world's leading aircraft manufacturers, and it consistently captures approximately half or more of all orders for airliners with more than 100 seats.Airbus was initially managed by a consortium of national entities. Airbus France, Airbus Deutschland and Airbus Espana merged to form European Aeronautic Defence and Space Company (EADS) with 80 % shares and BAE systems with 20 %. Airbus became a wholly integrated company in 2006, following the sale of holdings by BAE. The supply and assembly chain is distributed around 16 locations in Europe, with final assembly line at Toulouse and Hamburg. Airbus had established engineering design, sales and support centres in North America, Japan, china and Russia.

Airbus is catered by over 1,500 suppliers present across 30 countries.Airbus concentrates the suppliers at the customer’s base and develops ties with the various industries in all the countries. 2. 1 Corporate Mission Airbus' mission is to meet the needs of airlines and operators by producing the most modern and comprehensive aircraft family on the market, complemented by the highest standard of product support. (airbus mission, 2008) Airbus keenly strives to cultivate values of excellence and innovation among its ethnically-diverse employees and considers its clientele and the stakeholders of the supply chain to be partners with due importance to quality and performance.Airbus products are always in line with the market expectation and synergies, aptly reflecting the organizational mission and values.

Airbus believes that feedback from the beneficiaries and stakeholders are very important and make every effort to implement and upgrade the product chain based on the external inputs as well after strategic reviews. Airbus wants to build up its reputation as a renowned company with high degree of

commitment towards quality, safety and minimum environmental effects in their products. Airbus wants to be regarded as a genuine company responsible for high quality products among the public. .

The industry is filled with risks due to high economies of scale. The new entrant has to come in at a large scale and should target sales on a global scale. The cost of a 100 seat plane would be somewhere around $3.5-$4 billion or more. Boeing and Airbus, the two leading market players are now presently dealing with larger aircraft having more than 800 seats, therefore the cost of the engine itself would be around $3-$4 billion.A new 100-seat airplane would cost $3-4 billion to develop; whereas a new 800-seat airplane Boeing and Airbus have recently considered would require an investment of $10 billion or more. General Electric developed the GE90 engine by spending almost $3 billion for Boeing 777. (Garvin, Samuels, and Masterson 1994).

The manufacturing process is also is a long learning or experience curve due to the complexities involved in the production viz. assembly level and testing operations require high end of labor skills. This can be achieved only by larger investments for the production line as well as the research and development activities.Companies may also need subsidies from the governmental organisations, through regulations, or some grants for defense production for the respective government. Airbus roughly received over $10 billion from European governments between 1970 and 1990 so it could get to the level today where the company can survive on its own (Yip 1992, 229).

The aircraft industry is dominated by two market leaders and the customers will not think of going in with

the new entrants, as the dominants have vast technical expertise and experience.Since the major clientele is shared between the two – Airbus and Boeing, the new entrants will not be a big threat. Threat of Substitute Products: The industry faces almost no threat of substitute products due to the unique nature of the product. The threat of substitute products in aircraft industry is very minimal due to the uniqueness of the product.

The primary contractors such as GE, Rolls Royce or Pratt & Whitney will not be facing any threats due to high level of investments and switching costs required in the manufacturing the critical components for the aircrafts.However, raising operational costs of airlines are forcing people to look for alternatives such as trains and automotives for short distance travel, to avoid high fare rates. The small suppliers at the parts or component level may face threats due to availability of new technological products such as nano carbon fibers, which would ultimately replace the existing materials. Bargaining Power of Buyers Airline companies often induce stringent competition between the aircraft manufacturers, Boeing and Airbus, and the engine manufacturers, Pratt & Whitney, General Electric, and Rolls-Royce.

The buyers can demand for extraordinary concessions and discounts from the prime contractors, due to the magnitude of the order capacity. As this would be contribute to a major chunk of their sales, the prime contractors will heed to the demands of the buyers. In this industry switching costs for critical components are very low, which increases the buyers' power. The training on different aircrafts and engines can be easily done for the stake holders. The huge losses incurred during the 90’s forced

the airline companies to reduce costs, which contributed directly to the cost reduction in aircrafts.Rivalry among Existing Competitors Although the aerospace industry has only a limited number of prime contractors, competition is fierce in order to retain their high customer bases through which they can recover the high fixed costs.

The companies would try to achieve maximum return on investments through the high volume sales to the potential customers. The industry's primary stakeholders are balanced on par and therefore exhibit little differentiation in their product lines, which increases even more the intensity of the competition. Bargaining Power of SuppliersThe bargaining power of suppliers is not that strong, but there are exceptions where a supplier may possess key technologies. In general, the prime contractors in the industry have several suppliers to choose from for their product line. So, on analyzing the aircraft industry using the Porter’s five forces model , we can infer that the leading market players Boeing and Airbus enjoys more leverage in comparison with other players in the industry.

PEST Analysis

PEST analysis is a framework used in analyzing the external factors that influence any organization.PEST is an acronym for Political Factor, Economic Factor, Socio-Cultural Factor and Technological Factor. Political Factors: The largest growth in air traffic is seen in the Asian region, specifically the Middle East.

The political implications between Middle East and US, gives a slightly higher preference to a non US manufacturer and Airbus is an automatic choice. The US is attempting to forge defense ties and contracts with other companies across its borders in order to help Boeing to regain its market. Airbus has placed its manufacturing facilities with respect to the

political alignments.This prevents airbus from moving production out to more economically friendly zones.

The routes between EU and US has been liberalized which had opened up a large demand for air travel between the two region and hence the demand for more aircrafts. Socio-Cultural Factors: Social Mobility has increased the demand for air travel. Change in the life style of people and the outlook of people toward air travel being a viable option. Higher technological advancements to reduce CO2 emission and Noise generated.

Economic Factors: World Sluggish Economy could potentially affect air travel demand.Rise in Inflation and global crude oil prices would force the airlines to increase the fares which would force people to look for alternate options. Rise in terrorist activities, particularly after September 11 attacks, have raised apprehensions on people about the safety of air travel. Increase in military exercises and defense expenses can increase the demand for aircrafts. Fluctuations in foreign exchange rates and currency value would affect the air travel.

Technological Factors: The Aircraft Industry is the one demanding the highest possible degree of R&D and innovations.Aircrafts have started using nano carbon Fiber for making the body frames. Alternative fuels to negate the effect of increasing oil prices.