Airbus Industrie Essay
Table of Contents 1. 0Executive Summary3 2. 0Introduction – Company Background4 2. 1 Corporate Mission5 3. 0Industry Structure6 4. 0PEST Analysis10 5.
0Internal and External Analysis12 5. 1 SWOT Analysis12 6. 0Core Competencies and Competitive Advantage14 7. 0Strategy Recommendations16 8. 0Potential Fallout18 9. 0Conclusion19 10.
0Works Cited20 1. 0Executive Summary The aircraft industry is on the higher growth projectile due to the emerging markets in Asia and other developing countries. There is a surge in the growth of aviation industry even though there are concerns of high surge in fuel costs.The two market leaders Boeing and Airbus are gearing up to achieve greater market share by aggressive marketing and product innovations. As the market is duopolistic in nature, the rivalry between the two market leaders is on the rise, in their quest to attain leadership in the markets. An attempt is made here to perform a detailed analysis of key strengths of Airbus industry and recommend various strategic measures in order to overcome their problems relating to product delivery and internal conflicts prevailing across Airbus.
The market factors are analyzed by using the porter’s five forces framework and infer an overall view of the market synergies existing in the aircraft industry. The macroeconomic study is done by using the PEST methodology and strategic objectives are recommended, with the revelations from the SWOT analysis of the Airbus industry, with respect to the prevailing market conditions. Airbus Industries was started as subsidiary of EADS (consortium of European Aeronautics and Defence Company was made into a wholly integrated subsidiary in 2007. This article ocuses on the various internal issues due to political imbroglios prevailing between the partners, the relationship with the EADS, strategic objectives with regards to Boeing’s strategic initiatives and the certain recommendations, that are necessary for the company to enhance their growth momentum to attain the market leadership and increase their clientele, by producing products with high standards of quality and safety. 2.
0Introduction – Company Background Airbus is one of the 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. .
0Industry Structure In order to assess the competitive strengths and analyse the strengths of Airbus, as a leading aircraft manufacturing organization in the world, porters five forces framework and PEST framework would be used. Porter five forcers model provides the framework for analyzing the aircraft industry using the following five parameters. ?Rivalry amongst existing competitors ?Threat of new entrants ?Threat of substitutes ?Bargaining power of suppliers ?Bargaining power of customers Figure 1: Porters Five forces for aircraft industry Threat of New Entrants:The entry into the aircraft market requires great level of investments and return on Investment can be accomplished after many years of successful stint. 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.
4. 0PEST 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. 5. 0Internal and External Analysis The internal analysis of Airbus and Boeing using SWOT analysis framework would help us to clearly identify the core competencies of Airbus and the strategic objectives that airbus has to adapt to position itself as the market leader ahead of Boeing.
5. 1 SWOT Analysis Strengths: ?Presence of diverse and highly skilled work force. ? Focus and emphasis on maintaining high standards of quality. Continuous innovation with new models like A380 and A350. ?The order management system is fully integrated with the supply chain.
? Economies of scale and price rationale with respect to market synergies ? Market leadership with flagship product – A380 largest aircraft. Weaknesses ?Indifferences within the board due to political factors ? Decline in relation with the parent company, EADS ?Almost all liquid cash flows were invested in A380. ? Uniform organizational culture is not present. ? Poor market forecast and product strategy especially A380 ? Backlog of orders and lack of schedule commitment.Opportunities ?Diversity of Suppliers.
?High prospects of new partnerships and alliances. ?Diverse range of suppliers to choose from. ?Increase in passenger traffic – almost double the present figures. ? “Strong connection between the European Union aircraft industry. ” ? Market opportunity in growing economic powers like China and India.
Threats ?Political and Government indifferences within the European Union. ?Orders not enough to achieve the returns on investment. ?Investment on Skill sets for Pilots and crew. ?Threat of new Entrants into the market due to emerging markets in growing economies. Product scope is small compared to its rival – Boeing.
6. 0Core Competencies and Competitive Advantage “A core competency is fundamental knowledge, ability, or expertise in a specific subject area or skill set” (Searchcio-midmarket. com, 2003). In order to achieve competitive advantage, core competencies are very much critical to a business. The core competencies of Airbus are as follows: Technological and Product Innovation: Airbus was able to bring in innovations into the product buoyed by the highly skilled workforce and use of efficient aerodynamic designs into their product line.Airbus product line is based on the inputs from the suppliers, customers and the various stake holders in line with their mission.
Airbus has a flagship product A380 which can carry more than 800 passengers in the economy class and can carry above 500 passengers in the standard three class configurations. Airbus was able to lead the market with their unique product differentiation in comparison with their rival Boeing. An indication to this is the SPICE recent addition to their product arsenal (SPace Innovative Catering Equipment) – a replacement for the catering trolley.Global and Efficiently managed Supply chain: The advantage for Airbus is the integrated supply chain and a global presence with supplies ranging from sheet metal to gears.
Airbus receives supplies ranging from over 1500 contractors scaling over 30 countries, at the highest quality and well within the timeframes set by Airbus. In addition to this, the supply chain is digitally managed with the use of RFID’s and OATS production ready manufacturing solutions. With the use of RFID’s, the logistics can be tracked from the central location, which will lead to efficient delivery of the supplies. (Managing automation, 2008).
This would really help them to access and track the consignments, which would enable them to feed their production line without any break. An additional concept that would be related to this above is that in June 2008, Airbus announced the “Airbus-led CFMS Core Programme – a jointly funded collaboration with the UK government and industry partners – will develop computer based systems and process to enhance the future design of the aircraft. ” (Airbus Industrie, 2008) Financial Subsidies: Airbus is receiving a larger amount of subsidies from the European government in contrast to Boeing with the US government. This gives Airbus a tremendous amount of financial flexibility and a very big competitive advantage when it comes to pricing its products. It also gives Airbus a huge security net since it does not need to truly repay the loans of a product proves unsuccessful in the marketplace.
” (Boeing Blog, 2008). This would help Airbus to achieve low production cost and thereby achieve cost leadership. Airbus has predicted that the emerging markets of India and china with largest population and vibrant economy would be the largest market for their products in the near future.Airbus has already started taking advantage by providing more aircrafts catering to this region. Even though Airbus faces few hurdles and setbacks in the production of A380, the new CEO Thomas Enders is very vibrant and confidant to turn the fortunes of Airbus, by clearly strategic move towards growth objectives.
Airbus can sustain their market leadership by taking advantage of the emerging demographic trends and psychographic patterns of the people towards air travel, in the emerging economies such as India and China. . 0Strategy Recommendations A company should always build upon innovative strategies in order to sustain the threats from the competitors and also to take their businesses into next higher level. A few recommendations have been dealt here which can help Airbus to sustain their competitive advantage and also enable it to address the various threats which are emerging both internally and externally. The first and foremost is the need to solve the political and cultural interferences to the running of the business.People from outside the European Union should be brought into the board in order to help the company expand its market outside EU.
As the French President Nicolas Sarkozy states, t here cannot be dualism at every level of the company. It has to revamp the entire organizational structure by bringing in more outsiders into the board. This will bring in innovative ideas and fresh blood into the organization, which will lead to better management and timely launch of the Airbus 350 and other models down the line.Since, the organization is vying to expand into markets outside EU, it would complement the company when they have personal who are well versed in those markets on the board. A unique organizational culture pertaining to Airbus is the need of the hour in order to inculcate a sense of commitment and pride towards the organization from the employees. Since the employees are from diverse culture, it would be hard for the management to bring them under a unique organizational ideal.
Corporate culture is really important to encourage the workers and make them work as a team to achieve the organizational goal. This would help Airbus to create its own identity and in due course of time make them independent of their parent company. Another important recommendation is that the market research and study need to be done on a more extensive manner covering not only the customers , but also various other stakeholders in order to have a clear idea about the various emerging markets and position themselves ahead of their competitors strategically.They also need to expand their client base by tapping the potential and untapped markets by way of entering into partnerships with the local organizations, which are very much aware of the local demography. This would help them to increase their market share and therby achieve economies of scale and cost leadership. Since the existing airports has to revamp their infrastructure to accommodate the aircraft of A380 models, Airbus has to convince the airports and the customers about the emerging trends on the increase in air travel and the need to accommodate more passengers on a single journey.
This would help the airlines to focus on single aircrafts instead of multiple ones on the same route thereby reducing the fuel costs. Airbus need to focus on delivering products that are fuel efficient as well as eco efficient in order to sustain their market niche. The surging crude oil prices have forced the airline companies to increase their costs thereby having difficulties in obtaining operational cost efficiency. Airbus can achieve liquid cash flows and return on Investments by focusing on timely delivery and also look for ways to increase their clientele.
This would make Airbus less dependent on the subsidy offered by the government and also to create a heavy corpus for the organization, which would help them to invest in Research and Development activities to create niche and innovative products. 8. 0Potential Fallout The factors that would contribute to the potential fallout of the organisation are skyrocketing fuel prices, the use of technologies which would reduce the human labor and the management indifferences. Airbus has to focus on delivering fuel efficient technologies like the competitor, Boeing in order to sustain the market.
This would help them to maintain the cost variance and thereby hold on to cost leadership. Further, the management structure need to be revamped and reorganized to focus on regional and emerging markets, in order to penetrate into the potential markets in a streamlined manner with efficient management. Employees need to be sustained and job cuts need to be reduced in order to create a positive outlook about the company’s performances by efficiently managing the human resources. 9. 0ConclusionThus, this article attempts to analyze the various factors both internal and external contributing to Airbus strategic Objectives, and the key initiatives that need to be adopted by Airbus in order to regain its market leadership and clientele. These initiatives would help Airbus to compete against its main rival Boeing and would enable it to achieve greater market share than Boeing.
References: 10. 0Works Cited Airbus Industrie. (2008, 06 28). Retrieved 06 28, 2008, from Airbus Industrie: http://www.
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