Airbus Analysis Essay Example

achieve a market share of 10% by 1975. These models and the introduction of the A-310 helped Airbus achieve a market share of 26% by 1978. In 1979 the British rejoined the consortium.

Along with the new models and the technological advantages Airbus continued to gain market share in the aerospace industry. By 1985-86 Boeing’s market share had decreased to 46%, from a high of 70% in the mid 1970’s. Because of this decrease Boeing started accusing Airbus of unfair trade practices because of their financial backing of the European governing partners (Carpenter, M. A., & Sanders pg. 613). These accusations eventually led to the US government filing a complaint against Airbus at the General Agreement on Trade and Tariffs, which eventually led to a 1992 bilateral agreement between the US and the European that limited the financial help that could be given to Airbus to help develop any new model to 33% of the total development cost and required Airbus to payback the financial aid with interest (Carpenter, M. A., & Sanders pg. 613).

In 2001, Airbus was incorporated into an integrated company with EADS (European Aeronautic Defense and Space Company) and BAE (British Aerospace Systems) employing 45,000 employees with manufacturing plants spread all over Europe (Carpenter, M. A., & Sanders pg. 614). 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.com)

SWOT Analysis Strengths Airbus has multiple strengths over Boeing which provides them the competitive advantage. Airbus has a flexible, non-union, workforce of 45,000 employees and has

the benefits of financial backing of European governments to allow for faster cash flow for plane development. Because of the backing of the European countries, it provided Airbus the ability to produce their jets at a low cost by splitting the designing, development, and production activities allowing Airbus to tap into each of the individual strengths. Airbus’s first lines of jets, the A-300, were the first to the market as a wide body twin-engine jet that are fuel efficient, economical to run and require low maintenance costs. Airbus became the leader in technological advances in the creation of their jets by using computers to design their jets. Airbus was the first to produce passenger jets that had fly by wire, standardized two man cockpits, six-cathode ray tube displays replacing dials, and The A300 becomes the first aircraft to be equipped with the Cat IIIA autoland system, allowing the aircraft to land in very poor visibility (Airbus.com) Weakness

Weaknesses that Airbus has, is that due to their structure, and having a multi country consortium, they were slow to make decisions. In the 1980’s Airbus experienced difficulties in financing the A-320 project, since all the Airbus partner governments had not approved the program (Carpenter, M. A., & Sanders pg. 613). Airbus was slow in its decision making process because the partners of the consortium tried to safeguard its own interests rather than make decisions that would benefit them as a whole (Carpenter, M. A., & Sanders pg. 613). Opportunities

With Airbus continuing to gain market share on Boeing, some available opportunities that are not mentioned in the case study is an expansion into military production.

Boeing was the leader of military aircrafts and this would be an open opportunity for Airbus. Airbus eventually entered into the military production in December 2000 with orders for the German Air force. Airbus has the opportunity as well to take the lead on green initiatives, as the world grows ever more concerned about the environment. Threats

As Airbus continues to grow on their technological advances, it is only a matter of time before Boeing catches up to them. Other external threats that may affect Airbus are the possible increase of terrorist attacks, which can slow down air travel similar to the attacks of 9-11. The global economy is a threat as well; as the economy continues to struggle air passenger travel decreases reducing the demand of new jets.

PESTEL Analysis Political Factors With Airbus being a consortium of European governments, Airbus had a definite competitive advantage over Boeing in the aerospace industry in Europe. Airbus did not have to worry about the trade agreements within the European Union (EU), and the multi-governmental financial backing gave Airbus an advantage as well. Airbus was already a global manufacturing company with locations in Germany, France, England, and Spain and being a part of the EU had little to worry about in regards to taxation laws. Economic Factors

With manufacturing locations throughout Europe, being part of the EU, and using the Euro currency, Airbus eliminated the exposure to exchange rates and trade tariffs. The purpose of being a member of the EU and the Euro is to provide free trade to all of the members within the EU. This provides a competitive advantage over Boeing,

as Boeing would have to pay these tariffs to sell into Europe. Because of Europe’s strict labor laws, Airbus relies on non-union contract workers. Airbus had the flexibility to increase or decrease the workers hires on contract on the basis of its order-book position (Carpenter, M. A., & Sanders pg. 617), allowing Airbus to keep labor overhead to a minimum.

Socio-cultural Factors The issues of social and cultural influences were at a minimum because of the fact that each of the consortium governments was responsible for their own production. Each had to manage and ensure that the production schedules were met. Airbus did not have to worry implanting foreign policies into its organization and Airbus benefited from the transnational element of its organizational structure by exploiting the expertise of its four partners to the fullest (Carpenter, M. A., & Sanders pg. 617). Technological Factors

Airbus had technological advances over Boeing. Airbus’ manufacturing process and multi country assembly, allowed them to be flexible and utilize each countries expertise in the assembly of their jets. Over the years Airbus continued introducing new technologies and inventions compared to Boeing. Some of the innovations are the fly-by-wire, similar cockpits, and wider fuselages. Airbus also used computers to design their jets, reducing the number of engineering hours spent on designing and helped Airbus produce better designs than Boeing (Carpenter, M. A., & Sanders pg. 617). Airbus utilized a line manufacturing process vs. Boeing’s stall manufacturing process and had a 51% productivity advantage over Boeing due to a flexible workforce. Airbus’ sophisticated manufacturing process enabled it to work with fewer people (Carpenter, M. A., & Sanders pg. 617). Environmental

Factors

With the rising restrictions from airports on noise pollution and trying to reduce the carbon footprint on the environment, Airbus worked to reduce their environmental impact. Airbus believed that airlines would opt for bigger planes, as they would require fewer take off and landings (Carpenter, M. A., & Sanders pg. 618). Airbus also worked to reduce their weight of their planes by creating a new material called Glare, which would aid in the take-offs of the larger planes. Airbus’s A-380 would reduce operating costs by 25% over Boeing’s 747, and Airbus produced planes that were much more fuel-efficient than Boeing. Legal Factors

Legal factors have very little impact to Airbus. Since, as mentioned earlier, Airbus has manufacturing locations throughout Europe, and each country is responsible for producing their part, the legal ramifications of the countries is limited. Airbus utilizes a contract workforce allowing them the flex to the order demand. Since Airbus is part of the EU, tariff and trade requirements are not a factor as well. Airbus does have an issue in some regards as it pertains to local governments. For example, when Airbus looked to expand and bring in more partners they had a hard time, as under French law Airbus did not have to share their financial details. In the late 1980s’ the US filed a complaint against Airbus stating unfair competition because of the support Airbus received from the European governments. That complaint led to a 1992 bilateral agreement between the US and the European that limited the financial help that could be given to Airbus to help develop any new model to 33% of the total development

cost and required Airbus to payback the financial aid with interest (Carpenter, M. A., & Sanders pg. 613).

VRINE Analysis Value Airbus’ values were many. Airbus had over 45,000 employees and manufacturing plants throughout Europe. The majority of the 45,000 employees were non-union contract workers allowing Airbus to be flexible to demand. The many technological advances provided value to and industry that was not previously seen (fly-by-wire, similar cock pits, autoland system). These values allow Airbus the ability to produce cheaper planes that were more fuel-efficient and required less maintenance. Rarity

Airbus was rare because of their advanced technology at that time. Airbus was the first to utilize computers in their cockpits, standardized cockpits making it easier for pilots to go from one Airbus plane to the next, utilized computers to design the aircrafts more cheaply and quicker than Boeing, utilized a wider fuselage to allow for more seats in the plan. Airbus’s ability to produce their planes in a more streamlined manufacturing process allowed Airbus to produce their planes more cheaply than Boeing by being 51% more efficient than Boeing. Airbus was rare as well, because they filled a niche in the airline industry by producing regional jets. Inimitability and Non-substitutability

Boeing could imitate Airbus and their design of smaller regional aircrafts. Airbus’s inimitability was initially their ability to obtain the financial backing of the countries involved which provided Airbus with an advantage over Boeing. Airbus’s manufacturing process, use of line assembly, also provided them with the ability to be inimitable because of their ability to produce cheaper planes. If Boeing were to compete with this, they would need to do

a complete overhaul of their manufacturing process, which could be done, but would be very costly to do allowing Airbus the competitive advantage during Boeing’s transition. Exploitability

Airbus was able to take advantage of their financial backing, multi-cultural assembly locations, non-union contract workforce, and sophisticated manufacturing process and put them to effective use to take advantage in the airline industry. Airbus was able to keep their overhead low, keeping their operating costs low to allow them the ability to produce a low cost more fuel-efficient plane vs. Boeing.

Stakeholder Analysis

The key players in the Stakeholder Analysis are the governments of the consortium, which make up Airbus. The consortium strategy was to take on Boeing who dominated the commercial aircraft marketplace. With the governments providing the financial backing of Airbus, they are the stakeholders who are most important based on the firm’s strategy and are at most risk based on the financial performance of the consortium. With the financial backing of the governments, it is also important for the financial success of Airbus to allow the governments the opportunity to recoup their investments from sales and tax revenue. The consortium has the direct power over the decisions making process of the business. It is the consortium that has the ability to make decisions on production, although slow at times to ensure that the local governments interests were protected, it still ultimately flexed its political power on the decision making process.

Porters Five Forces

Rivalry

With the duopoly in the commercial airline industry between Boeing and Airbus, the rivalry is easy to identify, as these two are the major players

in the airline industry. The strong rivalry between Airbus and Boeing is an intense one. With Airbus’ ability to create lower cost planes due to more modern manufacturing process, Boeing started offering huge discounts of about 25% on its aircrafts in a bid to draw customers back from Airbus (Carpenter, M. A., & Sanders pg. 617). Although there are not many players in the airline manufacturing industry, because both Airbus and Boeing are of equal size and power, price competition ensues. Other factors contributing to the price rivalry are the fact that for both companies the airline business is strategically important. Even with the technological firsts that Airbus has had over Boeing, for the most part both companies have a difficult time differentiating themselves from each other. With the airline industry being one that involves heavy investment, it would be difficult for either Airbus or Boeing to leave the industry; this is known as exit barriers.

Threat of Entry

Within the airline industry the risk of new entrants is low due to the fact of the high investment costs and the specialized manufacturing processes to enter into the market. With the threat of a new entrant into this industry being low, this will continue to lead to a continued price battle between Airbus and Boeing. With the degree of difficulty potential new entrants face in trying to enter into the airline industry, creating a high barrier of entry, the high barriers of entry have the effect of reducing potential competition by limiting supply and reducing rivalry (Carpenter, M. A., & Sanders pg. 121). This lack of threat is a strong indicator that keeps

both Boeing and Airbus profits high and even though they can raise prices on their products, they keep them in check to ensure that the other does not gain a competitive advantage over the other.

Supplier Power

With Airbus and Boeing dominating the airline industry and creating a duopoly, the supplier power is weak. Suppliers of raw material to both Airbus and Boeing are limited in the customers that they have. As mentioned above, with low risk of new entrants into the marketplace, suppliers are going to be tied to both Airbus and Boeing. When focal-industry participants have negotiating strength, suppliers have limited bargaining power (Carpenter, M. A., & Sanders pg. 122).

Buyer Power

Airbus and Boeing have a high/strong leverage of buying power against the suppliers. Because both Airbus and Boeing are the main players in the airline industry they have the ability to dictate pricing to suppliers. Buyers have greater power in the exchange relationship with its suppliers when the buyers are prestigious and when their purchases represent a significant portion of the seller’s sales (Carpenter, M. A., & Sanders pg. 122).

Threat of Substitutes

The threat of substitutes is very low in the airline manufacturing business. As stated before, the duopoly by Airbus and Boeing has created a safe guard against substitutes. Obviously the market demand can shift from airline to other modes of transportation, but for transportation that is going to require speed the airline industry is safe.

Impact of Complementors

Complementors of the airline industry, based on Porter’s Five Model theory, are the air lines (United, Delta) since they are buying the

product from Boeing or Airbus. Further expansions of the Complementors are travel agents who sell vacations that will utilize the planes purchased by either Airbus or Boeing.

Competitive Advantage

In Porter’s definition of competitive advantage, there are two types of advantage 1) cost advantage and 2) differentiation advantage. Airbus takes an advantage over Boeing in both of these categories. Airbus has produced planes that are lower in cost vs. Boeing by using fewer employees in their assembly process. Not only are Airbus planes cheaper to purchase; they are less costly to maintain and use less fuel than Boeing planes. The technology advances that Airbus provided are numerous vs. Boeing. Airbus was first to use computers in their cockpits, utilized the same cockpit across all of their planes, and used fly-by-wire to name a few. All of this mentioned shows that Airbus fulfills Porter’s competitive advantage theory.

Alternative Strategies Airbus's core business is manufacturing and selling aircrafts (aviationtoday.com), this defines Airbus’s profit structure. Airbus’s strategy is inline with all of the analysis completed and supports all their decisions in their attempt to compete against Boeing as the leader in the aerospace industry.

In an effort to maintain their competitive advantage over Boeing, Airbus needs to be aware of strategies that could derail its advantage. Airbus needs to streamline their decision making process. We already know that they have had issues in the past with disagreements within the consortium, and they need to ensure this is avoided in the future.

Budget over runs on the new A-380 are also a big impact on their competitive advantage. Airbus admitted the plane's (A-380) development

would cost extra $1.45B euros, bringing the overall cost to about $12B euros (BBCNews). This delay in the launch of the A-380 has already led to canceled orders. Airbus should look again at their investment into large commercial airlines. With the large budget overruns just mentioned, and how the point to point segment now owns one-third of the market, up from about 5 percent in the early 1990s. Consumers have been abandoning legacy carriers for years, and that decision is proving that there’s money to be made if you listen to what customers have to say (freakonomics.com).

For Airbus to remain in a competitive advantage state that they are currently in, Airbus should continue the trend of utilizing their flexible workforce and maintaining their lean manufacturing process that gives them a more productive workforce over Boeing. Airbus should continue striving towards green initiatives. Providing low cost fuel-efficient planes will maintain their competitive advantage. With environmental initiatives continuing to expand against the airline industry, Airbus needs to continue their trend of leading the market with new technologies especially in the environmental field.