Airbus Case Analysis free essay sample

INTRODUCTION Until 1980, the American manufacturers in the aerospace industry enjoyed an exclusive control of the aerospace industry despite the entry of the European-based Airbus industry in the late 1960s. The American manufacturers dominated the industry at the time that it was difficult for the European manufacturers to compete, but just like all industries resources and capabilities are fundamental building blocks for a firm’s strategy. Some business organizations especially those in the airline industry must face situations whereby to succeed depends on both internal and external factors. Boeing enjoyed the global market leadership of the aerospace industry for several decades. As it is common for most market leaders, Boeing fell victim of organizational inertia. The company failed to improve its production processes and come up with new and creative products. Although Airbus faced challenges at its entry, within two decades it became a major competitor of Boeing. As a new company, Airbus never rested but continually introduced different innovations in its planes. It seems that in the head to head competition, Airbus presently has the upper hand over Boeing. SITUATION ANALYSIS I performed a macro analysis, using tools like VRINE, PESTEL and Porters five forces to analyse the external environment. I performed an analysis of the industry environment and the firm including its financial situation. The Industry The commercial aircraft industry is dominated by two heavyweights, Boeing and Airbus. The aerospace industry is one of the most capital-intensive industry in the world. It faces both internal and external factors such as rivalry. One important characteristics of this industry is the high entry barrier of heavy capital investment required and a lot of government involvement. In the late 1990s and early 2000s, the September 11 attack affected the aerospace industry as they were hurting from a worldwide economic recession. Macro Environmental Forces The macro environmental forces that impacted Airbus and its competitors in the aerospace industry include the worldwide economic slowdown as stated earlier and the sharp decline in air travel resulting from the terrorist attack in USA. The worldwide fall of the airline industry resulted in most airline industry cancelling orders for new aircraft creating loss of revenues and intensified the competition between Boeing and Airbus, the only two companies in the commercial aircraft market. Consumers/Stakeholders In every industry success is determined by the response of the consumers. It was determined that EAD and BAE, airbus executive committee and partners were the most power stakeholders owning 80% and 20% respectively and the ones to be most affected by a new strategy. Level of competition Using the five forces analysis, one of the five forces that pose the most serious challenge is rivalry. Airbus and Boeing are competing against each other for consumers and best prices. The rivalry is intense and there is a serious fight to dominate market share. The power of buyer also increases competition in the industry. The threat of new entrants is generally weak mostly because of the high entry barrier and there is limited information provided on the threat of substitutes. Airbus found a niche in the US market for smaller aircrafts. The company was innovative in its design and introduced new products to the market. Boeing was not as successful as Airbus in designing new products. Another challenge would be the bargaining power of the buyers. Buyers would focus on the product that is more cost sensitive. Airbus is also in a position to charge lower prices than does Boeing because of its comparatively leaner manufacturing system. Boeing Strategy Boeing dominated the world market with its 747 jumbo jet family of aircraft. In the 1970s, it was allowed to fly any number of flights therefore there was increased number of flights on popular routes. Airlines found that the use of Boeing aircraft was expensive for frequent flying. There was a demand for wide body aircraft with two engines which Boeing was not interested at manufacturing at the time. Boeing launched lesser models of aircraft compared with airbus. Unlike Airbus, Boeing did not use computers to design its aircraft therefore they designed it manually which consumed a lot of time. Their internal capability was a bit weak seeing that in 1995 when they were able to have more customers than Airbus failed to stick to its delivery schedule. Boeing failed to reconstruct its production process and that enabled Airbus to compete. A VRINE analysis performed on Boeing shows that its current resources and capabilities seem not to have any competitive advantage over Airbus at the moment. Airbus Strategy 80% owned by EADs and 20% by BAE. Computer aided design capabilities. A VRINE analysis performed on Airbus shows a high level of competitive advantage as it provides lower costs and also innovative aircrafts. As both companies battles for market share they gamble using different strategy, Airbus is banking on the A380 jumbo jet and airline. Its strengths include the production processes and practises. They were market share leaders because Boeing lost its market share. Boeing had outdated production facilities and no counter to Airbus’ A380 Airbus competition strategy Airbus’s reorganisation has definitely increased the company’s ability to compete with Boeing and earn its leading market share on the aerospace industry. In 2002 Airbus reported a turnover of $24. 3 billion. In 1974, Airbus launched its first product A-300, a wide body aircraft with twin engines and twin isles; this reduced the flying cost of the companies. Boeing aircraft was expensive for frequent flying. In 1990, Airbus launched 4 families of products while Boeing launched only two. Airbus planes are newer in design and cheaper to own than Boeing. Airbus differentiated itself from Boeing by innovating different products. Airbus took a technological lead by offering common cockpit configuration. Installing similar cockpits across models means that airline companies could now use the same crew for different models of Airbus planes. The aircraft design of Airbus also differentiate it from Boeing. For example, the Airbus A-320 was designed with 7. 5 inches wider fuselage than that of Boeing 737 giving airline space to add more seats in six across configuration. In 1984 Airbus created a first commercial flyer jet with fly-by-wire controls and side sticks and was designed to meet the requirements of short distance routes. Airbus’s strategy seems to be a low cost leader. It also capitalises on its current competitive advantage in manufacturing efficiency. Airbus is using their ability and excellence in design to ensure they meet their strategic target of cost leaders. Boeing’s response to Airbus strategy Boeing was slow to respond when Airbus entered the commercial aircraft segment of the aircraft industry. Perhaps Boeing believed their presence and market dominance would allow them the luxury of not being threatened by new entrants. Giving the capital requirements, manufacturing complexity and other entry barriers perhaps Boeing was justified in its initial stance. Unfortunately it held on to this perspective for too long. As Airbus became an obvious competitor, Boeing attempted to neutralize them through attacks on their funding structure. Airbus was a consortium of several European countries. The argument was they had an unfair advantage based on government backing of their debt and a loose requirement they even pay back their debt. Airbus’ response was to restructure the agreement among countries and restructure the organization to reduce the validity of Boeing’s complaint. Boeing also reacted to Airbus product lines by introducing new planes of its own. Unfortunately several of Boeing announcements were just procrastinations as they never materialized into new aircraft. Even planes that did get built were generally incremental modifications to their existing fleet. Boeing took a reactive incremental approach to product evolution. Airbus on the other hand was extremely innovative in its new product designs. The designs were planned to take advantage of Airbus manufacturing efficiencies. Furthermore, Airbus not only attempted to gain cost advantage from its production efficiencies, it also delivered efficiencies to customers that encouraged the customers to have a fleet of Airbus planes. The similarity in cockpits reduced training cost and added pilot scheduling flexibility for Airbus customers. Boeing cockpits were unique for each model and very different across its product mix. THE FIRM AND ISSUES Airbus has a growing market share. Their mission was to fill the global market needs and design the aircraft in the users mind. They implemented their strategy by producing the most comfortable and economic airplanes available. They had a global partnership and were very innovative in their technology. External environment Airlines competitiveness needs a lowered operation cost by purchasing aircraft that supply operational economy or scale. There is difficulty entering the industry because of the high capital necessary to start manufacturing Internal environment They were very innovative. Airbus is backed by financial strength of privately owned partners and government. One weakness is that it is not a public company therefore do not enjoy the benefits of incorporation. They have the ability to use other technologies in commercial airline application. They continue the search for new technology to embark on a new niche. They aim to increase global market share and improve financial position. RECOMMENDATION They should maintain their current strategy and try to be a cost leader in every segment of the commercial aircraft industry. They should reconstructure their partnership. Since there is a high concentration on niche, they should focus less on that and improve their consortium structure. If that works, stakeholders would also benefit from the new structure. Merging is an option to allow expansion and growth. It is advised to start to focus on the wide body segment so they can maintain their competitive advantage. Need aircraft to compete against Boeing 737. They should not relax but continue to produce innovative products. Every evaluation should be planned or acted upon with primary stakeholders, so at every decision made, they move forward immediately. This would help on a short term. On a long term, they should evaluate their current strategy every few months so they can capture any internal or external changes.