MCM 612 : BUSINESS STRADEGY & CORPORATE PLANNING

CASE STUDY ON AIRBUS - FROM CHALLENGER TO

LEADER

SUBMITTED BY:G04125 - SHARAD NAGARAJUG04126 - NIKHIL PRABHUDEVAG04127 – NITESH SASIDHARANG04128 – DANISH PATELG04129 – HINAL PATELG04130 – HIREN PATEL

Under the guidance of Prof. Tapash Ganguly

EXECUTIVE SUMMARY 

The aerospace industry is a multi-billion dollar industry and basically it has got two big players in the industry that has been competing against each other for such a long time. The case below discusses how Europe’s Airbus rose from a challenger to be the leader against US’ Boeing. It analyses the nature of competition between the two companies and the differentiating strategies Airbus adopted as against more conventional approaches of Boeing which led to its downfall.

Also this case looks at the structure of the aerospace industry as a whole, and the current strategic positioning of the two companies is also discussed. Towards the end a brief assessment is furnished on the possibility of a leadership style that makes one of the company leading in the market.

Airbus’ long term strategic plan and fundamental values by stating their vision and mission statements. The discussion of the case analyzes the external environment of the aircraft industry as a whole and then focuses in on Airbus’ internal environment. Strategic examination tools like Porter’s Five Forces ,etc are used to help guide the analysis within the discussion session.

Conclusions are then drawing as to the status of Airbus’ current strategic plan and its adherence to their vision and mission.

Q1) WHAT ARE THE CHALLENGES FACED BY AIRBUS? HOW IT RESPONDED TO THE CHALLENGES? IS COMPANY’S MISSION CLEARLY DEFINED?

1980s- Difficulties in financing the A-320 project

Mid 90s -Raise finance for its major Projects, (development of a new super jet)

Its slow decision-making process.

Late 1990s and early 2000s - Economic Recession compounded by terrorist attacks in the USA

•Financial support - European governments, provided cheap loans to the consortium with no repayment conditions.•In 1992 a bilateral deal was signed between the European governments and the U.S. government, that limited the financial help to Airbus to develop any new model, to 33% of its total development costs•. The agreement - repaid with interest within 17 years

•Its decision to restructure itself on the lines of an integrated company.

•Airbus changed itself from an unwieldy, four partner consortium into one for-profit company. •It took a decision of developing planes with more than 400 seats to compete with Boeing’s 747 series

•It managed to attract more and more customers. •Airbus’ success in this era was from the subsidies it received from European governments & also because of its production efficiency and innovative product development.

INNOVATIVE PRODUCT DEVELOPMENT

Airbus offered similar cockpits across every model. That took the technological lead by offering a common cockpit configuration

A-320 was designed with 7 1/2-[inch] wider fuselage

Used computer software to design its aircraft. That reduced the number of engineering hours and also helped Airbus bring out better designs.

Adopted the line-manufacturing method -process of assembling aircraft easier

AIRBUS’ VISION AND MISSION STATEMENTS

LONG TERM STRATEGIC PLAN Vision Statement: “Create the best and safest aircraft (Airbus, 2009)”

FUNDAMENTAL VALUES can be identified in its mission statement: Mission Statement: “To meet the needs of airlines and operators by producing the most modern and comprehensive aircraft family on the market, complimented by the highest standard of product support. (Airbus, 2009)”

HOW IT SUSTAINED ITS MISSION & VISION:

Entered the super jet category (400 seater) A-380.

A-380 - double-decker plane with a seating capacity of 555 passengers (137

more than the Boeing 747)

Super jumbo

priced at $213 million

Airbus felt that airlines would opt to buy larger aircraft to accommodate

growing consumer demand.

Super jet project received further encouragement when airline companies

also showed interest in the aircraft

whereas Boeing felt that airlines would be buying smaller aircraft - increased demand for point-to-point services rather than long-haul flights requiring bigger planes

With the introduction of the A380 to its family of aircraft Airbus is fulfilling two aspects of its mission of “producing the most modern and comprehensive aircraft family on the market” (Airbus, 2009). It also puts Airbus well on their way to realize their vision of “creating the best and safest aircraft”.

Q2. HOW IS THE COMPETITIVE ENVIRONMENT OF AIRBUS? PLEASE ANALYSIS THE RELATIVE STRENGTH AND WEAKNESS OF THEIR COMPETITORS

COMPETATIVE ENVIRONMENT

• Competition through the use of technology• Effect of currency• Competition through the provision of engine

choices

STRENGTHS

Boeing is fast excelling in business by the use of diversified product line. It has well established family of planes from small 737 to the largest carrier 747 which allows it to serve any airlines in any category.

It has strong supplier base and has many manufacturing sites.

It has strong focus on R&D. It has put in place the best CAD/CAM for the

design of aircrafts.

WEAKNESS

Boeing is late in adopting some of the technological innovations which its rival Airbus has already implemented.

Balance sheet and income statement indicate weakness. Its long term debt is increasing and its overall return on common equity is just 8.9% which is below the average industry rating of 13.1%

Boeing is also behind Airbus in getting Finance and leasing operation to support its sales.

Q3) WHAT DIFFERENTIATING STRATEGIES DID AIRBUS ADOPT TO SURVIVE AND SUCCEED OVER PAST FEW DECADES? HOW FAR DO YOU THINK THE ADVANTAGES ARE SUSTAINABLE IN THE LONG RUN? JUSTIFY

Innovative product development Good organization structure Production efficiency

STRATEGIES ADOPTED BY AIRBUS

Q4) Analyze the changes in the structure of aerospace industry over the years and evaluate its effect on competition in the industry???????

Q5 . PHYSICAL & FINANCIAL PERFORMANCE OF AIRBUS

HISTORY OF AIRBUS INDUSTRIE:

THE HISTORY OF AIRBUS DATES BACK TO THE LATE 1960S, WHEN BRITAIN, FRANCE AND WEST GERMANY LAUNCHED THE AIRBUS PROJECT.

IN JULY 1967, BRITAIN QUIT THE PROJECT, AND IN 1970 THE AIRBUS PROJECT WAS REORGANIZED AND NAMED AIRBUS INDUSTRIE, A FRANCO-GERMAN COMPANY

HEADQUARTER SET IN 1971 AT PARIS AND LATER SHIFTED TO TOULOUSE (FRANCE) IN 1975.

EACH PARTNER IN THE CONSORTIUM WAS ASSIGNED SPECIFIC PRODUCTION AND ASSEMBLY TASKS.

PHYSICAL PERFORMANCE :PRODUCTS LAUNCHED

1979 - Announced would launch : A-320

A single-aisle aircraft with a seating capacity of 130–170

1978 – In the two class configuration : A-310

First of its kind - two-man cockpit with a six-cathode ray tube display, replacing dials

1974 - Next product : A-300-B2

250 seater aircraft

1972 - Airbus’ first product : A-300-B

A wide body – twin jet plane

Capacity : 226 passengers

Had problems in financing the project

1987 - Introduced A-320

Launched 4 product families with nine airplane models

1990’s -focused on introducing new aircraft

Announced to restructure itself on the lines of an integrated company and by 2001 incorporated as

an integrated company.

Mid-90s faced a problem of financing major projects

First of a kind Double-decker plane A-380 was expected to fly by 2004 later

postponed to 2006

1998 – took a Gamble by announcing to develop a super

jumbo jet A-3XX

PHYSICAL PERFORMANCE :PRODUCTS CATEGORY AIRBUS V/S BOEING

Product Range of Airbus & Boeing

PHYSICAL PERFORMANCE :MARKET SHARE AIRBUS V/S BOEING

Global Aerospace Industry—MarketShares (in %)

FINANCIAL PERFORMANCE :

TURNOVER OF AIRBUS

Q7) WHAT LEADERSHIP STYLE DEMONSTRATED BY AIRBUS? PRESENT YOUR ANALYSIS.

Currently (circa 2003) Airbus is in the lead and has gambled on entering the jumbo aircraft market by launching the A380.

Airbus sees the air travel market moving towards larger aircraft, longer

hauls with fewer stops.

Boeing sees the market moving towards smaller

aircraft, shorter hauls and more direct point to point

service.

The application of any of the  leadership style depends on some factors that are of key importance in bringing a particular company’s mission, vision and goals into accomplishment.

There are similarities and differences on their leadership styles of both the companies.

SIMILARITIES

Both are managed from above.

(That is the decisions are made by those in the higher ranks in the authority profile. Thus, those individuals who are much lower in the authority are given

ready made materials for them to carry the work of implementation of the duties in to material which will yield firm’s profits or losses.)

Employing corporate management in which different bodies are involved in the running of the organizations’ managerial duties

DIFFERENCE

Lies in the process administering the decisions that are made.

The Boeing company managers are depicted in several reports and sources that they commonly use command phrases towards their

juniors. Thus, they portray a DICTATORSHIP kind of leadership style. This does not evoke the dedication of the workers. Hence

workers are having no willing efforts to put in order fort the company to get better results.

The airbus managers have much characteristic that can be attached to leadership kind of management. This is because they are courteous to the junior employees and they do respect them while they are carrying

out their duties. The airbus managers do some consultation with the supervisors who are the mediators of the top level management staff

and the employees at the grass roots.

AIRBUS’ CURRENT STRATEGY 

DIVERSIFI- CATION

THE LOW COST LEADER •By utilizing economy of scope.

•The differentiators being used by Airbus are being the lowest total cost (price and operating cost) first to market with operational cost reducing technology within a segment.  • For example the A380 will larger more cost efficient due to utilizing newer technology than the only other aircraft in the jumbo segment Diversifying into all

segments of the industry (i.e. single

aisle, wide body and jumbo).

Offering a bigger and more efficient aircraft. This put Airbus in a good position

CONCLUSION

In concluding the analysis, it can be said that the dominant position held by both Airbus and Boeing will continue to create barriers for new entrants to the market but there is a possibility of competitors emerging as market challengers in the long term.

THANK YOU