Airbus Joint Venture with General Electric - Essay Example

? Joint Venture Number: Lecturer: Joint venture Literature review As the Board of Directors of Airbus, we are planning a joint venture with General Electric (GE), an engine manufacturing company based in the United States. This has been informed by the industry forecast of growth in passenger numbers over the next two decades. Over the period, an extra 27,300 passenger airlines with a seating capacity of 100 and above passengers will be needed, besides 900 new cargo carriers. The industry forecasts growth in passenger planes from the current 15,500 to more than 32,500 by the year 2031. GE is one of the major engine framers in the world and more so geographically it is located across the Atlantic while Airbus is based here in France. There are many reasons why we need a joint venture with GE as the way to go. They include population growth, emerging markets demand, urbanisation, innovation, risk sharing/spreading geographical locations and environmental conservation efforts (American Bar Association 2010). GE is not our competitor as they manufacture engines for servicing airlines across the globe. This means that they are able to serve engine demand, which we might be able to meet with the current partners; hence they can be valuable partners to our business. Logistically, it would be hard for Airbus if it formed a joint venture with a European Engine framer only, to transport the same to United States of America and other parts of the world (Li 2003). Airbus began a joint venture deal in 2006, when Airbus approached GE to develop jet engine for Airbus A380. GE was to manufacture GP7200 engine for wide-body aircraft by Airbus (American City Business Journals 2006). Besides, GE has a network of partnerships across the globe, meaning that it will help us reach markets that we will otherwise not been able to reach. It has been able to reach and service markets in both developed and developing markets, presenting a strategic partnership for likely business tremendous growth. It services and repairs engines in markets that Airbus might not be able to set base, in all continents. In these markets, the airline operators will then be able to buy our planes compatible with GE engines. Through its GE Capital Aviation Services (GECAS), it leases and finances about 1,680 owned and managed commercial aircrafts and serves over 230 customers in over 75 countries around the world (GE Capital Aviation Services). Results, analysis and discussion We think that a joint venture with GE is a mutually beneficial partnership today and into the future. Strategically each partner will be able to increase business volumes and serve more customers. The partnership has to be focussed on innovation in new cost-efficient aircrafts and lighter but able to do the same work or even higher. World economic crisis impacting the world did not spare the industry as revenue streams thinned, passenger numbers dwindled or stagnated growth making airlines use innovative ways to remain in operation. This is expected to be short-term, but passenger growth is expected to pick and grow at an average of 4.7% in the period under industry forecast. Growth is expected to double the passenger numbers in all routes (Airbus S.A.S. 2009). Competitors in the industry are applying the latest technology in aircraft manufacture to make lighter aircrafts consuming less fuel. Our venture will focus towards innovation to counter the stiff competition by making compatible engines towards this end. Research and development (R&D) are crucial in attaining this goal alongside partners such as GE. Airlines in the world buying planes from us have been finding problems in servicing and repairing planes. This forced them to fly in technicians from either our company or GE, or fly the plane to our factory to be repaired. GE has been investing in setting local repair and servicing centres in the countries where airlines have major operations. We believe this is the best strategy to be closer to clients offering them first-hand services and appropriate technical advice. This will enable the airlines to cut repair costs, downtime and turnaround time hence making more money. R&D at GE has enabled them this far, to produce another state-of-the-art advanced environmentally compatible technology GP7200 engine for Airbus A380. The engine is technically advanced fit for the world biggest wide-body planes (GE Aviation 2012). Continued research is imperative in the area of carbon emission and sound pollution to reduce green house gas emissions. The industry estimates that over the last forty years, carbon emission and aircraft fuel burn has been reduced by 70% while noise pollution has been reduced by about 75%. The industry focus is to maintain the trend to attain the optimum fuel efficiency desired to sustain environmental conservation efforts. Carbon footprint apparently is a big issue in today’s world which made our competitor Boeing design Dreamliner which consumes 20% fuel less than its peers in the industry. We cannot continue with the same designs we are used, we have to innovate to be equally competitive in the market as carbon footprint is a collective effort after all. Fossil fuel, on the other hand, continues to be expensive driven by the insatiable demand for fuel, driving the prices upwards hitting a record $150pb in 2008 (Lagadec 2008). With the expected growth in the industry, strategic presence in high growth areas such as Asian markets, Africa, Middle East and South America would mean that we will secure worthy contracts to supply the planes alongside GE engines in those markets. This does not mean that Europe and North America will be left out as these markets have been the industry growth areas for the past decades and movement of passengers will increase especially towards them and across the Atlantic (Airbus 2009). Over the next ten years, our plan is to meet the demand for high growth areas in tandem with the global growth forecasts. Our plan is to meet or even beat the demand as it grows in these markets as average growth rate is higher the world average forecast at an average of 6%. The passenger carriers market is huge with estimated 1,729 large passenger planes. The freight carrier’s demand is estimated at 19% of the passenger plane demand. It is partly caused by the decommissioning of old fleet by airliners while new planes demand will stand at just over 1,200 units (GE Capital Aviation Services 2011). Asia is one of the world’s lowest cost areas on production costs. As a company in heavy manufacturing industry, we are thinking of setting base in China as part of a strategic move to maintain the Asian market. GE is already framing engines in China; hence it will be prudent for us to be in the market. In these markets, passenger growth is high due to several factors ranging from economic development, deregulation of the industry, population growth, more penetration of the airline to not-before-served markets, trade growth, competition, and greater affordability. If we manufacture planes from these markets or near, it will boost our growth prospects in the entire region. At Airbus, we appreciate that GE has been in the Chinese market for some time now and have been doing business with its partner Safran Group, framing engines for Commercial Aircraft Corporation of China and other local and regional airlines. This does not mean that the market is already saturated. Fortunately, their focus has been single-aisle aircraft. We can enter the market and curve out a niche in wide-body aircraft and double deck carriers. China has been a lucrative market for our planes and those of our competitor Boeing, servicing planes and framing engines for new aircraft (Barboza et al 2011). The focus will be serving the entire Asian market as a long term plan in our ten year strategic plan. We will be able to service the entire regional markets in Asia as this is a fast growing airline industry region. Markets such as South America can be served by replication of the Chinese relation as GE is operational in Brazil serving Embrear aircraft manufacturers. We will have no much competition here as it manufactures short-haul aircraft, which does not compare with Airbus models. Internally, from our own research and feedback mechanism, airlines have preferred that we maintain the same models we have been able to build in the past albeit with some improvements. It does not mean that we will not research and develop new models rather the ones in the market have been giving airlines value for their money, hence needs improvement. In fact, we decided against re-engineering the twin-isle medium to long-haul A330 aircraft as it is likely to undermine our viewed business case for A350-800 sibling. A350-800 series is our medium-term development plans that will be realised in the next three to five years when it will be in the market fully operating. Our plan is to continue improving on A330 to get some variants with high gross weight in order to be more capable than it has ever been and to allow us continue developing A350 carbon-composite aircraft (Tsang 2012). GE will then continue servicing this fleet of aircraft, but they are welcome to make any changes in technology that they deem fit. Their cooperation towards this end will be highly appreciated. A330 is the most popular aircraft in the market since its launch over a decade ago and as a short-term plan, we will continue engaging our partner. GE, after talks will be a resourceful partner to enable us to reach and serve all markets in short to long-term, and their partnership will be highly valued through the entire period. Partnership in R&D will go a long way in innovation as global demands for efficient aircrafts, and fewer pollutants are at an all time high. We must be responsible by engaging all industry players in forums, to deliver this promise for the sake of our environment (Schulz 2008). More over Airbus has several ventures with airlines around the world. This continues to be our source of market to service aircrafts and sell new models. In China, for example, we recently entered the Chinese market to assemble aircrafts in Tianjin city to serve the local and international markets in the region (Zhuoqiong & Guangjin 2012). This relation was to end in 2016, but recently the immediate former Chinese Premier Wen Jiabao renewed the contract with German Chancellor Angela Merkel. The initial contract was to assemble A320 jetliner upto 2016, but has since been extended to 2016. Some joint venture contracts specify the relationship in case such is not just to buy or supply the jet, but to tailor-make the planes interior as requested. Bangkok Airlines, for example, requested for special decoration depending on exotic destinations, seating arrangements and capacity featuring dense populated seats and two-class seating arrangements. Some models are tailored to fly long-haul different from the standard model and cargo carriages. In other regions of the world, Airbus continues to enjoy strategic relationship with airlines to deliver valuable business to these clients. Orders are many that we are processing currently, for example, British Airways has twelve orders special double-deck seating arrangement for A380. Others operating the A380 are Lufthansa, Singapore, Malaysia, Emirates, Qantas, Air France, China Southern, Thai and Korean (Caswell 2013). Business partnerships around the world have made us to seek to spread geographical reach in order to serve them effectively. We have manufacturing factories in Europe including UK, Spain, Germany, France (headquarters), subsidiaries in USA, Japan, China and in the Middle East. There are spare centres in Hamburg, Washington, Frankfurt, Dubai, Beijing, and Singapore. We have training centres in Toulouse, Miami, Hamburg, and Beijing, besides more than 150 field offices around the world (Airbus S.A.S.2013). This enables us to serve airlines around the world in as near locations as possible, in order to continue getting strategic business. References Airbus S.A.S. 2009, Flying Smart Thinking Big, Global Markets Forecast , 6-161. Airbus S.A.S.2013, "Worldwide presence: Internationalisation," Airbus, retrieved on 27 April 2013 from http://www.airbus.com/company/worldwide-presence/ American Bar Association 2010, Joint Ventures in the International Arena (2nd ed.), (D. Prescott, & S. Swartz, Eds.) ABA Publishing, Chicago, Illinois. American City Business Journals 2006, GE joint venture engines tested on Airbus A380, Business Courier, retrieved on 26 April 2013 from http://www.bizjournals.com/cincinnati/stories/2006/08/21/daily47.html Barboza, D, Drew, C and L, Steve 2011, “G.E. to share jet technology with China in new joint venture,” The New York Times, retrieved on 27 April 2013 from http://www.nytimes.com/2011/01/18/business/global/18plane.html?pagewanted=all GE Aviation 2012, The GP7200 Engine, retrieved on 26 April 2013 form http://www.geaviation.com/engines/commercial/gp7000/ GE Capital Aviation Services 2011, Global Strength. Local Expertise, retrieved on 26 April 2013 from http://www.gecas.com/en/index.html Lagadec, Kristen 2008, “Airbus and Boeing face a dark and painful future.” Post Carbon Institute, retrieved on 26 April from http://www.postcarbon.org/article/40546-airbus-and-boeing-face-a-dark Li, Ling 2003, Supply Chain Management: Concepts, Techniques and Practice, World Scierntific Publishing Co. Pte. Ltd, London, UK.. Schulz, Peter 2008, Ethics and Airbus. Grin Verlag, Munich, Germany. Tsang, Daniel 2012, “Airbus is right on A330 improvement strategy,” Aspire Aviation, retrieved on 27 April 2013 from http://www.aspireaviation.com/2012/07/10/airbus-is-right-on-a330-improvement-strategy/ Zhuoqiong W and Guangjin C 2012, “Airbus venture to fly high,” China Daily, retrieved on 27 April 2013 from http://usa.chinadaily.com.cn/china/2012-09/01/content_15725778.htm Caswell, Mark 2013, “Airbus A380: how the airlines compare,” Business Traveller, retrieved on 27 April 2013 from http://www.businesstraveller.com/news/airbus-a380-the-layouts Read More