The Civil Aircraft Manufacturer Airbus - Case Study Example

AIRBUS INDUSTRIE (AIRBUS), THE CIVIL AIRCRAFT MANUFACTURER Introduction Organization is a ‘structure’ with a ‘collage’ of humans doing their allocated work under the supervision of a leader, for the benefit of the organization as well as them. These workers will normally be apportioned or “structurized” into departments for better arrangement and streamlining of work. These different departments can only boost an organization by working in unison, and thereby actualizing the opportunities on offer. That is, with every organization expanding their horizon and making an imprint in various markets, there will be enough work or opportunities for its departments. So, when the organizations have enough business opportunities, it can set the opportunities as targets. Then, it can formulate various strategies to achieve those targets and critical success factors. Finally the profits will be achieved with the help of various resources and capabilities. So, this paper will analyze the civilian aircraft manufacturing organization, Airbus Industrie by first identifying its strategic choices, then how it met its critical success factors, also identify the resources and capabilities used by Airbus to support its business strategy and finally the paper will analyse Airbus’s financial performance Strategic Choices Airbus Industrie, a pan-European organization was formally established in 1970 as a Groupement dInteret Economique (Economic Interest Group or GIE). That is, aircraft and space agencies based in Europe like France’s Aerospatiale, Germany’s Deutsche Airbus, Spain’s CASA and British Aerospace (BAe) started to manufacture or assemble Airbus aircrafts in Toulouse, France, after manufacturing the various parts of the aircraft in their home locations. “Each of the four partners, known as Airbus France, Airbus Deutschland, Airbus UK and Airbus España, operated as national companies with special responsibilities for producing parts of the aircraft, to be transported to Toulouse for final assembly. The GIE provided a single face for sales, marketing and customer support” (airbus). Even though, the establishment of Airbus is itself a strategic choice, it made its first strategic choice when it abandoned GIE and transformed into Airbus Industrie SAS. That is, in the early 1990s, then Airbus CEO Jean Pierson favored dissolving GIE and took steps to establish Airbus as a conventional company. “However, the difficulties of integrating and valuing the assets of four companies, as well as legal issues, delayed the initiative” (airplanemart.com). The main issue which stalled the transformation process was the attempt by British Aerospace to merge with Deutsche Aerospace AG (DASA), the second largest European aircraft manufacturer in terms of turnover (Office for Official Publications of the European Communities). That is, BAe’s attempt to merge only pushed Aerospatiale to paralyse the negotiations for change, as they feared the combined BAe and DASA would dominate the newly formed initiative. But, when BAe abandoned its merger plan, the talks to establish Airbus Industrie picked up steam. So, after some time in 2000, three of the four partner companies DaimlerChrysler Aerospace (successor to Deutsche Airbus), Aérospatiale-Matra (successor to Sud-Aviation) and CASA merged to form EADS, simplifying the process (Kore Kalibre). The established EADS, short for European Aeronautic Defence and Space Company, in association with BAE Systems only formed a strong conglomerate, under the name, Airbus Industrie SAS. This strategic choice and the resultant restructuring had a major impact in the functioning of Airbus. The other Strategic choice, Airbus took also involved BAe and resulted in restructuring as well. That is, in 2006, BAe, which held 20% share in Airbus, decided to sell its shares to reach the American businesses or markets. And, when the launch of A380 was delayed and BAe’s stake value was devalued, it disassociated from Airbus. The important strategic choice, which Airbus took and which is having both positive and negative effects is the launch of A380, the largest aircraft of the world. Airbus’s achievement in relation to the critical success factors for the sector Airbus has to fulfill certain critical success factors that will be normally expected from an aircraft manufacturing company. One of the prime critical success factors that any organization in the aircraft manufacturing sector, including Airbus Industrie has to follow is the crucial safety measures. “Safety is the number one priority for Airbus in the design, building and performance of its aircraft” (Airbus). Safety is given utmost importance in Airbus, with the incorporation of many safety features, inside and outside the aircraft by using the latest state of the art technology and through frequent trials. Even during the testing processes all the regulations stipulated by the government agencies is being thoroughly followed. “At every point in the design, manufacturing and assembly process Airbus ensures its work complies with certification targets laid down by the European Aviation Safety Authority and the US Federal Aviation Administration” (Airbus). Because of these measures Airbus has a strong safety record, with the exception few accidents. “More than 300 of the planes are either in service or on order around the world. The aircraft is powered by four jet engines. Its safety record is among the best in the airline industry” (CBC news online). Up until 2005, even the worst incident involving Airbus only caused injuries to the passengers without any deaths. “The crash at Torontos Pearson International Airport on Aug. 2, 2005 was the worst accident involving the Airbus… The aircraft struck lighting, causing damage to the aircraft, but returned immediately and landed safely. There were 230 people on board. No serious injuries.” (CBC news online). But, that changed in 2006, with two Airbus airliners, one A310 of the Russian airline, Sibir and A320 of the Armenian airlines crashing within the space of few months (bbcnews). So, in the case of Airbus, one can say that the critical success factor of safety was not met, because of these two accidents. Even though Airbus missed this critical success factor, it was able to meet the other factor of introducing new model. That is, aircraft companies are expected to introduce new models often or at least re launch a refurbished older model to maintain presence in the market. Airbus was able to do that by launching A380 in 2006. Resources and capabilities Airbus used to support its business strategy Any organization to perform at optimum levels all the time needs good resources and capabilities. Resources and capabilities can be developed from within the organization and then as second step can be acquired from outside the company, complimenting or enhancing the internal resources and capabilities. External resources may be acquired in many ways - from investors and through profits (Canal). In today’s organizations, the financial resources and the manpower resources mainly constitute Resources “…financial and manpower resources singly realize all the goals” (ci.valparaiso).Airbus appears to be self-sufficient in both the aspects and only has minor irritants. In the case of financial resources, as Airbus is a combined effort with contributions from financially developed European countries, it has minimum to no problems. From its establishment in 1970, Airbus did not suffer any financial crunch affecting its functioning because of the support from the countries like France, Germany, Spain etc. “When the company was founded more than 35 years ago, it was clear that such an ambitious and complex project as the construction of modern passenger planes required the convergence of technical and financial resources from all over Europe” (World Socialist Web Site). So, this financial support from the European countries is continuing even today, and Airbus has used this support to achieve its business strategies. “Airbus is a huge European success story” (Tilford). Also, as this supply of financial resources from its backing countries will continue in future as well as, Airbus will be able to set new strategies and will be able to achieve them easily. Like the financial resources, capabilities of Airbus also as a pan-European appeal. That is, highly qualified workers from different European countries are working in their home locations and are helping in the development of all the Airbus projects. “…aircraft and aerospace industry has developed into an important industrial sector. Creating high value-added products, this sector offers workplaces for highly qualified staff in research and development and in the production of all types of aircraft and even satellites.” (Steiert).This capability of its workforce or its manpower resources is clearly seen in the number of aircrafts, which are produced by Airbus in commensurate with the demand for its aircrafts all over the world. Airbus has become demand oriented aircrafts” (Steil, Victor and Nelson). That is, Airbus was able to deliver maximum amount of aircrafts keeping with the increased demand, without any delay. The number of ‘deliveries’ was expected to reach the top range in 2007- this assurance was given by Airbuss chief operating officer for customers, John Leah. “Global demand for passenger and freight aircraft is set to soar over the next two decades... The company predicted the worlds airlines will need to buy 21,900 new aircraft with more than 100 seats and 800 freighters at a cost of $2,600bn (£1,358bn) to meet escalating demand for air travel… he said it was still one where Airbus would record its highest ever deliveries” (Milner). Even though the capabilities of Airbus are dented somewhat by the cut in the workforce, it was able to perform with a leaner but fitter work force, even working in newer projects. “The new contracts would help Airbus in the UK maintain its position as a specialist in the design and manufacture of aircraft wings…British Prime Minister Tony Blair said this would add "valuable new capability" to the countrys aerospace industry” (bbcnews). Financial performance of Airbus over the last 5 years and its sustenance in the near-future An organization needs the ‘fuel’ of profits or finances to function in an effective way. If the profits do not come into the organization, questions will be raised about its survival. “…sound strategy is essential to an organizations survival and prosperity” (Stanford Graduate School). Even if profits enter the organization, it should be maintained in regular manner. That is, there should be consistency in the way profits fills in the coffers. So, organization should perform in a consistent way, preferably over a period of 5 years, to achieve true success. But, when this concept is applied to Airbus, it falls short, with its financial performance bordering on inconsistency. In the early 2000, the financial performance of Airbus was on the positive side, with its main flag bearer, A320 bringing in a lot of profits. “The technologically most significant and at the same time the most successful Airbus model is the A320” (Burgner). But, this inflow of profits at that time was mainly offset by the Airbus’s plan to introduce A380. That is, when Airbus initiated the first steps in early 2000, its goal was to “deliver the first A380s to customers after six years in 2006” (Stokes). So, when A380 project was given the fullest focus, it started to shrunken the overall finances of Airbus, showing negative results in each quarter. “…iconic European corporation has undergone a turbulent period due to the problems surrounding the Airbus A380 project. A new flagship product that should have curved out an unassailable advantage for Airbus over Boeing went completely wrong” (Nikolaishvili and Chama).That is, as the incoming profits and the financial resources from the European governments were utilized in the manufacturing of A380, the overall finances got minimized. This was clearly visible from 2006, the proposed year of launch of Airbus 380. “Hit by wiring faults, the A380 is two years late, which has hit the finances of Airbus and its parent firm EADS” (bbcnews).That is, as completion and the eventual launch of A380 got delayed by months and then by years, due to technical reasons, the losses kept on mounting. “Others estimate the training backlog to be eighteen months, which is almost as great as the two year delay. Meanwhile, each one year delay in production will cost Airbus about one billion euros in penalties to airline customers and postponed revenue” (Stokes). This is clearly visible in the 2007 results. “Airbus, the aircraft manufacturing subsidiary of European aeronautic defence and space company EADS, anticipates record figures for turnover, order intake and orders in hand for this year, but still expects to register a loss”, (TMCNET). Actually, the operating profits for the six months to June sank to 367m euros ($504m; £246m), 78% down from the same period in 2006 (bbcnews). So, these issues which included non-financial performance indicators like the failure in launch of newer A350 (as another model) clearly showed that Airbus is not having any success financial wise, with 2007 results clearly exhibiting this fact. So, when the question about Airbus’s performance in the near future is raised, it gives a contrasting picture. This is because, Airbus might have a trump card in the form of Airbus380, but due to its delayed launch and failure to deliver the booked orders might have created doubts about its overall success. “The resulting costs and charges associated with these delays will impose a significant burden on future financial performance” (EADS).So, Airbus’s financial performance in the near-future will be greatly dependent on the success of A380. Also, significant amount of management focus, time and investment will be required to address the issues currently facing Airbus to improve its operating and financial performance (Oliver) Reference: Airbus, Company Evolution, viewed 24 November 2007, viewed 24 November 2007, http://www.airbus.com/en/corporate/people/Airbus_short_history.html Airbus, 2007, Safety First: The Constant Focus on Safe Operations, viewed 24 November 2007, http://www.airbus.com/en/corporate/ethics/safety_first/ airplanemart.com, 2007, Aircraft Manufacture: Airbus S.A.S., viewed 23 November 2007, http://www.airplanemart.com/aircraft-manufacturers/Airbus-SAS-Airbus-Industrie- EADS-BEA-Systems.html bbcnews, 2007, Airbus confirms 10,000 job cuts, viewed 24 November 2007, http://news.bbc.co.uk/2/hi/business/6402859.stm bbcnews, 2007, Passenger plane crashes in Russia, viewed 23 November 2007, http://news.bbc.co.uk/1/hi/world/europe/5162082.stm bbcnews, 2007, Airbus costs knock EADS profits, viewed 24 November 2007, http://news.bbc.co.uk/1/hi/business/6916982.stm bbcnews, 2007, A380 to enter service in October, viewed 23 November 2007, http://news.bbc.co.uk/1/hi/business/6949136.stm Burgner, N, 2000. 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MAM. Office for Official Publications of the European Communities, 2006, Case No IV/M.237 – DASA / FOKKER, viewed 24 November 2007, http://ec.europa.eu/comm/competition/mergers/cases/decisions/m237_en.pdf. Oliver, D, 2006, Proposed Disposal of Airbus Shareholding and Notice of Extraordinary General Meeting, viewed 23 November 2007, http://www.defense-aerospace.com/cgi-bin/client/modele.pl?prod=73020& session=dae.30914268.1195009056.ulVYA38AAAEAAAYO6CwAAAAM&modele=verbatim Stanford Graduate School, 2007, Strategy for Nonprofit Organizations, viewed 23 November 2007, http://www.gsb.stanford.edu/exed/sno/index.html Steiert, R, 2002, The World Aerospace Industry, viewed 24 November 2007, http://www.imfmetal.org/main/index.cfm?n=103&l=2&c=7284&mwId=7283 Steil, B Victor, D.G and Nelson, R.R, 2002, Technological Innovation and Economic Performance, Princeton University Press Stokes, I, Two Billion Euros of Hurt, viewed 24 November 2007, http://www.management-projet.org/projet1/spip.php?article7 Tilford, S, 2005, Whats happening to Airbus? viewed 23 November 2007, http://www.europolls.eu/node/517 TMCNET, 2007, Airbus expects losses despite record figures, viewed 23 November 2007, http://www.tmcnet.com/viewette.aspx?u=http%3a%2f%2fwww.tmcnet.com%2fusubmit%2f2007%2f11%2f13%2f3091300.htm Wikipedia, 2007, Airbus, viewed 24 November 2007, http://en.wikipedia.org/wiki/Airbus World Socialist Web Site, 2007, An answer to the attacks launched by Airbus, viewed 23 November 2007, http://www.wsws.org/articles/2007/mar2007/air2-m08.shtml , . 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