Civil Aircraft Manufacturing Industry - Term Paper Example

Civil Aircraft Manufacturing Industry Table of Contents Introduction 3 Structure 3 PEST Analysis 5 Porter’s Five Factor Model 5 Strategic Groups 6 Industry Life Cycle 6 Critical Success Factors and Market Attractiveness 7 Conclusion 8 References 9 Bibliography 10 Appendix 16 Introduction It is rightly observed by the experts of the industry that the only thing constant in the present world of today is the word ‘change’. With tremendous developments in the arenas of information technology and communication process, there is almost no doubt that the world has become a much smaller place to live in. The customers have increased reach and the flow of information is like never before. The influential factors like globalization have further facilitated the increase of liberalization and consumerism. The changing tricks and terms of trade of the modern trade and finance have almost wiped away the international geographical borders. It is more evident in the heavy manufacturing industries of the global world. The manufacturing industry of the civil aircraft has been such an industry. As high level of technology and cost is involved with the manufacturing aircraft, it is just not feasible for any or every company to get in to the periphery. Such a pre – condition of the makes the competition much concentrated among few big players. Boeing and Airbus are such major contenders in the industry of civil aircraft manufacturing. Structure The present structure of the civil aircraft manufacturing industry is undoubtedly very concentrated as only few big players are prevalent in the industry. It is the fact that most of the orders placed in the industry of civil aircrafts are taken away with these two big players namely Boeing and Airbus. Also, the deliveries made are almost equal among the two companies. It was observed that in the last two years of 2008 and 2009, Airbus was much ahead of Boeing in terms of orders placed. In 2008, 777 orders were placed with Airbus while Boeing received 662 orders. Similarly, in the year of 2009 too, Airbus outpaced Boeing with 271 orders compared to only 142 orders for Boeing. The comparison of the deliveries among the two major players in the last two calendar years also suggests that Airbus is leading the race for the time being as they could deliver 483 orders in the year of 2008 where as Boeing delivered 375 planes. In the next year i.e. 2009, Boeing managed to deliver 481 orders whereas Airbus could surpass Boeing with the total of 498 orders. The above analysis might provide the intricate details of the abilities of the companies to get order and manufacture those orders and the subsequent delivery but the industry of civil aviation has other important considerations too. The highly booming industry of aviation has received an unexpected setback in last few years because of the financial recession and credit crunch that initiated because of the sub – prime crisis in the United States. Most of the major economies faced huge setbacks and the there were job loss and pink slips all round the globe. Many of the top companies followed the measure of cost reduction and also there was a major hit in the tourism industry. These factors invariably affected the growth of the aviation industry and many of the smaller companies just could not get in line with the falling demands. As a result, it was observed that during the financial turmoil, quite a few airlines companies were dissolved and many became bankrupt. All such happenings adversely impacted the manufacturing of the civil aircrafts as many of the orders got cancelled as well as the expansion plans of the airlines company were put on hold. PEST Analysis The PEST (Political, Social, Economical and Technological) analysis of the civil aircraft manufacturing industry clearly depicts that there are certain matters of concern for the industry at the present point of time. The political condition is not at its best of the conditions because of the mutual distrust among the nations and the threats from factors like terrorism (Weidner & Et Al, 2006) and the economical factors has been greatly affected by economic slowdown and financial meltdown that drastically reduced the number of passengers ultimately affecting the expansion plans of airlines industry and thereby reducing the orders placed with the manufacturers. Analysis of the social factors provide emphasis on the reduction of pollutants both noise as well as air and the emissions of green house gases (Land, 2006) and the technological factors of the manufacturing industry requires continuous up – gradation for the development and availability of the latest facilities . Porter’s Five Factor Model Porter’s Five Factor model is another tool for the analysis of the external factors of the industry which comprises of the five important factors namely threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers and internal rivalry. As the industry of civil aircraft manufacturing calls for high investment and advanced technology, there is no such threat from new entrants. Also, there is no such substitute of the services provided by the airplanes and so the threats from substitutes are minimal for the industry. As both the companies (Airbus and Boeing) virtually rule the market, it is evident that the bargaining powers of the buyers and the suppliers are on the lower side. But the industry of aircraft manufacturing has tremendous internal rivalry as both of the companies, Airbus and Boeing, contesting for each and every order with almost identical products and offerings. Strategic Groups Strategic groups essentially mean a set of firms emphasizing similar strategic dimensions to use a similar strategy (Hitt, Et Al, 2008). Boeing and Airbus, both of the leading companies are observed to outsource many of the working processes to the low – cost yet technologically sound nations like that of Japan and other non – continental European countries. The products offered by both the leading manufacturers of the civil aircrafts are identical and are without much differentiation and therefore the possibility of strategic group is prudent in the manufacturing industry of civil aircrafts (Mishra & Sinha, 2006). Industry Life Cycle The analysis of the industry life cycle of the civil aviation manufacturing industry shows that the industry is on the maturity stage as the demand has somewhat stagnated in the last few years. The demand can also become stagnant because of the ongoing slowdown in trade and finance and once it gets over, again the demand might rise. Therefore, it is prudent to say that the industry life cycle of the manufacturing of the civil air craft is somewhere in between growth and maturity. Critical Success Factors and Market Attractiveness There is almost no doubt that the industry of civil aircraft manufacturing had been highly attractive in the recent past. Analysing the figures from the year of 2005, it can be observed that the demand of aircrafts had been on the rise. But the recent financial slowdown have resulted the market to compress. Also, present situation has led to various other factors that are to be complied with before any company ventures into it. Most importantly, with the existence of the two such major players like Boeing and Airbus, it is quite tough for a new group to get into the business and get hold of considerable market share. The critical success factors of any industry points out those factors that play crucial role for the expansion and the all round development of the industry. In the industry of manufacturing of civil aircraft, the timely delivery of the order placed is a very crucial consideration. A lag in this factor by Airbus has led to shifting of considerable amount of business to Boeing this year. The implementation of dedicated ERP (Enterprise Resource Planning) is also critical for the success of the industry. The manufacturing of the civil aircraft is highly complicated process and ERP framework can definitely augment the overall methodology along with effective supply chain management (Rashid & Mahmood, 2008). It is also observed that many of the manufacturing processes are outsourced to other cheap yet technologically sound economies like that of Japan. It reveals that low cost manufacturing is also expected to rock the world in the near future. Conclusion The industry of aircraft manufacturing might not be competitive externally as it is not easy to enter in to the segment yet the industry is too competitive internally with two major players competing for every available business. Also, there are several other external factors for the industry and it is to be observed, how the industry leaders take in to account those factors and yet strive for sustainable growth and development. References Hitt, M., Et Al., Strategic management: competitiveness and globalization : concepts & cases. Cengage Learning, 2008. Land, J., 2006. Airbus “Super Jumbo” Flies into Noise Protests. Associated Press. [Online] Available at: http://24dash.com [Accessed 27 February, 2010]. Mishra, R. & Sinha, A., 2006. Airbus and Boeing: Building Planes in Global Factories. IBS. [Online] Available at: http://www.ibscdc.org/Case_Studies/Strategy/Competitive%20Strategies/COM0188K.htm [Accessed 27 February, 2010]. Nikki, No Date. Industry Life Cycle. Images. [Online] Available at: http://www.auhy69.dsl.pipex.com/ [Accessed 27 February, 2010]. Rashid, A. & Mahmood, U., 2008. Technology diffusion planning for ERP in aircraft manufacturing industry. IEEE Explorer. [Online] Available at: http://ieeexplore.ieee.org/Xplore/login.jsp?url=http%3A%2F%2Fieeexplore.ieee.org%2Fiel5%2F4591409%2F4599598%2F04599779.pdf%3Farnumber%3D4599779&authDecision=-203 [Accessed 27 February, 2010]. Weidner, M. & Et Al, 2006. Airbus. Dickinson State University. [Online] Available at: http://www2.dsu.nodak.edu/users/rbutz/International%20Business/PDF/Airbus%20Final.pdf [Accessed 27 February, 2010]. Bibliography Airbus, 2010. Orders and Deliveries. Corporate Information. [Online] Available at: http://www.airbus.com/en/corporate/orders_and_deliveries/ [Accessed 27 February, 2010]. Blackwell Publishing, No Date. Industry Analysis: The Fundamentals. Airlines. [Online] Available at: http://www.blackwellpublishing.com/grant/pdfs/CSA5eC03.pdf [Accessed 27 February, 2010]. Boeing, 2010. Orders and Deliveries. Commercial Planes. [Online] Available at: http://active.boeing.com/commercial/orders/index.cfm [Accessed 27 February, 2010]. Combes, R. S., 1998. Aircraft Manufacturing in Georgia: A Case Study of Federal Industrial Investment. Georgia Institute of Technology. [Online] Available at: http://www.cherry.gatech.edu/mod/pubs/Lockheed.PDF [Accessed 27 February, 2010]. D&B Company, 2007. Environmental Influences of the Us Airline Industry Examined Using PEST Analysis. Business Wire. [Online] Available at: http://www.allbusiness.com/services/business-services/4552299-1.html [Accessed 27 February, 2010]. IBIS World, 2010. Aircraft Manufacturing in Australia. Australian Industry Report. [Online] Available at: http://www.ibisworld.com.au/industry/default.aspx?indid=258 [Accessed 27 February, 2010]. Esty, B. & Ghemawat, P., 2002. Airbus vs. Boeing in Super Jumbos: A Case of Failed Preemption. Harvard Business School. [Online] Available at: http://www.people.hbs.edu/besty/Esty_Airbus_Boeing.pdf [Accessed 27 February, 2010]. Glolz, E. 1997. Getting Subsidies Right: U.S. Government Support to the Commercial Aircraft Industry. Massachusetts Institute of Technology. [Online] Available at: http://web.mit.edu/ipc/publications/pdf/Subsidies.pdf [Accessed 27 February, 2010]. Lee, S. G., No Date. Product lifecycle management in aviation maintenance, repair and overhaul. Science Direct. [Online] Available at: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V2D-4PF0X3X-1&_user=10&_coverDate=03%2F31%2F2008&_rdoc=1&_fmt=high&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1224591219&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=b8ec43efb88230cb6008bc854341518f [Accessed 27 February, 2010]. Market Research, 2010. Report Information. US Civil Aircraft Industry. [Online] Available at: http://www.marketresearch.com/product/display.asp?productid=1366012 [Accessed 27 February, 2010]. McCabe, R. M., No Date. Airline Industry Key Success Factors. Pepperdine University. [Online] Available at: http://gbr.pepperdine.edu/064/airlines.html [Accessed 27 February, 2010]. National Academic Press, No Date. Overview of US Civil Aviation Manufacturing Industry. National Academics of Engineering. [Online] Available at: http://www.reportlinker.com/p022258/Global-Aerospace-Market-Forecast-2006-2009-.html [Accessed 27 February, 2010]. Peer Papers, No Date. SWOT Analysis. Boeing SWOT Analysis. [Online] Available at: http://www.peerpapers.com/essays/Boeing-Swot-Analysis/115878.html?topic [Accessed 27 February, 2010]. Pritchard, D. & MacPherson, A. Boeing’s Diffusion of Commercial Aircraft Design and Manufacturing Technology to Japan: Surrendering the US Aircraft Industry for Foreign Financial Support. Buffalo University. [Online] Available at: http://www.custac.buffalo.edu/content/documents/OccasionalPaper30.pdf [Accessed 27 February, 2010]. Report Linker, No Date. Global Aerospace Market Forecast (2006-2009). Report Summary. [Online] Available at: http://www.reportlinker.com/p022258/Global-Aerospace-Market-Forecast-2006-2009-.html [Accessed 27 February, 2010]. Research and Markets, 2010. Analyzing Civil Aircraft Manufacturing in United States. Aluvian. [Online] Available at: http://www.researchandmarkets.com/research/8dfc74/analyzing_civil_ai [Accessed 27 February, 2010]. Smith, R., 2006. The Boeing lean machine reaps healthy dividends. The Journal of Aircraft Manufacturing. [Online] Available at: http://www.niar.twsu.edu/media/pdf/nationalpublication/July2006article.pdf [Accessed 27 February, 2010]. Appendix PEST Analysis PEST Analysis involves external analysis of the industry as a whole on the basis of the various factors. The PEST analysis of the industry includes: Political – The harsh fact is that the political factor prevalent in the world of today in terms of manufacturing of civil aircraft is not at all conducive to growth and expansion. The political tensions among countries still prevail and also the major threat of terrorism is on the rise (Weidner & Et Al, 2006). Economical – The economical factor is also facing the challenging times at present for the aviation industry with financial slowdown still prevalent. The airlines companies are incurring huge losses and therefore their expansion schemes are also on hold and many of the orders are getting cancelled. Social – The important consideration regarding the social cause of the manufacturing of civil aircrafts have been the pollution. Pollution includes both air as well as noise. It has been a much debated fact that aircraft operations result in huge emissions of green house gases. And today with large aircrafts like that of A380, noise pollution is also taking an ugly shape (Land, 2006). Technological – The technological aspect of the civil aircraft manufacturing requires continuous up - gradation. As there is tremendous competition among the two major aircraft producing companies namely the Boeing and the Airbus, it is evident that both the companies would try to present the best technology available. Porter’s Five Factors The Porter’s Five Factor model is another tool to analyse the market competitiveness of the industry with several factors related with the external factors. Mr. Porter had identified five important factors for the purpose namely: Threat of New Entrants – The industry of civil aircraft manufacturing is highly concentrated. As the industry requires high degree of technology and investment, it can be said that there are not much threat from the new entrants in the industry. Threat of Substitutes – Literally there are no such substitutes for the service of airlines. Though there are many complementary services like railways, roadways or marine transport but the advantages that one achieves from air plane cannot be substituted. Even if in the domestic market one can opt for other alternatives, in the international arena that is not at all feasible. Bargaining Powers of Buyers – According to this model, it is prudent for the players of the industry to reduce the bargaining powers of the buyers. With only two major players in the industry of manufacturing of aircraft for civil purposes, it is evident that the buying companies do not occupy the dictating role. Bargaining Powers of Suppliers – In order to have direct control over the industry, the companies should seek to reduce the bargaining powers of the suppliers too. But with many other aircraft manufacturing companies coming up, it is important that the two leading concerns have effective control over the suppliers. Rivalry – Internal rivalry is very strong in the manufacturing industry of the civil aircrafts. The model recommends that the internal rivalry should be stopped and all the companies should work to prepare point of leverage and economies of scale so that all the players are benefitted. But such a scenario is not observed in the industry with stiff competition in between Boeing and Airbus. Strategic Groups Strategic group comprises of the companies that follow similar strategies to develop and market similar products. The strategic groups are formed so that the companies can enjoy economies of scale and the benefits of similar strategies. It can be defined as the set of firm emphasizing similar strategic dimensions to use a similar strategy (Hitt, 2008). It is evident that the competition among a strategic group is intense and extreme among the strategic group. Strategic groups are important to have sustainable development in the ever changing economy of today and have include various dimensions like technological leadership, pricing policies, quality of the product and the after sales and the customer service (Hitt, 2008). Industry Life Cycle (Nikki, n.d.) The industry life cycle basically comprises of four phases namely introduction, growth, maturity and decline. When the industry commences production, it is on the introductory phase. Next stage basically encapsulates the rising demand and that is known as the growth stage. As the industry is on the growth stage, the production continues to increase. But some time later, the demand becomes stagnant and the industry is then believed to be in the maturity phase. After the maturity, comes the decline as in this phase the demand steadily reduces and is basically caused because of certain other advanced products. Read More