Strategic Management of Airbus - Case Study Example

Running header: Strategic management Student’s name: Instructor’s name: Subject code: Date of submission: Strategic management of Airbus Background and History of Airbus Airbus is a world’s leading manufacturer of both military airlifters and commercial jetliners. The company evolved during the last forty years riding on vision, innovation and passion of the employees. The aim of forming Airbus was to challenge domination of the skies by America and has evolved to be among the largest airline manufacturers worldwide. The company officially came into being in 1970 and was formed as a consortium of Deutsche airbus which was a group of leading German aircraft manufacturing firms and France’s Aerospatiale. The companies together built the A300 that became the first twin engine wide body airliner in a bid to fill a gap in the air industry while challenging America’s domination of the aviation industry (Airbus group, 2014). The consortium was shortly afterwards joined by Spain’s CASA and the company under the name of Airbus Industry GIE relocated its headquarters to Toulouse from Paris. In 1979, British Aerospace joined the group with each of the four partners known as Airbus Deutschland, Airbus Espana, Airbus France and Airbus UK operating as national companies. Each of the four partners had special responsibilities for production of aircraft parts for transporting to Toulouse for assembling with GIE providing a single face for customer support, marketing and sales. With time, Airbus developed its reputation for listening to its customer’s needs as well as its innovation. Some of the most notable Airbus innovations and hence marks of success included A300/A310 family, the A320 family known for its landmark fly by wire technology that established commonality as the key appeal for airbus aircraft as well as the long range A330/A340 family( Its latest model is A380 900). These innovations saw the need to streamline operations in a bid to meet the growing demand. This also saw the drive towards closer working across national boundaries intensify with increasing practical benefits. The benefits included better quality, reduced costs, faster production as well as a workforce proud for being part of the international family. This saw the company becoming a fully integrated company in 2001. In addition The European Defense and Space company (EADS), which was the merger between the French, Spanish and German interests acquired 80% shares of the company’s shares while BAE systems the successor of British Aerospace acquired 20%. The airbus group is thus a European multinational Aerospace and defense corporation that is registered in Netherlands and is a world wide military and defense contractor. It has three divisions including Airbus Helicopters, Airbus, and Airbus defense and space. Recently in January 2014, the company has been recognized as Airbus group. The group combines the divisions of marketing and development of military and civil aircrafts and related communication systems, missiles, Helicopters, Satellites and related systems as well as space rockets. The company has thus grown over the years to become one of the most recognized companies in the aviation industry. For instance, the company in 2008 was a subcontractor in a contract awarded by the United States Air Force worth $35 billion for aerial refueling tankers. As such, the company has emerged a major player in the aviation industry with its only major competitor being Boeing of the United States. Airbus current “Market place” situation and the current strategy applied and competitiveness of the company Airbus in the Global aviation environment The airline industry is among the largest industries globally and is an integral part of business and vacations travel. The industry has been constantly evolving with new planes being added and updated designs of older planes being created as has been evidenced in Airbus. Airbus just like other participants in the industry has a strong commitment for the safety of passengers and workers. In a bid to keep up with emerging trends, airbus has innovated solutions aimed at making airplanes lighter while observing weight restrictions. For instance, its A380 brand is fitted with carbon fiber composites making the jet slimmer hence achieving a 40% reduction in weight. The global aviation industry accounts for 2% of carbon emissions globally responsible for climate change. This effect on the environment by the industry is taken seriously by the stakeholders and innovations created to aid in reducing the environmental damage. Much of this research is aimed at developing new aircrafts which is in line with the recommendations of the Aviation and Environmental summit 2006 of Geneva. Airbus has been criticized for the large amount of noise emitted by A380 calling for further research for aircraft with less environmental impacts. It should however be noted that the new innovations have succeeded to a great extent in tackling fuel efficiency (Final Conclusions. 2006). Thus Airbus has been lauded for coming up with green and sustainable innovations. Apart from the environmental risks discussed above, Airbus just like other players in the industry are faced with the risk of occurrence of cyclicality in the aircraft market as well as the average age and technological obsolescence of fleets relative to new aircraft. Other risks include passenger load factors, airline pricing policies, airline financial health and deregulation. As such, airbus is pushed to consider these issues in their decision making. The industry is also at high risk of terrorism and limited amounts of government subsidies thus making it hard for companies like airbus to sustain the huge costs. External factors affecting Airbus Political factors A number of political factors affect Airbus. The largest growth in air traffic has been experienced in the Asia especially in the Middle East. Soured ties between Middle East and US imply higher preference for a non US manufacturer and Airbus is an obvious choice. The recent deal with the US air force is also a sigh that US has opened its military contracts beyond boarders which implies an expanded market for airbus (Imran, 2013). In addition, the liberalization of travels between US and EU means increased demand for air travel between the regions and hence increased demand for aircraft. This implies increased market for airbus. It should however be noted that politically correct placement of airbus manufacturing facilities has prevented airbus from moving production to more economically friendly countries. Social-cultural factors Airbus is affected by social cultural factors. The increased demand for air travel resulting from increased social mobility means increased demand for aircraft which is good for Airbus. This has resulted from change in people’s lifestyle as well as their outlook on travelling air travel as a viable option (Airbus, 2009). In addition, higher technological advancements to reduce carbon emissions and noise have affected the company positively. Economic factors The world sluggish economy as witnessed in the recent global economic crisis as well as increased incidences of terrorism could negatively affect air travel demand thus leading to a contracted market for aircraft (Imran, 2013). However, increasing military orders will positively affect demand for airbus products. On the other hand, increasing fuel prices could negatively affect demand for aircraft owing to air travel being more expensive which could affect airbus negatively. Technological factors The aircraft industry is constantly innovating calling for airbus to employ a strong research and design and innovations machinery. In this regard, Airbus has been using carbon fiber in constructing aeroplane bodies (Imran, 2013). Other innovations by airbus include more fuel efficient engines. Research for alternative fuels that negate effect of increasing oil prices has also been on going. Airbus market performance analysis The company mainly derives its revenue from two sectors of its operations which include civil aircraft manufacturing under the airbus brand which accounts for approximately 78% of its sales as well as its military division which accounts for the rest of its revenue. Its sales by regions and countries include France 10%, United Kingdom 8% Germany 9%, North America 26%, Asia 22%, Europe 12%, Latin America 3% and others 4%. Since 2005, the company has experienced improved performance. For instance, it acquired 1055 new orders in 2005 with a value of $95 billion giving it a bigger market share. In the same year, the company maintained a strong backlog of 2,177 aircraft valued at $220 billion (Airbus group, 2013). This ensured that the company remains ahead of competition for a sixth year consecutively. Most of its orders originate from Asia as well as Middle East, Latin America and supplier of low cost carriers in Europe. Its largest orders however originate from China especially for the A380. The company’s largest customer is the International Lease Finance Corporation who is the world’s largest aircraft leasers with headquarters in California. For instance, the company ordered from Airbus five passenger airbus A380 as well as five freight versions. Aircraft Orders Deliveries In operation A300 561 561 274 A310 255 255 126 A318 79 79 68 A319 1509 1400 1393 A320 6654 3619 3424 A321 2011 908 904 A330 1336 1070 1057 A340 377 377 352 A350 812 0 0 A380 324 128 128 Totals 13918 8397 7726 (Thomson, 2013) However, the company’s reputation could be adversely affected by the technical faults that have been reported of its A380 and its new A400M military transport. It is worth noting that in 2011 Paris Air show, the company received orders of 730 aircraft valued at 72.2 billion which was a new record in the aircraft industry. Its A320 neo received 1029 orders by December 2010 which was a record in the industry. In addition, the company has so far received 13918 orders and has been able to deliver 8397 of these as shown in the table above. The company’s strengths The company’s key success factor is diversity. The company now has a wider international presence as a result of its growing global presence. Its more than 55,000 employees come from 85 different nationalities. According to its human resources director, the company takes pride in its people’s diversity, experience and expertise. It attributes its success over the last three decades to diversity. The company has been a strong brand since its inception in 1970 and it in fact surpassed Boeing in 2005 (Aerospace Statistics, 2009). Another success factor for the company is its continual announcement of freezing the spare part prices as part of customer support. For instance, its spare parts in 2006 were priced at 2003 prices. Weaknesses The delays in launching A380 served to expose its weakness. This affected the company so much that its management had to be changed. The company also has a lot of suppliers numbering 3000 which adds to its material costs (Hepher, 2013). Their reduction to 500 would reduce material cost by $ billion. This would also help cut down administrative costs by $446.5 million. Its increased costs prevent it from being more competitive while delaying product launches. The delay in launching products for instance saw the company loose 10 orders for its A380 by FedEx in 2006 which opted for 15 Boeing 787 instead. Opportunities The company has a great opportunity in its going green strategy. The strategy will enable the company be at the fore front of the next revolution in clean technology while deriving its associated benefits (Done, 2001). Its innovative culture is also an opportunity that the company could exploit to remain a global leader in aircraft business. The threats airbus faces The aircraft industry faces an inherent risk of litigation which Airbus is not immune to. For instance, airbus together with Air France were found guilty for damages resulting in a plane crash in 1992 in Germany which saw the death of 87 people. The company is also threatened by fluctuations in exchange rates as it operates in multiple countries. This can have adverse effect on its profitability. The company just like others in the industry is also faced with terrorism threat which could negatively affect public perception on air travel thus narrowing down its market (Thomson, 2013). The company also faces intense pressure from competition. For instance, the company has been affected by downward price pressure resulting from competitors. Airbus competitor analysis The table above compares aircraft orders between Airbus and its main competitor Boeing in 2013 (Thomson, 2013.) Airbus just like other industry players faces competition from trains, ships and automobiles. This competition is worsened by the fact that plane crashes are broadcasted on a large scale. Such broadcasting gives the company a bad image and travels may opt for alternative means. Airbus also faces direct competition from within the industry. Its competitors include Boeing aircrafts, the Embraer E-jets and the Bombardier CSeries. Embraer a Brazilian manufacturer is fourth global producer of aircrafts. Bombardier is world’s third aircraft producer and is located in Quebec. However, the company’s biggest competitor is Boeing which is the world’s largest aerospace company globally. Airbus competitive prospects Airbus current strategy As has been explained above, Airbus is a strong participant in the market. The company’s success strategy has entailed the following; i) Product innovation Product innovation is key to survival in the aircraft industry. Airbus has been highly innovative since its innovation of A310 to its current A380 considered the dinosaur of the sky (Carney, 2005). Airbus has in fact been more innovative over the years compared to its rivals such as Boeing. ii) Family concept of planes Its families of aircraft have been instrumental in enabling it offer a lower operating cost for airliners hence their success. This concept leads to reduced inventory, lower maintenance costs, shorter pilot training period, and lower parts management hence leading to lower costs for their clients. It is worth noting that the above strategies i.e. product innovation and new cost efficient airlines creates a competitive advantage for airbus over its rivals such as Boeing. The future competitive prospects for Airbus are therefore pegged on continued reliance on the above strategy. Its recent innovation of a cost efficient A380 has been a great success and has been embraced by many airliners. As such, the company’s future competitive prospect can be said to lie on the large commercial transport market where the company should continue coming up with more innovative products. A research by Airbus regarding the future of air travel for its vision of sustainable aviation in 2050 reveals the following; a) 63% of people globally would fly more by 2050 b) 60% think that social media can not replace the need to see people face to face c) 96% of people think that aircraft will be more sustainable and eco-efficient d) 40% think air travel is increasingly stressful e) 86% of people believe less fuel burn is key while 85% see reduction in carbon emission as key f) 66% would want quieter aircraft while 65% fully recyclable aircrafts (Airbus.com, 2014) Based on the above research findings, one may conclude that aircraft market will enlarge in future and that future competitive prospects for Airbus Company will lie in innovation. This would enable the company continually meet its eco-efficiency goals while ensuring air travel becomes one of the safest as well as eco-efficient transport means. In addition, the company should continue focusing on technological advances while coming up with solutions that meet market and passenger demands, the increasing population together with its demographic profile while respecting all environmental aspects (Michaels, 2010). In so doing, Airbus is likely to become the aircraft manufacturer of choice thus making it become more and more competitive. It should aim at making its aircrafts used in more flights and that they have quicker passenger journey times and fewer emissions. This is a key competitive strategy for Airbus’ future. Airbus competitive prospects also lay in the short haul, point to point flights globally. It is with this in mind that the company raised its 20 year forecast for sales of single aircraft in China to 1900 aircraft. This show there will be an explosion of point to point short haul travel especially in china in future. Airbus competitive prospects also lie in its expansion in its china market. Air travel within china is expected to grow at 14.7% for the next five years and 8.2% for the next 20 years citing a sharp increase in demand. This growth is also expected to be boosted by the country’s growing number of airports thus increasing the demand for smaller Airbus jets for flying short-haul routines with faster turn around times. In addition, liberalization of China’s aviation sector has seen low cost carriers such as spring airlines and Okay airways set up bases in China. This is likely to stimulate growth in the market since this is likely to trigger repricing hence keeping the already established airlines competitive. Airbus competitive prospects also lie in its Asia pacific market which is among the world’s most dynamic regions for air transport. This region is a key market both for wide body and single aisle jet liner categories (CAPA Center for aviation, 2014). The company attained an 82% market share in the region in 2013 as far as net aircraft orders are concerned selling its brands including A350XWB, A320neo, A380 and A330. The market accounts for a quarter of airbus sales and a third of its current backlog. This market thus has a big potential for growth and Airbus should develop a strategy aimed at enlarging its market share. Airbus should also focus on the African market. Despite this having been a small market for a long time, it has a lot of potential that airbus should exploit. For instance, the region has the world’s fastest growing economies implying potential for growth. Airbus competitive prospects also lie in its continued implementation of its current strategy of innovation and developing a low cost family of aircrafts. The company however needs to address the defects noted in its brands of aircrafts including addressing the noise levels of A380. The company should also reevaluate its goals outlined in its mission statement on timely delivery with high quality, done right the first time. Its failure to deliver its A380 brand on time suffered it a big blow which affected it negatively in a highly competitive industry (Airbus.com. 2014). Its future competitive prospects partly depend on its ability to address these short comings. The company also needs to explore and conquer new and emerging markets such as Africa in future. Its expansion in countries like china and India will in no doubt offer it a great market base. The company will also be more competitive if it continues to embrace diversity as this brings in different aspects from all over the world including innovation, expertise and experience. Making airbus aircrafts the safest and most eco-friendly will in no doubt make the company more competitive. In conclusion, the company could be more competitive if it works closely with airports and airlines in developing its aircrafts. This will ensure they are tailored to airports expectations. For instance, not many airports can accommodate their large A380 which could limit its market. Conclusion As outlined above, the future of the aircraft industry looks bright with demand expected to rise significantly in future. It should also be noted that Airbus has been replaced for a second time by its main competitor as the biggest participant in the industry. As such, there is need to come up with strategies that will enable Airbus regain its position in the industry while preparing itself for future competition. It is clear that the future of the industry lies in creation of innovative products that are cost efficient (Leahy, 2010). It is therefore imperative on Airbus to invest more on innovation research and design if it is to remain competitive in the industry. In addition, there is need for the company to explore new markets while also maintaining their current markets. This way, the company can hope to remain competitive in future and even regain its position as the biggest participant in the aircraft industry. References: Airbus group. 2013. Financial statements 2013.http://www.airbus- group.com/airbusgroup/int/en/investor-relations/key-financial-information/annual- report/2013.html (Accessed 16th April, 2014). Airbus group. 2014. Why airbus? A short historical synopsis of the airbus trademark and its significance for the EADS group. EADS Corporate Media Relations. Done, K. 2001. Survey-Europe reinvented: Airbus has come of age. Financial times. CAPA Center for aviation. 2014. Airbus makes its mark on the dynamic Asia-Pacific market. http://centreforaviation.com/members/direct-news/airbus-makes-its-mark-on-the- dynamic-asia-pacific-market-152697 (Accessed 16th April 2014) Final Conclusions. 2006. Aviation & Environmental Summit. 2006,http://www.environmental.aero/00_summit2006_25Apr06_upgrade/m odules/contentarea/crude_pages/files/final%20summit%202006%20conclusion.pdf (Accessed 15th April 2014). Thomson, M. 2013. Boeing overtakes Airbus as clouds gather. http://money.cnn.com/2013/01/17/news/companies/boeing-airbus/ (Accessed 16th April 2014). Airbus.com. 2014. The future by Airbus. http://www.airbus.com/innovation/future-by-airbus/ (Accessed 16th April 2014). Airbus.com. 2014. Airbus goes local with its customer support strategy. http://www.airbus.com/newsevents/news-events-single/detail/airbus-goes-local-with-its- customer-support-strategy/ (Accessed16th April 2014). Hepher, T2013, Airbus A380 faces strategy crunch after drop in orders, http://www.reuters.com/article/2013/10/23/us-airbus-a-idUSBRE99M0RT20131023 (Accessed 16th April, 2014). Aerospace Statistics. 2009. Aerospace Industries Association. December 1, 2009. Read More