Key Competitive Strategies on the Airbus Industrie - Essay Example

The work focuses on the Airbus Industrie Airbus the civil aircraft manufacturer, jointly owned by BAe plc, and French, German and Spanish interest Atta ur Rehman Academia Research 26 November 2007 Airbus mainly operates in four European countries, France, Germany, the United Kingdom and Spain. In past Airbus suffered from a fragmented travel organization. Responsibilities were distributed locally with the result that travel activities were not standardized. One goal of the travel management project was to create one central travel management organization and define a single Airbus travel policy for all employees in all countries. With growing business need including the decision to build the world's largest commercial aircraft, the A380 Airbus's travel costs began to grow exponentially at the start of 21st century. Airbus required an overall cost-cutting plan for travel management, an important target being to reduce the travel budget by at least 10%. To achieve that, Airbus decided to implement some new steps. Strategic Choices of Airbus Commercial jet aircraft is universally dependent on long-standing trends in airline passenger traffic. And this tendency can be explained by factors such as financial growth in developed and up-and-coming markets, political stability, profitability of the airline industry, and the globalization and consolidation of the industry. Other important factors are restrictions in air transport communications such as government and environmental regulations and air traffic control. Finally product development strategy and overall competition between manufacturers also impact the market. The industry is very demanding; it requires a long time to regain investments portrayed by long development cycles. It also requires a large base of skilled and experienced workers, high tech supporting industries and sophisticated and serious customers to flourish. Government involvement also plays a major role in determining the industry forces in various countries' industrial strategies and international trade associations. Airbus strategies internationally operate in an environment shaped by three forces: the industrial constrictions of building modern aircraft, the demands of world and regional markets, and the configuration and objectives of the consortium itself. These factors map onto an integrated strategy analysis. The positional analysis for Airbus must focus on its status as the challenger to the dominant firm, on the consortium's peculiar organizational structure, and on the opportunities and constraints offered by its non-market context. One way of looking at Airbus's experience is as a continual series of disruptions aimed at creating openings for Airbus to enter markets dominated by well-established competitors, in particular, Boeing. These strategic moves have involved both market and non-market elements. The following lines summarize and assess the market and non-market key competitive strategies that Airbus industrie has engaged to establish itself in the crucial world market. 1. Widespread aircraft portfolio to assure the requirements of customer airlines across the board. Boeing is the best positioned with aircraft capacity ranging from 100 passengers (737-500) to 500 (747-400). Airbus had entered the market with small and medium sized carriers, but is fast catching up with the introduction of its four engine long haul A340 aircraft. 2. Pushing high technology, electronic fly by wire systems in order to reduce the number of pilots required-from three to two-and establish re-assigning easily from one type of plane to another, thus curtailing training time by developing the family concept. As an example, Airbus succeeded in achieving authorization from the FAA to have a single pool of pilots to operate its A320, A330 and A340 models. 3. Emerging resolution to pick up cost effective management of their planes, such as the general trend in migration to twin engine wide body planes, providing fuel efficiencies and quick reconfiguration of seating layouts to optimize the ratio of seat possession by passenger class. 4. Leasing and financing services to customers. Like other airlines, Airbus also face financial difficulties, financing terms become a key selling factor. Therefore, Airbus is also financing itself 5-10% of its sales. 5. Alliances, combined projects particularly with foreign government sponsor programs and extensive lobbying, political posturing in national and international forums. Capabilities and Resources of Airbus Strategic Choices Airbus has the mission to offer convenient, reasonably priced transportation. It obliges with two core principles: customer service and constant improvement. It also believes strongly in involving students with its own service. With the exception of bus operators, everyone involved with Airbus is a student. To date, Airbus has recovered all operating costs through fares. MSA authorizes contingency funding to cover any expenses not met by fare income. Airbus has established a "fare-box recovery" goal of 70 percent. In other words, if fare income should fall below 70 percent of total costs for two consecutive operating seasons, it will reduce service and/or raise fares. Since the inception of Airbus industrie, the service has been increased each and every season and has reached a customer size which rationalizes extraordinarily widespread service: for East-bound service, it offers the facility of arrivals at Metro Airport at least once an hour; while for West-bound buses run as regularly as every 20 minutes at peak times. Airbus industrie still looks to learn more about travel guide and gives confidence to its customers to contact with any input. The following tables display a statistical data of its East and West services of the last few years. Trips Per Season eastbound + westbound Years 2002-03 2003-04 2004-05 2005-06 Thanksgiving Break 6 + 4 11 + 10 16 + 14 24 + 20 Winter Break 17 + 16 30 + 22 42 + 30 52 + 36 Spring Break 18 + 18 28 + 24 36 + 31 42 + 39 approximate Rider-ship Per Season Years 2002-03 2003-04 2004-05 2005-06 Thanksgiving Break 719 989 1403 1980 Winter Break 968 1556 2485 3374 Spring Break 1276 1788 2671 2796 Facts and Figures A selection of notable facts about Airbus is given below. 1. France, Spain, Germany and the United Kingdom are the producers of Airbus industrie. The headquarters are located in Toulouse, France. 2. According to report of 2005, Airbus Industrie has revenue of 23.5 Billion. 3. Number of employee ranges between 55,000 to 57,000. The headquarters consists of highest number of employee i.e. about 17,000. 4. There are around 4,463 Airbus aircraft in service, with Airbus managing to win over 50 per cent of aircraft orders in recent years. 5. Approximately 35 percent of out-of-state students use Airbus regularly. 6. About 11 percent of all U-M students use Airbus at least once during the year. 7. Most buses used in Airbus service have 57 seats and over 400 cubic feet of luggage space 8. At peak times, up to 8 buses are in service simultaneously. 9. Since 2005, over 98 percent of all Airbus trips have operated on-time. 10. Since 2005, Airbus has saved the student body an estimated $868,200 on cab fares. Achievements of Airbus Industrie in Last 5 Years In thirty years, Airbus has developed a manufacturing system for the production of commercial airliners, which spans Europe and draws upon a global network of established suppliers. Able to offer a comprehensive family of airliners from 100 to over 555 seat capacities, Airbus is now considered by the world's airlines as an essential candidate in all equipment decisions. Comparison of Airbus with Boeing in Last 5 Years There is a great competition between Airbus and Boeing during the last 5 years for aircraft orders. Despite the fact that both companies have a broad product range in various segments from single-aisle to wide-body, their aircraft do not always compete head-to-head. Instead they respond with models a bit smaller or a bit bigger than the other in order to plug any holes in demand and achieve a better edge. The A380, for example, is designed to be a bit bigger than the 747. The A350 XWB competes with the high end of the 787 and the low end of the 777. The A320 is bigger than the 737-700 but smaller than the 737-800. The A321 is bigger than the 737-900 but smaller than the previous 757-200. Airlines see this as a benefit since they get a more complete product range from 100 seats to 500 seats than if both companies offered identical aircraft. In recent years the Boeing 777 has outsold its Airbus counterparts, which include the A340 family as well as the A330-300. The smaller A330-200 competes with the 767, outselling its Boeing counterpart in recent years. The A380 is anticipated to further reduce sales of the Boeing 747, gaining Airbus a share of the market in very large aircraft, though frequent delays in the A380 program have caused several customers to consider the refreshed 747-8. Airbus has also proposed the A350 XWB to compete with the fast-selling Boeing 787, after being under great pressure from airlines to produce a competing model. There are around 4,463 Airbus aircraft in service, with Airbus managing to win over 50 per cent of aircraft orders in recent years. Airbus products are still outnumbered 6 to 1 by in-service Boeings (there are over 5,000 Boeing 737s alone in service). This however is indicative of historical success, Airbus made a late entry into the modern jet airliner market. Airbus won a greater share of orders in 2003, 2004. It also delivered more aircraft in 2003, 2004, 2005 & 2006. In 2005, Airbus made a claim to victory again with 1111 (1055 net), compared to 1029 (net of 1002) for Boeing. However, Boeing won 55% of 2005 orders by value, due to that firm winning several important wide body sales at the expense of Airbus. Orders and Deliveries In 2006 Boeing won more orders by both measures. Airbus regained parity as of mid- 2007.The following tables show the number of orders and their deliveries of Airbus industrie and Boeing since 2002 and give an idea that how Airbus industrie is gradually taking over the aerospace industry during last few years. Orders Years 2007 so far 2006 2005 2004 2003 2002 Airbus 1635 824 1111 370 284 300 Boeing 1246 1044 1002 272 239 251 Deliveries Years 2006 2005 2004 2003 2002 Airbus 434 378 320 305 303 Boeing 398 290 285 281 381 Financial Performance of Airbus Industry 2005 and 2006 Airlines continued to order large numbers of aircraft to meet future demand for air travel and to replace ageing fleets with more efficient aircraft. 2006 was Airbus's second best year ever in terms of orders and its best ever for deliveries. Airbus has a record backlog, improving visibility for the next five years at very high production rates. Airbus has now delivered more than 4,500 aircraft. Airbus delivered a record 434 aircraft (378 in 2005). This led to revenues of 25.2 billion, representing a 14% increase compared to 2005 (22.2 billion). The Division's EBIT was supported by strong sales volumes, a favourable aircraft mix and a higher contribution from the sell-down of customer financing assets. But after allowing for the financial impact of the A380 issues, A350 related charges, increased research and development costs and less attractive dollar hedges. Airbus finally reported an EBIT loss of -572 million (2005: 2,307 million). The EBIT also includes a 352 million provision for A400M contingencies to deal with risk and technical challenges in the Airbus work share. With 824 new gross orders (790 net orders), Airbus achieved 44% market share. Airbus's backlog stands at 2,533 aircraft, the highest volume ever reached by a manufacturer. With an increase of 16% over last year, Airbus now has 51% of all outstanding orders. Future of Airbus Industrie In spite of commercial successes, 2006 was a disappointing year for Airbus. The complexity and the risks in some programmes, and in particular, production difficulties encountered for the A380 led to delays in its projected delivery schedule, with the first A380 currently scheduled for delivery in October 2007. The resulting costs and charges associated with these delays will impose a significant burden on future financial performance. This increases the pressure for cost savings due to the weak dollar rate and additional development costs for future programmes. Bur despite of these setbacks, the A380 double-decker achieved certification, confirming its technical soundness. And Airbus launched the A350XWB (Extra Wide Body) series, its new medium capacity long-range aircraft that will enter service in 2013. The aircraft is a response to market demand, and will be extremely efficient and environmentally advanced. The A350XWB will be the first programme to benefit strongly from the very beginning from the turnaround plan Power8. Airbus will assign large work packages to tier-one suppliers in return for a better distribution of future investment, risks and opportunities. Fifty percent of aerostructure work will be outsourced to risk-sharing partners (1.8 billion non-recurring cost and 600 million associated capital expenditures). This is about twice as much as in earlier programmes. (m) 2006 2005 Variation Revenues 25,190 22,179 14% EBIT -572 2,307 - Order intake 53,367 78,254 -32% Order book 210,115 201,963 4% Deliveries (No. of aircraft) 434 378 15% Order book (No. of aircraft) 2,533 2,177 16% In response to challenges ahead, Airbus launched the Power8 plan. This turnaround plan will enable Airbus to face the substantial challenges of US dollar weakness, increased competitive pressure and the financial burden related to the A380 delays, and also to meet its other future investment needs. This programme aims to transform the Airbus business model and to develop a global network of partners. It will allow Airbus to devote its resources to core activities and to eliminate inefficiencies within its current structure. The programme aims to achieve full industrial integration of Airbus by establishing a new industrial organizationn, with transnational Centres of Excellence replacing the existing national structures. This transformation will happen progressively over several years, accompanying the further extension of Airbus's global footprint. Airbus management will implement cost reduction and cash generating measures leading to EBIT contributions of 2.1 billion from 2010 onwards and an additional 5 billion of cumulative cash flow from 2007 to 2010. Long-term global partnership network Airbus will restructure its industrial set up and establish in the coming years a long-term oriented network with strong partners. This will allow Airbus to share development costs as well as engineering resources. "We will turn Airbus into an extended enterprise. The A350 XWB will draw on this new business model, as we assign large work packages to Tier 1 suppliers in return for a better distribution of future investment, risks and opportunities, with a consolidated supply base," Mr. Gallois said. Airbus is considering industrial partnerships at its plants in Filton, Meaulte and Nordenham, in order to facilitate their development from metallic to composite design and manufacturing technology. The company has already received unsolicited proposals by potential industrial partners ready to invest in these sites and to possibly take partially or fully the control of them in the framework of the extended enterprise concept. Airbus is determined to pragmatically attain the optimum scope of industrial activities and to optimize resource allocation and enhance capital efficiency. The sites in Laupheim, St. Nazaire-Ville and Varel will continue to perform long-term substantial workloads on the current Airbus aircraft programmes, such as the A380, the A320, the A330/A340 families, and the A400M. Airbus is committed to seek viable future opportunities for these sites; this includes options to sell sites to key suppliers, management buy out or combination with nearby sites. This will of course be done in close consultation with the social partners. Streamline The Final Assembly Lines A number of measures are also being implemented to further increase the efficiency of the final assembly lines (FALs). The A350 XWB will be assembled and receive its interior furnishing in Toulouse, in the same facilities as the current A330 and A340, enabling a capacity enhancement of this FAL. A third A320 Family FAL will be set up in Hamburg immediately to cope with the steep production ramp-up currently under way. This FAL will be established in already existing facilities and will have full type flexibility when demand for A320s exceeds rate 14 per month. The A320 will continue to be assembled in Toulouse up to rate 14. Hamburg will also perform final assembly of the future New Single Aisle family. Furthermore, in order to allow parts to be fitted in the most logical place to optimize the overall cycle time, some upstream preparatory A320 and A380 cabin installation work will be transferred from Hamburg to Toulouse. Cabin installation will remain in Hamburg. A380 deliveries will still be made from both Hamburg and Toulouse. Fully Integrated And Transnational Organization Airbus will introduce a fully integrated and transnational organization to support the implementation of Power8 and the establishment of the new business model. This new organization will enable cost savings and strengthen leadership through clearer accountability, faster decision-making and simpler interfaces. The new industrial organization will force process streamlining through the establishment of four truly transnational "centers of excellence" led by the Head of Operations: Fuselage & Cabin, Wing & Pylon, Rear, and Aero-structure, the latter being in charge of fuselage subassembly and interior furnishing activities. This will replace the current organization of eight nationally structured centers of excellence. Further organizational changes include completing the integration of support functions such as Finance and HR as well as reinforcing the authority of core functions such as Engineering, Procurement and Programmes. The national entity leaders will assume a strong representative role, acting as Airbus ambassadors. They will be accountable for all aspects connected to national regulations (legal, social etc.) but will not have any operational responsibility. They will report to the Airbus CEO office and act on its behalf. Sharing services with EADS corporate functions where clear benefits arise will be another lever to improve the efficiency of the support processes, optimize resources and reduce overhead costs. Airbus operates in a growth market of 22,000 new aircraft in the next 20 years. The order backlog represents about five years of future production, and the company continues to deliver record levels of aircraft. Airbus Survival in Future Apparently Airbus is having a very tough time competing in the world free market against Boeing, as it is getting slaughtered this year by a three to one margin in aircraft orders. At Farnsborough Airbus did not do well and that they are also looking at the cancellation of nearly 10 eight 380 Airbus super airliners. Airbus in their need to be going for the largest aircraft decided to build the super whopper A380 and aircraft one could say would be a great opportunity for an international terrorists strike, as he can hold up to a thousand people. With all these major setbacks and extreme debt in her best is looking to be bailed out again by the European Union. This just shows that free enterprise and free markets with real competition for world markets makes the most efficient and competitive companies on earth. What is Airbus doing now, well now they are trying to copy Boeings Dream-liner concept, because airlines are looking for more efficient aircraft, which are lighter and get better economy. It is hard for an airline to make money with an aircraft that holds nearly 1000 people. If the airliner is not full the cost to run that airliner makes things extremely difficult. The European Union has used regulations to try to help Airbus over Boeing in many European markets, but any and airlines must live the most efficient aircraft if they truly wish to make a profit. Boeing is being very competitive in building efficient fuel economy aircraft and Airbus has missed the bus and some people in the aviation industry are now calling them Airhead, although maybe they would be better off building ground transportation; that is to say buses with air-conditioning. Summary Although market uncertainties remain, particularly with respect to the airline industry's profitability and open market access, the long-term market outlook remains favourable. The Airbus industrie is well positioned in all segments of the commercial jet transport market, and intends to remain the airline industry's preferred supplier through emphasis on product offerings and customer service that provide the best overall value in the industry. In the future, Airbus will focus on "core business" activities that are critical for the integrity and safety of the aircraft, or vital for technological and commercial differentiation, for the operability and reliability of the aircraft and its maturity at entry into service. These activities include overall aircraft and cabin architecture, systems integration, as well as the design, assembly, installation, equipping, customization and testing of major and complex components or manufacturing of new technology parts. References Airbus: Corporate information: History - Early days. Airbus: Corporate information: History - Record-breakers Airbus: Corporate information: History - Technology leaders. Airbus: Corporate information: History - Trouble and strife. BBC News. (2007-02-28). Airbus confirms 10,000 job cuts. BBC News. (06 April 2006).BAE Systems to sell Airbus stake. BBC News. (2006-09-06). BAE agrees to 1.87bn Airbus sale. CNN.com. (05 July 2006).BAE orders new Airbus audit. 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(03 July 2006).BAE under pressure to hold Airbus stake. The Independent. (15 June 2006). BAE launches attack on EADS over Airbus super-jumbo warning. Read More