Strategy and VRIO Analysis of Boeing - Essay Example

Airbus

Tangible Resources

Valuable

Rare

Difficult to Imitate?

Organized

Financial

7,647,000,000 revenues in 1992, 19% market share, cheap loans

yes

yes

yes

yes

Physical

15 manufacturing facilities, efficient transport mechanisms

yes

yes

yes

yes

Technological

The improved fuselage, forward-facing crew cockpits, Laser guided automatic riveter

yes

yes

yes

yes

Organizational

Groupement d’Interet Economique; all partners are responsible for their own profits

no

no

no

Yes/no

Financial: Estimated revenues at over 7.6 billion

Physical: 15 Ultra-modern facilities, at four strategic locations with automatic laser-guided riveters

Technological: laser-guided, automatic riveters. This reduced that stage from three months to three days.

Organizational: Efficient organizational structure with each partner responsible for own profits

Intangible Resources

Valuable

Rare

Difficult to Imitate?

Organized

Human

Experienced/innovative research team, sound management  

yes

yes

yes

yes

Innovation and Creativity

leaders in (LGAR) technology

yes

yes

yes

yes

Reputation

Reputable but government-assisted

no

no

no

yes

Human: Experienced/innovative workers, efficient managerial team

Innovation and Creativity:  Airbus is considered a leader in innovation

Reputation:  With the ruling to regulate government subsidies/loans to airlines, this could hurt Airbus’s profitability

SWOT Analysis

Strengths

Weaknesses

Boeing:

-60% market share

-Steady business defense

-Strong balance sheet

-Admirable supplier relationship

-Manufacturing capability

Boeing:

-Losing market share

-Long order to the delivery date

-Cost of developing new VLCT

Airbus:

-Strong support from Governments

-Profitable

-Innovation ideas implemented, laser-guided riveting machine

-Growing market share, estimated 23% in 1993

Airbus:

-Whitetail, manufacturing planes without order

-Manufacturing capabilities

Opportunities

Threats

Boeing:

-VLT necessary in the near future

-Aging fleets will need to be replaced with newer models (15-20 years)

-Large market capitalisation

- Largest manufacturing facilities

Boeing:

-Future airport capacity issues

-Long delivery time

-Investing alone in VLCT could cause Boeing to go under if failed

-Declining market share

Airbus:

-Boeing running beyond capacity will cause airlines to pursue other options for quicker delivery dates

-Good option for customers due to quick delivery time

- Aging fleets will need to be replaced with newer models

Airbus:

-Decline in order for 1993

-Investing alone in VLCT could cause Airbus to go under if failed

-whitetails may be a catastrophic loss if buyers get better options

Part 2

Definitely, Boeing has a competitive advantage over its next nearest rival Airbus. Boeing has an estimated 60% market share as of 1992 compared to Airbus, which commands only 19%. Boeing is capable of producing 5-7 aircraft of each model/month. Boeing produces on an order basis and is therefore not likely to make losses apparent with whitetails. Boeing has a well-established market such as United Airlines, which has made an $11 billion commitment on 34 orders and a further supply of 34 units. All-Nippon Airways has already ordered 15 VLCTs and has made a $ 2.6 billion commitment. Therefore, the future is almost certain for Boeing.

Unquestionably, Airbus lags behind Boeing in the production of large aircraft. Although Airbus has been able to manufacture long-range planes, it has not demonstrated prowess in manufacturing VLCTs. The only evidence that can be foreseen is Airbus considering increasing the size of its A340 series to the superjumbo. Since the same has not been done practically, it would be unwise to rely on the projections. 

Financial

Boeing has a strong balance sheet of over $20 billion in 90 & 91 and a projection of over $20 billion for 92 & 93. This is far much than what Airbus has generated. Most important, Boeing's production capacity is twice that of Airbus. This demonstrates Boeing has the best-proven record of accomplishment to handle the development and execution of a VLCT. Boeing's financial stability gives it an edge over Airbus, which at times relies on government aid and subsidies. For instance, almost 90% of Airbus research was financed by a collaboration of governments from different countries. This makes Airbus a risky haven for investment.   

Economies of Scale

Boeing has one of the largest manufacturing industries in the world with the largest employee base. It has twice the production capacity of Airbus. Therefore, it will be in the best position to produce the VLCTs with the lowest cost possible due to economies of scale.

Recommendation

With the growing use of air transportation, combined with the increased congestion at airports, the need for VLCT is a great investment opportunity. VLCC's will reduce congestion at key airports such as New York, Los Angeles, London, and Tokyo. Analysts predict the demand will be 500 VLCT’s over the next 20 years for an estimated selling price between $150 and $250 million.

Indeed, there is overwhelming evidence that the future demands the increased use of VLCTs. However, teaming with the best manufacturer would be the best option for an investor. Boeing has demonstrated its unlimited capabilities for handling market challenges. Going by its previous good record of accomplishment, Boeing would be the best option. It has adequate infrastructure to handle the technicalities of production. Boeing has a profound capital base to undertake heavy investments without affecting its operations. It has already established a strong niche in the aircraft market and therefore a preferred choice for potential customers. With the justifications presented in this document, I strongly recommend that as a consortium, we should invest in Boeing.