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Airbus versus Boeing

Extracts from this essay...

Introduction

AIRBUS Executive Summary The purpose of this assignment is to analyse the strategic dilemma faced by Airbus vis-à-vis its main competitor, Boeing. The author provides the company overview and its corporate mission in an effort to explain the relationship between Airbus and its parent, EADS. An industry structural analysis is undertaken using Porters Five Forces Model to identify the pressures that Airbus face in its industry. In addition, a SWOT analysis reveals the strengths, weaknesses, threats and opportunities of the company. The core competencies of Airbus are identified and compared to that of Boeing. Based on this analysis, the competitive advantage of Airbus is determined. Under strategy recommendations, the author examines the current strategies employed by Airbus and compares them with Boeing. Finally, conclusions are drawn as to which is the more strategic savvy and which company has the more sustainable enterprise. This is based on factors identified by Hamel and Prahalad(1999) book, 'Competing for the Future.' Since its inception, Boeing had been enjoying a virtual monopoly in the commercial aircraft industry, but was threatened by the advent of the European aerospace company, 'Airbus S.A.S.' (Airbus), in 1970. Since then, Airbus gradually achieved a leadership position in the market by dint of its innovative technologies and government funding. For the first time in 2003, Airbus became the world's largest manufacturer of commercial aircrafts. The competition among the two companies, attained a new dimension in 2000, when Airbus announced the development of the world's biggest passenger plane - the A380. Airbus touted the A380 as the future of commercial aviation, as it envisaged a huge demand for larger aircrafts. In contrast, Boeing asserted, that smaller and faster aircrafts would rule the market. In keeping with this, Boeing announced its plans to develop the 7E7 Dreamliner. The aircraft manufacturing industry is constantly growing and is characterized by high entry barriers and investment in R&D and by a duopoly with Airbus and Boeing having a market share of 86% for aircrafts over 100 seats.

Middle

Boeing, until recently had a labor intensive model - more labor less automation. In addition, Airbus registered comparatively strong revenue per employee. Relatively strong revenue per employee indicates the company's stronger productivity and operational efficiency. In 2007, the company recorded total revenues of E25,216 million (approximately $37,114.2 million) with a total of 57,000 employees. The revenue per employee of the company stood at $651,126.3, which is higher than that of its close competitors like Boeing. The revenue per employee of Boeing stood at $416,742 in 2007, significantly lower than that of Airbus. 3.2 Weaknesses Delays in the aircraft launch In 2007, Airbus faced a barrage of difficulties stemming from delays of both the A380 and A350. These delays could cost Airbus more than $4 billion in the form of penalties, higher production costs and order cancellations. As a result of these delays Airbus is also significantly behind Boeing in terms of its current production cycle. The company witnessed a two years delay in the delivery of its A380 aircrafts, due to several reasons: * Problems with wiring harnesses in the digital mock-up and inaccuracy in the software. * Challenges regarding the design and weight. * Redesign of major elements of the aircraft due to the preference of low noise by the customers. As a result, Airbus had to re-plan the launch of its A380 twice. These delays caused Airbus to lose billions of dollars through penalties, higher production costs, and a slower learning curve with the A380. Further, in May 2008, Airbus announced another delay to its planned deliveries of its 525 seat A380 aircrafts. Such delays in the delivery schedule of aircrafts reflect the operational inefficiency of the company. More recently, Boeing experienced its share of delay woes as well. According to an article in Businessweek (June, 2009), Boeing had targeted a first flight for B787 in June 2009. The program is now two years behind schedule and further delays to deliveries are inevitable--putting Boeing's hopes of consolidating its lead over the forthcoming Airbus A350 increasingly under threat.

Conclusion

customer was made aware of its existence and was told how to use it, would beat a path to your door to buy it - as in the case of A380. Thus, Airbus has made critical effort to rededine its strategies in an effort to get back on track. 6.0 Potential Fallout There are a number of minefields that Airbus must navigate. One is its ability to survive the financial crunch and continue with its manufacturing of the A380 and A350XWB. Many of its partner countries in the EU are facing the brunt of the 2009 economic downturn and whether the promised funds will materialize remains to be seen. Second, as a subsidiary Airbus is inextricably linked to its parent company EADS. While it makes every effort to distinguish itself as a separate entity, it is difficult to break away ties completely and re-orientate into a different culture in a short period of time. The danger of the parochial interests of European states domination is real and Airbus must make every effort to guard against it. Third, Airbus must learn from the slip-ups of Boeing particularly with regards to supply chain. On complex aircraft it is possible that failures or shortfalls in production at one or more key component manufacturers could bring the production line to a screeching halt as experienced by both Airbus and Boeing. Finally, the new manufacturing paradigm, which is based on shifting risk, research, design, and engineering into a "globally-diffused" production chain, is nothing short of a complete change in airliner manufacturing. Spreading out the risks and the financial investment of the project to hundreds of individual suppliers across the world, this globally-diffused production process concurrently represents new economics in the capital, financing, and human skills necessary to design, build, and bring new airliners to market. But it also potentially opens up the airliner production business to new entrants - new entrants with new ideas, new approaches, new vision - all of which will be a challenge to Airbus. 7.

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