EXTERNAL ENVIRONMENT
1. PEST:
POLITICAL
Deregulation policies.
Relations between governments and actors of the military aeronautic industry can adopt different forms:
Some governments have commitments to contracts.
The Royal Air Force would not be able to acquire more C-17s because of its commitments to the EADS contract.
Some governments would favour contract with a national company. This is the case of the USA with Boeing.
Military market size depends on national budgets adopted by governments.
Military expenditures have been reduced for a long time.
The military budgets of the USA and the main European countries are predominant:
- US military budget is rising again.
- In France, military budget is stagnating.
- UK military budget experiences a revival.
- German military budget is likely to stabilize its fall.
- Military budgets of other European countries tend to increase.
In the space area, the decrease in the military opportunities leads to a preponderance of the civil activities.
ECONOMIC
There is a succession of cycles in the civil aeronautics.
These cycles are much longer in the military area.
The demand of air travel is driven by economic or GDP growth, fare levels and demographic growth.
The terrorist attacks of September 2001, the economic downturn in America and Europe, SARS and the Iraq war have affected the industry in two different ways:
- In the civil area, such a context has damaged the aviation world; as a result suppliers of commercial aircraft have been affected.
- On the contrary, such events have triggered off an increase in the national military budget in the USA and GB. The military market size has increased.
SOCIAL
In the military area:
- The terrorist attacks of September 2001 have mainly contributed to encourage American people to support the rise of the defence budget.
- Concerning the Iraq War, a lot of governments have to deal with the protestation of their population which can prevent them from increasing their military budget.
In the civil area:
- With the attack of 11 September people have been more reluctant to take a fly. Purchases for aircraft have fallen and suppliers are just experienced a recovery.
TECHNOLOGICAL
Research and Development is a key factor. Companies have to attract best employees because this is people within the company who determine success or failure.
Supplying more sophisticated platforms give the advantage of competitors.
Patenting more inventions is essential to keep a technological advance.
The maximum number of aircrafts with your technology you sell, the more likely you will be to sell new ones. Indeed, air forces need a homogeneous fleet equipped with the same technology in order to able interactions between armies from different country.
In a lot of cases, military technologies are used in civil aircraft (spin-off) and the opposite (spin-in) is less used. However, in our case study, EADS uses spin-in: it uses the Airbus platform in a wider range of military aircraft.
More and more aircrafts have this technological duality, but it occurs only in big companies like Boeing or EADS.
Recently, European countries have tried to rationalize aeronautic research.
Thanks to this pest, we can notice than the commercial aviation has slowed down (even it is recovering) whereas the military area experiences a great expansion due to an increase of the military budget (triggered off by the international events such as terrorist threats, Iraq war, etc.). Reinforcing its position in the defence market, EADS follows this trend.
2. Five forces:
Rivalry Among Competing Sellers - Strong
EADS (with Airbus and Airbus Military) is in direct competition with Boeing.
In the military transport aircraft division, the A400M competes with Boeing’s C-17s. With its A400M, Airbus Military will also compete with Lockheed Martin’s smaller C-130.
In the commercial aviation, Airbus and Boeing compete with several aircrafts:
The A318, the A320, the A300, the A330, the A340, and the A380 compete respectively with the B717, the B737, the B767, the B777, the B747, and the B747X stretch.
Airbus aims to increase the number of seats within its aircrafts whereas Boeing is more hesitant. Boeing tends to maintain itself in the niches of Airbus through new editions of its B717, B777 and B747.
Power of Buyers - Strong
EADS sells its products and services in an unusually wide range of markets. Customers are governments and public services (from police forces to airlines and other commercial clients).
In this market, Airbus and Boeing compete to keep customers and attack new ones. As a result, the power of buyers is strong because they can put pressure on one of these two companies. However, some contracts can prevent customers from changing their suppliers. For example, the commitments of the Royal air Force to the EADS contract could prevent it from acquiring more Boeing’s C-17s.
Potential New Entrants – Weak
The enormous potential required to deal in this market (supposing considerable resources and strong relationships with top officials and big companies in different countries) forbids new entrants.
Substitute Products (of firms in other industries) - Medium
In the commercial aviation:
The number of orders depends on the intensity of the air traffic. This one can be affected by the number of people who prefer another way to travel. So trains, boats, bus services, etc. can be considered as substitute products. The global threats from terrorism have reinforced these substitute products. However, if you want to travel from Europe to the USA, you need to fly.
In the military market:
Military aircrafts are not replaceable. Army need to act rapidly, everywhere, and in area where maritime and continental roads are not necessarily negotiable.
Power of suppliers - Weak
The power of suppliers is weak due to closer partnerships with a unique team of companies (from fundamental research and development through design, manufacture, marketing and customer support).
EADS has the opportunity for a step-change in efficiency and productivity through the sharing of knowledge, technology and commercial leverage.
INTERNAL ENVIRONMENT
1. Ressource audit
Airbus and Airbus Military rely on EADS.
Physical resources
EADS has more than 70 facilities in France, Germany, Spain and the UK. The Military Transport Aircraft Division of EADS will manufacture the engine nacelles and will carry out the final assembly of the aircraft at its facilities in San Pablo, Seville.
It has important portfollio of businesses with closer relationships. It exploits cross-group synergies. For example, the TP400-D6 turboprop engines powering the A400M is being developed, manufactured and supported by EuroProp International (EPI), a European joint venture company consisting of Rolls-Royce, Snecma Moteurs, MTU Aero Engines and Industria deTurbopropulsores (ITP).
Airbus has 190 operators around the world.
The in-service airbus fleet includes over 3,000 aircrafts.
Human resources
EADS has a workforce of nearly 104,000. It is able to attrack the best employees of the industry.
Human ressources function have been reorganised to unlock the full potential of the diversity of cultures and qualifications. A single “employment market” has been created, open to all employees, who are encouraged to find the roles that best fit their skills and ambitions, in the location of their choice.
A flexible working arrangement enables to adapt capacities significantly without major lay-offs.
Airbus has 48,500 employees.
Financial resources
In 2002, Airbus achieved a turnover of some 19.4 billion euros.
In 2002, EADS has revenues of €29.9 billion.
Loans are provided to customers to finance the sale of aircraft. These loans are long-term and normally have a maturity which is linked to the use of the aircraft by the customer. Both finance lease receivables and loans are part of the aircraft finance risk exposure, net of accumulated write down of €444 million and €477 million at 31st December 2002 and 2001, respectively. These sales financing transactions are generally secured by the underlying aircraft used as collateral.
Thanks to stable incomes (due to regular orders) EADS and Airbus can satisfy shareholders and can reinvest continuously in R&D.
Intellectual capital
EADS has an expert and motivated workforce. Courses are delivered to help employees in developing their skills.
The cost-effectiveness of R&D programmes is outstanding, EADS patented more than 350 new inventions during the year 2002.
The company has recruited 2,326 of Europe’s brightest graduate in 2002.
EADS has a great capital in R&D through its portfollio of businesses.
Knowledge is shared between these different businesses.
2. Value chain
DRIVERS OF CHANGE
The new opportunies that occur in the defence market have led EADS to target the niche of military transports. Such opportunities have been mainly triggered off by an increase in the military budget of the USA and the UK. Potential terrorist attack, Iraq and afghan war, the type of industry favored by Bush, unstable international relationships, etc. are liable for this situation.
As commercial aviation has slowed down, such an operation will enable EADS to “smooth out” these fluctuations.
If EADS and Airbus success in the UK market with the A400M, it will be a first step to pressure the USA into buying its military aircrafts (the UK and the USA need an homogeneous fleet to coordinate their action). Consequently, this could be an opportunity to obtain US contracts in the commercial area, and a chance to supersede Boeing at home.
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Matplane (2003), Matplane [online]. Idesign Studio
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