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Competitors in the Aerospace Industry

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					Aerospace Sector Analysis
        Group Members:
         Kelly Karsten
         Nicholas Frank
         Maren Peasley
        Shane Fuchigami
            Sector Definition
• Aerospace and Defense
  – Commercial
     • 100+ seats
     • Jets <100 seats
  – Defense and Space
     • Aircraft and Arsenal
     • Satellites and Launching Pads
              Sector Subset
• Why focus on Commercial?
  – Passenger miles have an impact on demand for
    airplane production.
  – Airline profitability has a direct relationship
    with plane production demand
  – Military information is classified
  – Current decreases in sector need to be
    recognized
    Competitors in the Commercial
         Aircraft Industry
•   Boeing
•   Airbus
•   Bombardier
•   Embraer
          Overview of Boeing
• Leader in the commercial jet manufacturing for
  decades
• Merged with McDonnell Douglas in 1996
• Second largest defense contractor in 2000
• Leader in the satellite making (space industry)
  business as of 2001
          Overview of Airbus
• Established in December of 1970
• Boeing’s only competitor in commercial jet
  manufacturing
• Controlled 55% of the large passenger aircraft
  market in 2001
Percentage of the Market Share in the 100+
 Seat Commercial Airline Industry in 2001



Boeing
 45%


                                       Airbus
                                        55%
      Overview of Bombardier
• World’s largest maker of small planes in Canada
• Make jets that seat between 25-90 passengers
• Control 36% of the global market for business
  and regional jets
         Overview of Embraer
• Company founded in 1969 in Brazil
• 11,000 employees
• Historically their planes seat between 30-50
  passengers
• Currently developing new jetliner family in the
  70-110 seat category
     Percentage of World Market Share for
    Regional Aircrafts in 20-99 Seat Category

          Other
          20%

Embraer
  8%




                                      Bombardier
                                         72%
                       Boeing
Strengths                      Weakness
• Strong brand name            • Lost sales due to current
• Market power in all levels     US recession
  of aerospace industry        • Losing market share to
• Focusing on growing            Airbus
  market of jets less than     • Relocating headquarters to
  100 seats (Bombardier)         St. Louis disruptive to
                                 synergy/corporate culture
                               • Cyclical employment
                   Airbus
Strengths                Weaknesses
• Gaining market share   • Slowed Sales due to
  on Boeing every year     US recession
• Flexibility            • Focus on 500+ seats
• Cost-efficiency          while trend is going
• Funded by outside        toward smaller, faster
  sources (States and      jets
  Government)            • Cyclical employment
                Bombardier
Strengths                 Weaknesses
• Operates in a growing   • Heavy competition by
  market                    Airbus and Boeing
• Huge increase in Net    • Increased long-term
  Income from 2001 to       liabilities to fund
  2002                      expansion
• Known as a socially
  responsible company
                   Embraer
Strengths                  Weaknesses
• Currently entering a     • Not know that well
  growing market             domestically
• One of world’s four      • Competing in a very
  largest commercial
  aircraft manufacturers     competitive US
                             industry
• New products offered
  at low-cost and have
  exceptional quality
  Why These Four Companies ?
• Boeing – Biggest aerospace player
• Airbus – Boeing’s only competition in the
  commercial jet industry with 100+ seats
• Bombardier – World’s largest maker of small
  jets
• Embraer – One of the world’s four largest
  commercial aircraft manufacturers
Sectors Dominant Economic Traits

•   Maturity Stage
•   Fierce Competition
•   Competing on Price
•   Difficult to grow in size
•   Cyclical employment / development
•   Expensive production costs and R & D
•   No international barriers
        Market Size and Growth
•   Low-growth industry
•   Highly saturated industry
•   Orders are declining and being cancelled
•   Focus: Try to expand market share
•   If airline profits fall, orders will fall
  Scope of Competitive Rivalry
• Boeing vs. Airbus
  –   Mature Market
  –   Airline Price Leverage
  –   Cannot stop Production Line
  –   Price Discounting
• New market appearing (Bombardier)
        Macroeconomic Issues
• U.S. Recession
  - unprofitable airlines
• September 11th
  - low consumer confidence
• Weak economy
• Wars and Terrorism
  - Oil prices
   Competitive Forces at Work
• Passenger traffic
  – Why do people want to fly?
  – Where do they want to go?
  – How much are they willing to spend?
• Technology
  – Changing consumer demand and new
    technology spur higher seat aircraft
  – Older aircraft being replaced due to noise
    regulations
   Aircraft Orders – 1996-1999
3000

2500

2000                               Cancellations
                                   Net Orders
1500
                                   Deliveries
1000                               Backlog


500

  0
       1996   1997   1998   1999
       Aircraft Orders – 2000-2003
3000

2500

2000                                Cancellations
                                    Net Orders
1500
                                    Deliveries

1000                                Backlog


500

  0
        2000   2001   2002   2003
         Sector Attractiveness
• Cons
  – Multi-Billion Dollar investments required
  – Break-even point can be years after production
    starts
  – Worker unions are very powerful
         Sector Attractiveness
• Pros
  – Potentially billions of dollars in profit
            Success Factors
• Core competency in specific Aerospace
  Discipline
  – Aircraft electronics
  – Frame/Fuselage design or production
  – Engine design or production
• Mountains of $$
             Sector Health
• Aircraft manufacturers exhibit weak
  financial ratios
        Sector Opportunities
• Improving good will with unions could be
  an extremely valuable asset
           Sector Problems
• Financial ratios getting worse
• Market based on fickle (consumer) market
• Development costs extremely high and
  rising
           Drivers for Change
• Health of Economies
    – Consumer Confidence
•   Consumer Need to Travel
•   Health of Airline Industry
•   Prospect of War
•   Government Spending/Regulations
•   Technological Innovations
           Competitor’s Moves
• In time of war, shift focus to Military
• Boeing
   – Supersonic Jet
• Airbus
   – Super-Jumbo Jet
• Bombardier
   – Focus on Smaller Jets
• Embraer
   – Focusing on the 70-110 seat market
 How does this affect the Sector?
• Change the way of consumer/business
  travel
• Recession will cause less travel
• Looking for substitute ways to travel
  – Trains, Cars, Buses, etc.
• Increased congestion at Airport hubs
  – Need for point to point travel
  Impact of Change on Key Sector
            Participants
• Orders will get cancelled
• Decrease Revenues for firms
• Affects the future of the companies 5 years
  out
• Increase R&D spending to meet
  government regulations
                   Bibliography
• Dukcevich, Davide. “Boeing, Airbus Fly Above
  Cancellations.” Forbes. 15 Aug. 2001. 11 Nov. 2002.
  www.forbes.com/business
• Pollcak, Jacob & Friedman, Robert. “Aerospace and
  Defense.”S&P 500 31 Oct. 2002. 15 Nov. 2002
  www.netadvantage.standardandpoors.com
• Taylor III, Alex. “Little Jets are Huge.” Fortune. 4 Sept.
  2000. 5 Nov. 2002. www.fortune.com/lists/F500
• www.airbus.com
• www.boeing.com
• www.embraer.com
• www.bombardier.com
             Bibliography
• Personal interview. Richard Wynne. The
  Boeing Company. 13 Sept. 2002
• “Industry Surveys.” Volume 1. A-D.
  Standard & Poor’s. Selected data from
  “Aircraft Orders & Deliveries” table.
  Aerospace & Defense Industry Survey, pg.
  3. July, 2001.
               Bibliography
• “Industrial Manual.” Volume 1. A-I. Mergent.
  Balance Sheet and Income Statement from “The
  Boeing Co.” and “Bombardier Inc.”. July, 2001.
• “Industrial Manual.” Volume 1. A-I. Mergent.
  Balance Sheet and Income Statement from “The
  Boeing Co.” and “Bombardier Inc.”. July, 2000.
• “Industrial Manual.” Volume 1. A-I. Mergent.
  Balance Sheet and Income Statement from “The
  Boeing Co.” and “Bombardier Inc.”. July, 1999.
               Bibliography
• “Industrial Manual.” Volume 1. A-I. Mergent.
  Balance Sheet and Income Statement from “The
  Boeing Co.” and “Bombardier Inc.”. July, 1998.
• “Industrial Manual.” Volume 1. A-I. Moody’s.
  Balance Sheet and Income Statement from “The
  Boeing Co.” and “Bombardier Inc.”. July, 1997.
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