Case Analysis Revolution in the Jumbo Jet Market Airbus – Boeing 2001 (DOC download) by gauravjindal


									         The commercial aerospace industry generates 28 million jobs worldwide and USD 1.4 trillion
in annual gross output. It is the biggest contributor to the US manufacturing trade balance, amounting
to USD 26 billion dollars in net exports in 2002. Now the industry can be best characterized by a
duopoly between the Boeing and Airbus Company. Historically, Boeing has dominated the industry
since the beginning of the jet age. It was not until the 1990s when the industry underwent a
transformation from primarily a monopoly by Boeing, to a competitive duopoly. In 2004, Airbus
attained the no.1 market position and delivered 35 more aircrafts than Boeing, accounting for 53% of
total deliveries that year.


         Airbus Industry was formed in 1970 as part of the GIE ( Groupe d’Interet Economique) , an
entity of French origin under which separate companies pooled their interests and activities for mutual
gain. A major reason for Airbus existence was the desire of several European governments to have a
viable aerospace industry. The two initial members of the consortium were France’s Aerospatiale and
West Germany’s deutsche Airbus. Later British Aerospace and Spain’s CASA joined. EADS
(European Aerospace and Defense Company ) was created in the year 2000.The EADS made Airbus
as flexible as any multinational company. The EADS realized revenues of 24 billion euros in 2000
and 70% of its sales come from Airbus.

        The A300 delivered in 1974 was the world’s first twin-engine wide bodied craft, seated 240
to 345 passengers and had a range of 2000 to 4000 nautical miles. Later, the A300 was improved
when the consortium launched the A310 in 1983, with its smaller and longer-range wide body, it
followed with the A320 in 1988. The A330 and A340 First delivered in 1993 were to compete with
the MD-11 and 747 on medium to long range routes. The category in which Airbus was not present
was the over 400-seater.

        Airbus aircrafts boasted technological advances over U.S. planes .Today, about 10% of the
big commercial planes flying around the US Airbus models. They expect to have 20% of the market
share by 2005.


        The Boeing company was founded in 1916 in Seattle, Washington. In 1987 it bought rival and
military aircraft maker McDonnell Corporation. Wit merger it became the world largest defence
supplier. In 1999, Boeing realized revenues of $58 billion, it was America’s largest exporter. The
order level of aircraft was 640 aircrafts in 2000 and it also produces military aircraft and products for

        In 2000, Boeing’s airframe families included the 727 and 737, both short-range aircraft; the
757 and 767, both larger, medium-range craft; the 777, a medium to long-range wide body aircraft
launched in 1995 and 747 that could carry 400 passengers and could fly farther than any other plane.
In 1998, it introduced a new system to control the supply and stock of all its parts in order to cut
inventory costs. Boeing made efforts to trim the numbers of special features it had to produce for
different airlines. Boeing moved its headquarters from Seattle to Chicago.

Market share for these companies for the year 1996-2005 is as shown below.
Strategies of Airbus

Direct Attack
The A330 and A340 were to compete with the MD-11 and 747 on medium to long range routes.

Innovative Strategy

       Launched A380 with floor area which is 49% larger and 35% more seat.
       First widest in the world and provided wider seats with separate armrest in each seat
       Grand staircase for passengers assigned to the upper deck

Competitive Benchmarking
         Since every subsidiary in the Airbus consortium operate like an independent company, each
of them performs its own supplier management and procurement functions. Therefore, unlike Boeing,
very few components will be procured by a central authority to be drop-shipped to another location.
Instead, each company will procure its necessary components to be used on its own facility.
Therefore, the procurement transaction is very clear and simple. While Airbus might negotiate bulk-
buy purchasing contracts for its subsidiaries, the transactional responsibilities reside with individual
companies. Thus, the buyer company first establishes a purchase order with and provides a delivery
schedule to component supplier, and notifies the supplier when part is needed. Since only two parties
are involved, accountability and responsibilities are well aligned and easily traceable.

Strategies of Boeing

Position defence
Boeing in 1998 to compete with Airbus and to retain its market share,
     Introduced a new system to control the supply and stock of all its parts in order to cut
        inventory costs
           Trimmed the number of special features it was producing for different airlines
           Production changes included halting the manufacture of MD-11, MD-80 and MD-90
           Cutting back its workforce


Boeing 747
           Lighter weight
           Extra cargo loading capacity
           Obsolete design prevent accidents
Airbus A380
            555 persons can move at a single go
            Less operating craft
            Increased range
            Reduce fuel burn & less noise

Boeing 747
           Limited capacity
           High operating cost per person
           Use for shorter range
           More consumption of fuel & high noise

Airbus A380
           Not suitable for the current airport due to broad structure
           Heaviness in weight lead to increase in manufacturing cost
           Take time for loading & unloading leading to loss of revenue.
           Lacking the dramatic potential of larger jets, regional jets are likely to be avoided by

Boeing 747
           Opportunity to enter into new market by introducing aircraft with larger number of seats
           By new product design it can also help in eroding the share of airbus

Airbus A380
By generating revenues from A380 it can further strengthen its market of small aircrafts by diverting
the funds into them

Boeing 747
           Lead to eating of market share if further capacity of aircraft is not increased.
           Manufacture of increased capacity of airline will lead to cannibalizing of boeing 747.
Airbus A380
It has to persuade the world to expand their airport otherwise their heavy model will fail in small


        With porter’s five forces analysis the key forces behind the industry is well understood. The
forces are buyer power, supplier power, barriers of entry, substitute and rivalry. The analysis for the
industry is as follows.

                                            High barrier to
                                           •High fixed cost
                                           & upfront initial
                                            investment are

                                            Intense rivalry
     Low substitute                            Duopoly                              Moderate
                                                                                  supplier power
    •Currently, there                      -The rivalry is a
        is no other                         long standing                        •Some suppliers
     efficient form of                   duopoly with some                           are more
      substitute for                      new competitors                          powerful (e.g.
       commercial                        moving in from the                       systems, scarce
          aviation                          corporate jets                       raw materials) &
                                               market                              some are less

                                          High buyer power
                                          •Duopoly provides
                                            room for airlines
                                             to leverage the
                                           over each other to
                                           get the best deals
                     Case Analysis

Revolution in the Jumbo Jet Market: Airbus – Boeing 2001

                    Submitted To

                Mr. Rahul Gupta Chowdry

                    Submitted By

                       Group 5

                   Anshuman Sharma
                      G Praneetha
                    Kushal Rastogi
                       Parul Rai
                    Priya Rajvansh

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