AIRBUS CASE ANALYSIS
The possibility of an investor surviving a competition depends on the ability to overcome internal and external threats, while at the same time developing a strategy that creates aspects of differentiation, driven by economic logic. The airline industry has been a competitive industry, especially over the last half century. The two main competitors: - the Airbus and Boeing have exhibited a long-term rivalry for the market share. While the two have had a different staging of their businesses, the businesses have faced great challenges, both from within and external threats. Boeing had been the market leader until the later years of the century, when airbus, driven by the zeal and zest of becoming the market leader, experienced an accelerated growth and expansion to dominate the industry.
Airbus manufacturing was a response to the increasing U.S dominance in the aircraft production industry. The initiative was launched in 1960s by three European nations, mainly Britain, France and West Germany in order to counter the increasing influence of the United States manufactures in the air transport industry. The investment was a joint product of the three nations in terms of financial input and human resources. Soon after the launch, British pulled off due to self-interests, but joined later by injecting a 20% stake in the manufacturing process. The plant was first based in Paris, France and governed under French law, which did not allow making public the financial documents. Though three governments supported the initiative, it faced serious challenges (Carpenter & Sanders, 2009).
In the initial stage after establishment, it experienced slow process of manufacturing due to focus on roles rather than efficiency. Each country was expected to play a certain role in the production of certain elements of the planes and thus delay of one partner stalled the whole manufacturing process. The partners were focusing at challenging the already established Boeing industry in the United States but lacked the vigour needed to rival the competitor in the market after the first production due to lack of proper marketing. This meant that their products remained unpopular to the airline operators for some time.
The second challenge was the structure and mode of management of the initiative. The three governments subsidised the production process, which made the aircrafts relatively cheap, but not long before the subsidy strategy was challenged by the United States as violation of international trade agreements under the government of President Ronald Reagan. The United States argued that subsidising the production affected the market pattern in a manner that did not create fair competitive environment. What followed were measures meant to ensure that the contribution of the three governments was very limited. Consequently, Airbus could not finance heavy production investments. In 1980s, financial crisis that hit the European continent stained the airbus business. In 1990s, the member partners were also unwilling to contribute to the production of new designs before they made sales and profits for the models already developed (Carpenter & Sanders, 2009). The need of moving from an inter-state owned entity to a for-profit business was viewed as the best survival strategy for the initiative. This was accepted in 1998 and implementation began. However, the biggest challenge in restructuring the industry was over evaluation of assets to be pooled into new corporate structure. The obstacles were cleared in 1999 by merging aerospace Marta and DASA to form European aeronautic Defence and Space Company (AEDs) in cooperated airbus as integrated company. The new mission of the integrated for profit company was to become a market leader in the airline industry. Thus, the strategies that were developed reflected the new mission.
The establishment and performance of Airbus sharply contrast with the Boeing. Being the order player in the industry, Boeing benefitted from long period of market dominance. This contributed to laxity in introduction on new brands of plane. The company also lacked vigilance in investigating the desire of the airline operators. The gaps they created were well utilised by airbus to become the market leader. In the initial stages, the Boeing benefitted from government support. When the competition grew stiff, the management sought to merge as a survival strategy and acquire more assents from other American industry players. However, due to lack of efficiency in production, it was unable to compete with airbus. Airbus was able to identify the notch left by U.S aircraft manufacturers and used the gaps to develop its business logic (Carpenter & Sanders, 2009).
Notably, McDonnell Douglas and Lockheed had manufactured a wider plane of 3500 miles, and three engines. Airbus identified the middle level gap and the twin-engine planes were suitable for most industry players. New craft reduced flying costs for operators. Airbus realised that Boeing was not interested in construction on larger bodies that were needed by the industry players to cut down on operation cost. Innovation was the driving force of the market. Thus, the need to develop a twin-engine plane was made a priority by Airbus. The plane needed to have twin isle and a passenger capacity of 250. In 1978 new model, A-310 was designed. This was a part of an elaborate plan to increase products categories/range to compete with its rivals. In 1990s, it launched nine models while competitor Boeing launched only two. New models were newer in design and cheaper to own than Boeing. 1989 launched A-321 increased seating capacity, later A-319 – a 124 seater launched (Carpenter & Sanders, 2009).
Airbus success was mainly due to the success of the A-320 family of aircrafts. Instead of imitating Boeing, it came up with new designs and strategies that made it a serious threat to the key challenger Boeing. In addition, similar components of cockpit were an advantage because it built similar for all the 320 models unlike Boeing, which built different cockpits for all the planes. Thus, the operators could use the same crew across all the planes. Never the less, Airbus wider airlines reduced maintenance cost.
Unlike Boeing, which had cumbersome production practices, the Airbus element of differentiation was sophisticated and efficient process, adopting the line production approach. Thus, assembling of the aircraft was made easier. While Boeing employed 216 workers per aircraft, Airbus employed 143, resulting to 51 % production difference. This saving was used for investing on the production of more planes, which meant that the company could have an accelerated growth rate. The rate of return on investment was significantly higher compared to the performance of the competitors. In addition, the level standards were higher and thus more attractive to the customers (Hitt & Ireland, 2009).
As noted above the competing strategy, especially in the manufacturing of the A 320 family was a point of departure towards a market leadership. Thus, in the market share, Airbus benefited from the transnational nature of its structure and thus could exploit the expertise of its three partners. This led to low designing and production cost, resulting to lower pricing compared to Boeing. The transformation of production from a shared responsibility to line production approach enhanced specialization, which increased the efficiency and quality. Due to the role of the partner states in its formation, the customers in Britain, France and Germany provided a ready market, which also influenced the Western European powers. For instance, British airways was among the first nations to purchase the A-380 new discovery plane in which more passengers could be carried in less wide plane since it was a double deck. More leisure activities made the plane more attractive. In addition, the operation cost was lower for a single route (Terrill & Middlebrooks, 2000).
Internally, the management strategy allowed the employees to work without many challenges. This ensured continuous production. While Boeing workers went on strike four time between 1998 to 2002, Airbus human resource was well managed and thus taking advantage of the Boeing weakness to attract more customers and increase production. Its lean workforce and sophisticated production process meant that few workers could be well remunerated and thus highly motivated.
The consistence in gaining market share, the long-term mission of being the market leader and effective use of technology relative to market demand have been strong points that if well emphasised can make the manufacturer hold on to the leadership position for a long time. The latest invention of a double deck is a strong point of differentiation that is likely to make the investors gain more customers as the need of reduced operation cost increases. The internal strength in management has increased the customer’s confidence in the industry. This means that the company is likely to get more orders for the planes as the century gets order.
The future of Airbus is bright. The differentiating factors in design, cost of operation and carriage capacity have formed the driving forces in terms of expanding the market base. The sustainability of the investment similarly depends on further differentiating factors in the above components. There are several options available. Since the investment in the past has been focused at large planes for commercial purpose, it still has an unexploited market in manufacturing small family size planes at cheap cost. The economies of scale would be a driving force. The pride associated with technology that the investment enjoys would help the players sustain sales leadership over a long period. In addition, the venture would require proper planning of design, preferably the helicopter design to enable landing on unfriendly environments. Though the venture may experience challenges such as initial high cost of production, research is needed to help develop a technology that is cost effective for production.