Category: Airbus

Historical Background of Boeing and Airbus

Boeing was established in 1916 in Seattle, US. Today, the company is the world’s largest manufacturer of both commercial jetliners and military aircraft (Boeing 1). The company also designs and manufactures “defense, electronic equipment, rotorcraft, satellites, missiles, launch vehicles, and advanced communication equipment” (Boeing 1). Boeing is the main contractor for NASA and the key partner for International Space Station. In addition to these products and services, Boeing also offers several “military and commercial airline support services” (Boeing 1) in the industry.

The company offers its services and products to clients spread across 150 countries globally. Moreover, it attracts high volumes of exports with the largest revenues in the US. Today, Boeing has over 170,000 workers in areas in which it operates globally and in Chicago where its head office is. Boeing has talented, diverse, and creative employees than most companies globally. Many employees have the advanced and technical knowledge, skills, experiences, and qualifications in different fields. Boeing also takes advantage of other talented suppliers and partners to leverage its operations.

Airbus also claims to be the world’s leading manufacturer of both commercial jetliners and military aircraft (Airbus 1). The company was founded more than 40 years ago in France. Today, it is one of the leading players across Europe with a sizeable share of the global aviation market.

Airbus has about 63,000 workers spread across different sites (16) in the EU bloc (European Union). Today, it has a site in Tianjin, China alongside other offices in the US, India, and Japan.

These two companies claim the world’s leading position. This highlights the fierce rivalry between Airbus and Boeing over the years. This essay focuses on marketing concepts, particularly geographic segmentation, and differentiation as applied by Boeing and Airbus as they scramble for the global market, more so in the Gulf region.

Marketing Environment

Boeing and Airbus have developed one fierce rivalry over the years and it gets worse every year. This has created intense competition in the industry. The aviation industry has experienced rapid growth. However, different factors, such as expanding markets, desire to develop fuel-efficient, green, and sustainable airplanes, the increasing prices of fuels and constant demands from consumers who have the means and will to travel better than ever before, have shaped the competition in the aviation industry.

Not in any market has this competition been fierce and apparent between the US giant and Europe’s Airbus than in the Gulf region or the Middle East. This has happened because of the Gulf’s attractive airlines and its geographical position as the airline transport hub for the globe. To Boeing, the performance has been impressive and simple. It has played the key role as the main provider of commercial jetliners since the 1980s until it relaxed and provided a way for Airbus to cater to the growing demand in the region. However, this did not last for Airbus as Boeing re-emerged to claim its number one position in the Middle East. It overtook Airbus in terms of deliveries and orders for the first time after several years.

The growth of Airbus in the Gulf region has created conditions for customer-focused and innovation strategies in the airline industry. The two giants of the aviation industry have taken their competition on their jumbo jets. Although Airbus has dominated specific stopover routes because of the partnership with Qantas, Boeing has some of the largest and efficient fleets in the region run by Emirates. Boeing and Airbus rivalry will move to their future commercial jets.

Boeing wants to create efficient, comfortable, and economic jets for the Gulf market to compete with previous models of Airbus. Industry professionals believe that Boeing will outdo Airbus in the region. On the other hand, Airbus announced a deal with Qatar Airways. This confirms and reinforces the need to capture the vibrant Gulf market. While the Middle East has provided a battleground for geographical segmentation and differentiation, it will ultimately define the king of the aviation industry in the next few years to come.

Marketing Concepts

Globalization and geopolitical trends have shaped commercial aviation. As a result, Boeing and Airbus have resorted to geographic segmentation to acquire the largest market share of the aviation industry. According to Boeing, its business is “global in every respect” (Boeing 1). Its supply chain covers several continents. Boeing delivers commercial airlines to many customers outside the US market, who are spread across the world. Hence, the industry is complex and competitive. As a result, Boeing strives to understand its market, political, and economic trends. Also, it aims to support social and public policies and create jobs in the aviation industry. The Middle East provides a good case of geographical segmentation for the two leading companies in the aviation industry.

According to Ian Gold, Airbus’ forecast shows that the Gulf region will shape the aviation industry in the next two decades (Goold 1). The forecast indicates that Airbus share will grow faster in the region than in any other geographical segment of the global market within the next 20 years.

Major aviation firms have focused on the Gulf region because governments in the Middle East have recognized the potential of the aviation industry through job creation and economic growth. Air traffic in the Gulf region has doubled in the last ten years. Moreover, global and regional airline carriers would also grow considerably. They have embarked on massive investments with billions of dollars involved to cater to the rising demands and the Gulf region desires to be the global transport hub.

The Airbus forecast shows that the growth in the Middle East is the fastest in the world. The Gulf region governments have fuelled the growth through massive investments in airport infrastructures to position the region as the best hub in the world. The key markets include the Gulf States, Arab nations in North Africa, Iran, and Afghanistan.

To meet the predicted demands, the region would require many commercial aircraft in the next 20 years. In the past 20 years, the number of commercial airlines with more than 100 seats has increased threefold in the Middle East. The industry has attracted heavy investment, which has improved the average age of commercial airplanes.

Over half of commercial airplanes operate on medium-haul and long haul routes. This is a global strategy, which the Gulf States have embarked on to attract modern and high capacity aircraft. The region has also recorded significant improvement among airplanes that offer short-distance services. Low-cost carriers have facilitated the growth in short distance markets.

The Gulf market is a diverse region, which presents massive opportunities for the aviation industry because it has some of the fastest-growing economies, as well as economic and geopolitical challenges. Despite these difficulties, several governments within the region have acknowledged the rising demands of commercial aircraft within the domestic and international spheres. As a result, investment in the aircraft industry has become a major strategic economic plan in the region to shape their present and future networks.

The government efforts have achieved remarkable growth in the airline industry in the past few years. Consequently, regional carriers have focused on exploiting these opportunities by expanding their carriers, both short hauls, and long hauls.

The aviation industry has acknowledged the unique geographical position of the Gulf region, which has provided opportunities for local carriers to attract and cater to travelers from across the globe needs. They have also recognized the intraregional growth among local carriers. Commercial aircraft manufacturers note that the Gulf region market has experienced such rapid growth because of a young, diverse population. These people share a common regional language, work, and prefer leisure chances within or outside the Gulf region.

Emerging Markets

Boeing and Airbus do not only scramble for the Gulf region, but they have also identified other regions, which will require additional flights in the next few decades. Countries in the Middle East, Asia Pacific, and Latin America will record higher than average growth in their aviation industries. These markets are critical for the two companies because of the fast-growing economies and the desire to travel among the rising middle class. Consequently, airline companies want to maximize their revenues from these factors.

The airline industry is keen to understand the trend, market conditions, and traffic flow forecasts. These factors evaluate origin and destinations, demands among customers, and city pairs, common routes.

Table 1: Boeing forecast 2013 – 2031: $4.5 Trillion Market for 34,000 New Airplanes.

Airbus and Boeing have acknowledged that the previously ignored markets of developing nations shall lead the aviation industry and define its future.

Although developing countries shall provide huge markets for the aviation industry, from the table above, it is clear that both Boeing and Airbus cannot ignore their advanced markets in North America and Europe because these markets shall provide over 60 percent of their global market shares.

Boeing expects to earn $4.5 trillion from 34,000 new aircraft by 2031 (Boeing 1). On the other hand, Airbus aims for “$4.4 trillion with 29,226 new commercial airplanes and 871 cargo airplanes by the year 2032”’ (Goold 1). These orders consist of airplanes of different sizes and models. The figures confirm a fierce rivalry between Boeing and Airbus not only for the Gulf market but also for the entire world aviation markets. At the same time, the figures also show that the two companies have a close or consistent judgment about the aviation industry globally. Airbus notes that carriers have focused on acquiring airplanes with large sizes for their backlog. On the same note, aircraft manufacturers want different ways of adding the number of seats to available airplanes or develop new aircraft of large sizes with additional seats to meet the current demands.

The global market forecasts reflect views of Airbus and Boeing based on key drivers in the air transport market, economic, geopolitical, and operational factors within the next 20 years (Goold 1). They have also accounted for behaviors of passengers, potential implications, and new demands by carriers. For instance, carriers and manufacturers want to understand small details involved in passengers’ movements from the beginning of the journey to its end.

Both Airbus and Boeing have shown confidence in the market despite the recent events in North Africa, some parts of the Middle East, the Euro crisis, and the global financial crisis. While some parts of the world experienced “social challenges and slow economic growth, the airline industry has continued to grow” (Goold 1). The growth was attributed to increment in economic activities, changes in demographic characteristics, achievements in social activities and the ability of the airline industry to satisfy the needs of passengers.

The airline industry has facilitated movement across different geographies. Hence, people can choose their workplaces, where to conduct their businesses or live. The airline industry also considers factors related to urbanization, availability of disposable income, accumulation of wealth, and consumers’ spending habits. All of these factors influence the growth of the aviation industry. Amidst this intense competition, aircraft manufacturers must differentiate themselves across different geographical regions through innovation and technologies, which will shape the future of the airline industry for the coming decades.

Differentiation

In today’s aviation industry, a clear difference among competitors has become almost unnoticeable. However, Boeing and Airbus have focused on functional product differentiation to define their aircraft as the best in the market.

Boeing concentrates on delivering functional airplanes through technology and innovation instead of economies of scale through large aircraft, which Airbus plans to build. In this case, Boeing will make green aircraft, highly fuel-efficient engines, and lightweight aircraft with sleek designs. Moreover, Boeing would want passengers to have unique traveling experiences by providing comfort during traveling instead of benefits, which carriers can withdraw at any time. These comforts include headroom, bathrooms, large windows, and favorable humidity. These are fixed components, which passengers will experience irrespective of the seat. Boeing believes that it relies on marketplace insights to develop its products. The strategy considers the design of manufacturing airplanes that eliminate unnecessary intermediate stops. At the same time, the airplane must be efficient, offer optimal comfort to travelers, and be cost-effective and easy to operate and maintain (Babej and Pollak 1).

Conclusion

Boeing and Airbus rivalry remains one of the most intense battles, which has attracted the attention of professionals, analysts, and academics. It is also the most intriguing battle in the aviation industry as both manufacturers segment their global markets geographical and product differentiation.

It appeared that Airbus had gained an edge in the Gulf region, but Boeing re-emerged to claim its position. Observers believe that the Gulf region will define the next industry leader in the aviation industry in the next 20 years.

It will also identify a manufacturer, which understands its market, customers, technology, and innovation.

Works Cited

Airbus. Airbus History. 2014. Web.

Babej, Marc and Tim Pollak. Boeing Versus Airbus. 2006. Web.

Boeing. About Us. 2014. Web.

—. Current Market Outlook. 2014. Web.

—. Geopolitical Trends. 2014. Web.

—. Middle East: Long-term market. 2014. Web.

Churchill, Neil. Boeing Vs Airbus: The Grisly Battle For The Gulf. 2013. Web.

Goold, Ian. Airbus: Middle East Will Increase World Traffic Share. 2013. Web.

The Airbus A380 is considered to be the largest passenger aircraft to date. However, it is seen by many as a failure in certain countries. The latter is especially true in the case of the Chinese market. Despite the initial enthusiasm, Airbus A380 was not a success in the Chinese air operators market.

Market Strategy

Airbus is a European manufacturer of this controversial double-deck jet airliner. A380 export market includes the UAE, Qatar, Malaysia, with Emirates being the most frequent buyer. The point of international delivery was set in Hamburg (“Airbus Names A380” Delivery Centre in Hamburg” par. 1). All customers from Europe and the Middle East received their Airbuses in Hamburg. Toulouse Delivery Centre is another delivery point for customers who fly in from Malaysia or other countries that find the location convenient. According to the statistical data valid as of 31 of October 2016, there were 13 operators of Airbus A380 passenger aircraft (“Orders & Deliveries” par. 1).

Licensing process of the company involves a method that is called an “approach and engagement process” (“Licensing Process” par. 2). It is a complex method that allows for analyzing the customer’s financial situation, conducting feasibility studies, and developing an individual licensing plan. The licensing process comprises several stages, from processing the initial contacts from the customer to the preparation of the licensing agreement and the transfer of technology to the customer (“Licensing Process” par. 2). The stages are as follows: Meeting and presentation and qualification process, technology partnership, approval of the customer, commercial terms and conditions, technology cases, feasibility analysis, and customer approval (“Licensing Process” par. 6). In the end, a licensing agreement is drafted.

Failure of the Entry Strategy

It is safe to assume that the entry strategy for the Chinese market was not successful. The management exhibited a rather naive approach and did not conduct a sufficiently thorough analysis of the various entry options. According to the South China Morning Post, Airbus 380 did not turn out the way it had planned, having received only three hundred and seventeen orders, while thrice as many were predicted initially (par. 1). According to some flight operators, especially China Southern and Air France, Airbus A380 commercial aircraft model is too large for certain types of markets (“China Southern’s A380 problems” par. 2). Market entry failure, in this case, occurred partially due to the adaptability issue regarding the very product, A380 commercial passenger aircraft.

An approach should have been adjusted to fit the necessary market segment and meet the requirements and exact expectations of the customers in that particular segment. Airbus product line had accumulated losses over ten million dollars caused by certain legal issues concerning flight routes in China (“China Southern’s A380 problems” par. 4). Korean Airlines and Lufthansa also used A380 with a varied degree of success. This model is the world’s largest passenger jet that was not properly adjusted to meet the demands of the market, to satisfy the expectations of the customer. Overall, the Airbus Company admitted that it would not manage to recoup the twenty-five billion dollars of investment in the project. Admittedly, A380 is popular with the flight operators from Emirates (UAE) and Malaysia. Neild claims that in a few years things might change and the destiny of the A380 will be radically different (par. 1).

General Causes of Failure

The Airbus A380 example provides an interesting opportunity for marketing experts to study the complex processes of market entry strategy. Based on Airbus’ example, it is possible to establish whether there were any risk factors involved. Truth be told, marketing research expert should be asked to do it. Otherwise the marketing research is invalid and unreliable. It is necessary to stress this aspect of the process, as a properly conducted analysis of the market always leads to profitable conclusions. There could have been a misunderstanding between the marketing research and the managers. In this case, it is recommended to look into the internal communication structure of the company, as well as verify the efficiency of the communication. There could have been a misunderstanding of the marketing research results and an inaccurate interpretation could have been made that did not take into consideration the parameters and features of the market segment in question.

The intensity of the competition should have been considered, as well as the most suitable parameters of product positioning coupled with adaptability issues in terms of pricing, distribution, and promotion. Therefore, based on an inaccurate interpretation of the research findings, unjustified assumptions were made by the company, which led to a failure of the entry strategy. Cultural aspects of China were significant as well, as they influence the law and various customs that might also stand in the way. Route restrictions mentioned in the article led to considerable losses incurred by the company (“China Southern’s A380 problems” par. 2). All things considered, despite the fact that the discussed aircraft model is often called the largest passenger plane in the world, it was not easy to create it, introduce, and launch it. In spite of its size, high comfort level, etc., A380 remains an economic disaster in China.

Recommendations

It would be more beneficial for Airbus to develop passenger aircraft models in a more realistic manner. Conducting a proper market analysis and adjusting the model to meet the requirements of the market segment would prove useful. The impressive size that A380 is famous for is not that important. In fact, the company could have gained a competitive advantage by equipping the model with devices that would increase the clients’ comfort on board or design an additional detail or a safety device. The marketing of the discussed aircraft was deeply unrealistic, based on dubious assumptions, thereby leading to huge losses. Moreover, several incidents occurred with the aircrafts, when there were serious problems with the engines during the flight. Thus, the largest passenger jet in the world turned out to be untrustworthy and outright life threatening. The engines that are manufactured by Rolls-Royce for the A380 posed problems several times already.

Conclusion

While the largest commercial passenger aircraft A380 was promising, it did not succeed in the Chinese market. Flight operators from Emirates, Malaysia, Korea, and France are loyal to this manufacturer. However, its market entry strategy regarding the Chinese market sector did not prove successful. The company incurred huge losses and experienced plenty of difficulties concerning the legal issues. Due to the inconsistency of the marketing analysis, as well as the unjustified assumptions regarding the market segment and the brand loyalty, Airbus A380 failed in the Chinese market. It would be better for Airbus to reconsider its basic marketing principles, promotion, and advertising strategies, as well as design and manufacturing.

Works Cited

“Airbus Names A380 Delivery Centre in Hamburg After Jürgen Thomas.” WaybackMachine, 2008. Web.

“China Southern’s A380 Problems May Not Be Solved by Possible Air China Partnership.” Centre for Aviation. 2013. Web.

“Licensing Process.” Technology Licensing, n.d. Web.

Neild, Barry. “Airbus A380 Celebrates 10 years: Does It Have a Future?” CNN. 2016. Web.

“Orders & Deliveries.” Airbus. 2016. Web.

“Airbus A380 Has Failed to Live Up to Its Hype After 10 Years in the Skies.” South China Morning Post. 2015. Web.

Introduction

Globalisation has driven dramatic changes in the international business. In the business world, these changes have challenged American businesses to be come more competitive as their dominance of the domestic market weakens. A good company seeks production and markets on global scale, examples of air bus and Boeing. To accomplish this, businesses have adopted the latest management techniques that represent the best practices regardless of the location.

Economic principals are global, not dependent on local cultural variation. Thus, the ways in which the transactions are valued and the types of effective strategy implemented are generally the same throughout the world. Likewise ,the ways in which they businesses of any scale resolve their disputes are converging. In general, good management practices , whether human resource, project analysis, or strategic planning, are common throughout the world among businesses. Of course, such practices are sometimes skewed by local cultural differences or local government regulations, but the importance of the common features increasingly dwarfs any remaining differences.

Main text

It may be argued that the next major challenge in the business of air transportation, beyond the invention of heavier-than-air flight and jet-powered planes, is the worldwide separation of the market between two mega-corporations. Airbus and Boeing currently dominate about 90% of the air transportation market with very few major competitors on the horizon. This therefore, makes them the provider of airplanes almost to every country in the world.

The competition between Airbus and Boeing, therefore, sets the overall tone for the air transportation industry at present and their decisions of future directions for their company’s gives insight into the direction of the industry. However, Airbus and Boeing have recently diverged in their vision of the future of air travel as evidenced by their newest models in production, the A380 and the 7E7 respectively.

An economic analysis of the Airbus-Boeing competition by Drs. Irwin and Pavcnik predicts that the A380 will further reduce the market share of Boeing’s 747 by 14.8% (Irwin & Pavcnik, 223). This analysis indicates that Airbus’ current market share will continue to dominate for the next decade while Boeing’s will continue to decline. If one also considers the present renegotiations of the 1992 US-EU subsidies agreement, aimed specifically at leveling the playing field between these two companies, the competition between Airbus and Boeing becomes far more than competing balance sheets.

As corporations grow into international behemoths, their business concerns play a key role in the policy decisions of nation-states. Without another corporation to disrupt the polarization created by Airbus and Boeing, their competition may be characterized as that between the upstart European Union and the United States and their policies on the future air travel. Thus, a comparison of Airbus and Boeing, their histories, competition factors, and plans for the future, will provide insights into the globalization forces shaping air transportation and its future.

Airbus, headquartered in Toulouse, France, has quickly moved from the market newcomer to the market leader in air transportation since its integration as a single company in 2001. In 1988, Airbus controlled 16% of the market, climbing rapidly to 37% in 1996 (Dempsey & Gesell, 85). By 2004, however, Airbus has rocketed to over 50% of the market that is up to half the national airless world wide, delivering 305 jets in 2003, and signaling its major suppliers its intention to deliver 310 jets in 2004 and 400 jets in 2005 (Reuters, 9/8/2004).

As an international company, yet with an integrated approach, it is no surprise that Airbus has had rapid growth even during the economic downturn of the late 1990’s – early 2000s. Airbus is benefiting from a broad-based customer focus as well as highly innovative designs. Its emphasis on environmental issues for its aircraft is one of the most telling aspects of its internationalism. However, Airbus’ first aircraft, the A300B, was debuted in the 1969 Paris air show.

Since then the company has collected a number of ‘firsts’, like the A300 in 1972, the first twin-aisle, twin-engine commercial jet, the A300FFCC in 1982, the first forward facing crew cockpit in commercial aircraft, the A320 in 1988, the first ‘fly-by-wire’ commercial aircraft, and the upcoming A380 slated for operation in 2006, the first four-aisle, double-decker commercial aircraft (Airbus, Our Advantages).

Boeing, headquartered in Chicago, U.S., has emerged as a world leader of aircraft production after a series of mergers and purchases including such companies as Rockwell International (merger, 12/1996) McDonald Douglas (merger, 8/1/97), Hughes Electronics (purchase, 1/2000), Jeppesen Sanderson (purchase, 9/2000), and Hawker de Havilland (purchase, 10/2000). Boeing engages in a number of business sectors including air traffic management, commercial airplanes, broadband services to airlines, integrated defense systems, and research and development. Boeing’s history dates back to the Wright Brothers as William Boeing attended the first American air meet in 1910.

He incorporated his airline manufacturing company in 1916 as the Pacific Aero Products Company, but changed the name in 1917 to the Boeing Airline Company. Since then, Boeing has become known for its own list of ‘firsts’, like the delivery of the first international airmail in 1919 in a C-700, the Model 247 in 1933, the first modern passenger plane, the 707 was used in 1959 for the first transcontinental jet route, the Lunar Roving Vehicle saw operation on the moon in 1971, and the one-year anniversary in 2001 of continued human habitation in space aboard the International Space Station (ISS), signifying Boeing’s success as the ISS primary contractor (Boeing, History – Chronology).

Given their multiple successes, it is not surprising that Airbus and Boeing have a number of competition factors driving their innovations. Foremost is their competition in wide-bodied commercial aircraft, as it is not only a competition between companies but also a subject of repeated trade disputes between the US and the EU. In 1992, the Bilateral Agreement for Large Civil Aircraft was aimed at limiting government subsidies due to US/Boeing concern over what they saw as an unfair advantage of Airbus in the marketplace.

As a result of this agreement, Irwin and Pavcnik have found that both Airbus’ and Boeing’s prices have increased by 3.7% in the wide-body and narrow-body market (Irwin & Pavcnik, 225). This agreement is currently being renegotiated further in an attempt to eliminate all government subsidies. The US continues to charge Airbus with an unfair advantage, while the EU has charged Boeing with receiving equal, if indirect, subsidies. If these negotiations fail, both parties have indicated their willingness to take their case to the World Trade Organization (WTO) for arbitration, but industry insiders believe that this is an empty threat as both companies would benefit the most without WTO oversight.

The newest models in production by Airbus and Boeing represent their competing views of the future of the industry. The Airbus A380 is their solution to growing traffic between major hubs. Their plans for the A380 signify their current goals of reducing operating costs, increasing range, reducing fuel burn, and reducing noise and emissions (Airbus, Aircraft Families – Introduction A380 Family). The Boeing 7E7 is their solution for non-stop flights between secondary cities.

Boeing’s goals for the 7E7 are to bring “big-jet ranges to mid-size airplanes”, burn 20% less fuel while traveling at Mach 0.85, an emphasis on passenger comfort to include higher humidity rates in the passenger area, and a composite material body with open architecture systems (Boeing, Boeing 7E7 Dream liner Will Provide New Solutions for Airlines, Passengers). These differing approaches highlight each companies distinction of the future of air travel, Airbus emphasizing larger passenger liners and the use of major hubs along with the growth of secondary hubs, yet Boeing emphasizing smaller passenger liners with direct flights to secondary cities in lieu of over-crowded hubs (Reuters, 7/22/04). This may be characterized as the tension between producing higher capacity versus short haul jet transports.

Conclusion

However the competition between Airbus and Boeing is played out in the future, one is guaranteed to witness increasing complexity in maneuvering through the networks of national and international policy formation, supplier-airline worker-corporation tensions, passenger demands, technological innovations, market uncertainty, and ever-increasing economies of scale. Airbus currently has the upper hand in the near-term over Boeing, but a new EU-US agreement combined with positive steps by Boeing to restructure in the face of the threat from Airbus may help to reverse this trend.

Yet, if the market has become overly complicated due to the current oligopoly, it will certainly suffer if one of these companies grows to monopolize aircraft production. Policy makers, therefore, should take a hard look at the business of air transportation and its effect on national and international options for air travel. As custodians of the public transportation system, their educated role is vital to counter-act purely business motivations and goals in air transportation. If re-regulation of the industry is the preferred solution to the decline and disarray of US airlines, then perhaps a similar solution is necessary to avoid a possible disaster across both sides of the Atlantic, created by the possibility of gross failures to read and react to the market by the current industry leaders.

Work cited

“Aerospace Firms Battle it out at Upbeat Air Show.” Reuters. 2004. Internet online. Web.

“Airbus Eyes Production of 400 Jets in 2005.” Reuters. 2004. Internet on-line. Web.

“Aircraft Families – Introduction A380 Family.” Airbus. 2004. Internet on-line. Web.

“Boeing 7E7 Dream liner Will Provide New Solutions for Airlines, Passengers.” Boeing. 2004. Internet on-line. Web.

Dempsey, Paul Stephen, and Laurence E. Gesell. Air Transportation: Foundations for the 21^st Century. Chandler: Coast Aired Publications, 1997.

“History – Chronology.” Boeing. 2004. Internet on-line. Web.

Irwin, Douglas A., and Nina Pavcnik. “Airbus versus Boeing revisited: international competition in the aircraft market.” Journal of International Economics 64 (2004): 223-245.

“Our Advantages.” Airbus. 2004. Internet on-line. Web.

Strategic management involves an organization’s analysis of their objectives, formulating strategies that involve both internal and external situations, implementing and evaluating the strategies, and finally making adjustments as necessary to stay on track.

Strategic planning is a key discipline that organizations should not overlook especially in the present highly competitive business environment, budget-oriented or forecast-based planning methods are insufficient if a large firm has to prosper. Strategic management involves a number of steps which include: mission and objectives, environmental scanning, strategy formulation, strategy implementation, evaluation, and control. (Schonberg, R. 122)

Since an organization’s success can be described better by analyzing closely its internal and external strengths and weaknesses we shall take an example of the Airbus Company that began as a consortium of aerospace manufactures and with the purpose of strengthening European cooperation in the field of aviation technology and thereby promoting economic and technological progress in Europe, to take appropriate measures for the joint development and production of an airbus. Airbus Company has its objectives based on financial aspects which include: measuring sales and earnings growth. These objectives are related to the firm’s business position and reputation. (Hollinger, Peggy; Done, Kevin, page 1, 14)

To understand and analyze the strategic management we shall consider the internal analysis of the Airbus company to help in identifying a firm’s strengths and weaknesses and the external analysis reveals opportunities and threats. This analysis is referred to as the SWOT analysis. The strengths and weaknesses of Airbus Company can be analyzed with the help of the Internal and External Analysis Strategy tables (IFAS, EFAS, and SFAS) as shown in the tables below. (Bradford, Robert W., Duncan, Peter J p12-23)

Strategy formulation of Airbus Company is carried out by matching its strengths to the opportunities that it has identified while addressing its weaknesses and external threats, to attain superior profitability the firm seeks to develop a competitive advantage over its rivals (Michael Porter).

Airbus Company implements its strategy by means of programs, budget and procedures. Implementation considers the organizational goals, this involves management of the firm’s resources and motivating employees. Since Airbus is a large Company, those who formulate a strategy are different from those who implement it hence communication is an essential factor in this company.

Evaluation of the strategy must be carried out and it involves monitoring and making adjustments that may be needed. The company’s evaluation and control involve a number of steps: defining the parameters they are to measure, defining target values for those parameters perform measurements, comparing measured results to the pre-determined standards, and making necessary changes.

Table 1 Internal Factor Analyzing Summary.

Priority 1- Very important.

2- Fairly important

3 – Important

Table 2 External Factor Analysis Summary.

Priority 1. – Very important

2. – fairly important

3. – Important

Table 3 Strategic Factor Analysis Summary.

Priority 1. –Very important

2. – Fairly important

3. – Important.

References

Bradford, Robert W., Duncan, Peter J., Tarcy, Brian, Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast!

Drucker, Peter The Practice of Management, Harper and Row, New York, 1954.

Peters, T. and Waterman, R. In Search of Excellence, Harper Colllins, New york, 1982.

Schonberger, R. Japanese Manufacturing Techniques, The Free Press, 1982, New York.

Hollinger, Peggy; Done, Kevin, Sharp drop in orders at Airbus Financial Times Daily. 2006.

Introduction

The Boeing Company is a USA-based aerospace and defense company, founded by William E. Boeing. It has grown over the time organically as well as with its merger with McDonnell Douglas in 1997. Boeing is the largest exporter by value in the United States. (Reed, 2009) Boeing’s biggest competitor is Airbus. Airbus SAS is an aircraft manufacturing arm of EADS, a European corporation. While on one hand as a result of the competition the aviation industry has gained with better aircraft on the other hand the industry has also seen a lot of controversy around the role of government with regards to aid to the firms.

Main Text

The trade disputes have alleviated a lot between the global giants and the matter was taken by the US govt. to the World Trade Organization. This has by far been the biggest trade dispute to be taken to the WTO in dollar terms (CSS, 2009). The main contention of the dispute is the way both firms benefit from the actions and policies of the respective government agencies.

The state of Washington has been providing a lot of infrastructural benefits as well as tax benefits to Boeing and a major part of all debates has been around the issue that has it been equally beneficial to the state and has this in turn violated international norms. Further studies suggest that the resulting increase in jobs was in no way directly accredited to tax holidays but was a natural outcome of increased aircraft demand globally (Watkins, 2009).

A major cause of such benefit package as highlighted by the EU at WTO was the 2003-04 incentive provided to Boeing by state of Washington to persuade Boeing to manufacture its 7E7 jetliner at Everett. The said package would benefit Boeing by $ 3.2 Billion over a period of 20 years (Wallance, 2004). The state however contended that it was a package for the industry on a whole and not merely Boeing (Washington, 2004). Boeing’s acquisition of Vought in 2009 is being seen as a move by the manufacturer to move out of Washington. Boeing quoted labor unrest and high manufacturing costs as reason for this move (Creedy, 2009).

Boeing surely gets benefits from such government actions in an industry that has huge entry barriers due to cost structure and regulation norms. While Boeing has been a major US employer and partner to agencies like the NASA and US Air Force the tax exemptions and grants do provide it undue advantages. Though in the recent times with economic recession set in the idea of govt. bailouts and exemptions have become more acceptable. Almost every country and govt. agency has been pitching in to bail out firms.

Conclusion

The ways in which such policies are crafted at times undermine worker’s interests. The 2003 proposals by the state of Washington allowed the norms to be changed to change compensations and benefits to workers which eliminated 9000 beneficiaries from the system (Galloway, 2003). Thus while the firm does benefit from such norms and tax breaks it should also be noted that the tax breaks help generate local employment and helps the firm sustain competition from Airbus. With the economic slump and post 9/11 impact on industries in general and aviation industry in particular the tax breaks may seem to be justified. Federal agencies must take care to balance the cost-benefits of any such initiatives as it affects the tax dollars of citizens.

Works Cited

Creedy, Kathryn B. “Boeing Taxiing Out of Washington?”2009, Aviation Today. Web.

CSS. “Boeing vs. Airbus – clash of the dwarfs?.” 2009, www.csmonitor.com.

Galloway, Angela. “Tax break for Boeing proposed.” 2003, www.seattlepi.com. Web.

Reed, Dan. ” Boeing says it’s flying high despite recession.” 2009. www.usatoday.com.

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Watkins, Marilyn P. “Everyone Else Gets One: An Analysis of Tax Breaks in Washington State.”2008. Web.

Introduction

Boeing and airbus have a difference in opinion on the future of commercial airlines. In 1997, Boeing decided to pull out of building a new plane code named 747-400. The plane would have carried a total of 550 passengers. The reason for the pull out was due to the lack of orders. Only two airlines British airways and Singapore had expressed their interest in the super jumbo. However, these two airlines had not made any firm orders. Boeing also pulled out because they were concerned about flying large numbers in one plane. Airbus on the other hand decided to go ahead with their project of building a new plane carrying 550 passengers. Unlike Boeing, Airbus received orders for their new planes. This made Boeing to reconsider their decision to pull out of the super jumbo program.

Airbus expected the costs of developing the new plane to be about 11 billion dollars. Moreover, it offered 49% more room than the Boeing sonic cruiser. The costs of development are also 20% cheaper than Boeing’s. Boeing had previously estimated the cost of developing the sonic cruiser at 2 billion dollars basing this figure on the existing technology of the 747 (Bass, 2010). However, the costs of the jumbo rose to 7 billion dollars. Therefore, Boeing said that the new Airbus plane could not compete with the sonic since they expected the costs of developing to rise to about 12 billion dollars. According to Boeing, the only way that airbus would compete with the jumbo was by accepting government subsidies. Airbus rebuffed these claims saying that they were trying to establish industrial partnership with Japan to help them meet the costs of developing the mew A350 plane. Japanese aerospace group was already cooperating with Boeing. Therefore, airbus was planning to use the same strategy.

In the year 2001, Boeing unveiled their alternative project, the sonic cruiser and reaffirmed their decision of pulling out of the 747-400. However, the sonic cruiser project was abandoned in 2002 after Boeing received negative feedbacks from airlines. After deciding against the sonic cruiser, Boeing concentrated on a new plane codenamed 787 Dreamliner. This plane could hold a capacity of 218 and burned less fuel by 20%. The plane was 10% cheaper to operate than similar jets in the market. The plane cost of developing the plane was initially 4.5 billion. The downside for the 787 was that it would only travel at 80% of the speed of the sonic cruiser.. Boeing estimated the market for the 787 to be 3500 over the next 20 years

After the release of the Dreamliner, Airbus threatened to unveil a new plane A350 to compete with the sonic cruiser. This move led to a huge row between the United States and the European Union over the amount of subsidies the two parties were getting. Boeing received 23 billion dollars as subsidies while airbus received over 15 billion. Boeing feared that this money would be used to develop the A350 that would compete with the sonic cruiser. The United States together with Boeing argued that airbus is already a profitable business and no longer needed state subsidies. Airbus plans to spend 2 billion dollars to make a new plane A350. The new plane is based on the success of the previous version the A330. Therefore, the new plane is bound to be cheaper than the Dreamliner and will have longer travelling range. The performance of the A330 would be better for the case of a bigger plane carrying 270 passengers.

Nevertheless, the plane is not expected to hit the market until 2013.

In response to claims that Airbus would release a plane to compete with 787 Boeing said that they could not. Boeing believes that market for larger planes will shrink while the market for midsized planes would gain popularity. Therefore, the planes would gain market share from 18% to 21%.

Factors Influencing Investment Decisions

Factors that influence decision-making can be either internal or external. These factors are usually variable from one organization to another. Sometimes, these factors may affect one organization while the other is free from its effects. The factors that affect an organization from within are therefore known as internal factors. Internal factors are usually specific and might only be affecting the organization in question (Scott and Kesten, 2007). The factors may also be coming from outside the organization. Therefore, they are known as external factors. External factors usually originate from the market and may affect more than one organization (Scott and Kesten, 2007). Investment decision making is crucial since it affects the returns that a company will receive. Boeing and airbus have different factors in play. These factors affect the investment decision making and thus the difference between the companies. The factors that affect each company may be either external or internal. This paper discusses both the internal and external factors that led to the difference in decision making between Boeing and Airbus

Internal Factors Affecting Decision Making

Management Outlook

Management outlook is process that management use to determine whether to invest or not. Management outlook involves a number of procedures and processes that will enable management to decide the viability of a decision. Some of the processes involved in management outlook are research, analysis of financial information and market analysis. Boeing abandoned the production of the 747-400 after they realized that there were no orders. Only two airlines had shown interest out of the multiple airlines in existence in the market. The management outlook came to play after this information. Boeing managers saw the future of producing Boeing 747-400 as non-profitable. Data from the market had indicated that the planes launch would not be very successful in the market. Therefore, management had to make a decision on whether to continue manufacture and risk the uncertainty. In the long run, Boeing decided to pull the plug on the 747-400. Boeing management believed they were in a bear market and would make a loss if they implemented the project. On the other hand, their outlook of their competitors was very different. The managers of airbus believed they were in a stag market. They went ahead and built their 555-seater plane codenamed A380. The plane surprisingly got orders. This led Boeing to have doubts in their decision to pull out of the project in the first place even though they did not build the 747-400.

The general economic assumption is that Boeing management failed to see the opportunity in investing in a product that was unproven in the market. They pulled out believing they were in a stag market. Their competitors on the other hand were risk takers. They saw the opportunity in the market (Jago, 2002). In fact, Airbus used some of the market hype created by Boeing to profit. The decision of Boeing to pull out eliminated competition thus creating conducive market conditions for airbus to operate as a monopoly. Another reason behind airbus success might have been the establishment of a brand. Airbus might have established a better brand name and were therefore sure they would succeed if they launched the large aircraft. Therefore when management made their decision they knew they were not risking a since they already had a loyal customer base. This is supported by the fact that Boeing and the united state were arguing that Airbus was already making profits and did not require government aid. This clearly tells us that Airbus had already established a market share. Therefore, when management was making an investment decision they took this market share into account.

Cash Flow Budget

A cash flow budget shows the projected cycle of funds flowing in and out of the company. Analysis of a cash flow statement will determine how whether a company will have the available cash to undertake different ventures. The cash flow budget would also show the timing of fund influx in a company (James, 2010). Knowing the time of fund influxes would determine when and how to implement decisions. Boeing and Airbus definitely have different cash flow budgets both in term of figures and in terms of timing of influx. This difference in timing and figures would definitely explain the difference in investment decisions of the companies. An argument had ensued between the Boeing and the airbus in terms of the cash flow. Boeing was accusing Airbus of being dependent on government subsidies and aid in order to compete. However, airbus had rebuffed these allegations and claimed that they were seeking partnership with Japanese aerospace groups. The difference in the cash flow budget of thee two competitors made them make different and conflicting decisions. It can be said that, in the case of the A380 plane made by airbus against the market analysis that it might be unsuccessful, was a typical case of difference in cash flow. Airbus directors and managers felt hat the influx of funds into the company could handle losses if any occurred. Therefore, they ventured into making a plane that might have been unsuccessful. An obvious fact is that most profit making organizations make decisions basing them on speculation of profit and their ability to handle losses. Therefore, airbus management could not have made the decision if they were of the opinion that the company could not handle the losses. This could only be determined by observing the cash flow budget. On the other hand, Boeing made the opposite decision. They abandoned a project of making 747-400 since the market analysis had indicated it would be unsuccessful. The logical explanation for this situation is that, Boeing managers had analyzed their cash flow budget and concluded that flow of funds might not have been able to handle the losses at that time. Therefore, the logical decision in this case would have been to abandon the project and cut their losses before it was too late.

External Factors Affecting Investment Decision Making

Competitor’s Strategy

Companies usually study the habits of their competitors. The manner in which the competitors use their resources will usually determine the strategy the other competitor uses to invest. Competitors usually use invest capital in different manners in order to ensure they can differentiate their products from the other (Brand, 1998). Differentiation is usually a marketing strategy approved by Lavidge and Steiner model (Linzalone, 2008). By using differentiation, the company is able to establish a unique product that has its own market share (Barth, 1999). Boeing and airbus are competitors therefore; they each have their own strategies of differentiating their products from the other. Thereof it can be seen that once Boeing made a decision to pull out of making a 550-seater plane, airbus made the decision of making the 555-seater plane. Airbus saw the opportunity of differentiating their product once Boeing pulled out. Both Boeing and Airbus are both trying to differentiate their product for marketing purposes. Differentiation leads to establishment of a brand and a brand leads to a loyal market share of consumers. Boeing and airbus are both trying to establish loyal consumers by applying different investment strategies.

Boeing decided against the investing on the 747-400 once Airbus had established a good percentage of the market share instead they opted to make a smaller plane, 218-seater codenamed Dreamliner. The capacity made this plane different from that Airbus, 555-seater, plane. Each of these competitors is using a unique product to capture the market. Therefore, in order to succeed in successfully differentiating their products, the companies must employ different investing decisions (Bennett and Gabriel, 1999).

Market Forecast

Market forecast both short term and long term would determine how an organization makes an investment decision (Stolba, 1990). Management of any company has to do no an analysis on the market trends first (Davies & Strycharz, 1990). This will enable the managers to be able to forecast the short and the long-term situation of the market (Ferber, 1973). Boeing did a market forecast when they wanted to build 747-400. The market showed that they only had two interested customers who had not even made orders. Therefore the market forecast for Boeing showed that the airplane was not worth investing in. on the other hand Airbus decided to build a large plane even though Boeing’s forecast had indicated otherwise. This means that Airbus had done a market analysis and the forecast had shown that the project was viable. Therefore, the market forecast for each of the two made them make different investment decision. Market forecast also made Boeing build the 787 and abandon the sonic cruise project. This is because the market had indicated that they would prefer a cost saving plane rather than a faster plane. Boeing took this forecast to make the Dreamliner and beat its competitor (Davila and Wouters, 2004). The investment decision in this case was different from that of its competitor because of the research. Market forecast is an important function in investment decision-making (Leitner and Warden, 2004). It provides the knowledge a manager requires to make the final decision on investment. Most companies depend on market forecast in decision-making since availability of a market indicates profits prospects for the company (Revay, 1989).

Risks

Market Risk

This is the risk that the value of an investment will reduce due to market risk factors such as interest rates, exchange rates, and commodity prices (Hutto, 2009). Both Boeing and Airbus are faced with market risks since they are both investing under uncertain conditions. It is not easy for manufacturers to forecast changes in all of the market risk factors (Borodzicz, 2005). Therefore investments may be undertaken without taking into consideration of the risks involved (Gorrod, 2004). Boeing and Airbus are bound to be faced with the market risk factor irrespective of their locations and strategies. Some of the market risk factors are:

• Interest rate risks: This is the risk that exists when a company obtains an interest bearing capital investment (Altemeyer, 2004). For example, loan, bonds, debentures and hire purchase. Generally the interest rates fall and rise depending on the total market conditions (Alexander and Sheedy, 2005). A rise or fall in the interest rates would either mean a loss or profit to the concerned organization. Economists have established a means of calculating the interest rate risk. These calculations enable managers to form a provision for the risk factor and avoid losses.

1. Currency risks: This is the risk that arises due to changes in exchange rates. Since Boeing and Airbus trade, they cannot avoid the exchange rate risks (Hubbard, 2009). Any loans obtained in foreign currencies will be affected by the exchange rate and would definitely lead to losses or profits. The fact that there exists a risk in the foreign exchange rate lead to a requirement for a provision (Kahn, 2006). Foreign exchange risks are of two basic types. Transaction risk is the risk that the exchange rate of foreign currency will change unfavorably with time. Translation risk is the risk that an asset held by a company in foreign currency may render reports inaccurate.
2. Commodity risks: Some commodities are usually necessary for normal operations of a company (Andreas, 2010). Any changes in prices of such commodities may lead to losses by a company. Boeing and Airbus are dependent on commodities such metal, electricity and fuel. Changes in prices of metal or electricity. It may lead to losses in the airplane industry due to increase in cost of production (Ruffin, 2002).

Operational Risk

These are risks that arise from execution of a business. Operation risk is broad concept and encompasses risks arising from human factors and processes of operation. Operation risks also include risks such as fraud and legal risks. Boeing and Airbus both experience operation risks while operating. Human factors such as errors might lead to losses in accompany. A good example is the case where Boeing managers decided to pull out of the super jumbo project. This decision was a wrong decision due to human shortcomings. The fact that Boeing managers did not recognize opportunity in the 747 super jumbo is a human error. This risk that human cannot identify all opportunities is a risk that all organizations must take. Another good example of risks being faced by both organizations is the legal risk. The companies may be affected by government legislation and other legislation set by the aviation air safety body. These bodies may require changes that may lead to losses in the industry of manufacturing planes.

The main objective of risk management is to identify the risk and to eliminate the risk. Risk management has the purpose of adding sustainability to all the activities that a company undertakes. Risk management increases the probability of success and reduces the chances of failure in an organization. There are several approaches that can be used to manage risks. Different managers can use different methods manage risks. In case of market risks, management will approach the risk depending on the type of risk involved. Interest risks are managed by calculating the risk factor. The analysis of the risk factor is usually done through simulating shifts in one or more yield curve. After calculating the risk factor, management can provide for the risk and ensure that the company can be able to pay up for any losses due to interest rate changes.

Boeing experienced operational risk in the course of its operations. The error of abandoning plans to build 747-400 was human error. This error was rectified by the company in their next project; building the sonic cruiser. They conducted sufficient research before rolling the sonic cruiser into the market. The feedback they got was that the sonic was not the most desired plane in the market since it was not cost effective. Boeing therefore abandoned the sonic program to build the 787 which as highly successful. Boeing in this case managed the operation risk by introducing research to combat the problem that arose when they pulled out of developing the 747-400. Boeing also faced the commodity risk when building the 787 plane. Their initial estimation of developing the plane was 2 billion but it rose to seven billion shillings. The rise in costs might have been due to commodity the risk. The company managed the risk by having extra funds to carter for the changes in cost of development.

Airbus on the other hand is also faced by commodity risks. In the quest of building their new aircraft (A350), airbus is bound to be affected by the changing prices of components that are required to develop the plane. Airbus is managing this risk by setting a provision for the expected changes in commodity prices. Airbus has estimated a cost of approximately 2 billion to develop the plane. This figure represents an estimate meaning the company has the knowledge on how much they can set aside to provide for commodity risks that may arise. Risk management is a continuous process and requires constant managerial attention.

Stakeholder’s Analysis

The main stakeholders in this case are the United States, the European Union, Boeing and airbus. These stakeholders have each been affected differently by the completion that exists between them. The United States for example has to issue subsidies to Boeing in order to ensure the company can manufacture planes at an affordable price. It has been estimated that Boeing receives up to 23 billion dollars in subsidies. On the other hand, the European Union is also affected with the same challenge. The EU issues an excess of 15 billion dollars as subsidies to support Airbus in manufacturing the planes. Airbus and Boeing are both stakeholders in this case. The completion between the two companies has led to the companies experiencing risks while in the process of manufacturing. Boeing for example experience operational risks.

The management of was challenged after they had withdrawn from building the super jumbo. Management corrected this mistake by embarking on research before undertaking new projects (Quayle, 2010). This strategy led to Boeing coming up with a viable project that was highly successful in the market. Airbus in the other hand as stakeholders is faced with the challenge of completion from Boeing. Airbus has to compete with Boeing’s innovation and therefore is burdened with the task of being equally innovative. To compete with Boeing’s Dreamliner innovation, Airbus decided to invest 2 billion dollars in developing a plane to rival Boeing’s Dreamliner. It is expected that by 2013 Airbus will unveil their new plane that will rival the Dreamliner.

Financial Appraisal

An appraisal is the process of valuing a project a business or an antique with the aim of determining the viability of the project (Markku, 2001). Appraisals are typically used to assist in taxation but sometimes an appraisal is used in assisting in decision making (Andriessen, 2004). In the case of Boeing, the function of the appraisal is to determine the viability of the project. If the project is viable then managers can use the appraisal in making investment decisions (Krugman and Maurice, 2003). Appraisals can be done using a cash flow statement or using the income and expenditure statement. In this paper the income and expenditure has been used to appraise the Boeing project.

Overview

Boeing embarked on a project to build a cost effective aircraft as required by the market. In building the plane, Boeing incurred costs of production and development. Boeing incurred the costs of research when they were seeking the market’s opinion on the aircraft development. They also incurred material costs and labor costs to develop the Dreamliner. Taking these costs into account is the first step of an appraisal of the Dreamliner effects to Boeing

Costs of development

The costs of producing a single Dreamliner airplane should also be taken into account this cost should be separated from the cost of development for appraisal purposes. However, the total costs of development of the Dream liner have been estimated to be 7 billion dollars. Assuming here are no maintenance costs that Boeing has to take into account then the only costs to be taken in the case of the dream liner are the costs of production and development.

Market forecast

Boeing has forecasted the sales of the Dreamliner to be about 3500 planes in over the next 20 years. Another focus is that the medium sized planes like the Boeing 787 codenamed Dreamliner are going to gain a market share of three percent. Therefore, the forecasted number of planes sold should be adjusted by the expected gain in market share. In adjusting for the gain, Boeing will gain 3% increase in sales. 3% of 3500 will give a rise of sales by 105 planes in the next 20 years.

Overall financial viability in terms of income versus expenditure

Boeing has already had a total of 876 orders from 53 separate customers. Each of the new planes is sold at the price of 150 million dollars. Therefore, the total sales by mid 2010 are given by multiplying the total number of planes sold to the cost of each plane. The total sales by mid 2010 were 131.4 billion dollars. Assuming Boeing had a profit margin in the sale it can clearly be stated that they had recovered their costs of developing the Dreamliner. Boeing has estimated the total number of planes to be sold in the next 20 years to 3500 plus the three percent increase in sales number. Therefore assuming the forecast to be true the total numbers of planes to be sold in the next 20 years will be 3605. Having already sold 876 planes the remaining number of planes that will be sold over the next 20 years will be 2729 planes. Assuming the prices of the plane are not going to change within the next twenty years, Boeing is expected to have a total of 4.0935 trillion dollars in sales in the next 20 years. This figure can be matched against the costs incurred to produce the plane the other costs incurred to put the plane in the market. Taking into account all costs and all the incomes from the 747, the impact of the Dreamliner can clearly be mapped.

Conclusion

Factors that influence decision-making can be either internal or external. These factors are usually variable from one organization to another. Sometimes, these factors may affect one organization while the other is free from its effects. The factors that affect an organization from within are therefore known as internal factors. In the course of their operations, both companies are faced with risks. Market risk is the risk that the value of an investment will reduce due to market risk factors such as interest rates, exchange rates, and commodity prices. Operation risk is risks that arise from execution of business processes. Operation risk is broad concept and encompasses risks arising from human factors and processes of operation. An appraisal is the process of valuing a project a business or an antique with the aim of determining the viability of the project.

References

Alexander, C & Sheedy, E. (2005) The Professional Risk Managers’ Handbook: A Comprehensive Guide to Current Theory and Best Practices. London: PRMIA Publications.

Altemeyer, L. (2004) An Assessment of Texas State Government: Implementation of Enterprise Risk Management. Texas: Texas State University.

Andreas, A. J. ( 2010) The Credit Crisis and Operational Risk: Implications for Practitioners and Regulator. Journal of Operational Risk, 5 (2), 19-31

Andriessen, D. (2004) IC Valuation and Measurement: Classifying the State of the Art. Journal of Intellectual Capital, 5 (2), 220-232

Barth, S. (1999) Knowledge-age Mergers: Finding the Perfect Fit. Knowledge Management Magazine. Emerald.

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Bennett, R. and Gabriel, H. (1999) Organizational Factors and Knowledge Management within Large Marketing Departments: An Empirical Study. Journal of Knowledge Management, 3 (3), 2-25.

Borodzicz, E. (2005) Risk, Crisis and Security Management. New York: Wiley

Brand, A. (1998) Knowledge Management and Innovation at 3M. Journal of Knowledge Management, 2 (1), 7-34.

Davie, G. W. & Strycharz, J. A. (1990) Auditing Project Conceptual and Planning Phases: An Independent Assessment. Glasgow: Calgary

Davila, A. and Wouters, M. (2004) Designing Cost-Competitive Technology Products through Cost Management. Accounting Horizons, 18 (1),13-26

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Gorrod, M. (2004) Risk Management Systems: Technology Trends Finance and Capital Markets. Basingstoke: Palgrave Macmillan

Hubbard, D. (2009) The Failure of Risk Management: Why It’s Broken and How to Fix It. New York: John Wiley & Sons

Hutto, J. (2009) Risk Management in Law Enforcement: Applied Research Project. Texas: Texas State University

Jago, A. (2002). Perspectives in Theory and Research. Management Science, 28 (3), 315-336

James, B. (2010). From Transactional to Transformational Leadership: Learning to Share the Vision. Organizational Dynamics, 18 (3), 19-31Kahn, K. (2006) New Product Forecasting. An Applied Approach. London: M.E.Sharpe.

Krugman, R., & Maurice, O. (2003) International Economics Theory and Policy. Boston: Addison Wesley

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Most companies, large, medium, and small alike, operating in the current highly competitive global open market environment, require various instruments to distinguish themselves and their products. One such instrument is marketing, which is used by companies to find new customers, and increase their coverage and sales. In turn, the combination of different techniques and promotional tools employed by a company for marketing purposes can be regarded as the marketing strategy of that company. This paper will consider the two largest companies from the aerospace sector, Airbus and Boeing, and consider which company has a superior marketing strategy.

To begin with, Boeing is an American aerospace company, founded in 1916, specializing in both military and commercial aircraft. The company used to mainly focus on the military sector until the company’s first breakthrough in the commercial airline industry – the Boeing 707 jet airliner (Woo et al., 2021). On the other hand, Airbus was founded in France in 1969, in part as a direct response to American competitors such as Boeing and Lockheed. Airbus’s initial marketing strategy was initially based solely on the A300 program which was to present the world with a new cheaper and superior commercial aircraft. The trend continued through the following decades with Boeing producing flagship commercial aircraft such as B747 and B767 and B777, and Airbus constantly challenging Boeing’s status quo with models like A380, A330, and A340 (Woo et al., 2021). Furthermore, Boeing has established itself as a risk-taking innovative company – the characteristics embedded deep into the company’s culture and marketing strategy. Even after the 737 Boeing Max incidents, the company managed to restore its reputation largely owing to the pre-established brand image and Boeing Global Service’s marketing strategy (Woo et al., 2021). In contrast, Airbus’s business and marketing strategy, apart from producing commercial aircraft able to compete with Boeing, is based on the concepts of luxury and comfort. Starting from the A380 model, Airbus focused on providing a superior customer experience with features like bars, lounges, and showers installed into their commercial aircraft.

In conclusion, Boeing’s marketing strategy is largely based on the pre-established brand image, safety, and innovation, whereas Airbus’s marketing strategy focuses on developing more appealing and luxurious commercial aircraft. It can be said that despite Boeing’s marketing strategy and brand image being strong enough to save the company from the 737 crisis, Airbus’s strategy proves itself to be more efficient for a company younger than Boeing by several decades.

References

Woo, A., Park, B., Sung, H., Yong, H., Chae, J. and Choi, S. (2021). An Analysis of the Competitive Actions of Boeing and Airbus in the Aerospace Industry Based on the Competitive Dynamics Model. Journal of Open Innovation: Technology, Market, and Complexity, 7(3), 192.

Introduction

Airbus Company Overview

Airbus is one of the world’s leading aerospace companies. It designs, manufactures, and sells commercial aircraft, helicopters, and satellites. Airbus is also a major provider of aeronautical services, has a robust global presence, and is committed to innovation. The company was founded in 1970 and is headquartered in Toulouse, France (Airbus, n.d.). Airbus is chosen for this analysis because it is a large and well-established company in the aerospace industry with a long history of profitability and a solid financial position. In addition, Airbus is a publicly-traded company, institutional investors widely hold its stock, and its WACC can provide insights into how the company competes with its rivals.

Computation of Cost of Capital for Airbus Company

Risk-Free Rate (rf)

The risk-free rate used in this analysis is the 10-year US Treasury yield as of December 31, 2021, which was 1.52% (U.S. Department of Treasury, 2021). The 10-year US Treasury yield is a good proxy for the risk-free rate because it is closer to the maturity of most bonds and is one of the most liquid and closely-watched government bond markets in the world.

Equity Market Risk Premium (ERP)

The equity risk premium can be calculated using the following formula: Equity market risk premium (ERP) = expected return on the market (Rm) – risk-free rate (rf). Equity Risk Premium for the U.S was estimated at 4.24%, as per the recommendation of Damodaran (2022). Therefore, using the U.S expected return of 5.76% as the expected return on the market for the overall market, the equity risk premium for Airbus would be; ERP = 5.76% – 1.52% = 4.24%.

Beta (Bi)

To arrive at Beta, Airbus’s last five years’ monthly returns are plotted against the S&P 500, and the linear regression line that best fits the data is computed as shown in graph one below.

The slope of the linear regression line, which represents beta, is 1.5038. This means that Airbus stock has been, on average, 50% more volatile than the market as a whole.

Cost of Common Equity (Ke) Calculation

Using the Capital Asset Pricing Method (CAPM)

The cost of equity under the CAPM method is calculated using the following formula; Expected return = Risk-Free Rate + [Beta x Market Return Premium]. With the previously explained inputs, the Cost of Equity is computed as follows: Ke = 1.52% + 1.50 ∗ 4.24% = 9.67%.

Using the dividend discount model

Cost of equity = Dividend per share (D1) / Share price (Po) + Dividend growth rate (g). Dividends made by Airbus from their annual profits to their shareholders are shown below; similarly, the current dividend share price for Airbus is 109.36 USD (Airbus, 2019). Airbus’s dividend growth rate and the estimated dividend for next year (2023) are computed below.

Estimated 2023 divided (D1) = 1.28*(1+2.1%) = 1.31.

Therefore, the cost of equity for Airbus is:

• (1.31 / 109.36) + 2.1% = 3.27%
• Cost of Debt (Kd)

To arrive at Airbus’s Cost of Debt, the interest rate on Airbus’ outstanding debt is determined, totaling 2.10% for the quarter that ended December 2021 (Gurufocus.com, 2022). This, coupled with a U.S. federal statutory tax rate of 21% and the following formula, allows to reach the company’s after-tax Cost of Debt:

After-Tax Cost of Debt = 2.10% ∗ (1 − 21%) = 1.659%.

WACC Calculations

Target Capital Structure

Airbus has historically had a less conservative capital structure, with a high percentage of the debt. Over the last five years, the Debt to Capital ranged between 8% and 60%, excluding the most recent past, after 30th June 2020, when the market cap declined and this rate rose (Macrotrends, n.d.). For the most recently reported fiscal quarter, ending 2021-09-30, Airbus had a Debt to Capital Ratio of 0.68.

Results

Therefore, assuming that the company would keep employing this financial structure policy, the target Debt to Capital ratio is 68%. The WACC is calculated with all the above inputs through the following formula: WACC = (Cost of debt*weight of debt) + (Cost of equity*Weight of equity).

WACC = (1.659% ∗ 68%) + (9.67% ∗ 32%) = 4.2%.

WACC Result Interpretation and Its Use in Decision Making

This implies that the average rate of return that Airbus must earn on its investments to meet its financial obligations and keep shareholders happy is 4.2%. A higher WACC means that a higher return is required to make an investment worthwhile. Thus, the WACC estimate would help decide to invest in a project if the expected return is greater than 4.2%. The WACC of 4.2% is a reasonable estimate because it is in line with the historical average return of the stock market in the Airline industry.

Reasons for Using the Different Costs of Capital

There are several reasons why an MNC company might need to utilize a distinct cost of capital to appraise the projects of its international subsidiaries. One reason is that the cost of capital may differ due to different risk levels in different countries. Another reason is that the cost of capital may differ in different countries due to different levels of economic development. Finally, a company may use a different cost of capital for its foreign subsidiaries because it may use a different currency for those subsidiaries.

References

Airbus (2019). Share Price and Information. Web.

Airbus. (n.d.). Who we are. Web.

Damodaran, A. (2022). Useful Data Sets. Pages.stern.nyu.edu. Web.

Gurufocus.com. (2022). EADSY Effective Interest Rate on Debt % | Airbus SE – GuruFocus.com. Web.

Macrotrends. (n.d.). Airbus group debt to equity ratio | EADSY. Web.

U.S. Department of Treasury. Interest Rates Statistics: 10-year US Treasury yield as of December 31, 2021. Web.

Introduction

Airbus is an international aircraft manufacturing company with its head quarters situated in Blagnac, France. It is a subsidy of European Aeronautic Defense and Space Company N.V. (EADS) which owns 80% of the company and the remaining 20% is owned by BAE Systems plc (LSE: BA.).

The company has three other operational bases in Europe situated in Germany, Spain and in the United Kingdom. The company has a pool of 57,000 workers distributed in sixteen branches and sub branches. In 2009 the company started construction of a branch in Tianjin (China); the branch is only producing minimal products and making repairs. It is estimated to be a full brown company by the year 2012.

In its investments the company has subsidies and sub -subsidies to companies in United States, Japan, China, and India (McIntyre, 1982). Half of the worlds airplanes are thought to have been made by the company. It’s credited for having made the world’s largest airplane A380 and the fly-by-wire airliner. The success of the company has been credited to technological advancement which has resulted in production of highly efficient airplanes.

When the company was incorporated it was a consortium of European aviation. It later diverted to plane construction where it competes with companies like Boeing, McDonnell Douglas, and American Lockheed. All its major competitors are situated in United States of America. The company was established at the era where globalization had raised the need for air transport as countries trade increased.

The decision to have an airplane manufacturing company was the decision that was considered by the governments of Germany, France, and United Kingdom in 1967. In 1970, the company started it operations with Groupement d’Interet Economique as the major supporter of the company financially.

The English name for the group is Economic Interest Group or GIE. The name Airbus was the common name for planes which were large in the period and thus the company adopted the name. The first aero plane by the company was called Airbus A300 (Airbus official website, 2010).

This report is divided into three parts where the first part takes a look at strengths, weaknesses, opportunities and threats of the Airbus Company; the second part, looks at the external environment of the company and gauges the level of participation that the company have in the competitive industry. The third part will be recommendations on the measures that the company should implement to remain competitive. The first part will also have a section which analyses current trends in global airline industry.

Current position

The company boasts being the world’s largest aero plane manufacturer and specializes in large planes. It has made the world’s largest aircraft. Among the competitors of the company are Boeing, McDonnell Douglas, and American Lockheed. To remain competitive, the company has ensured that it makes products which are responsive to people’s needs.

There are different approaches that the company takes in its business. These include;

• Making planes on order

The company takes orders from different companies, countries organizations and individuals to make different models. It gives customers the freedom to choose the level of technology that they want implemented, however the suggestions made by customers should be in line with the company’s policies.

• Making planes and having them in its show room for sale

The company has a show room where it portrays its products for sale to its target market. It also acts as the place where the available technology and models are displayed to the customers.

• Undertaking various researches and testing these products

The company maintains a research and development team which is mandated with the task of advising the company on the demands of the customers. They are the ones who are given the mandate of surveying the market and interpolating the competitor’s technology.

There is a wave to low fuel consumption jets and planes which require modern technology; airline is aware of the changes in technology and it’s aligning its ways to the move. The company is making large planes to ensure that their customers enjoy from economies of scale. The jumbo planes are sold mostly to national airlines of different countries and small size planes target private airline companies and individuals who buy planes.

Some military forces from different countries contract the company for planes for various purposes. When this is the case there is collaboration between engineers from the military and the company. They then aim to make planes which are responsive to the needs of the force. When making war planes, specifications and controls that are required in the planes are made in consultation with concerned parties.

Some technology adopted by the company is a “first” in the industry and thus it calls the operators of the planes and the company to join hands and offer training services. In the effort to remain competitive the company borrows from other companies and improve the technology. The move to venture in China was seen as a strategy to tap Chinese high technology.

Other than making fuel efficient planes; the company makes planes with different features to meet the demand of the market. For example, there are planes which are more comfortable, some planes have high security feature and their size varies. This is to ensure that all the markets are well catered for.

Current issues in Airplanes business

As technology advances, the transport sector is not left behind; there have been numerous developments in plane technology. Good and efficient transport is the back bone of trade and by extension economy. Other than the internet, the other development that has made the world a village is transport; more so air transport. This mode of transport has come with good things; however there are some problems that are associated with this means of transport the most serious being safety.

How safe are the passengers? Are their lives safe? Are they psychologically troubled and how comfortable are they? In the recent past, there has been plane crashes in some parts of the world with the latest plane accident occurring on June 23, 2010 in Quebec, Canada and involved a Beechcraft A100 King Air model. The pilot of the above plane had reported that the plane had a problem and when trying to land, the plane exploded. There were seven people aboard and all of them died in the inferno.

January 25, 2010 – there was another plane crash involving an Ethiopian Airlines Boeing 737-800 after taking off from Beirut airport. All the 90 passengers and crew on board perished. On May 20, 2009, An Indonesian C130 military transport plane crashed a few miles from Iswahyudi air force base in East Java. There were 110 passengers and crew members. 98 people were killed including two people who were not in the plane.

Terrorism is another problem that air plane transport is faced with. Terrorists have for long targeted planes; this has left the passengers and crew’s lives endangered. Numerous deaths have occurred as a result. For example, in September 11, 2001, an attack of the world trade centre was made possible because the terrorist were able to use a plane for the attack. This brings in another angle to the discussion involving this means of transport; not only is it dangerous to the people aboard the plane but also to those on the ground.

The attack resulted in deaths of over 3000 people both on the ground and those aboard. In 2009, there was a threat of attack to an American plane where a Nigerian student had entered the plane with a bomb; though the attack was not carried out, there was a huge panic all over the world about the safety of passengers. Air rage is another problem that is on the rise in the recent past. More and more passengers are becoming victims of attack as well as lack of comfort as they board planes.

SWOT Analysis

Strengths

Airbus strength is built on the strong brand name that is internationally recognized. There is a wide recognition of its products in all parts of the world. The strength of the company is undoubtedly engineered by its internal managerial mechanisms. In order to have a competitive edge in selling its product and services, it will be advisable for the company to take the advantage of its ability to compete favourably with equal players in the market.

Airbus is able to adopt different modalities and outreach programs of reaching out to its consumers. In a market mostly controlled by the efficiency and the affordability of the products as well as quality, it will be an open strength for the company to explore more on innovations. In retrospect, strategic marketing plan should be in a position to explicitly document the various channels that can be used by the company to allocate more resources towards improving quality.

Weaknesses

There is no one company that is perfect; there is always an area that offers a weak point. One of the weak points that the company will undergo through are internal while others are from the external environment.

Weaknesses refer to stumbling blocks that may deter the company from progressing towards a particular direction. One of the weaknesses is attitude that customers have upon new things introduced in the market. When discussing the concept of strategic market planning, we discover that resources are vital for an organization to effect significant changes. Another area of inevitable weakness is an expansion plan which entails diversifying the level of the company activities.

This may take different forms. A critical look at geographical expansion depicts a glaring possibility of other stringent market uncertainties. Right at the onset, strategic planning will demand strategic resources, both human and financial, to make any significant move. Besides, implementation of the proposed market research will require mutual consent from all the affected divisions in the company. This will not only consume time as decisions are being made, but a lot of uncertainties abound especially on the verdict of the company.

Opportunities and Threats

Opportunities and threats are external forces that a company has minimal control over. These are outside factors which may work to the benefit or danger of the company. Opportunities for the company are dependent on both the internal and external assessment criteria of the company’s profile of operation. Similar to the weaknesses discussed above, the company can still optimize on the various opportunities available to bring about sustainable growth through effective competition.

Some of the underlying opportunities for this company in regard to the macro environment are the diversification of its activities. In striking for the right opportunities, the company will have to analyze its main market rival. The strategies being employed by the competitor should be critically assessed and evaluated for necessary counter action. In addition, the general plan of the competitor in a bid to control the market is a vital toolkit which this company can use to estimate the competitive edge of the market.

Internal/External Analysis of Business Objectives

Airbus is affected by the internal and external forces. The success that it has is dependent on how well it is going to overcome challenges posed by internal and external forces. To explain the forces, we will consider five porters model forces. In 1980, Porter developed a structure for analyzing the nature and extent of competition within an industry. His argument was that, in every industry, there are at least five competitive forces which establish the nature of competition within that industry. These five forces are discussed below:

– Threat of new Entrants

– Bargaining Power of Buyers

– Threat of Substitute products or Substitutes

– Rivalry among Existing competitors

Buyer’s Bargaining Power

The success of a business is dependent with the buyers. They are the customers of a business. They shape the kind of products that a business makes. Buyers have the ability to determine which products will move first and which will not. It is through buyers that a company realizes its competitive advantage in the market.

In plane manufacturing business, there is need to produce quality goods which are responsive to the needs of their customers. In plane industry, there is a strong shift to have a move to low fee planes. This is an area the company should ensure it has made fuel efficient planes and big enough that passengers can enjoy economies of scale.

Supplier’s Bargaining Power

To create awareness of the kind of services that a company produces, there is need for marketing campaigns. In plane making-its main business, the Airbus should ensure that there is national and international awareness of activities that take place.

The company needs to employ good strategies to ensure that customers are aware of the existence of the products; it is by doing this that it can command more business. When quality products are well known by the customers, they are likely to be more accepted. Sales team should ensure that it makes the best targets and market segmentation.

Competitive Rivalry in the Industry

Within an industry, there are businesses which compete with one another for the available market share. These businesses either specialize in the production of similar products or differentiated products. In plane manufacturing, there are a number of existing companies which include Boeing, McDonnell Douglas, and American Lockheed. There are also new entrants in the business.

Threat of New Entrants

Airbus enjoys the largest plane making in the world; this does not mean though that there are no threats to its operations. The threat of new entrants to an industry depends on the number of entry barriers available. The higher the entry barriers, the fewer the number of competitors will be in the industry. These barriers include: capital costs of entry, legal constraints, and access to distributing channels.

Threat of Substitutes

The company is competing internationally and thus there is the threat that someone may decide to use another country’s products instead of those of Airbus. A substitute product is a product that meets the same needs as those met by a product produced by another company. The extent of the threat from a particular substitute will depend upon two factors; namely, willingness of buyers to switch to substitute products and the degree to which the value and performance of the substitute can compete with the industry’s product (Alter)

Managerial decision-making is the process through which managers arrive at the alternative solution to a given challenge facing an organization. The success of an organization is dependent on the quality of decisions made by its managers. One of the major attributes that make a good manager stand out is his or her decisiveness. The quality of decisions made by a manager is reflected in the performance of his or her organization (Wheelen & Hunger, 1998).

Defining the problem

The first step in making a good decision is defining the challenge that calls for a decision to be made. There are problems that require either a “no” or a “yes”, others require an urgent solution and others can wait for a certain period of time for alternative solution to be arrived.

Generally to have a job well-done, it is of great importance that people involved start from the beginning. Decision making is not an exemption. In this stage, a good context of the problem is grasped. It is only after getting the correct understanding of the problem that he/she can make a good decision.

Gathering data

In this stage the manager should gather all relevant data and facts. It is from the facts and data that he develops various alternatives of choices that can be used to solve the problem at hand. The statistics will also be the ones that will support the final decision. There are various methods of collecting data; they include researching, brainstorming, and experimentation. It is the manager’s duty to choose the right method to adopt because different problems call for different methods.

Depending on the problem, the people to be consulted differ. However, an effective manager should ensure that he/she consults those who matter and those who know. Consultation assists in making a more informed decision and assists in generating more alternatives of choice. Their opinions and viewpoints should be considered in the final decision making, but the manager should always keep in mind that it is his/her responsibility to come up with the right decision (Williams, 2001).

Choosing the best alternative

After taking time and pondering over the issues; time taken depends on the urgency of the decision, he/she chooses and implements the best alternative. At the initial stage a lot of support of the decision is required to ensure that the whole organization or the departments concerned have adopted it effectively.

It is not always that a decision made bring the expected results; thus feedback from the people on the ground and the general performance of the business should be sorted, so as areas that need improvement are recognized. In-case an area that needs improvement has been recognized, it should be addressed appropriately (Bridge & Dodds, 1975).

Today, the world is regaining from the world economic crisis that started in 2007. Every economy is trying to position itself to effectively recover. The crisis has already affected economies with a large number of them having a negative economic growth. There is hope that recovery will be attained. Different businesses have been affected in different angles. The transport business is one of the many that have suffered. Alongside the difficult economic situations, the airlines are facing stiff competition among themselves.

There are different airlines that have developed strategies that have negatively affected the other players. There is a reduced business in some to the extent that there is likelihood that they may opt to merge with others so as to make them profitable. Almost all the airlines are struggling to keep afloat; there has been high bankruptcy in both the United States and Europe.

The sector is affected by both the aftermath of gulf war and the global financial crisis. Airline business is one of the tricky businesses that entry is easy but quitting the industry is hard. There is the breaking down of the traditional pricing model; the model was offering for control of price wars in the airline market. The emergence of low cost carriers was on the rise. They charge as low as the half of the traditional costs. The major question that the sector is facing is what the future holds for it.

The costs are not going down but on the rise. The cost of fuel is on the rise, the expectation of the customer in terms of services expected, the meals have become expensive, and the general expenses are on the rise. Of late there is the terrorist attack that is continuously reducing the goodwill of airline companies. The sector is facing challenges especially those companies that do not have a large capacity to compete with the leading carriers.

The level of technology is another area that is contributing to the “unfair” competition. This is because of the new high tech facilities/ aero planes that are consuming fuel in an efficient way. The invention has made them able to charge lower prices and give good service, at the expense of the old models without this facility. There are also the jumbo planes that are capable to carry a large number of people, and thus they enjoy economies of scale. The prices charged are lower than the small planes.

The concept of free trade is another way of doing business that has made the business to develop ways that they are going to fight their competitors. This has left the control of the airlines on the hands of individuals. When the control is on the individuals, then the dominant companies are more likely to develop measures that are going to negatively affect the small players (Congressional Research Service, 1992).

Recommendations

Airline industry is undergoing a rapid change. Airbus Company is affected by the trend and the way forward is ensuring that the company embraces efficiency in its processes. Efficiency in a business has numerous benefits to the business.

It gives a business competitive advantage; to attain efficiency, there is need to ensure that all business processes are adequately addressed. Airline Company should borrow a move that was first implemented by Motorola in 1981 when the electronic industry had high competition. Motorola named the approach as Six Sigma.

Despite the fact that the project had been innovated to be used in the company; it has spread to businesses in United States and other places in the world. It has also been incorporated in management syllabuses. When Airbus implements a six sigma procedure, it ensures that there is efficiency in all processes in a business; it uses scientific methods like data analysis to make decisions in a certain area.

The process aims at attaining specializations in areas of interest in a way that the end result will give an overall efficiency in an organization. It creates special infrastructure and labels the users of such processes as “Belts”. There are “green belts” and “black belts” among others. After developing a certain route of efficiency, it lays down steps that must be followed to all people who are working in a particular area.

The steps are regarded as the path of efficiency. The path minimizes wastes in all aspects as it aims at realizing the areas of defect. Improvement of a prevailing procedure follows after that has been attained. The management tool analyses any derivative from perfection and offer management with an overview of the areas that they need to look into for a full efficiency.

The management system assumes that if Airbus has more than 3.4 defects, then the said company has a problem that need to be addressed. This is in the areas of fuel consumption level set by the company; comfort of the planes as per the required level of the company and how fast the company meet its customers’ needs.

The method acknowledges that there is no 100% efficiency level; however it is of the option that the highest attainable efficiency should be sought. It is of the opinion that there are some areas in an organization which can be improved to attain full efficiency. Airbus should works with the following objectives in mind.

• Ensuring customer satisfaction;- this is attained through continuous improvement of processes other than processes there is the customer care that they receive from staff it should guarantee satisfaction.
• Defect- failing to deliver what the customer wants the management tool ensures that there is complete satisfaction of customers by quality products free from defects.
• Process- internal processes needs to be looked at to ensure that there is efficiency in production processes
• What the customer sees and feel; stable operations- Ensuring consistent, predictable processes to improve what the customer sees and feels; and design for six sigma- designing to meet customer needs and process capability

The general way that the Airbus company management tool follows can be defined as Define, Measure, Analyze, Improve, and Control. All the processes that Airline adopts when manufacturing products should be interpolated and ensured to be efficient.

The initial stage of a six sigma if for management to agree and understand the need to develop a six sigma management tool when the decision has been reached it requires them to understand the prevailing condition. The first step in making a decision to implement six sigma management systems is defining the challenge that calls for an attention. They are involved in asking which areas require the change. Why is the change important? Generally to have a job well-done, it is of great importance that people involved start from the beginning.

Decision making is not an exemption. In this stage, a good context of the problem is grasped. It is only after getting the correct understanding of the problem that he/she can make a good decision. Concerns of customers are noted, the trade of profit is analyzed. Since company A has been operating well then there has been an almost immediate change, it means there is a place where there are defects. These defects maybe in processing, in advertising, pricing or even distribution, it is the tapes of management to realize where.

The next stage is for Airbus research team to gather all relevant data and facts. It is from the facts and data that he develops various alternatives of choices that can be used to solve the problem at hand. Customers who have complained may be called to give more details, production targets reviewed compare the company with other companies in the same industry, consider data from published and unpublished sources.

The statistics will also be the ones that will support the final decision. There are various methods of collecting data; they include researching, brainstorming, and experimentation. It is the manager’s duty to choose the right method to adopt because different problems call for different methods. When adequate data has been collected, then the company has a base to make the right decision.

After Airbus has understood the deficit in its production and depending on the problem, the people to be consulted differ. However, an effective manager should ensure that he/ she consults those who matter and those who know. Consultation assists in making a more informed decision and assists in generating more alternatives of choice.

Their opinions and viewpoints should be considered in the final decision making, but the manager should always keep in mind that it is his/her responsibility to come up with the right decision. After taking time and pondering over the issues; time taken depends on the urgency of the decision, he/she chooses and implements the best alternative.

At the initial stage a lot of support of the decision is required to ensure that the whole organization or the departments concerned have adopted it effectively. It is not always that a decision made bring the expected results; thus feedback from the people on the ground and the general performance of the business should be sorted, so as areas that need improvement are recognized. In-case an area that needs improvement has been recognized, it should be addressed appropriately (Heppenheimer, 1995).

Certainly a decision to have a six sigma tool of management will change a number of things in an organization; the following are some of things that the management of six sigma should expect in Airbus Company;

• organizational structure; this is the way an organization set up is, it may be affected by the change about to come
• Addition/removal of another department; some departments may prove unworthy and as the source of inefficiency, they may be script. On the other hand, there may be need to develop a monitoring department which will be mandated with the task of overseeing the entire process
• removing procedural barriers to experimentation and change; these may be bureaucratic processes, some employees may be sucked, some deployed in other departments, and an additional employees may be required

These are processes that involve top management to be fully involved and understand the trend and effect of the process. When all is set then next step is moved into.

The last stage is control of the implemented project. When controlling there is an already set path through which processes should follow. They should start from somewhere heading to another area. When under control, there is need to have a well defined personnel’s who have been recognized to have a certain efficiency level in an area, they should be empowered to conduct their duties. If there was a department that was scrapped, then any effects as a result should be understood and addressed

Effectively project management plans are developed to ensure that the project sustainability has been attained. Though it is the final stage, it carries a lot of weight since it oversees that every process in the organization has been fully upgraded. It is not a onetime process but is a continuous one. Feedback is of importance and considered for further decision making. The following are some of the tools for this work quality control process charts, control charts, and standardization practices.

Time and again there may be possibility that the Airbus Company devise better ways of doing things and this should not be locked out of the system. There is no most efficient system but it is unique to a particular organization and industry.

All managerial departments should actively participate in this process for example, the human resource department is given the mandate of ensuring that adequate employees are available at all times in the organization; it has both quantitative and qualitative aspects. Qualitative means the right number of employees and qualitative means employees with right skills (McGuire, 1997).

Critical factors define the path that Airline takes in attainment of its mission and vision. When the business is set to go there are things that must be done to ensure that all is well for the attainment of the set goals and objectives. In an information system case the critical success factors are the number of users who are going to use the system and the system will offer them assistance in the work that they are doing.

At the same time there is the issue of market accessibility and the need for more market share as a result of the improvement. When developing an integrated system, there are the funds that go to the project and the benefit that the company is going to get as a result. When this is analyzed then the final result should be a benefit to the company.

The duration that the program will be used in the company should be analyzed to ensure that it will be good enough for the company to have reaped benefits out of the investment. Customer satisfaction is another goal that the system should bring on board, since the entire development is aimed at creating a better experience to a company’s customers.

References

Airbus. (2010) Airbus. [Online] Available from: https://www.airbus.com/ .

Bridge, J., & Dodds., J. (1975) Managerial decision making. London. Taylor & Francis

Congressional Research Service. (1992) Airbus Industries: An Economic and Trade Perspective. U.S. Library of Congress.

Heppenheimer, T.A. (1995) Turbulent Skies: The History of Commercial Aviation. New York. John Wiley.

McGuire, S. (1997) Airbus Industrie: Conflict and Cooperation in U.S.E.C. Trade Relations. New York. St. Martin’s Press.

McIntyre, I. (1982) Dogfight: The Transatlantic Battle Over Airbus. New York. Praeger Publishers.

Wheelen, L., & Hunger, J. (1998) Strategic Management and Business Policy: Entering 21st Century Global Society. Massachusetts. Addison Wesley

Williams, S. (2001) Making better business decisions: understanding and improving critical thinking and problem-solving skills. London. Sage

Role of Systems and Operation Management in Airbus

“In to-day’s global manufacturing environment the challenges companies face are significantly different than what they did decades ago” (Aberdeen Group, 2008). Effective operation management is one of the tools to meet these challenges. The scope of operations management in any organization includes the transformation of materials and other resources into the final output. Such conversion process normally uses physical resources. The objective of managing the operations is to derive the desired utilities to the customer. At the same time, operation management has to meet the organizational objectives of effectiveness and efficiency.

Operation management differs from other activities of the organization. Operation management encompasses the processes where inputs are turned into outputs. Management of manufacturing involves executing different tasks by different people. To coordinate all the tasks and activities manufacturing must be viewed as a system. “A system is the action of two or more parts as they operate together,” (De Luca and Sanders, 2009). Generally, the manufacturing system model is described as consisting of four subsystems namely input, process, output, and control.” The following figure illustrates the “input-process-output” model of a manufacturing system.

In the case of Airbus, the manufacturing system consists of the inputs from two broad systems of design and manufacture. Therefore, in the design and manufacturing of the A380 aircraft, there are two subsystems involved. Each of these subsystems represents an “input-process-output” model. The inputs of the design subsystem include the human resources being the technicians from Germany and France assisted by other lower-level workers. Software used in the completion of designing the aircraft represents an input. The process includes using the technical expertise of the technicians from both the countries and the use of software for finalizing the design. A complete and efficient design of the aircraft is the output of this model. Because of reasons of brevity, this report considers only the design subsystem, as the manufacturing subsystem consists of several inputs and processes.

The delay in launching the aircraft was due to a lack of coordination. There was a total lack of integration in the two processes involved in the manufacture. The design team and manufacturing team did not coordinate their activities, which led to the delay in launching the A380 as per schedule. The reason for the lack of integration was the use of incompatible software used by the German and French factories to design the wiring requirements of the aircraft. The company instead of streamlining the process of design by efficient processes used less temporary and less efficient processes, which hindered the progress of design development greatly. There was the need to share data at the initial stage to gain time savings (Tennant and Roberts, 2003; Ainscough et al, 2003; Baba and Nobeoka, 1998). Virtual collaborations greatly benefit information sharing (Chudoba et al, 2005; Majchrzak et al, 2005; Mertins and Jochem, 2005)

However, the lack of coordination between design and manufacturing processes in Airbus A380 was because of the weakness in the decision-making process in Airbus organization. Decision-making in a manufacturing environment may be strategic, operational, or tactical. Strategic decisions are of long-term nature and they set the direction for the entire organization (Scribd.com 2011). While strategic decisions are broad in scope the tactical decisions are narrower in scope. Tactical decisions are those, which focus on specific departments and tasks. Tactical decisions cover the specific day—to—day issues and they are concerned with quantities and timings of accumulation and provision of specific resources to aid production. These decisions in the context of a manufacturing organization are routine and are taken more frequently than strategic decisions. Tactical decisions are medium-term decisions aimed at arriving at ways of implementing strategic decisions. Operational decisions are short-term decisions covering the implementation of tactical decisions (Tutor2u). Organizational members at different levels are expected to take decisions to achieve the overall organizational objectives.

The following figure illustrates the levels of decision-making.

In the Airbus design system; there has been a severe deficiency in strategic decision making on how the system could be carried out. The weakness in the tactical decision-making process has resulted in corresponding weakness in the operational decision-making process and in the end, the entire design subsystem suffered. This resulted in a serious delay in launching the aircraft. For instance, the decision to use compatible software was a tactical one. On the other hand installation of different software in Germany and France, which were incompatible with each other was a wrong operational decision that delayed the design process. There was no control on information flow among the different constituents involved in the system. This clearly shows the need for systems thinking in the organization. Subsequently, Airbus decided to transfer German professionals to France. This was an operational decision. Even this decision was not an effective operational decision. This led to a weakness in the design subsystem. Therefore, the need for systems thinking in Airbus can be seen clearly.

Updating of Information System and Operation Management

Information system and operation management in Airbus can be improved by systems thinking. “Systems thinking” is a skill for planning and controlling. There are different models, which can be employed to help managers and supervisors organize and control a system (Mackie, 2008). “Systems thinking” helps in improving organizational performance by:

1. providing an orderly way of thinking,
2. showing the interrelationship of parts
3. identifying sources of problems and how problems affect the performance of the entire system” (De Luca and Sanders, 2009).

It is important that the information systems and operation management of Airbus need to be improved for enhancing organizational performance. One of the tools that the management of Airbus can employ is the “Soft System Methodology” (SSM). SSM is a modeling tool, which compares the real world, as it is with some models developed based on the perceptions of what the world should be (Williams 2005). This tool provides the opportunities to develop various ideas for improvement. Soft System Methodology (SSM) deals with soft problems as distinct from other methodologies that deal with ‘hard’ problems (Checkland, 1981). Soft problems are difficult to define and in soft problems, the analysts do not think of problems but problem situations. Under soft system methodology, problem situation is analyzed to infer why things are not working the way one wants to and is there anything that can be done to improve upon the situation. In essence, it is a classic situation of not looking at a ‘problem’ but exploring an ‘opportunity’. (Couprie et al, 2007)

Stages in Soft System Methodology

There are different stages in the process of soft system methodology:

Identifying the basics of the Problem Situation

Under this step, the basic research into the problem area is undertaken. In this step, the important players and the method of executing the process are decided.

Expression of the problem situation through Rich Pictures

When the problem on hand is presented in the form of a picture, it reveals more information and knowledge on the problem and the picture gives rise to alternative solutions, which are suitable to solve the problem.

Naming the Relevant System

Once the problem is identified in its fullest detail it is possible to arrive at the root definition of the model. “The purpose of the root definition is to express the core purpose of some purposeful activity system,” (Peter Checkland and Jim Scholes 1990). The root definition should involve the perspectives of the players of the world connected with the problem situation. The definition of the worldview has a considerable influence on the decision regarding the proposal that is eligible for selection. Nevertheless, at the same time, it is not necessary to consider all the worldviews with the same intent. Different persons and agencies like the company executives, project members, workers, and even competing organizations may present the views on the problem situation. All these views will have a bearing on the root definition of the proposed solution.

CATWOE in Soft System Methodology

The CATWOE is a key element in the soft system methodology. The first letters of the various actors, involved in the problem situation make this expression.

• Customer – this denotes any person who will stand to gain from the benefits of the intended system.
• Actor – actors represent the agencies, which do the activities explained by the system.
• Transformation Process – this is the conversion of input into the output.
• Weltanschaung – is the German word for the Worldview (Wilson, 1990). This is the one, which makes the transformation process meaningful in the problem situation.
• Owner – means the proprietor of the system who enjoys the power to open and shut the system.
• Environmental Constraints – these represent the factors, which are situated outside the system that is being studied.

CATWOE can be applied to deal with the situations, which are covered by the root definition. It is also possible that various factors covered under CATWOE can become the building blocks for defining the root definition. It is better to take into consideration the worldviews of the parties connected with the designing of the aircraft, especially about the issues connected with the wiring involved.

Development of Conceptual Model

It is easier to draw a conceptual model once the root definitions are evolved. A conceptual model represents a human activity model, which conforms to the root definitions. Systems thinking is the foundation on which the conceptual model is developed. Systems thinking is an iterative process that takes into account the perceived world, ideas, and methodology.

Application of Soft System Methodology in Designing Airbus A380

Soft system methodology when used will result in improved efficiency of the designing of A380. This method has the analytical ability to deal with problem situations, where the social and political interactions of the actors are necessary.

The first and second stage in the application of the SSM model deals with the identification of the basics of the problem situation. In the first stage, the problem is not defined but the general area that interests the development of a solution is identified. In the second stage, the issue involved is expressed in some way. According to the guidelines, “structures, processes, climates, people, issues expressed by the people, conflicts” are addressed. While considering the use of SSM in Airbus, the design department becomes the structure. Designing for proper wiring is the process involved in the SSM. The key players in the issues relating to the development of the design are the German engineers and technicians associated with the design department. The issue expressed by the people is the bad design of the wiring and lack of integration between the French and German plants. Conflicts arise because of the incompatible software used by both plants.

The third stage is the root definition of the relevant system (Wilson, 1984). Every other thing grows from this stage. The root definition is a process of transformation that takes an input and produces a new form of output. Therefore, the starting point is a “Transformation”, implying how the input is transformed into an output (Checkland & Poulter, 2006). The following table illustrates the process of transformation, which is typical of the design issues faced in the manufacture of the A380 by Airbus. The transformations will largely depend upon the worldview that is applied to the issue.

The CATWOE model for the design department consists of the following activities and agencies. The manufacturing department of Airbus involved in developing the A380 will be the customer for the design department. Engineers and technicians from Germany and France form the actors involved in the SSM as presented in the CATWOE model. The software and materials used in the design department represent the inputs for the transformation process. These inputs are converted into the final design. The viewpoints of the different persons and agencies connected with the introduction of the new system would go a long way in designing the aircraft and these represent the worldviews in the CATWOE model. In the design department of Airbus, the departmental managers and people above them are the people who have the power to take decisions to introduce changes in the system, and therefore these people are the owners under the model. The environmental include the organizational policies and the legal and ethical issues connected with the issues. In the case of Airbus, the cultural differences between the German and French engineers and technicians are one of the environmental constraints.

The next stage in the application of SSM is the development of a conceptual model. Formal systems thinking lays the foundation for the conceptual model and it also functions as a measuring device to check the efficiency and utility of the conceptual model developed under the system.

The formal system should have a mission pointing towards the development of an efficient wiring design for the Airbus A380. It must also include a measure of performance as represented by the time saved and the efficiency of the aircraft. The owners of the design department must follow the decision-making process and the model must be a part of a wider system with which it interacts. This interaction will take place when there is the integration of the expertise and skills of German and French engineers. The system will have sufficient resources at its disposal surely when it has the equipment, R&D capabilities, and technical expertise of both German and French engineers and technicians. The system will also function to ensure long term stability and the ability to recover in the event of a breakdown where the owners can revert to a fall back system developed for the design creation. The components of the system have all the properties of a subsystem in which wiring is truly a subsystem of the design development system and the components of the subsystem have all the properties of the subsystem.

Analysis of the people, technology, and organizational issues involved in improving the operations at Airbus

The delay in the launching of the Airbus A380 can be attributed to three factors, which are people issues, technological issues, and organizational issues. Conflicts based on the emotions of the German and French staff in the production area represent the people’s views. This clearly shows an attitudinal problem, which was caused originally by the use of incompatible software by both German and French technicians. In addition, there had been high pressure on the people to meet tight production schedules and several other conditions that need to be fulfilled for the early launch of the Airbus A380. This caused stress on the employees who were on the front line and resulted in conflicts among them. German engineers and technicians thought that their knowledge is better than their French counterparts are. This also created conflicts among the engineers. The viewpoints of both German and French staff must be considered in the decision-making process to avoid such conflicts.

The use of incompatible software in the two production areas led to a serious delay in completing the design. This is the key technological problem and this resulted in the delay in the launch of the A380. The complex wiring problem and the adjustments the engineers had to make to the computer blueprints because of the use of old software by the French plant.

Organizational issues cover improper decisions made while solving the problems relating to the use of software in developing the wiring design, which was a complex one. To solve the problem, the decision was taken to transfer two thousand German staff to its Toulouse factory. The enmity between Germany and France affected the cooperation between the staff of the countries, which in turn resulted in a lack of teamwork. There have been instances where the company has taken decisions to implement temporary and inefficient solutions in the place of permanent and efficient solutions. This organizational issue needs consideration for the prevention of any such future occurrences. This type of decision-making without having an overview of the issues involved and the likely consequences on organizational performance will only lead to undesirable consequences causing not only great financial loss to the organization but also reputational loss which cannot be repaired. The lack of organizational efficiency because of bad decision-making will reflect on the customer confidence and the sales growth of the company. Airbus has to meet the effects, as the improvements in the wiring design were worked out expensive than anticipated. The company also lost substantial revenue in the process.

The company can take the following strategic measures for motivating the team members. The first thing the company has to do is to improve interpersonal relationships. This can be achieved by resolving conflicts and encouraging cooperative behavior among team members. It would help in improving team morale. It is important to analyze how personality differences affect interpersonal relationships (Moore et al. 2004). As a second measure, the company has to ensure effective coordination of the teamwork by identifying the role of different players and their actions, which are critical to team performance (Morgeson et al 2005).

Efficient communication is the primary vehicle, which enables the group members to accomplish their goals. The team members must strive to exchange information in a clear and timely manner. One of the essential prerequisites for improving organizational performance is effective decision-making. Problem identification and assessment are at the root of effective team management. Generation and evaluation of different solutions and their implementation is another strategic measure that the organization can adopt for effective decision-making. Unless the problem situation in any organizational context is approached with comprehensive details and information on factors causing such problems, it may not be possible to find the appropriate solution for the problem. Soft System Methodologies discussed within this paper will be of great assistance to Airbus in improving the performance of the design department as well as the overall organizational performance.

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