Competition in the Airline Business

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Table of Contents

Introduction
Literature Review
Methodology
Findings/Results and Discussion
Conclusion
References

Introduction

The airline business is a highly competitive industry that requires heavy capital investments. EADS is currently a market leader in aircraft manufacturing and R&D. It is a major player in the commercial aircraft industry in Europe with customers drawn from airline operators and governments.

Airbus, EADS’ subsidiary, focuses on large commercial aircraft and innovative features with regard to engine technology, fuselage, control services, and electronic systems, among others (Boeder & Dorman 2000). Airbus A380 was a large-scale innovative project that was launched in 2000 with a capacity of 853 passengers (Pavcnik 2002). Airbus had previously completed many projects, but none was as complex and challenging as the A380 aircraft project.

The failure of complex projects like the Airbus A380 is an indication of weaknesses and organizational inefficiencies in project management. It is important for a project manager to understand the characteristics of the project in order to choose an appropriate management approach. Successful projects are characterized as unique, mission-focused, temporary, and integration-oriented (Barrie 2007).

Uniqueness means that the project or some of its aspects have not been undertaken before. A mission-focused project endeavors to deliver on a particular mission. In contrast, integration means that a project requires pooling of resources and knowledge while temporary means that it is finite in terms of project cycle and resources.

Besides describing the characteristics of a project, analyzing the mechanism of delivery is essential. It involves identifying, planning, and executing the project activities, as well as addressing project uncertainties and change management.

In this paper, a novel framework will be used to identify the critical failure factors relevant to the Airbus A380 case. It will involve the analysis of four factor groups: organizational, project-related, project managers and their teams, and external environment factors (Mathews, Wall & Meacham 2006).

This paper will analyze the external and internal factors that hampered the success of A380 project. Using this framework, we seek to catalogue the technical, organizational, and external factors that led to the failure of the A380 project. A systematic evaluation of the critical factors associated with the A380 project failure will help improve the effectiveness of future airline projects. However, insufficient data or information from the literature is likely to affect the analysis of certain project factors.

Literature Review

Internal Factors

Belassi and Tukel propose a framework for analyzing a project’s critical success factors (CSFs). Among the CSFs are organization-related factors, such as the support and commitment shown by the top management. Young and Jordan (2008), using a multiple-case study design, establish that top management support (TMS) overrides all the other critical success factors.

The authors find that the quality of TMS has a big impact on project success. On their part, Young and Poon (2012), using a fuzzy-set analytical approach (15 cases), underscore the importance of TMS and discredit current project analysis methodologies.

Besides TMS, organizational culture also affects the success of a project. Organizational culture describes the corporate behaviors and experiences within a nation (Best 2005).

Gu, Hoffman, Cao, and Schnierderjans (2013) describe a model to test the impact of environmental pressures on the relationship between IT project success and various aspects of organizational culture, i.e. “work environment, risk tolerance, results orientation, and institutional collectivism” (p. 115 ). They found that environmental pressures moderate the impact of organizational culture on project performance.

Further empirical evidence indicates that organizational culture has a big influence on project performance (Stare 2011; Tong & Tong 2003). Cultural factors such as the attitudes of top managers and level of project manager’s authority correlate with project performance (Pemsel & Wiewiora 2013). In this view, increased authority for the project manager contributes significantly to project success. Other organization-related factors include management practices.

Blindenbach-Driessen and van den Ende (2010), based on an evaluation of 135 innovative projects, establish that project-based firms’ management practices are different from those of other firms. In particular, project-based firms use “multidisciplinary teams, heavyweight project leaders, and planning” in their innovative projects (Holmes 2007). These specific management practices determine project success.

On their part, Khazanchi and Reich (2004) argue that project (IT) failure arises because inappropriate strategies are used to manage end-user expectations. Thus, project success can be achieved through “measurement, control, managing expectations, and top management support” (Alzahrani & Emsley 2013, p. 314). Besides the failure to manage expectations, the other factors that contribute to project failure include internal factors such as inefficiencies related to project implementation process and external factors such as poor perception of the project value and customer dissatisfaction with the outcomes (Pinto & Mantel 1990).

The second group of internal factors relates to the project manager. A cross-sectional literature review by Atkinson (1999) established that factors related to the project manager such as his or her leadership style determine project success. A project manager after project failure should “help individuals to learn from project failure and maintain commitments for subsequent projects” (Shepherd, Covin & Kuratko 2008, p. 589).

Identifying and managing potential risk factors is another important role of a project manager. According to Vermer and Abdullah (2012), projects, such as BSkyB, failed because of the failure to mitigate project risks, which affected the organization’s capacity to achieve its objectives.

With regard to decision-making, Marques, Gourc, and Lauras (2010) propose a multi-dimensional system that integrates the management practices and project details (tasks, staff skill mix, and objectives) to estimate the project performance measures. A time-control matrix that integrates responsibility charts and project champions can also help manage project cost and time (Merwe 1997; Thomas 2001).

The project manager is himself a critical factor in the success of a project. In this regard, his or her competencies are crucial for project success. Crawford (2000) identifies communication, planning, team development, and strategic direction, among others, as the essential project manager competencies that determine the success of a project. Efficient project managers coordinate complex projects through modeling.

Object models, as proposed by Bailetti, Callahan, and DiPietro (1994), help project managers overcome the coordination problems, especially when the project involved is complex and unstable. Another approach, the discrete time-cost tradeoff problem (DTCTP), which determines project risk, has been proposed (Mokhtari, Kazemzadeh & Salmasnia 2011).

Project failure can be attributed to a number of causes, including imprecise business decisions, lack of advance planning, and poor assessment of the business cases (Kippenberger 2000). Other factors such as management support, client acceptance, and communication, among others, affect the various stages of a project (Belout & Gauvreau 2003).

Moreover, human biases such as “selective perception, illusion of control, groupthink, and availability bias” contribute significantly to project failure (Shore 2008, p. 11). On the other hand, Gemuenden (1997) empirically determined that people, activities, and barriers have a significant causal relationship with project failure

Teamwork is another essential factor in project success. Entin and Serfaty (1999) establish that adaptation training enhances coordination in teams, which result in high performance. In contrast, Cooke-Davies (2002), based on a review of empirical studies, notes that success factors relate to human resource, as “in project management, it is people who really count”.

In this regard, models, such as the project excellence model that integrates CSF and success criteria, can help project managers to enhance the performance of the project (Shepherd, Haynie & Patzelt 2012).

The characteristics of the project team also influence project performance. Gulzar, Arshad, Mirza, Hafeez, and Ehsan (2011) find that ‘affective’ commitment by staff and project managers contribute significantly to (IT) project success while lack of commitment increases the chances of project failure. Moreover, to avoid project failure, the management should evaluate the riskiness of a project before approving it (Chulkov & Desai 2006).

With regard to project teams, issues such as “strategic staffing, support, and training” can enhance their effectiveness (Drouin & Bourgault 2013). Training staff on how to cope with failure helps improve team effectiveness (Shepherd, Holgerpatzelt, & Wolfe 2011) and reduces human capital costs associated with the failure (Shepherd, Patzelt & Wolfe 2011)

Project-related factors can also affect the performance of the project. These include the nature of the project, the activities involved, project duration, the expected outcome, the project value, and the nature of the project network (Aboulafia 2000; Hellemans 2007). In relation to the nature of the project, often, project-based firms use “multidisciplinary teams, heavyweight project leaders, and planning” to ensure that their innovative projects become successful (Driessen & van den Ende 2010).

Project evaluation using the Triangle or the approach described by Atkinson (1999), which incorporate stakeholder benefits, is another way enhancing project performance. It helps identify internal and external factors that increase the risk of project failure during the implementation phase (Pinto & Mantel 1990; Sparaco 2007).

External Factors

Factors related to a firm’s external environment can also affect project success. In the construction industry, “safety and quality, company image, resources, experience, finance, management/technical support, and past performance” (Alzahrani & Emsley, 2012, p. 314) are the external factors that affect project success.

Other factors that contribute to business failure (construction projects) include an increase in the price of construction materials, competition, and transportation challenges, among others (Mahamid, 2012). These economic factors predispose a project to financial challenges. Additionally, political actors and governments affect project performance through regulation and funding.

Based on a comprehensive literature review, Belassi and Tukel (1996) group three external factors that affect project performance in three categories: (1) political, social, economical, and technological factors; (2) clients; and (3) competitors and sub-contractors. Rival firms often compete for clients.

Consequently, the need to gain a competitive advantage motivates firms to invest in new projects or subcontract its services in a bid to reduce costs. The project excellence model developed by Westerveld (2002) provides ways in which project managers can control external factors, such as contracting, resources, policy and strategy, scheduling, and budget, in order to achieve project success. The impacts of external and internal factors on Airbus A380 are explained in the discussion section.

Methodology

In this research, we reviewed the available information (secondary data) about EADS’ aircraft manufacturing process. Our focus was on information related to the Airbus A380 project. The project, which was a major undertaking at EADS, involved extensive planning and preparations.

We sought relevant qualitative data (2004-2007) relating to the planning process. This information was essential in evaluating the organizational and leadership factors that contributed to the failure of A380 project. An array of studies that have documented the success factors of various projects were selected for analysis. We concentrated on studies that examined aviation, IT, construction, and engineering projects, as their findings were relevant to A380 case.

We then analyzed in detail the information collected from literature in a group discussion in order to discover the effect of each CSF on the project. The group discussion allowed us to examine the issues more carefully in order to determine the critical failure factors in the context of A380’s case. The findings of our discussion are presented in the following section.

Findings/Results and Discussion

In the Airbus case, several mistakes dogged the project since its inception in 2000. Within Airbus, many divisions existed because the company was a result of a merger between German, British, Spanish, and French firms (Mason 2007). The company’s manufacturing and assembly units are spread across 16 sites in different countries, but its final assembly plants are located in Germany (Hamburg) and France (Toulouse) (Wall 2007; Wall & Meacham 2006).

The disjointed nature of the manufacturing and assembly bred a leadership struggle characterized by “poor communication and coordination” between the different teams (McMasters & Cummings 2002). This problem led to the use of two CAD systems, which created many design inconsistencies that proved costly to fix. Thus, due to the divisions, the consortium could not function as an integrated unit.

As Entin and Serfaty (1999), note coordination enhances performance in teams. The lack of coordination in Airbus affected the project in two ways: first, partner companies could not share financial information amongst themselves, and second, important departments (engineering and production) were kept apart. EADS also did not give enough support to Airbus forcing its CEOs, Gustav Humbert and his successor, Christian Streiff, to resign.

Gauthier-Villars and Michaels (2007) attribute the failure of Airbus to factors related to the top management. A “convoluted management structure” affected decision-making within the consortium, as top managers remained loyal to their parent companies (Mahamid 2012). Moreover, internal disputes among top executives derailed the decision-making process.

Delivery delays also contributed to project failure. Airbus announced a production delay of six months on the A380, which cost the company a whopping €4.8 billion in revenues and led to the cancellation of initial customer orders. Another setback that Airbus faced was design changes to A380 following customer complaints relating to the design of a smaller jet, A350 (King 2007).

Technical problems also affected the performance of the Airbus A380 project. Different Computer Aided Design (CAD) software was used to design the wires (harnesses) required in the construction. Since the production units were located in four countries, which have different engineering standards, designers used different versions of this software to build the wires. While the Spanish and German teams used CATIA version 4, French and British designers used version 5 (Eve 2007; Dubrin 2007).

Thus, the components built in different countries could not be compatible, as the designs had not been integrated. This implied that the design specs developed from the design software were different. Besides the design problems, the top management of Airbus did not collaborate well with the managers of the firms that made the consortium. They remained loyal to the leadership of their home companies. This trend derailed the implementation of the new version of CATIA software by all teams.

Geopolitical factors have also been associated with Airbus 380 project failure. Initially, Airbus refused to purchase the design software from Dassault Systems, a French software company, because its subsidiary, Dassault Aviation, was A380’s rival in the airline business. The French and German teams in Airbus accused each other of improper conduct.

The French team accused its German partner of undermining Dassault Aviation through layoffs, leaving the firm grappling with personnel issues (Kleiner, Leonard & Pilarski 2002). Interference from governments and politicians with an interest in military aircraft also undermined this project.

From these findings, it can be concluded that the causes of A380 failure relate to EADS’ top management practices. The airline industry requires strategic decision-making, as every successful project has long-term benefits to the company. Airline projects require heavy investments in R&D, which may take several years to come up with a prototype. It is evident that, going by the number of orders received, Airbus A380 had attracted many clients. However, production delays meant that Airbus could not deliver the aircrafts on time.

A careful examination of the leadership of EADS reveals that the top management support and goodwill were lacking in the A380 project. A positive organizational culture in projects could have increased the commitment of project managers and thus, yield positive results (Fong & Kwok 2009).

Conclusion

In this paper, we have analyzed the critical failure factors that are relevant to the Airbus A380 project. Our aim was to determine the critical failure factor of the A380 project. From the analysis, it is evident that the top management practices and the lack of a positive organizational culture contributed significantly to the project’s failure. Other factors such as design inconsistencies, lack of teamwork, and geopolitical influences, which are attributable to top management practices, also contributed to the project’s failure.

Currently, Airbus has implemented a cost cut (Power8) plan to reduce costs and ensure that the project breaks even sooner. One of the limitations of our analysis is that the study relied on secondary data, which may have affected the accuracy of the findings. Another limitation is that data on the current approaches that the company has put in place to handle the failure are scanty.

Nevertheless, based on the findings of this analysis, we recommend that EADS Company should restructure its leadership to enhance accountability and synergy between the different teams.

This can be achieved through project management offices (Pemsel & Wiewiora 2013), applying the leadership concept (Vicar & Miricescu 2013), managing operational risks (Cervone 2006), synchronizing efforts (Eve, 2007), and employee development (Monavvarian & Khamda 2010).

The interference by governments in the Airbus project was partly due to EADS’s inflexible organizational structure. In this regard, EADS should restructure its leadership to include one CEO in order to enhance decision-making and performance of A380 project.

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