INTRODUCTION Before 1980, the aerospace industry in America was monopolistic, despite the entry of Airbus from Europe in the late 1960s. American manufacturers were dominant and posed challenges for European competitors. However, resources and capabilities play a crucial role in a firm’s strategy, particularly for airlines. Success often depends on a blend of internal and external factors.
Boeing, a well-established leader in the aerospace sector worldwide, encountered organizational inertia and lacked progress in production methods or development of new innovative products. Consequently, Airbus emerged as a strong competitor within a mere two decades. Unlike Boeing, Airbus consistently implemented several aircraft innovations owing to its status as a new entrant in the market.
Currently, Airbus seems to be in a stronger position than Boeing in direct competition. To analyze the external environment, we conducted a comprehensive assessment using VRINE, PESTEL, and Porter’s five forces tools. We also evaluated both the industry and Airbus’ financial condition.
The commercial aircraft industry is mainly dominated by two major players – Boeing and Airbus. This industry requires substantial capital investment and is affected by various internal and external factors including rivalry.
The aerospace industry faces challenges in terms of entry, primarily due to the requirement for substantial capital investment and extensive government involvement. The late 1990s and early 2000s saw negative impacts on the aerospace industry as a result of both the September 11 attack and a global economic downturn. These macro environmental factors affected Airbus and its competitors, resulting in a worldwide economic decline and a significant decrease in air travel following the terrorist attack in the USA.
The airline industry globally experienced a decline, resulting in numerous cancellations of new aircraft orders by most airlines. This led to revenue losses and intensified competition between Boeing and Airbus, the only two companies in the commercial aircraft market. The response of consumers is pivotal in determining the success of any industry. An analysis revealed that EAD and BAE, both members of Airbus executive committee and partners, held 80% and 20% stake respectively, making them highly vulnerable to a new strategy. Consequently, competition remains fierce.
The rivalry between Airbus and Boeing poses a serious challenge as both companies compete for consumers and best prices. This intense rivalry leads to a fight for market dominance. Additionally, the power of buyers increases competition in the industry. However, the threat of new entrants is weak due to high entry barriers. Limited information is provided on the threat of substitutes. Nevertheless, Airbus managed to find a niche in the US market for smaller aircrafts by introducing innovative designs and new products.
Boeing’s success in new product design falls short of Airbus. The buyers’ bargaining power presents another obstacle, as they prioritize cost-sensitive products. In contrast, Airbus can offer lower prices because of its more efficient manufacturing system. Boeing gained dominance globally through its 747 jumbo jet family. During the 1970s, it enjoyed unrestricted flight operations, leading to a surge in popular route flights. However, airlines found that using Boeing planes for frequent flying was costly.
Boeing was not interested in manufacturing two-engine wide body aircraft at the time, which created a demand they didn’t meet. In contrast to Airbus, Boeing introduced fewer aircraft models and relied on manual design processes instead of computer-aided design, leading to significant time consumption. Despite having more customers than Airbus in 1995, Boeing struggled with delivery schedule due to internal limitations. Consequently, Airbus gained a competitive edge as Boeing failed to revamp its production process.
A VRINE analysis conducted on Boeing suggests that its current resources and capabilities do not appear to provide a competitive advantage over Airbus presently. Airbus, which is 80% owned by EADs and 20% owned by BAE, possesses computer-aided design capabilities. On the other hand, a VRINE analysis of Airbus reveals a significant competitive advantage due to its ability to offer lower costs and innovative aircraft. Both companies are competing for market share by employing different strategies, with Airbus relying on the A380 jumbo jet and airline. Airbus’s strengths lie in its production processes and practices. They became market share leaders because Boeing lost its market share.
Boeing lacked modern production facilities and did not have a response to Airbus’ A380 competition strategy. However, after Airbus reorganized, their ability to compete with Boeing and dominate the aerospace industry increased significantly. In 2002, Airbus reported a turnover of $24.3 billion. In 1974, Airbus introduced their first aircraft, the A-300, which had twin engines and twin aisles. This reduced operating costs compared to Boeing’s more expensive aircraft, particularly for frequent flyers. By 1990, Airbus had launched four product families, while Boeing had only launched two.
Airbus planes are more advanced in design and less expensive to own compared to Boeing. Airbus distinguished itself from Boeing through innovative product offerings. One significant technological advantage for Airbus is the implementation of a common cockpit configuration. By incorporating similar cockpits across various models, airlines can now utilize the same crew for multiple Airbus plane models. Additionally, Airbus’ aircraft design sets it apart from Boeing. For instance, the Airbus A-320 has a fuselage that is 7.5 inches wider than the Boeing 737, providing airlines with the ability to include more seats in a six across configuration.
In 1984, Airbus introduced the first commercial flyer jet with fly-by-wire controls and side sticks, tailored for short distance routes. Airbus adopts a low cost leadership strategy and leverages their manufacturing efficiency as a competitive advantage. They utilize their design expertise to achieve their strategic goal of being a cost leader. Conversely, Boeing was slow to react when Airbus entered the commercial aircraft segment of the industry.
Perhaps Boeing believed their presence and market dominance would give them the luxury of not being threatened by new entrants. Given the capital requirements, manufacturing complexity, and other entry barriers, perhaps Boeing was justified in its initial stance. Unfortunately, it held onto this perspective for too long. As Airbus emerged as a clear competitor, Boeing tried to neutralize them by attacking their funding structure. Airbus, being a consortium of several European countries, was argued to have an unfair advantage due to government backing of their debt and a loose requirement for debt repayment.
Airbus responded by restructuring the agreement among countries and reorganizing the organization to weaken the validity of Boeing’s complaint. In response to Airbus’ product lines, Boeing introduced its own new planes. However, many of Boeing’s announcements turned out to be delays and did not result in the production of new aircraft. Even the planes that were built were mostly minor modifications to their existing fleet. Boeing took a reactive and incremental approach to product evolution. In contrast, Airbus showed great innovation in its design of new products.
The designs for Airbus planes were strategically developed to capitalize on the manufacturing efficiencies of the company. In addition to seeking cost advantage through these efficiencies, Airbus also aimed to provide efficiencies to its customers, thereby encouraging them to invest in a fleet of Airbus planes. One way this was achieved was by ensuring similarity in cockpits, which reduced training costs and offered greater flexibility for pilot scheduling. In contrast, Boeing had unique and distinct cockpits for each aircraft model in its product lineup.
Airbus has been successful in gaining market share and its mission is centered around meeting global market needs and designing aircrafts that fulfill the expectations of users.
By manufacturing airplanes that were both comfortable and economical, the company implemented their strategy while also being innovative in terms of technology. Airlines needed to buy aircraft that offered operational economy or scale in order to reduce costs and stay competitive. However, entering the industry proved challenging due to the high capital required for manufacturing. In contrast, Airbus had an advantage thanks to the financial strength of its privately owned partners and government support. These factors greatly contributed to their success and ability to innovate.
Despite not being publicly traded, the company has the ability to utilize various technologies in the commercial airline sector. It is continuously searching for new technology to explore different market segments and improve its global market share and financial position.
An advised strategy for the company is to continue with its current approach and aim to become a cost leader in all segments of the commercial aircraft industry. Restructuring partnerships would also be beneficial. Considering the current emphasis on niche markets, it is recommended to decrease this focus and enhance the consortium structure.
If stakeholders see positive results from merging, they will also reap the benefits of the new structure. Merging offers the opportunity for expansion and growth, making it advisable to shift focus towards the wide-body segment in order to maintain a competitive advantage. It is essential for them to have aircraft that can compete against Boeing 737, so they should not become complacent, but rather continue to develop innovative products. It is crucial to involve primary stakeholders in every evaluation and ensure prompt action on each decision made to make progress in the short term. Furthermore, they should periodically reassess their current strategy every few months in order to adapt to any internal or external changes and achieve long-term success.