Airbus commercial aircraft

Airbus Commercial Aircraft Company

A division of the global firm Airbus group SE, which makes commercial aircraft, is the Airbus commercial aircraft company. Its current headquarters are in Began, a suburb of Toulouse, France. It has production and manufacturing facilities in China, the United States, Spain, France, Germany, and the United Kingdom (Kent, 2016).

Formation and Structure

The corporation employed roughly 73,000 workers in 2016. It began as a producer for an aerospace cooperation. Its formation in 2001 under the ownership of the European defense and space economy with 80% shares was made possible by the consolidation of aerospace and defense companies in Europe between 1999 and 2000. while 20 percent of the shares were taken up by the BEA systems. Later on, in 2006, the BEA Systems sold its shares to the aeronautic defense and space company (EADs) (Kent, 2016).

Mission and Key Centers

The mission statement of the company states, “for the purpose of strengthening European co-operation 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.” Currently, the company has sixteen key centers in the United Kingdom, Spain, Germany, and France. Its assembly plants are based in the United States (mobile city), China (Tianjin), Spain (Seville), Germany (Hamburg), and France (Toulouse) (Kent, 2016). Its subsidiaries are found in the United States, India, and Japan. It produces and markets a digital fly-by-fly wire airline called the Airbus 320 and the largest airliner of passengers in the world known as the Airbus 380. In 2016, the Airbus 350 was created in Singapore and its fleet has so far made more than 110 million flights traveling more than 215 billion kilometers and carried about twelve million passengers (Kent, 2016).

How Porter’s Five Competitive Forces Are Affecting the Company’s Current Competitive Strategy

Every year, Airbus has been in tight competition with Boeing aircrafts for customer orders, but has secured over fifty percent of the aircraft orders for more than ten years since 2003 (Hellman, 2013). In 2004, Airbus obtained the largest percentage of order shares and in 2005 the company achieved 1,111 orders against its rival Boeing which achieved only 1,002 orders in the same year. As both companies have a wide range of products in various market segments ranging from stable aisle to wider body, their aircrafts are not in head-to-head competition. However, they respond to competition with models slightly bigger or smaller than the ordered ones to achieve a better edge (Hellman, 2013). Recently, the Boeing 777 outcompeted its counterparts in the Airbus Company, such as the A340 aircraft and the A330-300. Such smaller Airbus counterparts can compete with the Boeing 767 because they have recently performed better than the Boeing counterparts (Hellman, 2013).

Much as both companies have prospered to operate competitively against each other in the aviation industry, the innovations in other means of transport, such as the car industry and the marine industry have reduced the number of passengers who use the commercial flight means of transport. The technological innovations in other alternative means of transportation have led to a number of options for transport. This is likely to hamper the production of aircraft in both companies and, consequently, reduce the annual earnings (Brégier, 2015). In addition, some other new entrants in the aircraft production industry such as Embraer, Bombardier Aerospace, Stelia aerospace, Cormac, Thor, and United aircraft cooperation have also started competing with the Airbus commercial flights (Brégier, 2015).

Which of Porter’s Three Competitive Strategies Is the Company Adopting in Order to Remain Competitive?

For proposes of maintaining its competitiveness, the Airbus company is adopting the focus strategy (Brégier, 2015). As per Airbus, the global commercial aircraft market is anticipated to register an addition of over 32,600 new commercial aircraft by 2034 worth $4.9 trillion (Brégier, 2015). The company is committed to making significant investments towards the expansion of the existing industrial base in accordance with the planned increase in the rate of aircraft production. In addition, the company has strategies to support new developments in aircraft strategies alongside fine-tuning and aligning their strategies in line with the ongoing market trends and development (Brégier, 2015).

The introduction of aircraft programs incorporates the next generation of engine technology translating into better performance specifications and dynamic features. Such strategy has been one of the key drivers of flight research at Airbus, therefore, providing a significant growth of revenues and enabling the popularity of its airline due to the creation of new business concepts and travel outs across the globe (Brégier, 2015).

Perform a Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis for the Company

The biggest strengths of the Airbus Company are in its finical managements. The company possesses a robust commercial order book because of a high demand for airplanes such as A3000, A350, and A380. Its aircraft are currently being upgraded more frequently than ever before. As a result, the company has managed to outcompete its rival Boeing. The trend of growth has been sustained because of intense competition, highlighted emphasis on light, and fuel economical designs and law integrate rates business environment. This will, in turn, encourage the planned production rate of the company, a move that will bring an efficient cash flow and good earnings. In addition, the company has a financially sounding and shareholder-friendly business status, as its balance sheet is maintained to a financial strength of A++ (Kumaranayaka, 2015).

The greatest weakness of the company lies in high research and development spending and high pension costs and executions. The research and development expenditure is higher than 3.3 billion dollars and this constitutes about 5% of the sales made. As a result, the research and development spending is squeezing margins and penalizing the bottom line of the company. The pension spending of the company currently stands at 78 billion dollars and it forces the company continually to use its earnings to meet the obligations of retired employees (Kumaranayaka, 2015).

The biggest opportunities for the company include favorable industry fundamentals and increased government support for the aviation industry. The European consideration of air defense companies supports the Airbus crafts with a big sum of financial incentives and provides enough security over the airline because of its massive cargo (Kumaranayaka, 2015). The greatest threat to the company, however, is the stepped up competition in the aircraft industry and the reduced expenditure on United States air defense, which have continuously hampered the results from aerospace and security division and defense.

Customer Satisfaction

Finances

The company is doing well financially with its balance sheet maintained at A++. It is committed to returning most of its cash financial earnings from operations to its shareholders in the form of stock buybacks or dividends (Kumaranayaka, 2015). There is a lot to like about the Airbus financial status ranging from the reasonable free cash flow and good finances earned to booming the commercial business and reasonable stable source of revenue. The annual rate of at least $2.00 share has been maintained, and the company expects the shares to trade at a decent yield in the range of 1.5% to 2% going forward in 2017 (Kumaranayaka, 2015).

Revenues

Much of the company’s revenue collection has been hampered by a reduction in the United States spending on defense. However, the company is financially stable in the aviation industry. In 2015, the company managed to sum up a gross revenue collection totaling to 85.67 billion US dollars, and the earnings were maintained at 17.7 billion US dollars. It is currently the leading company in making aircraft sales (Kumaranayaka, 2015). The overseas sales are also successful and show a bigger margin for the growth of the company. In fact, in 2016, the overseas sales counted about 23% of the total revenue of the commercial segment’s total revenues, and it was about 40% of its backlog. Most importantly, Airbus has maintained its balance sheet showing a small shading of 2.5 billion dollars on the cost structure of 2016.

References

Brégier, F. (2015, October 2). Global strategy focus & comparative SWOT framework analysis of the top four commercial aircraft OEMs - Airbus, Boeing, Bombardier & Embraer. Retrieved from http://www.prnewswire.com/news-releases/global-strategy-focus--comparative-swot-framework-analysis-of-the-top-4-commercial-aircraft-oems---airbus-boeing-bombardier--embraer-300157750.html.

Hellman, J. (2013, December 3). The Boeing company: A short SWOT analysis. Retrieved from http://www.valueline.com/Stocks/Highlights/The_Boeing_Company__A_Short_SWOT_Analysis.aspx#.WSk5Y-vyvDd.

Kent, C. (2016, August 15). Airbus S.A.S.: Aerospace and Defense - Company Profile and SWOT Analysis. Retrieved from https://www.reportbuyer.com/product/2589969/airbus-s-a-s-aerospace-and-defense-company-profile-and-swot-analysis.html.

Kumaranayaka, A. (2015, February 2). Financial analysis – Boeing and Airbus. Retrieved from http://www.academia.edu/27613587/Financial_Analysis_-_Boeing_and_Airbus

Bibliography

Ghemawat, P. (Spring 2002). Competition and business strategy in historical perspective. Business History Review (Harvard Business Review).

Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York.: Simon and Schuster.

McGuire, S. (1997). Airbus industrie: Conflict and cooperation in U.S.E.C. Trade Relations. St. Martin’s Press.

Jianguo, J. (16 July 2008). Airbus, Harbin Aircraft form Chinese parts venture. Bloomberg.