beech aircraft case study

8/9/2019 Beech aircraft case study

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Brief History

Best known for its line of Beech craft propeller and jet airplanes, Beech Aircraft Corporation is one of

several American manufacturers of small aircraft. Beech competes with Cessna, Piper, and Lear for

shares of such markets as private pilots, small air taxi services, corporate customers, and military forces.

In addition, Beech manufactures a variety of aircraft parts and special systems for larger companies,

principally McDonnell-Douglas.

Beech craft was founded in Wichita, Kansas in 1932 by Walter H. Beech and his wife Olive Ann Mellor

Beech. The company began operations in an idle Cessna factory. With designer Ted Wells, theydeveloped their first aircraft, the classic Model 17 Stagger wing, which first flew in November 1932.

Over 750 Staggering were built, with 270 manufactured for the United States Army Air Forces during

World War II. In 1942 Beech won their first Army-Navy E Award production award became one of the

elite five percent of war contracting firms in the country to win five straight awards for production

efficiency.


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After the war, the Stagger wing was replaced by the revolutionary Beech craft Bonanza with a distinctive

V-tail. Perhaps the best known Beech aircraft, the single-engine Bonanza has been manufactured in

various models since 1947. The Bonanza has had the longest production run of any airplane, past or

present, in the world. Other important Beech planes are the King Air/Super King Air line of twin-engine

turboprops, in production since 1964 the Baron, a twin-engine variant of the Bonanza and the Beech 18,

originally a business transport and commuter airliner in the 1950s and 1960s, which remains in activeservice as a cargo transport.

In 1950, Olive Ann Beech was installed as president and CEO of the company, after the sudden death of

her husband from a heart attack on November 29 of that year. She continued as CEO until Beech was

purchased by Raytheon Company on 8 February 1980. Ted Wells had been replaced as Chief Engineer by

Herbert Rawdon, who remained at the post until his retirement in the early 1960s (he continued as a part-

time consultant to Cessna President Dwane Wallace in Wichita until shortly before his death)

History

Main years


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Issues of Beech Corporation

Whether to merge or not

If go for merger with whom to merge

Increasing competitive Environment

Plans and Goals

1. Aggressively marketing to operate profitably at the current demand andchanging model mix.

2. Accelerate development of new products our customers want and value.3. Work together efficiently as trendsetter of the industry.4. An exciting and viable Beech, delivering profitable growth for all.5. To gain operational efficiency in its work place6. To expand its product line to compete with competitors7. To low the inventory cost and use up to date.8. To Increase the Sales up to 15% by the year end9. The training of the sales team to attract more customers.

Short -Term Objectives

1. One of the fastest growing in the world. Domestic production is skyrocketingthough this growth is not good to meet the expenses of high Research and

development cost therefore finding a merger company to take care of research and

development cost and issue. A company which is quite advance in its Research

and development.


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2. To close the production of the pure jet aircraft as they are not gaining much sales volumeand also not profitable.

3. To increase the production volume of Turboprop and C12 cargo transport for the Army.4. To increase its

Long-Term Objectives

1. The production of jets and big aircraft is largely aimed at Aviation industry.Several plans to manufacture new models and to manufacturers also export a

diverse variety of auto components. Prediction of sales to all the countries and

about all the products.

Existing Strategies: -

y Market Developmenty Product Developmenty Related Diversification


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Key Internal Factor Weight Rating Weighted

score

Strength:

Brand Image 0.1 4 0.4

Product Line 0.1 3 0.3

Large And experienced work force 0.05 4 0.2

Quality 0.05 4 0.2

Market Share 0.1 4 0.4

Financial position 0.1 3 0.3

1.8

Weaknesses:

High inventory cost 0.2 4 0.8

No distribution outside USA 0.1 4 0.4

High R&D Cost 0.1 2 0.2

Product line 0.05 2 0.1

Long procedures 0.05 2 0.1

Total 1 3.4

The beech total score for its internal factors is 3.4 which is good it concluded that the company is

internally good and having great internal capabilities to compete in market and grow in the industry. The

company can use its internal strengths to introduce new products and expand.


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Key external factor Weight Rating Weightedscore

Opportunities:

Global Expansion 0.2 4 0.8

Mergers with Other firms in different countries 0.2 4 0.8

Big Jets 0.15 3 0.45

Targeting corporate customers 0.05 4 0.2

ThreatsRising Competition 0.15 2 0.3

Govt. regulations regarding loans 0.1 4 0.4

Increasing prices of petrol(Energy Crisis) 0.15 3 0.45

Total 1 3.4

The External factors evaluation is showing attractiveness to the Beech Corporation as it resulted in 3.4. It

provides the beech a dynamic environment to expand its business and to use those strategies which are

favorable for the expansion of beech Corporation.


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The beech lies in the first quadrant of the IE matrix which shows the company health is good with respect

to its internal and external factors. Beech should use the following strategies in these contexts.

Market Development

Product development

Horizontal Integration

Related Diversification

Unrelated Diversification


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SWOT Matrix of Beech

Strengths Weaknesses

1. Strong brand Image2. Product Quality3. Large and Experienced work

force4. Customer Loyalty5. Fuel Efficient6. Selling Govt./Military sector7. Strong Marketing8. Strong Financial Position.9. High market share.

1. No distribution outside US2. Long procedures3. Sales in Dollars4. Short product line (jet plan5. High inventory cost6. High R&D cost

Opportunities SO WO1. Global selling2. Mergers with Other firms in

developing countries to

launch new Products

3. Big passenger jet planes4. Target Corporate

Customers

(S1,S9:O1)Strong Brand Imageand high market share will helpthe company to introduceproducts in many countries(S2:O4)Product Quality can helpto target upper class with newProducts.

(W1,W6,W3:O2) Merger withother strong firms can improveMarket Share, sales and decreasR&D cost.(W2,W5:O3)Merger can beovercome on high inventory coand long manufacturingprocedures.

Threats ST :TWT

1. Rising Competition2. The Govt. Regulation

Related the

Advancement ofloans

3. Rising prices ofPetrol(Energy Crisis)

(S3,S5:T1) Competitiveadvantage Fuel efficiency withexperienced work force can beovercome on competition.(S1,S4,S9,S7:T1)Strongmarketing, brand image, customerloyalty and quality will competethe competition(S4,S5,S6,S9:T2) Customersloyalty, fuel efficiency and

already high market share cancompete short product line.

(W3:T1)Sales in Dollar are notgood for the rising competitionthe market.(W6:T2)The govt. regulationabout the loans facility aregetting worst and it will not befavorable for the R&D of thecompany so they should go forother options for raising funds.


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CPM

Beech Cessna Piper

Critical success

factor

Weight Rating Weighted

score

Rating Weighted

score

Rating Weighted

score

Market share 0.10 4 0.4 3 0.3 3 0.3

Price competitive 0.10 3 0.3 4 0.4 3 0.3

Product quality 0.10 3 0.3 3 0.3 3 0.3

Global expansion 0.15 4 0.6 3 0.45 4 0.6

Consumer loyalty 0.10 4 0.4 3 0.3 3 0.3

Sales distribution 0.15 3 0.45 3 0.45 3 0.45

Profit Margins 0.05 4 0.2 3 0.15 2 0.1 No of SBUs 0.05 2 0.10 4 0.20 4 0.20

Brand image 0.10 4 0.4 3 0.3 3 0.30

Financial Growth 0.10 3 0.3 3 0.3 2 0.20

Total 1 3.45 3.20 3.05

The beech craft corporation is having a score of 3.45 which is ahead of the score of its competitors as the

score of Cessna is 3.20 and the score of Piper is 3.05. Therefore beech is having competitive edge over its

competitors and though it is rated good for the future growth it is having an advantage thats why thecustomer trust on the beech products as one of the customer told Beechs competitors by refusing its

products and saying that no thanks I fly a beech and drive a Mercedes.


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Rivalry among Existing Firms HIGH

Threat of new Entrants Low

Threat ofSubstitute High

Bargaining power of Buyers Low

Bargaining Power ofSuppliers Low

The beach rivalry amongst other firms is high because it has strong competitors like Cessna and

Piper. Threat of new entrants is low as it is not easy for any new firm to invest so much money in

highly competitive Industry. Threat of substitute is also high as there are many means oftransportation and also passenger aircrafts are offering comfortable business class. As the prices

of the planes are fixed so the bargaining power of buyers is low and the customer which is going

for luxury, dont bargains. Suppliers are offering many products to the Beech Co. and the

decreasing trend in the CGS shows that the suppliers are not bargaining over their prices.


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Financial Analysis

Ratios 1977 1978 DifferenceCurrent ratio 2.5 2.7 Increasing

Quick Ratio 2.3 1.00 Decreasing

Debt to total assets ratio .31 .24 DecreasingDebt to Equity ratio 9.2 5.5 Decreasing

Long term Debt toEquity ratio

1 1.98 Increasing

Inventory turn Overratio

3.3 3.7 Increasing

Fixed Assets turnover 7.97 9.31 Increasing

Return on Equity 3.3 2.9 Decreasing

Operating Profit Margin 0.053 0.039 Decreasing

Net Profit margin 0.061 0.067 Increasing

Return on Total Assets 1.46 1.89 Increasing

Return on Share holderEquity

1.071 3.64 Increasing

The company is financially well strong to expand its business but some areas are quiet

shocking as the inventory cost is high and it is not easy to produce jets on a quick order

but it also bound the company investment. The overall view of the company is good and

there are better chances of growth.

PROJECTED INCOME STATEMENT FOR

THE

YEAR ENDED 19791977 1978 1979

net sales $ 417,419,646 $ 527,510,511 $ 659,388,139

Other income 6,353,498 8,434,525 10,543,156

423,773,144 535,945,036 669,931,295

Costs and expenses:

Wages, material and other costs 317,909,910 396,122,481 495,153,101

Selling, general and administrativeexpenses

40,435,377 48,184,146 60,230,182

Interest 3,455,903 3,264,442 4,080,553

Depreciation 3,354,028 3,751,244 4,689,055

Taxes, other than income taxes 8,847,425 11,693,847 146,173,088


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374,002,643 463,016,160 578,770,200

Income before income taxes 49,770,501 72,928,876 91,161,095

Federal and state income tax provision 24,288,000 37,408,000 46,760,000

Net income 25,482,501 35,520,876 44,401,0

Retained earnings at beginning ofyear

66,563,113 85,027,416 106,284,270

92,045,614 120,548,292 150,685,365

Less:

Cash dividends paid:

1979 - $ 95 a share 10,478,990

1978 - $ 76 a share 8,383,192

1977 - $ 65 a share 7,018,198

Market value of common stock issued as2% stock dividend

4,101,308 5,126,635

Cash payment in lieu of fractional shares 171,542 2,144,276

7,018,198 12,656,042 15,820,053

Retained earnings at end of year $ 85,027,416 107,892,250 134,865,313

Earning per share primary $ 2.32 $ 3.14 $ 3.92Fully diluted $ 2.03 $ 2.83 $ 3.53

The projected income statement shows an increase of 15% in the sales and this increase also allowed

company to increase its expenses and also other things but it also increases the company net income. And

other things are also increasing the dividends should also be paid more in the next year.

GRAND STRATEGY MATRIX


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The company lies in Quadrant 1 so it should use the following Strategies.

QUADRANT 1 (Proposed Strategies)

y Market developmenty Horizontal integrationy Product developmenty Related diversification

SPACE Matrix


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Y-Axis

Financial Strength - 3.00

Environment Stability 3.33

TOTAL = 0.33

X-Axis

Competitive Advantage -3.5

Industry Strength 3.67

TOTAL = 0.17

The companys lies in aggressive quadrant of the space matrix and it should use the following strategies

to go beyond and take a competitive edge.


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Market development

Product Development

Horizontal Integration

Backward Integration

Forward Integration

Related Diversification

Unrelated Diversification

QSPM

Key Factors Weight Merger Product Development

rating Score Rating Score

Key Internal Factors

Strengths

1.

Strong brand Image 0.06 4

2. Product Quality 0.04 33. Large and Experienced

work force0.03

4. Customer Loyalty 0.045. Fuel Efficient 0.046. Selling Govt./Military

sector0.06


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1. Rising Competition 0.072. The Govt. Regulation

Related theAdvancement of loans

0.08

3. Rising prices of Petrol(Energy Crisis) 0.07Total 0.42

Total 1.00

Score

Future Strategies

1. Product DevelopmentReasons

y Major Competitors offering better quality products at comparableprice

y Rapid Technology Developmenty To introduce new jets which are demanding more Research and

development cost.

2. MergerReasons

y Share equity ownership


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y R&D Development Partnershipy Cross Distribution agreementy Cross manufacturing agreement

Optimum Strategy

1. MergerReasons

y Major Competitors offering more products at comparable pricey Rapid Technology Developmenty Use of new, cost-efficient materials;y Design flexible manufacturing concepts;y Increasing Research and development Costy Difficult terms and condition and not availability of loans in the

market for industries.

y Intensify innovation (in manufacturing processes and materialstechnology).

y Increased cost of innovations;y Stricter laws (emissions, fuel, safety);y Volatility in raw material prices;y Financial credibility for the company with the big company.

WHY we do not use other strategies?

1. Retrenchment Strategyy It will create negative image about company.


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To Merge with Raytheon

We suggest that beech should merge with Raytheon because the Raytheon Corporation has a

constant growth and the financial position of the company is also good. The beech require the

company which is having good financial position and having strong R&D and also technicallyadvanced and to cope with the changing environment of aviation Industry and Raytheon have all

the abilities in these contexts so we will prefer Raytheon on other two companies.

Recommendations

y Beech Aircraft should merge with Raytheon to increase its Development process and toimprove Research and Development.

y We recommend beech should increase the Revenues by offering more Product Line.y Beech should use Related diversification by introducing parts to other manufacturers

they should continue their efforts to groom their customers loyalty.

y To improve their Distribution and franchise system and also to go for global distribution.y The Beech aircraft should also start to deal in every major currency to target more

customers in global market.

y They should focus on more customer attractive deals by offering customization toCustomers.


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Address:

P.O. Box 85

Wichita, Kansas 67201-0085

U.S.A.

Telephone: (316) 676-7111

Fax: (316) 676-8286

Statistics:

Wholly Owned Subsidiary of Raytheon Corporation

Incorporated: 1932

Employees: 10,900

Sales: $1.10 billionSICs: 3721 Aircraft; 3728 Aircraft Parts & Equipment Nec; 3761 Guided Missiles & Space Vehicles

beech aircraft case study

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