OPERATION MANAGEMENT(Case Study Boeing Vs Airbus)

SUBMITTED TO :

Prof Zia-ur-RehmanPrepared By :

Rana Shahzaib 249

Zubair Ahsan 248

Mudassar Iqbal 219

Zia Ishaq 252

Ghulam Nabi 209

Junaid Muzaffar 237

Semester 8th B-com (hons)

Section ‘C’ Morning

Case Study Airbus VS BoingThere is a long running rivalry between Boing and Airbus which has only been increasing in past few years. This case study shows how Airbus Snatches the share from Boing and become a dominated leader in the aerospace industry.

This case study finds that Airbus currently controls the market share that are previously owned by the Boing 717, 737 , 757 also the A330/3340 families of Airbus crafts especially over took the market of wide body aircraft market. This case study clearly supports the claim that the Airbus creates its dominancy in aerospace industry.

Industry Background

Competition in the aircraft industry has attracted attention not just because of the controversy surrounding subsidies, but because of the industry’s unusual structure. It has extremely high barriers to market entry, due to the economies of scale and scope and the huge capital requirements, making it extremely difficult for newcomers to compete successfully. Another characteristic is the long investment cycles; large numbers of aircraft are needed

to be sold to recover R&D and production costs. The uncertainty surrounding the success or failure of developing new aircraft combined with the large amount of capital invested means manufacturers tread a fine line when developing new products. The industry also has high exit barriers, due to financial considerations and the fact it is difficult to use investments already made for alternative purposes (Deutsche Bank Research, 2007). The efficient industry theory suggests that if an industry looks particularly attractive, then companies will seek entry, while unattractive industries will see more companies leaving. However, this often does not take into account industries which governments consider strategic; the value and numbers affected in the US by aircraft manufacturing only serve to highlight the necessity of state support, affecting the attractiveness and number of companies exiting. Furthermore, airline operators worldwide have enjoyed much the same state sponsorship as manufacturers due to similar reasons. Most of the US airline operators have been in bankruptcy (and subsequently Chapter 11 protection) at least once. One could say that bankruptcy court judges are as essential to keeping planes in the air as pilots. Even manufacturers are not immune to failure. The industry is littered with examples such as Lockheed and Convair in the USA, and Dornier and Fokker in Europe, pulling out of civil aviation manufacturing after disappointing sales and continual economic problems. Changes in the industry dynamics have been dramatic. During its early days, the industry was characterised by competition among a large number of sophisticated, entrepreneurial firms. Survival risk was low because of guaranteed access to national airlines and a rapidly expanding market. Technological advances were often financed by states in deference to their defence industries. Since WWII, however, the industry has transformed into an oligopolistic production structure, extremely high survival risks, and intense competition for sales in a global market (Irwin & Pavcnik, 2004). Technological

advances have extended development lead times, increased launch costs, complicated marketing, and lengthened the time between initial research and revenue earning (Irwin & Pavcnik, 2004). During the 1940s and 1950s, a return-on- investment cycle required four to five years for new products; by 1992 the return on investment timeframe had expanded to 10 to 15 years (Golich, 1992). The value of the industry is also staggering. Since the late 1950s, aerospace has been the leading industrial contributor to US export earnings and since 1982, aviation exports have increased at an average annual rate of US$1 billion per year (Gresser, 2004); small wonder the governments sees the returns from state sponsorship. The exact current value of the industry is difficult to ascertain; airplanes are among the most valuable export products of international trade, but some have forecasted a US $2 trillion export market over the next 20 years (Gresser, 2004). Former American Airlines president Robert Crandall made the observation that civil aviation was the largest component of the travel and tourism business, which at US $21.2 trillion annually was considered the largest industry in the world by 1990 (Golich, 1992), although questions can be raised as to how that amount was quantified. Civil aviation is the largest export industry in the US (Meier-Kaienburg, 2005). Boeing controls nearly 100% of the civil aviation manufacturing industry in the US, while Airbus occupies much the same space in Reference : http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web

Department of Commerce. Including suppliers and defence, the industry directly employed 818,000 people in 2009 and supported more than 1.8 million jobs in related fields. This industry is quite different compared to other major industries such as automotives. With the aviation industry considered a strategic industry and the spill-over to military ties, there will always be government interest

shaping this industry's structure. With controls on market access, ownership, various legal outlets to avoid bankruptcy, and state aid, the civil aviation industry will never be fully liberalized.

-Historical Background-

Boeing

Historical Flash backs :

1903: William Boeing pursued opportunities with the northwest timber industry, which grew into a small airplane manufacturing company.

War Years (1940s): Building B-17s at a very rapid rate in response to the Army’s requests. Women rapidly built airplanes.

Post-War: 70,000 employees lost jobs due to the military canceling orders. Cold War: Invention of analog computers guiding missiles, an

intercontinental ballistic missile system, and space shuttles. 1970s: Recession causes the company to go 18 months without a single

domestic order. The workforce also was cut from 80,400 to 37,200 between 1970 and 1971.

Reference : http://www.boeing.com/assets/pdf/news/releases/2013/q1/130130_nr.pdf

1992: Production of stealth bombers, joint strike fighters, and satellite boosters. Boeing also became the prime contractor for the first International Space Station.

1996: Merger with Rockwell International Corporation’s aerospace and defense units.

1997: Merger with McDonnell Douglas Corporation. 2001: Boeing is focused on 787 Dreamliner Boeing lost ground to Europe’s Airbus and lost its

position as market leader in 2003. 2006 sets another new Boeing 2006 sets another new Boeing record for

total commercial orders in a single year.

Founder Of Boeing Company

Boeing’s origin dates to 1916 when the American timber merchant William E. Boeing founded Aero Products Company shortly after he and U.S. Navy officer Conrad Westervelt developed a single-engine, two-seat seaplane, the B&W. Renamed Boeing Airplane Company in 1917, the enterprise built “flying boats” for the Navy during World War I, and in the 1920s and ’30s it successfully sold its trainers, pursuit planes, observation craft, torpedo planes, and patrol bombers to the U.S. military. In the late 1920s Boeing Airplane expanded into airmail services, and in 1928 William Boeing formed Boeing Airplane & Transport Corporation.

Competitors

The following are the main competitors of Boeing Company :

Commercial Aircraft Manufacturers

Airbus

European Aeronautic Defense and Space Company (EADS N.V.)

Defence Contractors

Lockheed Martin

Northrop Grumman

Boeing Commercial Planes

Boeing 737

Boeing 747

Boeing 767

Boeing 777

787 Dreamliner

BBJ-VIP

-Competition-Boeing Company has direct competitor that is European Company “ Airbus” . In recent few decades Airbus significantly emerges a leading aircraft manufacturing company whose main target is to decrease the market share of Boeing that in the past enjoys a sole king of aircraft industry. So there for our main focus is on Airbus and its strategies.

History of Airbus

1970 Airbus was formed as European Consortium of French and German companies .

Spanish companies joins the consortium.

1979 : British Aerospace joined Airbus Industries

Each of the four partners operated as national companies.

Airbus developed a deserved reputation

2001: Airbus became a single fully integrated company

2004: company had overtaken its main rival

In January 2005 the world’s largest and most advanced passenger aircraft appeared, the A380 Sold more then 10000 air crafts and delivered 6500 crafts

since its creation Yearly revenue in 2010 is 29.9 billion Euros

Airbus is one of the world’s leading aircraft manufacturers.

The A300 became the world’s first twin-engine wide-body jet, entering airline service in 1974.This was followed in the early 1980s by Airbus’ shorter-fuselage A310 derivative, and was joined later that decade by the single-aisle A320 – which developed into one of the most successful aircraft families in history with the A318, A319, A320 and A321. The 1990s saw Airbus introduce its long range A330/A340 jetliner Family, and a new era of airline travel started in 2007 when the 525-seat A380 began commercial operation. Looking to the future, deliveries of Airbus’ long-range twin-engine A350 XWB are expected to commence in 2013, while its military product line is expanding to include the A330 Multi-role Tanker Transport and the A400M.

Airbus Board Of Directors

Airbus Family Of Air Crafts :

Its includes four major departments :

Passenger Air crafts Corporate Jetliner Freighter Aircrafts

Military Aircrafts

Passenger Aircrafts includes the following jets :

o A320 Family (100-220 seats )

o A330 Family (220-330 seats)

o A340 Family (300-400 seats)

o A350 XWB (270 -350 seats )

o A380 Family (525 seats)

Corporate Jetliner includes the following aircrats ;

o ACJ Family (launched in 1997 and accommodates 19-50 passengers )

o VIP wide bodies ( Accommodates 60-120 passengers )

o Air Bus Corporate Jet Centre (Provide top quality cabins ,outfitting and

associated services)

Freighter Aircrafts includes the following jets :

o A330-200F (Mid size long haul freighter )

o A380F (3 deck cargo facility )

o Beluga ( world’s largest cargo )

Military Aircrafts includes the following aircrafts :

o C212 (For any type of military mission )

o CN235 (The lost cost tactial airlifter )

o C295 (For any type of armed force mission)

o A330 MRTT (New generation tanker )

o A400M (To meet logistic needs )

Reference: http://www.airbus.com/company/environment/documentation/?docID=10262&eID=dam_frontend_push

Production Systems Of Boing

Production System Of Airbus

Str

The air bus craft’s production is divided among various countries these includes :

AIRBUS – FRANCE AIRBUS – DEUTSCHLAND AIRBUS – UK AIRBUS – ESPANA BELAIRBUS

Supply Chain Of Boeing And Airbus

Procurement Structure

Procurement has organized into Six departments that are :

Aerostucture Material Equipment And System Propulsion System

Boeing Supply Chain :

Boeing supply chain consist of the supplier selection and certification than supplier engagement in the design development and than consult the design with the technical engineers who technically analyze the design and pass it if it is correct for production.

Airbus Supply Chain :

First of all supplier engagement in design development than committed to long term mutually beneficial , reliable and stable relationship is developed with the key supplier. Eco-Friendly jets are the main priority of Airbus so the evaluate each supplier whether they are meeting the environment friendly criteria. Airbus has more than 30 partners who share the risk and covers about $3.1 Billion of risk.

How Airbus Manufacture its Crafts ?

In the past Airbus uses department process in which the plane is to move from one department to other for different process but now a days Airbus is using centerlized production system which means that each and every process of manufacturing is done under one roo.

Reference: http://www.google.com/url?

sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CC0QFjAA&url=http%3A%2F%2Fwww.dartmouth.edu%2F~npavcnik%2FResearch_files%2Fairbus.pdf&ei=eAjDUc_7B4HD4AO8vICYDw&usg=AFQjCNF9gtrwOUZW0LsP38hs65Et-y1_ew&sig2=rG1GdBtLNrxYdgXoE0G_sQ&bvm=bv.48175248,d.dmg

Comparison Of Airbus VS Boeing

Market Position

Boeing Positioning Strategy

Boeing strategy to be in the market depend upon four factors that are :

1) Short distance and low capacity: Many

2) Short distance and low capacity: Many

3) Long distance and high capacity: Some 

Reference :

Boeing

2010 2011 2012

No of orders taken

610 884 1338

Revenue 68.3 $b

64.3 $b

81.7 $b

Market share

43% 36% 34%

Airbus 2010 2011 2012

No of orders taken

824 1419 833

Revenue 33.9 M Euro

29.9 M Euro

55.8 M Euro

Market share

57% 64% 66%

http://www.unc.edu/~eennis/boeing.pdf

1- Short distance and low capacity: Many

the most of Boeing’s commercial airplane buyers will require planes that are more effective at flying short distances with a low capacity. The reason for choosing this position as Boeing’s many clients is based mainly on two reasons. Firstly we can note from the major products and services section that Boeing’s most delivered products to date has been its 737 family, with deliveries of over 4500 planes. The 737 family are particularly low capacity designed planes, incorporating seating capacities of between 110-189 seats and are also relatively short distance planes with a maximum range of up to 3365 statute miles which is considerably less than some of the companies other products. From this information it would appear that Boeing’s planes which are suited for low capacity short distance travel are where its current many segment lies. The second reason why we decided that this segment was where Boeing’s many clients are is because if we look at today’s airline industry post September 11th we can note that many airline operators are bankrupt or close to being bankrupt and that the successful airlines are mainly low-cost airlines operating from point to point routes on a short distance low capacity strategy, Airlines such as Continental Airlines in the United States and RyanAir in Europe. Incidentally both companies have a large fleet of Boeing planes, mainly from the 737 family. The current trend in customer demand is entirely non-stop service until ones ultimate destination. 

2-Short distance and low capacity: Many

We believe that Boeing’s non existent clients albeit there may be one or two, are short distance operators who use high capacity planes. The reason why we chose this segment as the None segment is because when airline companies are operating a short distance route the need for loading the plane with passengers is nonexistent. Essentially if the company wants to transport more passengers from one route to another the plane can simply refuel and return. With high capacity airplanes the travel time is increased. Besides for the companies themselves it’s more profitable to carry lower capacities for short distance routes in a quick and repeated motion. 

3-Long distance and high capacity: Some  

Some of Boeing’s clients will be part of this segment. This segment is the complete opposite to the first segment which was where Boeing had many clients. There will always be a need for long distance travel unless the market was controlled fully by multiple short distance airline companies, however for transatlantic flights and other significantly long overseas travel these types of clients will continue to exist. Products in this segment include Boeing’s 777 family which have both bigger fuel loads for longer distance travel and a higher capacity than some of Boeing’s other planes. The 777 family can carry up to 451 passengers in a typical two class seating configuration for up to a maximum range of 11,029Km or alternatively to travel from one hemisphere to the next without refuelling. Ironically for Airbus this is the companies many clients segment. 

4-   Long distance and Low capacity: Niche  

The final segment for Boeing is its niche segment. This segment of clients is unusual as generally when travelling long distances it’s more logical to use a high capacity plane. When travelling long distances operating costs are dramatically higher for Boeing’s corporate clients, through the use of high capacity planes these costs can be reduced greatly. The typical client in this segment is anyone who finds it essential to undertake long distance travel whilst at the same time not being concerned about operating costs, perhaps clients who like travelling in comfort. Therefore we can conclude that the clients for this segment are governments or governmental agencies, private individuals, organisations, companies offering business flights, Boeing business jet operators. In this segment the Boeing Business Jet epitomizes a typical product offering both long distance capabilities and low capacity; with a capacity for between 8-50 passengers the plane can travel halfway across the globe. Targeting 

Factors That Influence Sale Of Boeing

There are several factors that influence the sale volume of Boeing crafts. Here I discussed some of them

i. Political Factors : Policy and regulatory decisions by governments can also have a dramatic impact on the demand for civil transport aircraft.  The high-level political intervention also has an important impact on the sales of

aircraft. Different buyer’s decisions of spending such a huge amount of money always rely partly on the political reasons since the support and interference of government could affect the future of buyers. Currently China is the biggest market for Boeing and it is expected to remain so for the next 20 years. In fact, China, through its considerable purchases of Boeing planes, has managed to gain a lot of political leverage in the U.S

ii. Economic Factors : Aircraft manufacturers rely heavily on subsidies. Recently, Boeing and Airbus are on the debate of unfair subsidies. Likelihood of increasing fuel costs, congestion and other environmental restrictions, as well as the prospect of higher security and insurance costs to reflect the risk of terrorism. With several airline companies closing down and the global tourism industry in recession, aircraft prices are down by around 20 per cent. Airbus had quoted around 15 per cent less than Boeing for the IA contract during the bidding earlier in the year. 

iii. Social Factor : Anti-US feeling feelings generated by the events of the past two years had adversely impacted on Boeing's sales, especially in West Asia, which is a lucrative market for the industry. 

iv. Technological Factor : Boeing has utilized this technological advancement by building a new model, the Boeing 777, by using computer technology to build a prototype. This is tremendously cost effective because the company does not have to absorb the cost of the prototype that they normally would have to build. 

v. Failure Of Management Decisions : Since the Second World War, the Boeing company still operates under a management style in which the employers makes decisions on their own with little or no input from employees. This does not fit in the modern management and for this reason; Boeing has several problems in management when it

practices racial discrimination, tussles with its union workers, and then lets its executives flee the scene to avoid accountability. 

vi. Labour Problems : When production problems delayed delivery, Boeing was forced to increase its work force, working in three shifts, to complete the planes. This inexperienced work force created additional problems and the cost per plane is increased substantially. Moreover, the inexperienced workforce found the aircraft design too complex to implement. The managers ordered forced overtime: 50-to-60-hour workweeks became common. The problems affected other Boeing airplanes and complaints from customers began to mount. The Federal Aviation Administration (FAA) ordered special inspections of all Boeing jetliners produced since 1980 to look for defects that might affect safety. The strains of the forced overtime contributed to a 48-day strike in the fall of 1989 that hurt Boeing financially. 

vii. Dependency On US Govt : Boeing mainly gains the benefit from the US which is 65 % of the company total annual sales. Moreover, Boeing is being criticized by Airbus for the subsidy contracts as well as foreign and domestic support all amount to aid for Boeing’s 7E7 model that is double what was available for the new Airbus A380

Reference : http://www.airbus.com/company/environment/documentation/?docID=10262&eID=dam_frontend_push

Boing Orders VS Airbus

 

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Boing Delivery VS Airbus

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Study On Revenue Of Boeing

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Reference :

http://www.stock-analysis-on.net/NYSE/Company/Boeing-Co

Why The Sale Of Airbus Increases Airbus’s variety and stylish designed aircraft snatches the market share from the older Boing . Several reasons are behind this success some are discuss here :

i. Price Effect

This could be explained by comparing the prices of both the competitor’s aircrafts

A318 $65.2 737-600 $56.9

A319 $77.7 737-700 $67.9

A320 $85.0 737-800 $80.8

A321 $99.7 737-900ER $85.8

A330-200 $200.8 747-8 $317.5

A330-200* $203.6 747-8* $319.3

A330-300 $222.5 767-200ER $144.1

A340-300 $238.0 767-300ER $164.3

A340-500 $261.8 767-300* $167.7

A340-600 $275.4 767-400ER $180.6

============================================

Airbus Model Price Boeing Model Price

============================================

A350-800 $236.6 777-200ER $232.3

A350-900 $267.6 777-200LR $262.4

A350-1000 $299.7 777-300ER $284.1

A380-800 $375.3 777* $269.1

787-8 $185.2

787-9 $218.1

ii. Interior Of Aircrafts

Another reason that counters in increasing the sale of Airbus planes in its interior. It is very important tool to attract the buyer. That’s why Airbus gives maximum attention to it as a result the interior of Airbus Planes are more attractive than Boeing’s crafts.

iii. Fuel Consumption

Airbus crafts may use slightly extra fuel than of Boeing but this issue is soon resolved but for the time being it is present but the buyer accept it as there are several other reasons that count for like in Airbus A380 there is :

a) capacity of 555 passengers b) greater flexibility in setting prices c) only 20% more fuel use than Boeing d) special features for customers –

a. casino b. virtual presentation room –c. boutik d. more comfortable flight

Environmental Policies Of Boeing & Airbus

Boing towards Responsible and Eco-Efficient Enterprize

Boeing is consider as a Pioneer in the Environmentally Progressive Technology. Boeing introduces the new fuel efficient planes such as787 Dreamliner , The 747-8 and 737 Max with the significantly smaller amount of carbon footprints than the older planes that are replaced. Also developing a air traffic solutions that offer substantial near term environmental improvement .

Boeing is also enganging in Renewable Energy Sources such as bio fuel , fuel cells and solar energy .

Airbus towards Responsible and Eco-Efficient Enterprize

Airbus also going ahead in eco efficient solutions throughout life cycle , minimizing environmental effects. Airbus is the first aerospace company that gets ISO 14001 certification .Airbus introduces Robust Enviromental Management System (EMS) that monitoring and minimizing the environmental impacts of Airbus planes.

Research And Development Of Boeing & Airbus

Boeing hired more than 2500 employees in its R&D deptt that consistently improve the efficiency of Boeing jets.They make researches in fuel efficiency , recycling and Eco-friendly procedures. R&D efforts for each liter of fuel that isn’t burned it means that not emitting 3.2 liters of carbon dioxide CO2

Conclusions

The decision by Airbus and Boeing to put new high efficiency engines on their planes will provide airlines with upgraded products that have a reputation for dependability. Although Bombardier, COMAC, and Irkut are building narrow-bodies that represent a more radical departure from the 737 and A320, their programs are inherently riskier and have not yet demonstrated that the promised benefits can be delivered. Many airlines may decide to stay with aircraft that they know. It is too soon to know whether the newcomers will succeed. Bombardier and Embraer have established themselves as successful aircraft manufacturers and the Chinese appear to be determined to build a civil aviation industry that competes directly with Boeing and Airbus. Whether the Russians will succeed in building civil aircraft capable of competing in international markets remains to be seen.

For now, the real competition is between Boeing and Airbus. Neither company appears likely to walk away from the segment of the commercial aviation industry that accounts for almost half of revenues. Although the Boeing/Airbus duopoly in small commercial jets is clearly under challenge, it is not obvious that the civil aircraft market is large enough to sustain as many as five additional competitors. Nevertheless, all of the challengers to the Boeing/Airbus duopoly believe that their ability to compete in the narrow-body segment will be critical to the creation of successful domestic aerospace industries. It is clear that the United States, the European Union, Russia, China, Japan, Brazil, and Canada all consider the aerospace to be commercially and militarily strategic.

References:

http://www.dartmouth.edu/~npavcnik/Research_files/ airbus.pdf

http://www.google.com/url? sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&ved=0CC0QFjAA&url=http%3A%2F%2Fwww.dartmouth.edu%2F~npavcnik%2FResearch_files%2Fairbus.pdf&ei=eAjDUc_7B4HD4AO8vICYDw&usg=AFQjCNF9gtrwOUZW0LsP38hs65Et-y1_ew&sig2=rG1GdBtLNrxYdgXoE0G_sQ&bvm=bv.48175248,d.dmg

http://www.unc.edu/~eennis/boeing.pdf

http://www.boeing.com/assets/pdf/news/releases/2013/ q1/130130_nr.pdf

http://www.airbus.com/company/environment/ documentation/?docID=10262&eID=dam_frontend_push

http://www.airbus.com/company/environment/ documentation/?docID=10262&eID=dam_frontend_push