Corporate Diversification and Collaborative Strategy5
STRATEGIC ANALYSIS CONCLUSIONS10
Stretch Existing A340 Model13
Diversification into Service and Maintenance15
ESTIMATED CASH FLOWS19
NET PRESENT VALUE / IRR20
SCHEDULE FOR IMPLEMENTING AIRCRAFT SUPPORT SERVICES PLAN20
Airbus operates in the large commercial aircraft manufacturing industry. In this industry, aircraft can carry seventy or more passengers and the largest aircraft (known as very large aircraft or VLA) are capable of seating more than 400 passengers or carrying over 80 tons of freight. In this industry, Boeing Company and Airbus Industrie are the leading manufacturers of large aircraft.
Based in Europe, Airbus in 1999 has sales of $16.7 billion, a 25.5% increase over 1998 and a 74% increase over 1995 sales. While Boeing has historically been the market share leader in this industry, Airbus has made significant strides in recent years and now is the industry leader in attracting 54.8% of new orders.
After performing a company and industry analysis, it appears that Airbus has created a competitive strategy based upon product differentiation which is driven by its resources and relationships. These strategies not only create value for the customer through reduced operating aircraft costs, but also allow Airbus to offer alternatives to Boeing’s product line.
Two issues that are most important in relation to Airbus’s future growth potential are the volatility of the industry and Airbus’s lack of diversification. Economic events such as the oil embargo of the 1970’s and current economic conditions have caused many airlines to cancel existing aircraft orders, thereby increasing the vulnerability of not only Airbus, but for the industry as a whole. Due to this volatility, Airbus needs to generate a consistent stream of revenue to better manage their risk.
Based upon our analysis of the A3XX project, it does not appear that the project will resolve Airbus’s strategic problems. Included in the analysis were financial and non-financial assessments. We recommend that Airbus delay the A3XX for at least 5 years until a clearer picture of the need and demand for the aircraft can be determined.
We recommend Airbus diversify into the growing and highly profitable aircraft support services industry. However, Airbus has several economic issues that are relatively unique to the industry. These issues include exchange rate risk, pressure from European labor unions and regulations, and increased social-economic responsibility. These economic issues continue to burden the company today and will continue to slow the growth and efficiency of the company over time unless economic and labor reform is achieved throughout the EU.
According to estimates, the total aircraft support services industry is expected to grow to a value of $193.8 billion by 2019, with airplane maintenance and services responsible for 75% of that amount. Given the fact that Airbus will be able to enter the market with a relatively short learning curve, over time this segment will enable Airbus to generate a consistent stream of revenue. Implementation of this segment is broken down into three phases: Immediate (year 1), Short term (years 2-6), and Long Term (post year 6).
A SWOT analysis of the services maintenance offering supports our recommendation in revealing it a very viable, profitable and opportunistic alternative.
Based in Europe, Airbus operates in the large commercial aircraft manufacturing industry. This industry is...