Airbus Strategic analyses

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BA BUSINESS

Module: Strategic Management

Coordinator Module : James B Johnston and Veronika Gustafsson

STRATEGIC MANAGEMENT REVIEW OF AIRBUS GROUP

Roxanne LEBORGNE  -  B00355372 - Eramus

Date of submission: 2.12.2018

Content

I-        Executive summary        3

Strategic Audit        5

II-        Analysis        6

A.        SWOT analysis        6

B.        The Porter’s five forces        8

C.        PESTLE analysis        9

III-        Critical reflection        11

Appendix        12

References        14

1. Executive summary

        This report is conducted because Airbus is having troubles with its suppliers which have difficulty delivering reliable engines. It is becoming a major issue for the aircraft manufacturer. It has repercussions on their delivery time and is becoming a tedious habit that costs a lot of money by having planes that have not received their engines yet and are on the tarmac in Hamburg and Toulouse. In the meantime Boeing is gaining an edge in the market (see figure 1). Moreover, the Brexit represents a major risk for the Airbus supply chain as the aircraft wings are manufactured in Britain. It could have a huge impact on its competitiveness. This so-called duopoly with Boeing seems very unilateral.

        Therefore, the aim of this report is to analyse and understand the current situation of Airbus Group and to suggest actions the company could undertake to enhance yields and financial result in order to remain sustainable within the next 3 years.

        In order to complete this report, there are 3 mains methods have been used : a SWOT and PESTLE analysis which examine firm’s internal and external environment and the method of five forces analysis developed by Michael Porter.

        Airbus is a multinational public company in the aerospace industry created in 1970. Its headquarters is located in Leiden, Netherlands. Its main civil aeroplane business is based near Toulouse, France and has manufacturing facilities in Germany, Spain, China, the United States, the United Kingdom. It designs, manufactures and delivers aerospace products (commercial aircrafts, helicopters, defense aircrafts and satellite systems) on a global scale. It manufactures more than half of the aircrafts produced in the world. Boeing and Airbus are the main competitors to be the market leader. As a global company, Airbus performances and organisations depend mostly on market and economic conditions in Europe, the US and Asia. Airbus revenue in 2017 (Fiscal Year) was $66.8 billions.

        Its biggest strengths are definitely its notoriety, its band name and its manufacturing and design facilities located across several nations. On the other hand, Airbus currently faces some difficulties with its engine suppliers. On top of that, all the investments in A380 have not been as successful as expected. Despite an expensive strategy concerning the A380 and its success in the short run, it failed in the long run and airlines cancelled their orders.

        Indeed, Airbus has been struggling with delivery delays for a couple of years. It impacts its delivery target and led to the loss of 3 percent which is among the worst-performing stocks on Paris’ benchmark CAC-40 index (Denis, 2018). Moreover, the market is really competitive and subject to innovations, satisfaction of customers is essential. Because of delivery delay, Airbus is tarnishing its image.

        For these reasons, a renewal of production strategy is recommended. It will imply:

• Follow-up on engine suppliers
• Reduce production and manufacturing cost of the A380
• Focus on the manufacture of medium-haul aircraft
• Relocate production sites in Europe

Strategic Audit

        Airbus is the second largest manufacturer on the market after Boeing (see figure 2) and remains a dominant player in the aircraft manufacturing industry. But in recent years, the company has been facing the following difficulties.

        Airbus and Boeing do not control the entire supply chain, and sometimes, that’s a big problem (Sumers, 2018). Unfortunately, this problem has mainly been with Airbus since 2016. Therefore ironically, Boeing and Airbus are compared respectively as builder of commercial aircraft and builder of “glider” (passenger jets without engine). Delays in supply chain have a negative impact on Airbus reputation because it forces the manufacturer to postpone its deliveries. Consequently, since the payment is made on delivery, Airbus does not receive any revenue.

        As delays persist, Airbus accumulates pending deliveries. In 2018, the company will miss its delivery goals on its A320neo. Airbus is exposed to late penalties from frustrated customers. Because of unfinished aircraft, the company’s shares fell as much as 3.2% in July 2018.

        Airbus is known worldwide for building the biggest aircraft with the largest passenger capacity. However, this product is losing its notoriety. In just a few years, there have been 3 significant engine failures on A380. It forced the company to postpone deliveries of twelve A380 to its biggest customer, Emirates.

        Moreover, It has become difficult for the company to sell this aircraft. The A380 is not a cost-effective program. In 2017, airbus received only 55 orders when its rival received 167 net orders. No orders were made for 2018. That is why, in 2018, the assembly line in Toulouse has dropped to 1 unit per month while the financial “balance-point” is at least 2 per month. As a result, there was a drop of production and up to 3,700 jobs will be affected. This observation is an additional advantage for its slightly smaller competitor, the Boeing 747.

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