airbus vs boeing final
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airbus vs boeing v net frame work five force analysisTRANSCRIPT
VS.
WHAT ARE THE DRIVERS OF VALUE CREATION AND VALUE CAPTURE IN THE AIRLINE MANUFACTURING INDUSTRY ?
QUESTION 1
Airline Manufacturing Industry
• The global aviation industry was sized at $100 billion as of 1992
• Largest Segment : ($40 billion in 1992)Manufacture and Sales of large commercial aircrafts
• The 3 main players :– Boeing– Airbus– McDonnel Douglas
57%16%
20%
7%
Market Share of Manu-facturers in 1992
Boeing
Airbus
McDonnel Douglas
Others
Value Creation and Value Captured
Key drivers for Value Creation
• Relationships with Suppliers : Impact the Cost to Firm and WTP– Development of new planes required huge investment and technical
expertise– Some suppliers with long standing arrangements bore 10% -20% of
these costs ( Boeing)• Usage of better technologies : Impact the WTP
– Each new aircraft demanded heavy investment in specific parts, tools, training of personnel
– Manufacturers had to consider the amount of new technology that is needed by the airlines
– Fuel efficient planes in demand– Too little : Model would turn obsolete and impact the WTP– Too Much : Plane would lose commonality with Siblings
Contd..• Relationships with customers : Impact the WTP
– Sales people dedicated to individual accounts– Typical delivery time : 2-5 years from the date of order– Functions : Building Contacts, Keeping track of fleet requirements,
Monitoring shifts of executive power• Government policies : Impact the Cost to the Firm
– High value deals are escalated to Government for clearance– Regulations, Fuel Prices, Subsidies, Indirect support etc.
• Demand for commercial aircrafts (Pull) : Impact the WTP– General market conditions : Recession, Boom– Passenger growth– Profitability of the airline industry– Infrastructure of airports and air traffic control
Key drivers for Value Captured
• Usage of better technologies : Impact the Cost to Firm– Automatic riveter; Super Guppies : Airbus– Airbus targeted the completion of manufacturing the
aircrafts in 9 months from the existing 2 years• Competition : Pricing strategies : Impact the Price Paid
– Walk away lease plan, Deferred Seat Plan : Airbus– Hence, each plane was sold at $30 million instead of $ 41
million• Government Policies : Impact the Cost to Firm• Supplier Relationships : Impact the Cost to the Firm
Conclusion
• Value Creation– Supplier Relationships– Technology– Relationship with
Customers– Government Polices– Demand for commercial
aircrafts
• Value Captured– Supplier Relationships– Government Polices– Competition– Government Policy– Supplier Relationship
WHICH IS DOING BETTER IN 1992, BOEING OR AIRBUS?
QUESTION 2
Boeing vs Airbus
1989 1990 1991 1992 19930
5000
10000
15000
20000
25000
30000
13705
20540
22271
24084
20568
4294 4683
7702 76478437
BoeingAirbus
Total Sales
Boeing vs Airbus
1989 1990 1991 1992 19930
500
1000
1500
2000
2500
3000
3500
4000
4500
1987
3420
37343982
3384
21642000
24322589 2542
Boeing 767Airbus A-310 & A-300
Boeing 767 vs Airbus A-300&310 ( 220 + Passenger)
Boeing vs Airbus
1989 1990 1991 1992 19930
1000
2000
3000
4000
5000
6000
7000
3697
4596
6036
6461
4716
1740
2233
48204608
3021
Boeing 737Airbus A-320
Boeing 737 vs Airbus A-320 ( 140 + Passenger)
V-Net model
Boeing
RivalsLate entrantsLess bargain
Fewer contactsNo EOS
Customers Long relationship
Market leaderEconomies of
scale
PartnersInternational
contacts
SuppliersLong relationship
Economies of scale
Airbus
RivalsBoeing
Market leaderDeep pocketsBetter reach
CustomersTechnology
PartnersMore reliability on Government
Suppliers
500 + Industrial Partners
Conclusion
Boeing is in a better competitive position than
Airbus, in 1992
WHAT WILL BE THE VALUE OF THE NEW VLCT TO BOTH THE COMPANIES?
QUESTION 3
Value of VLCT to either company
• Common pool of clients Greater EoS• Douglas would be eliminated as competition
and entry barriers for future entrants would be very high
• Key airports are congested VLCT might be the solution of the future in an industry of a lead time in years.
Co-Development: Possibility
• Lack of trust amongst traditional competitors with history of cannibalization
• Airbus might see this as Boeing’s way of infiltrating Airbus
Scope for Opportunism:• Airbus’s fuselage technology would cease to be
an edge• Boeing has the clout to develop advantage and
then defect
To produce or not to produce…
• Airbus and Boeing can choose to produce
– If both produce VLCT’s… to maintain market shares, they have to price competitively and hence would incur losses on the immense R&D cost
– If only one produces, there is clear competitive advantage, but according to game theory, reactive judgment of competitor would force copy-cat behavior
Subsidies: Balance tippler
• If Europe offers better subsidies than the US, Airbus and Boeing both developing VLCTs, Airbus can go for Cost Leadership in the VLCT market segment.
• If US government decides to reinstate subsidies in retaliation, then both developing would entail loss for both companies.
Co-operation: Value Addition
• Greater concentration in FI w.r.t Suppliers Greater bargaining power as a near-monopolistic leader
• Risk of R&D cost would be shared• Airbus’s technological edge + Boeing’s
collaborative process Cost effective practices • Possibility of arbitrage benefits due to
differences in financial climate of US and Europe
IF YOU WERE AIRBUS, HOW WOULD YOU RESPOND TO BOEING?
SHOULD AIRBUS COLLABORATE WITH BOEING IN THE DEVELOPMENT OF THE VLCT?
QUESTION 4
How strategic alliance creates value?
• Risk/ Cost Sharing• A full scale new development could cost
anywhere from $5 billion to $20 billion depending on the size and level of technology.
• Time taken would range from 4 to 10 years• A firm in a strategic alliance is also subject to
the risk of being cheated by its partner (apart from the usual risks).
The VLCT Game
Develop Super Jumbo
Don’t Develop Super Jumbo
Develop Super Jumbo
High Risk (Boeing loses 400+ monopoly,
market too small)
Risk/loss (market too small, dominance
Boeing)
Don’t Develop Super Jumbo
Loss/ risk (dominance Airbus, market too
small)
Profit/loss (400+ monopoly
unchallenged)
Airbus
Boeing
Boeing vs. Airbus
• Boeing's payoff for leaving the new market untapped was positive, Airbus's payoff was negative.
• Boeing's best interest is slow development of other jets in the 400-plus category, while Airbus's interest is to end Boeing's jumbo monopoly
• Bringing a new jet with 400-plus seats to the market is always a risky enterprise but, game theory tells us, it is far riskier for Boeing than for Airbus.
• The best strategy for Airbus is to develop a super jumbo by itself.
Scenario 3
• Instead of developing a new VLCT, Boeing should acquire McDonnell Douglas the second largest player.
• This would increase Boeing’s market share substantially.
• Boeing already has its 400-plus category in the market, so it should focus on acquiring the competitor and then, slowly develop VLCT.
Thank You