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Civil Aircraft Manufacturing Industry - Report Example

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This report "Civil Aircraft Manufacturing Industry" presents a deep insight into the structure of the Civil Aircraft Manufacturing Industry. Porter’s Five Force model analysis of the industry shows that this industry is equally competent as any other industry…
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Extract of sample "Civil Aircraft Manufacturing Industry"

Civil Aircraft Manufacturing Industry Executive Summary The report deals with global civil aircraft manufacturing industry. Aircraft manufacturing industry is a big and highly profit making industry with very few players. The most prominent names in the industry are Boeing and Airbus. No other aircraft makers in the world have entered the platform where these two players compete. Thus in a much more economic terms, the civil aircraft manufacturing industry is a duopoly. The main body of the research does a detailed analysis of the industry structure by using Porter’s Five Force Model analysis. After the five force model analysis, a detailed analysis is done on the critical success factors of the industry. The result of the analysis reveals that civil aircraft manufacturing is an attractive industry to compete with. Introduction Civil Aircraft Manufacturing is an industry that is characterized by few players. It is a highly capital intensive and sophisticated industry. “Civil aviation is one of two major categories of flying, representing all non-military aviation, both private and commercial.” (Aruvians Rsearch, 2010) Air Travel is one of the fastest growing industry and one of the prime contributors to the economic growth. As such, the profitability of Air Craft manufacturing industry is also at a growth pace. The two major players in the industry are Airbus and Boeing. The potential, competitiveness, structure and critical success factors of the aircraft manufacturing industry is discussed and analyzed in this report. Main body The structure of Aircraft Manufacturing industry and its competitiveness can be analyzed by using Porter’s Five Forces Model. “Porter’s Five Forces Competitive Model is a tool for conducting the industry structure analysis and assesses the organization’s competitive strength in the market.” (Bnet, 2010) As per Porter’s Five Forces Model, an industry structure and its competitiveness is determined by five forces. The air craft manufacturing industry can be analyzed using these five forces as follows. The threat of new entrants: The two dominant players in the civil aviation manufacturing industry are Boeing of US and Airbus of Europe. Aircraft manufacturing industry is highly capital intensive. Though these companies are the tycoons there are other small aircraft makers that can emerge in the forefront in future. Since other competitors are low cost producers, competition can be higher than expected. As of now the small players are concentrated only on Regional Jet (RJ) and General Aviation (GA) sector. But these companies are slowly making their way into the civil aerospace. “Most notable is a new Chinese initiative to build an aircraft to compete in the same markets as the A320 series and the B737 series.” (Platzer, 2009) The Chinese Government launched COMAC in 2008. This Aircraft was similar to that of A380. But companies cannot enter this space commercially without year’s long research and testing. Therefore in the long run, threat from new entrants will be higher in the sector. Threat of substitutes: As no other transport medium can offer the comfort and speed that is offered by airplanes, threat of substitutes is very less in the industry. “The threat of substitute products exists at the part/component level in the aerospace industry.” (Bill Gordon, 2009) At the front end the main substitute for airplanes is fast bullet trains. Air travels within the cities have recorded even 50% reduction after the launch of TGV service in Paris. Situations like this will force airline service companies to limit their number of fleets and in turn will affect the aircraft manufacturing industry. Bargaining power of suppliers: Engine manufacturers the crucial suppliers group in aircraft manufacturing sector. “General Electric, Pratt & Whitney (US), Rolls Royce (UK), CFM (Europe) are the main competitors.” (UC Santa Cruz, 2009) The bargaining power from the engine manufacturers is comparatively lower. Most of the times aircraft manufacturers enter into joint development programs with the engine manufacturers. The industry sees a second category of suppliers, that is, the regulating bodies. Their approval is necessary for manufacturing the planes. Thus their bargaining power is considered to be higher. Bargaining power of buyers: Bargaining power of buyers is very low in the industry. But now, since most of the airline companies were facing high pressure on profitability the bargaining power of buyers has become higher. Though there are as many airline service companies and few aircraft manufacturing companies, the size of the order books are small. World over, airline companies are cutting costs and optimizing their operations. Though there are only two major aircraft manufacturers, the competition among them is very fierce. An airline service provider, shifting to Boeing will result in Airbus losing the order and vice versa, at present. Also, the frequency of purchase by a service provider is very less. But this is only a short term phenomenon and in the long run the buyer power is less in aircraft manufacturing industry. (Airlines and Strategic Management, 2009) Intensity of rivalry: “Airbus and Boeing in aircraft manufacturing exemplify intense rivalries between pairs of relatively equivalent competitors.” (Hoskisson et al., 2004) This is another extreme of the situation. It is industries with too many players that promote fierce competition. But industries with few players that are equally strong and similar in size will also force fierce rivalries. This is exactly what happens in aircraft manufacturing industry. Though there are only few players, they are equally competent. The industry is highly technology driven and this can intensify the rivalry to a great extend. “Today, Airbus is neck-and-neck with Boeing in a global duopoly. Besides competing in the passenger jet sector, the two companies are vying for a multibillion-dollar U.S. Air Force tanker aircraft contract.” (Carol Matlack, 2009) Critical success factors This section will analyze the drivers of change in the industry, which are the key success factors. “These are the key factors that are outside the control of an operator in the industry, but are likely to have significant impact on a business.” (IBIS World, 2010) The key success factors of aircraft manufacturing industries are explained below. Technology: “The requirement of ERP and MRP for aircraft industry is growing at a phenomenal rate.”(Rashid, Mahmoud, 2008) Enterprise Resource Planning and Material Resource Planning are key success factors for any industry. Technology is required at every area in manufacturing from designing and production to even psychometric testing of the workers. Economic policies: From the PESTEL framework analysis it is found that the economic factors of the country are very much important in the case of aircraft manufacturing industry. Hedging strategies are very much important for the industry because the currency fluctuations can have high impact on the profitability of the players. Research and development: Research and Development is a key success factor in aircraft manufacturing industry. Aircraft manufacturers depend on software and other IT tools to keep the process technologically advanced. Airbus has used tools developed by leading ATC simulation developer, Acadel, for simulation tools. “The Adacel Traffic Generator will drive data into the Airbus research simulators including the largest commercial aircraft in the world, the new A380.” (Adacel, 2005) Both Airbus and Boeing are setting up research infrastructure around the world by opening proprietary facility and also by partnering with other institutions. Airbus has its research facility in India, the Airbus Engineering Centre India Ltd. Thus the industry has identified R & D as a critical success factor. (Airbus, 2010) Product support: A better product support system is a key success factor of the airline industry. It helps to develop customer loyalty. As the products of the industry are highly sophisticated, regular maintenance and support systems become very crucial. Proper servicing should be done to the service providers by the manufacturers. Environmental friendly production techniques: Players of aircraft manufacturing industry will have to be very keen on adopting environmental friendly production techniques. The products should also be environmental friendly. Green technology is the solution for this. Cost Reduction: “Reducing costs and maintaining access to foreign markets are two key factors for continued success in the global marketplace, according to Bob Dryden, Boeing Commercial Airplane Group executive vice president Airplane Production.” Though this statement was released by him years back, it is highly relevant in the present economic scenario. (Boeing, 1995) Innovation: Innovation is another critical success factor that will drive the aircraft manufacturing industry. As far as aircraft manufacturing is concerned it is process innovation that scores more than product innovation. Process innovation is again linked to cost reduction. The core objective of every process innovation is to improve quality of product and to reduce cost. (Nubiz, 2008) Customer relationship: Manufacturers are using technology to identify and keep track of problems to have better customer relations. Airbus uses SAP Solution manager for the purpose. “The company wanted to reduce number of incidents reported by users, and speed up error detection, escalation, and resolution as well as improve service to users.” (Tech Republic, 2010) Conclusion The main body of the report has given a deep insight into the structure of Civil Aircraft Manufacturing Industry. Porter’s Five Force model analysis of the industry shows that this industry is equally competent like any other industry. The analysis reveals that threat of new entrants, threat of substitutes and intensity of rivalry are crucial in the industry. The main threat for the industry will be from China where they are investing heavily in research activities for developing commercial aircrafts. China has already showcased an aircraft that resembled an Airbus A380. Therefore, what existing players can do is to reduce the cost of aircrafts. With the usage of better technologies and innovation in production process, existing players should try to minimize cost. Minimizing cost cannot be easily done by new players. As there are no alternative method for faster travel to foreign countries, threat from substitutes is very minimal. Aircraft manufacturing is definitely an attractive sector to compete in. But the competing firms should have the necessary expertise, capacity and utmost patience to be a successful player in the sector. Bibliography Research and Markets. 2010. Analyzing Civil Aircraft Manufacturing in United States. [Online] Available at: http://www.researchandmarkets.com/research/a6b54b/analyzing_civil_ai [Accessed 17 February 2010] Bnet. 2010. The Porter Competitive Model For Industry Structure Analysis. [Online] Available at: http://jobfunctions.bnet.com/abstract.aspx?docid=83585 [Accessed 17 February 2010] Michaela, D Platzer, 2009. Federation of American Scientists. U.S. Aerospace Manufacturing: Industry Overview and Prospects. [Online] Available at: http://www.fas.org/sgp/crs/misc/R40967.pdf [Accessed 17 February 2010] Bill Gordon, 2009. Home Page of Bill Gordon. Japan’s Aerospace Industry. [Online] (Updated November 29, 2009) Available at: http://wgordon.web.wesleyan.edu/papers/aerosp1.htm [Accessed 17 February 2010] UC Santa Cruz, 2009. Boeing Corporation Analysis Paper. [Online] (Updated May 26 2009) Available at: http://www.soe.ucsc.edu/classes/ism158/Winter05/boeing.htm [Accessed 18 February 2010] Online Research papers, 2009. Airlines and Strategic Management. [Online] Available at: http://www.freeonlineresearchpapers.com/airline-strategic-management [Accessed 18 February 2010] Robert E. Hoskisson et al., 2004. Competing for Advantage. Mason: Thomson Learning Inc. Carol Matlack, 2009. Business Week. Boeing vs. Airbus: A 40-Year Rivalry. [Online] Available at: http://images.businessweek.com/ss/09/06/0612_boeing_airbus_rivalry/ [Accessed 18 February 2010] IBIS World, 2010. Aircraft Manufacturing Industry in Australia. [Online] Available at: http://www.ibisworld.com.au/industry/default.aspx?indid=258 [Accessed 18 February 2010] Rashid, A.  Mahmoud, U., 2008. Technology diffusion planning for ERP in aircraft manufacturing industry. In Portland International Conference, Management of Engineering & Technology 2008. Cape Town, 27-31 July 2008 Adacel, 2005. Airbus selects Adacel. [Online] Available at: http://www.adacel.co.uk/press/2005/5_12_2005.pdf [Accessed 18 February 2010] Airbus, 2010. Airbus in India. [Online] Available at: http://stagev4.airbus.com/en/worldwide/airbus_in_india.html [Accessed 19 February 2010] Boeing, 1995. Boeing Executive Outlines Key Factors For Success. [Online] Available at: http://www.boeing.com/news/releases/1995/news.release.951107-a.html [Accessed 19 February 2010] Nubiz, 2008. 7 Key Success Factors To Prosperity. [Online] Available at: http://www.nubiz.co.za/7_Key_Success_Factors_To_Prosperity.html [Accessed 19 February 2010] Tech Republic, 2010. Airbus Cuts Problem Resolution Time 40% by Performing Business Process Monitoring With SAP Solution Manager. [Online] Available at: http://whitepapers.techrepublic.com.com/abstract.aspx?docid=315046 [Accessed 19 February 2010] Oxford University Press, 2007. PESTEL Analysis of the Macro-Environment. [Online] Available at: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm [Accessed 28 February 2010] Samuel, B., Bacharach, Stuart, Basefsky, 2009. CRS: Aerospace Manufacturing: Industry Overview and Prospectus. [Online] Available at: http://iwsdocumentednewsdaily.blogspot.com/2009/12/iws-crs-us-aerospace-manufacturing.html [Accessed 28 February 2010] University Essays, 2007. Industry Lifecycle. [Online] Available at: http://university-essays.tripod.com/industry_lifecycle.html [Accessed 28 February 2010] Appendix Lepest or Pestel Analysis Pestel framework conducts a detailed analysis of the Political, Economic, Social, Technological, Environmental and Legal factors affecting an industry. Political factors: The degree of political intervention is comparatively higher in the case of civil aircraft manufacturing industry. Aerospace manufacturing contributes to 1.4% of the US GDP. US is very much supportive to the industry by providing support through subsidies and other policy aids. However there exist disputes between nations for adopting the policy of subsidizing the industry. Economic factors: It is seen that the US Dollar has been depreciating against other major currencies in the world. As more than half of the aircraft industry profits come from exports a depreciating dollar will help the industry to make more profits. But if the Dollar appreciates it will adversely affect the industry. Similarly interest rate and inflation can also impact the aircraft industry in a big way. Social factors: Among the social factors, the aircraft industry is much worried about its ageing employees. As the employees are getting aged, recruiting fresh talents and spending more for the retirement and post retirement benefits of the employees are a challenge for the industry. Technological factors: Technological factors have very high influence in the industry. Technology helps to decrease the cost of production. It also increases the quality of product and efficiency of production in the industry. However, initial investment for technology will be higher. Thus technology is one of the most important factors in the industry. Environmental factors: Environmental factors have high influence on the industry especially at this stage of increased global warming and climate change. Environmental change and other factors give rise to restrictions to the industry in the form of norms. Emission norms and sound pollution are some of the major norms that affect the aircraft manufacturing industry. Legal factors: Legal factors are very much important in the case of aircraft manufacturing industry. As the product is highly sophisticated there are strict legal norms regarding the production process, quality of the products, impact of the products to the environment, etc. Competition law is comparatively low in US. Industry lifecycle analysis An industry lifecycle is composed of stages such as fragmentation, shake-out, maturity and decline. An analysis of the industry lifecycle of Aircraft manufacturing industry is performed as under. Fragmentation stage: This is the stage at which new businesses can come up with innovation in product or production. Innovations are possible in the production process where companies can come up with low cost production techniques. The possible threat is from Chinese companies. Shake-out Stage: The possibility for existing players to enter into the new industry is lower. Existing players are highly focused on the core areas. If one of the players diversifies, the other player has equal capacity to capture similar market potential. Maturity stage: Aircraft manufacturing is still not a mature industry. It is still in a growth stage. The major factors for this are the there are only few players and demand for the products are growing too. Decline Stage: There is very less probability for the industry to reach a decline stage. As the population grows and more globalization happens, the requirement for movement of people across the world is higher. Read More

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