Beruflich Dokumente
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Submitted by:
GROUP 5, SEC A
Abhishek
Agrawal
Akhil Madaan
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Tousif Azam
Shaik
Vishal Gupta
Vivek Kar
Mittu Joseph
TABLE OF CONTENTS
I
II
III
IV
V
VI
VII
VIII
IX
DUOPOLY
AIRCRAFT MANUFACTURING INDUSRY
HISTORY OF BOEING AND AIRBUS
Boeing History
Boeing Mission and Vision
Airbus History
Airbus Mission and Vision
MARKET SHARE VALUE AND UNITS
REASONS FOR DUOPOLY
Global Mergers
High Demand Elasticity
Economies of Scale
Market Consolidation
COMPETITION STRATEGY
Portfolio
Price
Technology
Finance
PORTERS FIVE FORCES ANALYSIS
Rivalry among the industry
Threats of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Substitute Products
Conclusion of the Porter analysis
CHALLENGES TO DUOPOLY
Emergence of New Players in small commercial jets
Innovation in Technology
Subsidies by Governments
Customers Preference
PESTEL ANALYSIS FOR AIRBUS AND BOEING
Political
Economic
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3
3
4
4
6
7
8
8
8
8
9
9
10
11
11
13
13
13
14
14
14
15
15
15
15
16
16
XI
Socio-Cultural
Technological
Environment (Physical)
Legal
Conclusion of the PESTEL analysis
OUTSOURCING AT BOEING AND AIRBUS
Why aircraft manufacturers outsource
Outsourcing at Boeing
Reasons for failure of the outsourcing strategy of Boeing
Outsourcing at Airbus
EMERGENCE OF NEW PLAYERS
17
18
19
19
20
20
20
20
21
22
22
DUOPOLY
A duopoly is a situation in which two companies own all or nearly the entire market share for a
given product or service. A duopoly can have the same impact on the market as a monopoly if the
two players collude on prices or output. Collusion results in consumers paying higher prices than
they would in a truly competitive market.
Boeing and Airbus have been called a duopoly for their command of the large passenger airplane
market.
AIRCRAFT MANUFACTURING INDUSRY:Based on the dimension of the aircraft i.e. length , breadth and height aircrafts are also categorised
according to the seat capacity.
According to the seat capacity aircrafts are categorised in three categories :1. Regional get
2. Narrow body or single aisle
3. Wide body or twin aisle
a. Small
b. Medium
c. Large
We can see the category in the below table:-
Type of Aircraft
Seating Capacity
Regional Jet
<90
Narrow body
90-175
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180-340
260-450
>450
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global
enterprise
for
aerospace
leadership."
Beyond the reference to leadership, the company Vision doesnt provide much specific guidance,
so Boeing employees are also provided with a set of Boeing Business Imperatives, which Boeing
believes will help the company achieve its vision. The Boeing Business Imperatives are:
"Detailed customer knowledge and focus that understand, anticipate and respond to
customer needs.
In describing its culture, Boeing has created a verbiage which is similar in its construction to a
mission statement, although it is not officially identified that way.
Boeings mission statement is:
We are constantly re-examining our capabilities and processes to ensure that our company
is as strong and vital as our heritage. In fact, our culture mirrors the heritage of aviation
itself, built on a foundation of innovation, aspiration and imagination.
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Boeing is supported by the US Government. Boeing receives different forms of support from the
US federal and state governments that benefit the development, production and sales of its civil
aircraft. Taken together (e.g. tax breaks, R&D and infrastructure support), US support has
consistently exceeded the limit allowed under the EU-US Agreement of 1992 by 2 to 3 times.
This support has not and will not be repaid to the US government. Boeing relies on the R& D
subsidies it receives from a variety of quarters.
In the US, Boeing receives subsidies from NASAs and Department of Defense programmes and
contracts (estimated at being at least $22 billion), as well as the Department of Commerce and the
Department of Labor, e.g. by providing funds for specific research into composite technology
from which the 787 airframe will be constructed and sophisticated software tools that Boeing will
use for 787 design and manufacture. Civil R&D support in the EU is granted in the form of
generally available programmes (e.g. the EU R&D Framework Programme) in which a large
number of companies participate, including Boeing.
AIRBUS HISTORY:Airbus Industry was formally established as a Economic Interest Group or GIE on 18
December 1970. It had been formed by a government initiative between France, Germany and the
UK that originated in 1967.
Subsidary of European Aeronautic Defence and Space Company. Its initial shareholders were
the French company Aerospatiale and the German company Deutsche Airbus, each owning a 50%
share. Shareholder committee consists of 7 members and acts as a supervisory council, 5 from
EADS and 2 from BAE. So high order decision are taken by these 7 members only. The name
"Airbus" was taken from a non-proprietary term used by the airline industry in the 1960s to refer
to a commercial aircraft of a certain size and range, for this term was acceptable to the French
linguistically. Aerospatiale and Deutsche Airbus each took a 36.5% share of production work,
Hawker Siddeley 20% and the Dutch company Fokker-VFW 7%. Each company would deliver its
sections as fully equipped, ready-to-fly items. In October 1971 the Spanish
company CASA acquired a 4.2% share of Airbus Industrie, with Arospatiale and Deutsche
Airbus reducing their stakes to 47.9%. The majority shareholders reduced their shares to 37.9%,
while CASA retained its 4.2%. Airbus began as a consortium of aerospace manufacturers, Airbus
Industry Consolidation of European defence and aerospace companies in 1999 and 2000 allowed
the establishment of a simplified joint-stock company in 2001, owned by EADS (80%) and BAE
Systems (20%). After a protracted sales process BAE sold its shareholding to EADS on 13
October 2006. The company produces and markets the first commercially viable fly-bywire airliner, the Airbus A320, and the world's largest passenger airliner, the A380. Airbus
headquarter is in Toulouse, France. Airbus has subsidiaries in the United States, Japan, China
and India. Airbus A300 which was the first aircraft manufactured by airbus was a huge success
and it attracted a huge customer trust. Its competition was with British Airways Concorde.
Airbus Centres of Excellence is Buy or make policy.
Airbus: Mission and Vision
Mission:
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Our mission is to provide the aircraft best suited to the markets needs and to support these
aircraft with the highest quality of service.
Vision:
Their vision statement is based on their philosophy of listening and responding to customers
needs.
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AIRBUS
BOEING
57%
43%
The duopoly between Airbus and Boeing has gone such an extent that it has reached the roots of
the economies due to the following reasons:GLOBAL MERGERS
Competition among Airbus and Boeing has been characterized as a duopoly. This was resulted
because of a series of mergers with Airbus starting as a European consortium while
Boeing absorbed McDonnell Douglas into a 1997 merger.
During 20032012, Airbus received 7,714 orders while delivering 4,503, and Boeing has received
7,312 orders while delivering 4,091. Competition is intense between both of the companies.
There was only British airline concord and European Consortium merged small scale industries.
So, there was a global merger between Airbus and European Consortium in 1970. Mc Donnell
Douglas was Boeing's fierce competitors. After Boeing became the market leader, it merged with
Mc Donnell Douglas in 1997.
HIGH DEMAND ELASTICITY
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COMPETITION STRATEGY
Let us look at the competition strategies applied by Boeing and Airbus to grab the market:
1. Portfolio
Passenger Capacity
Range
Engines
Design
Resources
2. Price
Cost Cutting
Discounts
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3. Technology
Fuel Efficiency
Use of Carbon Composites
Seating Layouts
4. Finance
Financial Services
Leasing
Alliances and Joint Ventures
1) Portfolio:
Passenger Capacity:
Both Boeing and Airbus offer a number of variants to their customers depending on the passenger
capacity of the aircraft. Both of them try to capture the majority of the market by meeting the
requirements of their customers with regards to passenger capacity.
BOEING
AIRBUS
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Range:
The range of the aircraft depends upon the fuel capacity and the engine that the aircraft is
equipped with. Both Airbus and Boeing offer aircrafts which can travel non-stop;varying from
inter-continental to inter-state.
Engines:
A plethora of engines are offered to their customers by Boeing and Airbus depending on the
horsepower, fuel efficiency and range. Mitsubishi Heavy Industries, Rolls Royce are some of the
important engine manufacturers for Airbus and Boeing.
Design:
Various designs are offered depending on the length breadth and the passenger capacity of the
aircraft. The aircrafts are segmented into Wide Body, Narrow body and Regional Jets depending
on their design. Boeing and Airbus control most of the narrow body and wide body segment.
2) Price:
As explained earlier in the economies of scale, more is the production of a particular aircraft less
are the costs incurred on that aircraft. As both Boeing and Airbus produce aircrafts on large scale,
the benefits of making the planes at lesser cost are given to the customers in the form of
discounts. Both Boeing and Airbus want to retain their customers by offering discounts to their
respective customers.
3) Technology:
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Boeing and Airbus spend a lot of time and money on R&D. Both of them believe that new
innovation in technology is the key to hold onto the customers. Use of carbon composite materials
to reduce the weight of the plane provides passengers a very good flying experience by reducing
cabin noise. Customers look for fuel efficient planes to cut down on their operational costs.
4) Finance:
In contrast to other alternative asset classes, which are subject to delayed repayments aviation
leasing assets from the start provide current leasing and certain tax benefits to investors. Aviation
assets are also 'hard assets' with fairly ascertainable market and residual values to which investors
tend to flock in turbulent times. Additionally, the learning curve for the establishment of
relationships and technical expertise, as well as the documentation of operating leases and
purchase transactions, helps to protect the aviation investment and finance industry from complete
market overrun and structurally provides a limit to competitors.
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Threats
of new
entrant
s
Rivalry
among
the
industr
y
AIRBUS/
BOEING
Bargain
ing
Power
of
Supplie
rs
Bargain
ing
Power
of
Buyers
Substit
ute
Product
s
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Intense Competition
63 other aircraft manufacturers
Small aircraft manufactures in global business
The analysis of the large commercial aircraft industry shows that there intense competition
between Airbus and Boeing. Scattered around the world are scores of other small passenger
63aircraft manufacturers such as ATR in Toulouse, France and Gulfstream in Georgia, US. Like
the high flyers, small aircraft manufacturers are involved in a global business. The industry is
extremely concentrated.
Any new entrant in this market faces a steep, uphill battle in entering the market. Regulations,
huge capital investment , extremely skilled labour needs, sophisticated support industries, a
proven track record and the patience to wait for future profits are just but a few of the barriers to
entry. However, one cannot completely exclude this possibility. Japan, Russia, or China may
decide that this industry is strategically vital for their long term wellbeing and encourage a highly
subsidized entry in the market by their national companies. In the case of Japan, subsidies may
not even be necessary as the sophisticated industrial infrastructure and naturally protective trade
policies may very well encourage Mitsubishi Heavy Industries or another firm to enter in the
market. Russia represents a significant growth potential for Airbus and Boeing, but has its own
national aircraft industry. It is also possible that the Russian Tupolev could enhance its
capabilities, rationalize its operations and succeed in entering the market with a low cost, no frills
product strategy, especially in emerging countries. Finally, although highly unlikely, existing
defenses aerospace companies may be tempted by a late entry or re-entry strategy, such as
Lockheed, as they see their traditional military market dwindling.
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manufacturers becomes tedious. They have a low switching cost since one manufacturer is more
willing to sell the aircraft at lower price and/or offer better service in order to take business from
the other. Low-cost carriers power comes from the fact their customers are not expecting much
because of the low cost of the tickets.
Substitute Products:
- Bullet trains
- TGV High speed train reduced 50% air travel
- Internet based telecommunication
There few substitute travel methods to air travel. Bullet trains travelling between cities less than
400 miles apart offer a very attractive solution to air travel. As their speeds approach and even
exceed 200 mph, these trains can travel below two hours from downtown to downtown; a
performance that any airline may find difficult to match. After the start of TGV (high speed train)
service between Paris and Lyons, Air Inter saw a 50% reduction in air travel. If bullet train route
were implemented in more major cities, airlines could lose significant traffic and revenue and
thereby, reduce their fleets as a consequence.
Advances in the auto industry, such as cars capable high speeds, under electronic control on
specially equipped freeways could also have some impact. Finally, advances in internet-based
telecommunications may reduce business travel requirements and impact the airlines investment
in new planes and routes. This loss could be off-set by forecasts of growth in the leisure travel
segment.
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Airbus and Boeing against each other. So Airbus has to take care that they fulfills their vision of
listening to the customers needs, because Boeing is just waiting to take customers away from
them. Suppliers, especially in the defense sector, have relative weak power since they are fighting
for a share of the commercial market. Past trends show that the intense rivalry between the
companies will continue even if the matter of subsides is settle. Substitute modes of travel may
play regarding short travel distance but air transportation is still considered the number one option
for travel. The threat of entry should be considered too high because of the numerous obstacles to
overcome. However, the revenue potential maybe enough some other state sponsored firm to enter
the market.
CHALLENGES TO DUOPOLY
The main challenges to duopoly are:
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- unfair subsidies
- far complicated political situation because of role of aircraft in national security and economic
stability
Since Airbus is a European consortium of French, German, Spanish, and U.K. companies, the EU
has a huge stake in seeing Airbus remain a successful corporation. Airbus is support through tax
breaks, financing, loan guarantees, and R&D support. The assistance is given because Airbus is a
huge generator of economic activities such as jobs, technology development, ancillary companies,
and spin-offs. The European Association of Aerospace Industries (AECMA) reports at least
435,000 direct jobs in Europes aerospace sector in 2001 with over 1.2 million total jobs
supported directly or indirectly by the industry. Airbus compensation of huge subsides from the
European Union has strain relationships between the US and EU. The US government and
Boeing consider the subsidies unfair and no longer necessary since Airbus has become the leading
aircraft manufacturer in the world. They considered the introduction of the A380 to be proof that
Airbus can stand on its own without any government aid. However, Airbus and European
governments have response that the US government does the same with its subsiding of Boeing.
In addition, the EU is challenging a $3.2 billion tax break that the state of Washington has
promised Boeing and its suppliers. However, Airbus launch plans for A350 is adding more
tension to the situation since Airbus is pledging to look for a new round of government loans
equalling roughly $US 1.6 billion for the aircraft. The political situation is far complicated
because of the role that aircraft play in national security and economic stability of both the US
and EU.
Economic:
- Expected market US$2 trillion by 2025
- Expected Rate of Growth 5.4%
- Greatest demand from US, China and UK
- Air travel aircraft demand from developing countries
- Demand forecast for China 2200 domestic travel aircrafts by 2025
- Launch aid by Govt.
- Loans from government
- Shareholders approval
- Partnership with firms
The commercial aircraft industry expected to be worth US$ 2 trillion over the next twenty year,
which will require an addition of 16,600 new aircraft into service. World passenger traffic is
projected to grow at a 5.3% annual rate between now and 2023. The greatest demand for these
aircraft will come from airlines in the United States, China, and the United Kingdom. The greatest
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demand for air travel will come from emerging and developing countries with China and India
leading the way. Substantial growth is also expected for the Middle East. It is estimated that
China, with its fast growing economy and emerging middle class, will alone need 2,200 aircrafts
to meet their domestic and international air travel needs. In addition, there is expected growth to
occur in the international freight sector with an expected increase of 253% in the next twenty
years.
The EU governments and Airbus are both unwilling to give up government "launch aid" because
the assistance has been instrumental in the plane maker's rapid ascent to becoming the world's
leading supplier of commercial jets. Airbus has been able to tap into $15 billion in government
loans since its inception in 1970, including $3.2 billion for the A380. Airbus is not required to pay
back the loans if the aircraft program is unsuccessful. The launch aid received by Airbus has
helped it to shift risk away from the market unlike Boeing and any other commercial competitor.
The true benefit of the loans is that Airbus is able develop any program it wants and discount
whatever it wants without the fear of losing it shareholders.
However, Boeing, which is
dependent on its shareholders and has to answer to earning reports, cannot do the same.
Airbus plans the A350 does have some industry analysts worried because it could be the doom of
the A330, which the closest thing in Airbus portfolio to the 787. There is also the problem of
timing since the A350 will not enter service until 2010, a full two years after the 787. The
situation is further hinder since the A380 is currently running 2 billion over its projected budget.
Any future funding for the A350 may have to come from outside the EU. Airbus would need seek
partnerships with foreign firms that can win state financial support similar to what Boeing is
doing with the 787. Boeing signed contracts with Mitsubishi Heavy Industries and other Japanese
firms that will construct a third of the aircraft. The Japanese government is expected to loan the
suppliers at least $US 1.5 billion, which would cover most of their development costs.
Partnerships with Japanese companies may prove to be difficult for Airbus since Boeing
dominates the market. Airbus may turn its attention towards China where Airbus has recently
negotiated a $US 26 billion aircraft sale to two Chinese airlines and signed a $US 100 million
deal with the state-owned China Aviation Industry. However, orders for the 787 have begun to
pick up after a slow start. Boeing says it has 263 orders and commitments for the plane, which
could lead to Boeing regaining market leadership by years end and result in Airbus rethinking its
long-term strategy and its need for future launch aid.
Socio-Cultural:
-
Airbus operates on the principles of thinking ahead and listening to their customers, passengers,
and employees in building constantly more comfortable and efficient aircrafts.
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These principles are seen as fundamental to the companys future success. The three main points
of Airbus corporate culture are innovation, creativity, and freethinking with the focus of
internationalization and globalization. Diversity of culture and languages is considered a
competitive advantage for the company. Through the creation of effective teams with different
nationalities, backgrounds and skills, Airbus growth, and development can be secured. English is
the working language, unifying about 80 different nationalities speaking over 20 languages.
Although different cultures and nationalities in may cause problems of communication and
understanding, it also makes it possible to reach customers all over the world in knowing their
culture and speaking their language.
Until recently, air travel demand has been driven mainly by convenience. However, the trend is
now changing with consumers basing their travel decision primarily on price. Increasing cost and
competitive generated by a new generation of low-cost carriers is having an effect on the major
airlines. Business travel, once a stable of revenue, is now being conduct by corporate travel
guidelines. As a result, airlines are consolidating their networks to exploit economics of scale,
minimize environmental impact, and provide smaller markets with new or improve services.
As side note, Boeing changed the classification of the 7E7 to the 787 to stay within tradition.
However, the change could have made because of Chinese associating the number 8 with luck. In
addition, the sound of number 8 is very similar to the sound for the word for money in Japanese.
This has work to their advantage since 140 787s have been sold to China and Japan in past few
months.
Technological:
- R&D
- Quality
- Time
- Lean manufacturing process to control cost
In the aerospace industry, there are huge costs associated with research and development for new
aircraft. European government investments support European technology R&D sector, just as US
government R&D schemes have sought to do, through NASA, FAA, Department of Defense
(DoD), and export tax relief programs. However, the EU government support is three times as less
compare to the US. At the time of program launch. Airbus receives repayable launch investment,
not grants. Boeing has estimated that launch cost of the 787 will be in the order of $US 9 billion
while the cost of Airbuss A380 will be even higher at $US 12 billion.
Fly-by-wire is an electronically managed flight control system, which make aircraft easier to
handle while further enhancing safety , is now the industry standard. Fly-by-wire technology has
made it possible for Airbus to develop a true family of aircraft, from the 107-seat A318 to the
555-seat A380, with near identical cockpit designs and handling characteristics. This makes crew
training and conversion shorter, simpler, and highly cost-effective for airlines and allows pilots to
remain current on more than one type simultaneously.
According to Airbus CEO, Nol Forgeard, their biggest challenges is not the lost of market share
or subsidies, but rather productivity. Airbus being a younger company with a newer product line
and more modern production facilities has long enjoyed an efficiency edge over Boeing. Airbus is
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pushing to slash final assembly time on the 737's competitor, the A320, by 30%. However, Boeing
has started to adopt lean manufacturing process for future aircraft production and is promising
even more dramatic efficiency improvements with the 787.
Environment (Physical):
The key environmental issues of air transportation are:
- Consumption of raw material and natural resources(water and energy);
- VOC emissions from cleaning and painting process;
- Greenhouse emissions from consumption of natural gas and fuel;
- Indirect Greenhouse emissions from electricity consumption;
- Nox and Sox emissions from combustion facilities; and
- Production of hazardous and non-hazardous waste.
Four segments of Airbus manufacturing process affect the environment, which are metal and
composite working, surface finishing and treatments, components and parts assembly, final
aircraft assembly. Airbus is in their second year of their company-wide Environmental
Management System (EMS), which is based the ISO 14001 Standard. The purpose of the EMS is
to ensure the continuous improvement of Airbuss environmental performance in all sectors of
activities and covering the entire life cycle of Airbus products.
Aircraft effect the environment through noise and gas emissions. Carbon dioxide emissions,
which contribute to global warming, are proportionate to fuel consumption rates. Legislation
concerning noise pollution will affect future aircraft design.
Legal:
-
The US government and Boeing have complained that Airbus has long ignored one of the 1992
bilateral deal's key agreements: that launch aid would be available to Airbus until the European
company reached relative parity with Boeing, which is no longer the case since Airbus has a 54%
share of the market. All government loans for Airbus have been made within the boundaries set by
the 1992 US-EU Agreement on Trade in Large Civil Aircraft since its entry into force. The debate
over the subsidies (program launch aid) was elevated to new levels when the US government took
the largest trade complaint to the World Trade Organization (WTO) for the purpose of litigation.
The complaint considered the so-called launch aid given to Airbus for new aircrafts to be illegal
under WTO rules. The EU and US have fail to reach the April 11 deadline to work out agreement
surrounding the complaint, which rising the possible of the WTO having to get involve. Both
parties say that they are willing to continue with negotiations, but EU says they will not sacrifice
Airbus's launch aid without a balanced cut in Boeing's various lines of support. Should the WTO
were to rule against either company or either the US or the European governments for improperly
subsidizes the manufacturers, the results could be billions in retaliatory fines, which could hurt
the huge aerospace industry and their hundred of thousands of employees on either side of the
Atlantic.
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Regulating bodies, such as the FAA, EPA, and similar agencies have some impact to the industry
as they determine a number of constraints that manufacturers, suppliers, and operators have to
work with. The impact of these institutions is considerable as they can create major obstacles for
the final approval of the planes.
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For Boeing Outsourcing was common practice. Production of parts was outsourced on several
models before they outsourced the 787 Dreamliner. Different companies would manufacture the
parts and Boeing would assemble them all in a single location.
The next reason for outsourcing is the cost savings. If Boeing is able to outsource the work, then
they do not require as many employees in-house. Thus, they will be able to trim the labour costs
because of the less labour wages in these countries that Boeing outsource work to.
The third reason is the time factor. If Boeing could reduce the time it takes for the planes to be
produced, it would lead to higher profits faster. The faster Boeing can introduce the Dreamliners,
the faster Boeing could start receiving money from airline carriers. Outsourcing was the way that
it could cut the time required to complete the project. Time was very critical to Boeing as airbus
was taking over the market.
There are political reasons involved as well. When Boeing was planning on developing the 787
Dreamliner there was still talks going on with the unions. The workers had walked away
numerous times in the past 2 decades which resulted in loss of many valuable working days for
Boeing. Thus, outsourcing the work would be a solution to such an issue.
Another political reason for Boeing to outsource the work was the opportunity to do business in
these countries. Boeing made a deal with many countries in Asia that they contracted for work.
The deal stated that if the countries agreed to purchase the aircrafts from Boeing then Boeing
would provide manufacturing work to those countries. Thus Boeing was not only were the saving
time available but also had near guaranteed sales from the governments of the countries.
Reasons for failure of the outsourcing strategy of Boeing:
1. The work produced by the third party companies could not meet the strict standards that
Boeing has created over the past one hundred years. If a component was made to that
standard, either Boeing would make the manufacturer rectify the problem or it would have
to make the component itself. Both these options would result in money and time being
wasted.
2. Besides this, the companys image may become tarnished because of using components
that normally would not be up to Boeings standard. When there was a battery short circuit
that happened in one of the Dreamliners it was Boeing who had to suffer the loss of
reputation.
3. Nearly 70% of the work of Dreamliner was outsourced. thus if a single component like a
nut or bolt would not arrive in time the production would have to be stopped which
created huge backlogs. This also resulted in huge delays and there was a delay of 3 years
from the date of delivery that Boeing had promised.
4. Boeing did not have a structured monitoring service to check the outsourced work. .
Boeing outsourced the production of the wing box to Mitsubishi Heavy Industries, based
in Japan. When Boeing received the completed wing box from Mitsubishi, it found a huge
problem with the production. Mitsubishi Heavy Industries had shaved off too much weight
so the wing did not have the strength .This problem was only found during the testing.
Thus, Boeing had to temporarily fix the problem on the first six Dreamliners which were
already in assembly.
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5.
Boeing did not have direct communication channel, but just assumed that the suppliers
would manufacture parts that would be up to Boeings quality standards
6. The parts came from different countries and it became hard to manage the quality of the
work. Boeing assumed that the parts manufactured would not only be functional but also
compatible. Boeing outsourced the nose/cockpit and forward fuselage. Both parts were
manufactured in different locations, Wichita and Japan. When both parts reached, they
were given to assemblers to connect the parts together. These parts were not compatible
with each other.
Outsourcing at Airbus:
1. Airbus has centres of excellence which decides whether airbus should make or outsource a
certain part. They have centres in countries like China and Russia. Four Chinese
manufacturers are making wing components for Airbus aircraft. Six companies are making
its landing gear. Airbus is building an assembly plant for A320s in china and is planning
on a joint venture between Airbus and China Aviation Industry Corporation establishing an
engineering centre adjacent to the offices of Airbus China.
2. There are also more vigorous safety checks on the parts manufactured at these outsourcing
units.
3. Airbus has tightened its criteria for contractors with whom it worksincluding a
requirement that major suppliers outsource a minimum amount of work to companies in
Asian countries such as China and India. Thus airbus is able to limit the number of
suppliers and sub suppliers.
4. Because of the joint venture between Airbus and China they are able to make use of the
subsidies that Chinese government provides.
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Whether the plane will achieve the efficiencies that COMAC has promised is an open question:
reports that designers have had trouble with the planes weight have apparently caused some of
the major Chinese airlines to hold back on orders. The big three Chinese-owned airlines China
Southern, Air China, and China Eastern apparently limited their exposure to 20 aircraft each.
According to a recent study by the RAND Corporation, the big three each committed only to
purchasing five C919s, with soft options for the other 45 planes. The apparent hesitation of
central-government owned airlines to purchase aircraft built by a state-owned company is due,
according to RAND, to an unwillingness to take on more exposure to a program they regard as
risky. General Electrics leasing arm, General Electric Commercial Aviation Services (GECAS)
has ordered 10 planes, as has the leasing subsidiary of the China Development Bank.
UAC/Irkut MS-21 - The three-version (150, 180, and 210 seats) MS-21 aircraft has been
described as Russias great hope for the revival of its civil aircraft industry. The MS-21, which
the company expects to cost $6.3 billion to develop, is scheduled to enter service in 2016. The
Russian government is funding 40% of the MS-21s development costs, with the remainder
coming through loans, and from Irkuts parent company, the government-owned UAC. According
to the MS-21 chief designer and project director, Andrei Matveyev, the aircraft will include 40%
composite content (including a composite wing), weigh 15% less, and achieve 25% improved fuel
efficiency over current comparable Boeing or Airbus aircraft. Pratt & Whitney will supply
engines, which will also power the A320neo (as one of two available engine options for that
plane), the Bombardier C Series, and the Mitsubishi Regional Jet. Irkut also has numerous U.S.
partners supplying various systems for the MS-21. To date, 146 firm orders and 39 options have
been placed for the MS-21, with 50 orders from Aeroflot, 50 orders from a Malaysian leasing
company, and 46 orders from Russian leasing companies.
EMBRAER - The Embraer 190 E-Jet has 98-114 seats, while the larger Embraer 195 E-Jet has
108-122 seats. The first delivery of the E-190 was made in 2005 and the E-195 in 2006. Both
planes are comparable to small mainline jets and, together with the Embraer 170/175 E-Jets, were
designed specifically to fill what Embraer executives believed to be a gap in the 70-120 seat jet
market.
The Embraer E-Jets represented a sharp departure from the RJs on which Embraer had built its
reputation. Embraer used the E190 and E195 to beat Bombardier to market with a product that
upstaged regional jets of comparable size. By the end of 2010, 266 E-190s had been delivered to
low-cost carriers, U.S. legacy airlines, and foreign airlines, with a firm order backlog of 157
planes. During the same period, 61 E-195s were delivered, with a firm backlog of 41 planes.
Embraers chief competitor, Bombardier, delivered its first 100-seat CRJ-1000 regional jet (a
stretched CRJ-900) in December 2010. As of January 2011, Bombardier had delivered 9 CRJ1000s and had firm orders for another 40. Whether the Bombardier CSeries will lead Embraer to
develop a larger plane is uncertain at this point. Nevertheless, some have speculated that Embraer
could develop a new plane in response to Bombardiers challenge to Embraers E-Jet series.
SUKHOI Superjet 100 - The first Sukhoi SJ100 was delivered to Armavia, an Armenian airline,
on April 19, 2011, and was almost immediately placed in service. The Superjet 100 has a capacity
of 86-103 passengers, depending on its seating configuration. After-sales support for the SJ100
will be provided by SuperJet International, a joint venture formed by Sukhoi and the Italian firm
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Alenia Aeronautica. Alenia owns 51% and Sukhoi 49% of the joint venture. Alenia also has a
25% stake in Sukhoi Civil Aircraft Co., the manufacturer of the SJ1000. The purpose of SJI is to
provide the all-important in-service support that airlines depend on. SJI provides pilot training,
technical training for maintenance staffs, and operates spare parts warehouses for the SJ100
program. According to Aviation Week and Space Technology, Commercial services also will test
whether the program can deliver the promised in-service support, of which many customers are
skeptical, given the poor reputation of Russias aerospace industry in this regard.
COMAC ARJ21 - A new Chinese regional jet, the ARJ21 (a 90-seat RJ), which is being
manufactured by COMAC in partnership with Bombardier, is based on the McDonnell-Douglas
MD-90. All of the COMAC ARJ21s major subsystems were sourced to North American and
European suppliers. The project has experienced a number of delays and delivery slipped from
2010 to 2011. The ARJ21 was originally an AVIC project, but was transferred to COMAC when
the latter assumed responsibility for commercial aircraft development. It is not clear whether
regional jets will remain a focus for COMAC, because most forecasts do not anticipate much
growth in the Chinese RJ market.
Large Regional Jet - One regional aircraft, the Japanese Mitsubishi Regional Jet (dubbed the
MRJ)(a 70-90 seat plane), appears to be primarily aimed at the Bombardier/Embraer RJ
duopoly.
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