Boeing Vs Airbus

1.1 Introduction

Incorporated as The Boeing Company in 1916 in Illinois, Chicago, the Boeing Company operates as an aerospace company. Its operations include the design and production of commercial airplanes, aircraft and weapon Systems, network systems, support systems, and launch and orbital Systems. Boeing's core focus has been on the production of commercial aircraft for passenger and cargo requirements of domestic and foreign airlines. The company also offers two-way data communications service for global travelers; and Boeing Technology, an advanced research and development organization. Boeing has been a pioneer in the aerospace industry as the first company to have set up its line for commercial aerospace engineering. Given the notion that it has long been the first mover in the industry for product development for commercial aircrafts, Boeing has had a long tradition in producing high quality airlines to facilitate the growing needs of the airline industry. In terms of the industry Boeing has been a strong leader in terms of operations and its major competitors are European Aeronautic Defense and Space Company (EADS), Lockheed Martin Corp. and Northorp Grumann Corp.

1.2 Issues

The theme of the case revolves around several factors; the environmental uncertainty regarding economic cycles, product development problems and production process flaws and also the power of competitions to influence industry conditions. Thus, the main issue can simply be stated as "How can Boeing streamline its production process to overcome production lags and product flaws and attain a degree of sustainable competitive advantage to maintain industry leadership in terms of operations and growth."

1.3 Financial Analysis

Avg P/E Price/ Sales Price/ Book Net Profit Margin (%)

12/05 19.50 1.03 5.08 4.7

12/04 21.30 0.80 3.82 3.5

12/03 39.50 0.68 4.36 1.4

12/02 13.90 0.50 3.43 4.3

12/01 15.10 0.55 2.86 4.9

12/00 19.90 1.12 5.01 4.1

12/99 16.50 0.66 3.15 4.0

12/98 37.70 0.57 2.48 2.0

12/97 -286.40 1.04 3.68 -0.4

12/96 23.90 1.47 3.81 5.

Book Value/ Share Debt/ Equity Return on Equity (%) Return on Assets (%)

12/05 $13.82 0.97 23.2 4.3

12/04 $13.56 1.08 16.1 3.2

12/03 $9.67 1.77 8.4 1.3

12/02 $9.62 1.87 29.8 4.4

12/01 $13.57 1.13 26.1 5.8

12/00 $13.18 0.80 19.3 5.0

12/99 $13.16 0.59 20.1 6.4

12/98 $13.13 0.57 9.1 3.0

12/97 $13.31 0.53 -1.4 -0.5

12/96 $13.96 0.55 13.5 4.8

According to the data provided in this section, it can be seen that the net profit margin has been increasing for Boeing over the past three years. After a mild setback in 2003, Boeing has managed to run profitable operations until date and has subsequently enjoyed a significant growth in its net income over the past three years. This may permit a conclusion that Boeing has maintained profitable operations with is style of production and has sustained a profit margin growth over the past three years.

The firm has been able to reduce its debt/equity ratio over the years which mean that it is efficiently paying off the debt on its capital and is becoming more independent financially over time. Its return on equity invested has also had a strong raise over the past three years meaning that the R&D costs have been paying off for Boeing as the new products have been able to generate revenue in significant proportions. The return on assets also support this conclusion as that figure has also been on the rise demonstrating the notion that the overall efficiency of assets utilized to generate revenue has been very productive and supportive of operations at Boeing.

A slight negativity can be observed when noticing the price earnings ratio which has been on the downturn over the past few years showing that the shareholders are incurring losses on the share value because of a downward movement on the price earning ratios.

2.0 Critical factors

2.1 SWOT Analysis

Strengths

* Industry Pioneer; first mover advantage in most market segments.

* Largest market share in commercial aircraft manufacturing.

* Strong R&D infrastructure and efficient engineering background.

* Efficient strategic alliances and acquisitions along the value chain which has significantly bolstered market position in several segments.

Weaknesses

* Labor union problems; engineers on strikes demanding job security.

* Stagnant product development; no significant product development after B-777.

* Complex and flawed Production process with several loss ventures in attempts to focus on quantitative manufacturing instead of qualitative manufacturing.

* Centralized organizational hierarchy permitting too much authority and decision making at all levels for the top management team.

Opportunities

* Dynamic industry providing scope for constant product development cycles.

* Constant growth of technology in the industry.

* Constant growth of new buyers (private aero planes, growth of the airline industry) thus expanding each market niche in each segment.

* Airbus's decision to delay its delivery of the A380 Super-jumbo until the second quarter of 2007

Threats

* Federal Aviation Administration (FAA) audits found deep rooted systemic problems that result in noncompliance with the FAA regulations.

* Uncertainty

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