Boeing

ISSUE OF THE CASE

How can Boeing sustain in a duopoly competition with EADS (in partner with Airbus) while gain its market share.

PROBLEM STATEMENT

The Boeing Company (Boeing) is one of the world's leading aerospace companies and the largest combined manufacturer of commercial jetliners and military aircraft, while Airbus Industrie began as a consortium of European aviation firms to compete with American companies such as Boeing and McDonnell. Today Boeing owns McDonnell and Airbus has formed EADS and they fight a fierce competition. EADS with their plan to launch its A3XXs while risking their all to be the market leader leaves Boeing to decide weather to loose their crown or build its B-747X to even survive in the market.

CRITICAL ANALYSIS

PORTERÐŽ¦S FIVE FORCES

Threat of New Entrants: A new kind: The world aircraft leasing companies.

Maybe itÐŽ¦s not possible for a commercial aircraft building company to come up overnight. But the fierce competition in the duopoly market of aircraft industry the threat is of a new kind. Failure to meet the scheduled delivery time and Asian Economy flu, it gave birth to The World Aircraft leasing industry. With failure to meeting the market demand and delivery schedule airlines company started to switch to Airbus and claiming to have the ÐŽ§technologically advanced fleetЎЁ while their old crafts were sold to amongst airlines or to the leasing company. This trend threatened Boeing and the leasing companies started to grow in Asian market. An analysis reveals that the portfolio size of leased aircraft reached $115.42 billion in 2004, and is projected to reach $143.93 billion by 2008.

As the Asia Pacific region continues to suffer from poor infrastructure the limited numbers of airports in the region are unlikely to accommodate the increasing air traffic. Further, the shortage of pilots, cabin crew, and other skilled personnel in maintenance services are proving to be hurdles in the rapid expansion of the airline industry in the region. Nevertheless, with the growing number of low cost carriers, the Asia Pacific region is set to emerge as the fastest growing segment of the aircraft leasing market.

Bargaining power of the suppliers:

In this industry, the bargaining power of the suppliers is low because ÐŽV

Ñ"ж Though the suppliers are less in number in this industry so Boeing have high degree of control over the suppliers like those who provides different components starting from exterior to interior and parts for aircraft

. The company started as an engineering based company which provided the suppliers with a unique feature to decorate the crafts and supply parts. But then again there are no other buyers than Boeing.

Since Boeing serves different niche market they have a diverse supply chain hence sometimes they have to depend solely on the suppliers. So with expansion of Boeings production capacity it is likely to affect the capacity of the suppliers. Hence this could be a problem for Boeing to loose the bargaining power.

Note: Additional changes in production implied by government agencies forces Boeing to retrofit their crafts. So sometimes this might affect the suppliers allowing Boeing to cut cost on its margins even. With expansion sometimes Boeing is highly dependent on suppliers. Like in 1997 they were in shortage of parts of 2000 to 7000 which made Boeing miss their delivery schedule.

Bargaining power of the customers:

The bargaining power of the customers is high in perspective from product differences, price of total purchase and impact on quality and performance. Even though Boeing is the market leader, Airbus first introduced economy and technologically advanced aircraft

. Also with the rise of world aircraft leasing companies both Boeing and airbus is affected.

Again it is highly controversial that Airbus is subsidized by the governments owning it. Hence price sensitivity is sometimes taken under consideration as the bargaining power. So to purchase a commercial aircraft the airlines companies have to turn into two options. Boeing or Airbus. If not then there is always the new threat, the leasing companies.

Threat of Substitutes:

The World Aircraft Leasing industry can be taken under consideration.

Competitive Rivalry between Existing Players:

Boeing has been building commercial airliners since 1927 with the first Boeing commercial jet airliner, the 707, introduced in 1955. Boeing jets dominate the commercial aircraft market and Boeing hoped to continue this domination with the latest addition to the Boeing family, the 777. This success is even more remarkable when one realizes that the Boeing ÐŽ§Design/BuildЎЁ process had not changed very much during the past three decades. The system was antiquated, cumbersome, and inefficient creating production delays, increased costs, and spawning a huge bureaucracy simply to handle the paperwork. Boeing was clearly motivated to bring this World War II era process into the 21st Century.

Airbus IndustriesÐŽ¦ increasingly larger share of the commercial airliner market was a major force to initiate these changes. Airbus had the advantages of government subsidies to help defray the costs of implementing best design practices, as well as latecomer advantages. It learned from BoeingÐŽ¦s, as well as LockheedÐŽ¦s and McDonnell DouglasÐŽ¦, mistakes and it did not have 40 years of bureaucratic momentum to overcome. Other motivating factors include the need for Boeing to increase the income from the commercial aircraft division to offset the loss of revenue due to cutbacks in government defense and aerospace contracts.

The last decade has seen the commercial aircraft industry dominated by two manufacturers: the Boeing Commercial Aircraft Company and Airbus Industries, with McDonnell Douglas, a distant third. Lockheed has not built any new aircraft since 1984, although there are still many L-1011ÐŽ¦s flying the skies. Airbus Industries is a relative newcomer, but it has very quickly provided much competition to Boeing, surpassing McDonnell Douglas and Lockheed and ultimately acquiring McDonnell. Airbus Industries is a consortium

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