2011

Airbus vs Boeing- international competition

Gurudatta Lamichhane (1P2)

5th Compulsary assingment
9/26/2011

Methodology:

In order to solve this case, I will use different articles, goggle, given case text, and appendix that I
made based on my knowledge. Based on these materials I am trying to tackle these case
questions.

To answer section a. I am using textbooks relevant models & theories to explain further. Section b.
I am using textbook, PowerPoint provided by teacher during the teaching and relevant models &
theories.
a) Supply Chain Management
Logistic setup globally is very important for international companies, specially those duopoly competitions
in niche market. It is a good decision to expand their production globally to reach potential customers in
efficient way. Airbus is a huge international aircraft industry. Its production is divided in different phase in
different geographical locations located in the Europe.

European logistic setup:

1
France, Germany, Spain and UK are involving with a goal of creating a world-class large commercial
airplane. Basically France is responsible for the systems integration, instrumentation and human-machine
interface related to fuselage, cockpit and flight control systems and UK design the wings. Similarly Spain is
responsible for horizontal tailplane and Germany process in manufacturing assignment to build the forward
and rear fuselage “barrel” sections, along with the upper portion of the center fuselage. 2Pre-assembled
sections of the jetliners are transported to Toulouse and Hamburg by means of sea, river and road
transport. Painting and cabin furnishing takes place in Hamburg. After 10 days long final assembly of
aircraft, airbus will be delivered to airbus delivery centers; Hamburg for European and middle east
customers and Toulouse for Africa, Asia’s and America’s customers.3Finally delivery with the end customers
takes place by signing the transfer of the title which is spreads 4 to 5 days on average depending on the
aircraft program.

Chinese logistic setup:

Recently airbus has been started assembly of A320, 330 & 340 in Tianjin, China. Tianjin is only one outside
Europe final assembly of airbus which is based on the state-of-the-art A320 Family in Hamburg. It is a joint
venture between Airbus and a Chinese consortium comprising Tianjin Free Trade Zone (TJFTZ) and China
Aviation Industry Corporation (AVIC).4 The Chengdu Aircraft Corporation supplies the rear passenger door
and parts of its nose section for the A320. The other Chinese company including Shenyang aircraft among
other supplies different components for A320 family. The airbus has planned to continue to expand in this
region for helping the Chinese to manufacture rest parts for the aircraft.

5Challenges of logistical setup in China:

Hard objectives:
The quality advantage: in regards quality, we can neither be sure nor assume because specially Chinese
products are known in different mode. Therefore this decision could affect airbus somehow. However as

1
http://www.airbus.com/innovation/proven-concepts/in-manufacturing/
and refer to appendix as well
2 http://www.airbus.com/company/aircraft-manufacture/how-is-an-aircraft-built/transport-of-major-aircraft-sections/
3 http://www.airbus.com/company/aircraft-manufacture/how-is-an-aircraft-built/delivering-to-the-customer/
4 http://www.airbus.com/company/worldwide-presence/airbus-in-china/
5
Book-logistics management and strategy – 3rd edition by Alan Harrison

Gurudatta Lamichhane-1P2 Niels Brock 26-09-2011

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airbus having training centers, customers support centers, final assemble center of A320 and they already
delivered final assembled airbus in 2009 which derives positive scenario6.

The time advantage: As China is one of the biggest customers for airbus, they can obviously gain advantage
specially when produce and assemble in China. 7On side it increases the lead-time for European and
American customers, on the other side increasing demand in Asia pacific market will be enough to maintain
their demand. If one of the Chinese or Asia pacific customer orders some spare parts, Airbus China can
provide it so that Airbus can minimize the customer lead time and add customer value.

The cost advantage: As China is cheap in regards to labour, material and warehouse it gives airbus overall
the cost advantages.

Supportive capabilities:
On time delivery: Having production in China will help company to fulfill customers’ requirement on time.
Specially Tianjin is a free trade zone area, a hub to manage the transportation and location of hi-tech
industries helps airbus to maintain the demand on time.

Soft objectives:
Security: There are many security issues regarding moving airbus to China. European unions is worried
about jobs in Europe, and fear to loss of technology to Chinese counterparts. In China it could be issues on
working safety and highly skilled technicians. It is said that China has lack of strong law to save the
intellectual property, technology and various problems in copyright and products patent. Customer´s
information and confidential and secure could be as well issues on Chinese markets.

Technological resources: 8 Airbus is using ´´integrated forecasting systems´´. Basically this system gives
them reliable planning data where they can plan in the context of integration with production IT systems.
But I don’t know how Chinese partner will use this system since there is no information about it. On the
other side there could be risk of sharing information technology, transfer of intellectual property and
knowledge to Chinese employees, which may create problems for airbus. Thus China is strong itself on
information technology, China is not fully trustful due to not having strong law regarding copyright policy,
patent and intellectual property. After gaining technological knowledge and becoming independent they
could move to own home Company such as C919 for their national pride.

China is one of the biggest and ever rapidly growing on airplane user; airbus needs an advance level of
information and materials flows technologies so that they can run business smoothly.

6
http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/airbus-delivers-first-a320-assembled-in-china/
7 http://english.peopledaily.com.cn/90001/90780/91421/6945694.html
8 http://www.logisticsit.com/absolutenm/templates/article-planning.aspx?articleid=2066&zoneid=34

Gurudatta Lamichhane-1P2 Niels Brock 26-09-2011

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Corruption: 9Transparency international shows China increased on corruption level from 3.6 to 3.5 and 78
on corruption rank. So there could be risk on the organization regarding the related issues.

International Logistical setup:10Transport of parts through shipping, road and river might be risk on traffic,
natural disaster. Moving parts one place to another could be expensive and increase lead-time which
cannot assist on value adding to customers. However there are some benefits by implementing the
international logistic such as:

Inventory: Having inventories in multiple countries gives advantage for high-value products.

Handling: Company can have best practices accordingly to its prerequisite for internationalization.

Transport: Airbus could get some advantage through logistics pipelines. Airbus will save lead time while it
supplies spare parts and components from different countries. But there could be a risk of transportation
breakdown for example strikes on ports, airplane employee strikes and so on. Natural disaster for example
tsunami as well may hamper the international logistic chain.

Geopolitical threats: The war in Iraq, Afghanistan and new Middle-East revolution may impact on global
logistic. There is risk shipping way through Somalia.

Reverse logistics: Airbus should make the policies regarding to re-use its wastages from raw materials to
finished products. Reverse logistics has significant consequences for the total supply chain. Although
Europe is aware on environmental issues, we cannot see the Chinese government is pushing the industries
to be green.

b) Marketing and Sales including Economics

Basically boeing (American based) and airbus (European based) both are manufacturing aerospace
products. It is very interesting and complex as well to differentiate and find their competitiveness. They are
competing in niche markets and again both of them are not in direct competition. 11

There are various ways to see their competitive situation, for example if we see market demand, products,
and price so on. However both companies are outsourcing their products to be more competitive each-
other, such as some parts of airplane, spare parts and components specially to China. There are several
factors has to consider such as internal and external environment. Furthermore we can use product
benchmarking to find and understand future competitive situation.

Considering outsourcing, it might be good to understand where are they from, where are they going, and
how they do it? To answer these questions I will use ´´Porters Diamond Model´´ and ´´Internationalization
model´´.

9
http://www.guardian.co.uk/news/datablog/2010/oct/26/corruption-index-2010-transparency-international
10
http://www.youtube.com/watch?v=drlswuwWqs0
11
Given in case tex- Airbus vs. Boeing p-2

Gurudatta Lamichhane-1P2 Niels Brock 26-09-2011

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Before moving production to china, company has to answer the 4 questions of
internationalization12. They are Why? Where? How? When?
4 questions- Airbus Boeing
internationalization
Why  Cheap raw materials+labour cost Cheap raw materials+labour cost = price
= price competition competition
 Chinese market is increasing-  "We keep the best partners in terms of
20% of airbus revenue13 quality, cost, and capability." 15
 358+14 orders14  244 orders
Where Tianjin, China-location for high-tech Tianjin, China-location for high-tech
industries, universities industries, universities, 16India etc.
How Joint-venture 17 Joint-venture18
When Recently 2007-China

Porters diamond model: China

Factors conditions:

Basic factors: enough space for industries, cheaper and enough labour forces

Advanced factors: Highly educated workers, digital communications

Generalized factors: Capital, infrastructure is becoming advance

Specialized factors: Skilled personnel are increasing

Demand conditions:

Both aircraft are deciding to outsource strategy to China to gain political and economical benefits. As China
is the biggest customers for both of them, it would be great the support for them.

Related & supporting industries:

- Both aircraft could benefited by aircraft manufacturing companies in China, such as China
aviation industry corporation (AVIC), COMAC etc.
- Hi-tech electronics company

Firms strategy, structure & rivalry:

- China is a country which has strategy to develop the large-scale and innovation-oriented
airliner.
- Both companies have strategy to outsource for price and lead-time competitiveness. Both
company are leading on aircraft manufacturing, boeing was the dominant for a long period,
since airbus has established their production around 40 years before; is becoming popular on

12
Slides provided by Peter Becker in class
13
Prediction of Airbus China president- Laurence Barron
14
Given in case
15
http://www.businessweek.com/magazine/content/06_05/b3969417.htm
16
http://boeing.com/news/releases/2008/q1/080214a_nr.html
17
http://www.airbus.com/no_cache/newsevents/news-events-single/detail/airbus-joint-venture-in-china-to-increase-
a320-rudder-production/
18
http://seattletimes.nwsource.com/html/businesstechnology/2008435563_webboeing25.html

Gurudatta Lamichhane-1P2 Niels Brock 26-09-2011

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 its industries. Both of them have expanded subsidiaries and support facilities around the globe.
Small and large scales of aircraft manufacturing industries around China are increasing. So far
China wants to rival boeing and airbus with its C1919 plane as well by 2014.

Hence both boeing and airbus can have competitive advantage as China is becoming more competitive. To
analysis further competitiveness individually I tend to benchmark the both aircraft manufacturing’s latest
product although they have various product portfolios.
19
The Airbus A380, vs Boeing 747
The latest development on competition is airbus A380 vs boeing 747. It is said supersonic cruiser of boeing
will compete with A380 but at the latest news said, it had cancelled its proposal projects due to several
reasons. 20

Airbus A380 Boeing 747

21
No of orders/delivery 236/56 (A380)
1015/334 (total airbus-2011)
Capacity & speed super jambo jet carrying over 550
passengers,
Continental features more features, flexibility in layout
and customization
Breakeven (budget) Breakeven about 250 planes
Requirements Difficulties faces in airport
infrastructures
Relationship with China Ever-increasing footprint23
22
4- (boeing 747)
379/308 (total boeing-2011
Fly long distance in shorter time,
less than 550 passengers
Reduction of fuel consumption
Less than A380
No need to change any
infrastructures
Getting weaker relationship
because of supply of military
equipment to Taiwan24

As long both company has own competitiveness strategy, however I must say airbus has getting more
popular in regards to price, continent as customers demand. Furthermore airbus has by now big difference
in total orders and delivery it might be the reason of reduction on customer lead-time and their superior
value add to customers.

Aircraft manufacturers rely heavily on subsidies. Recently, Boeing and Airbus are on the debate of unfair
subsidies. Both aircraft are involving to get support through their subsidies. As extracted on case boeing is
getting supports like development of airplanes, no or low-interest government loans, debt forgiveness,
equity infusion, infrastructure, tax breaks and R&D support. Airbus is also getting lunch aid through
European subsidies which have been granted tax relief, government-sponsored R&D and government-paid
infrastructure projects.

Because of various economic downturn consequences: with several airline companies closing down and the
global tourism industry in recession, aircraft prices are down by around 20 percent. Boeing has reduced
employment. Since customers’ purchasing power has decreased, the demand and supply has been
decreased as well. Political issues has been arise due to global terrorist attacks, middle east revolutions,
and supply in military equipment, which directly effect to aircraft manufacturing companies. Currency

19
http://en.wikipedia.org/wiki/Competition_between_Airbus_and_Boeing
20 http://en.wikipedia.org/wiki/Boeing_Sonic_Cruiser#Cancellation
21
http://www.airbus.com/company/market/orders-deliveries/
22
http://active.boeing.com/commercial/orders/index.cfm
23
http://www.chinadaily.com.cn/bizchina/2011-06/23/content_12760295.htm
24
Given in casetext: Strained U.S-Beijing ties could cripple boeing..

Gurudatta Lamichhane-1P2 Niels Brock 26-09-2011

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fluctuation and oil price has made big problems on revenue. Therefore the best way would be to use ABC
calculation to find the potential customers and the most profitable air plane and invest and continuing to
keep strong relationship with customers.

It is very crucial for such fast growing & increasing market share company specially airbus to analysis long-
term business opportunities and sustainability by considering CSR and environmental issue. There are some
relevant issues regarding to external environment on its organization.

Opportunities
o Acquisitions: not only joint-venture is possible, airbus has opportunities to merge and acquisition
many more small and medium size aircraft industries around the world.
o Emerging markets and expansion abroad: outsourcing in China will benefit airbus to gain new
markets like in Asia pacific while these marketing are rapidly increasing25
o Innovation: by entering in China, a country where everything is possible in innovate-oriented could
help airbus to be more productive and unique
o Online: internet gives chance to sale its product around the world, online order and delivery makes
business easier and continent
o Product and services expansion: airbus has very good opportunities to expand its products and
support before new rivalry comes on market such as: C919 of China.
o Political advantage: since boeing, China having weaker relationship due to military equipment to
Taiwan, airbus getting advantage

Threats
o Price wars & Competition: boeing a dominant rivalry for a long period is still a strong competitor
for airbus, furthermore a lot of small and median aircraft manufacturing are coming into the
markets & offering cheaper solutions.
o Cheaper and destructive technology: such as Chinese technologies are becoming cheaper and
market leader around the world could affect the airbus technology. Furthermore the world is
rapidly changing in a second, nobody knows what kind of technology will be tomorrow
o Economic slowdown: for more than 3 years economic turndown has given negative impact on air
industries, it will take a long period to recover its impacts
o External changes (government, politics, taxes, etc): government rules & tax are increasingly
important for business. Having said that anytime government could tackle the issues and create
barriers for the international business. For example, recently USA is supplying military equipment
to Taiwan, which is opposite interest of China, therefore China is making issues regarding boeing
airplanes, war and revolution around world is directly affecting air and tourism industries
o Exchange rate fluctuations: such fluctuations have made worth impact on air industries making
billions of loss. And nobody knows how the future will be.
o Environment: Since people are becoming more open, educated and aware in environmental issues,
are looking forward to see environmental friendly products, less emission on air etc.

Having said all, I came to conclusion that on the one hand there are several opportunities and on the other
side there are increasing challenges and threats for all aircraft manufacturing. Product must be
environmental friendly and innovative.

The end

25
http://english.peopledaily.com.cn/90001/90780/91421/6945694.html

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Appendix
Fig. 1: Business phase of airbus

Business phase of Airbus

Aircraft design/production Aircraft sales Customer´s service

Engineering & maintenance

Material, logistics &

suppliers

Customer´s service

Fig.2 Production and assemble setup

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Fig. 3 : Airbus global supply chain

Fig: 4 Porter´s Diamond model

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