The Global Large Aircraft Market
Outline
• Objective• Industry History• Boeing Corporation• Airbus Industrie• Industry Competition• Large Aircraft Competitive Analysis• Strategic Recommendation
Objective
• Analyze and recommend a competitive strategy for Boeing within the large aircraft market (500+ passenger seats)– Boeing’s Options:
• Maintain current product • Develop and produce an improved 747• Design a completely new aircraft
Industry History
• Wright Brothers’ first flight in 1903• First half of the century, rapid development of
industry – Aeroplane Co., Bae/Aerospatiale, Bell, Boeing, Curtiss,
Grumman, Lockheed, Martin, Messerschmitt, and Pratt & Whitney
• Second half of the century, consolidation of manufacturers– Boeing and Airbus remain
Boeing Corporation
• History– Commercial production began with 707 in 1954– Pan Am inaugural transcontinental flight in 1958– First 747 rolled off the production line in 1968
• Current Business Units– Commercial Aviation– Military Aircraft & Missile Segment– Space and Communication
Boeing Corporation
• Largest aerospace manufacturer in the world– Over 13,000 commercial aircraft delivered– Represent 65% of world’s air transportation
market– 1999 Financial Performance
• Revenues $58 Billion• Net Operating Income $4.7 Billion• EPS of $2.49
Airbus Industrie
• Owned by consortium– European Aeronautic Defense and Space
Company – BAE System
• Created an Airbus Integrated Company to manage the commercial sector
• Utilizes production facilities across Europe– Allows efficient use of specific skills by division
Industry Competition
• Intensity of Competition
Highly Competitive (Unfavorable)
• Availability of Substitutes
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Threat of New Entrants
Limited Substitutes
(Favorable)
Limited Quantity/Interdependency
(Neutral)
Limited Quantity/Interdependency
(Neutral)
High Barriers
(Favorable)
Large Aircraft Competitive Analysis
• Projected Demand
• Strengths and Weaknesses
• Economic Risk
Market Forecast2000 through 2019 Deliveries
$1.5 trillion (22,315)
14%
6%42%
44%
Large
500+seats
400-500seats
SmallerJets
IntermediateTwin-Aisle
Single-Aisle
A330
757767
A320
737 717
777
A340
747
A3XX
Projected Demand
330
927
1500
0
500
1000
1500
Boeing Analysts Airbus
Large Aircraft Demand Through 2019
• 20 year market forecasts vary greatly
Strengths & Weaknesses
Maintain Product (Option 1)
Strengths
• No capital expenditure
Weaknesses
• Limited range• Limited capacity• Reduced efficiency• Inferior technology
Strengths & Weaknesses
Improved 747 (Option 2)
Strengths
• Enhanced performance
• Commonality of ground crews
• No additional training of service crews or pilots
• Existing airport facilities
• Competitive operating efficiencies
• Meet noise level guidelines
• Seat-mile cost savings (3-5%)
Weaknesses
• Limited range
• Limited capacity
• Inferior technology
• Operating Efficiencies
Strengths & Weaknesses
New Aircraft (Option 3)
Strengths
• Equivalent to Airbus (technology)
Weaknesses
• High investment
Economic Risk
• Maintain Current Product– Requires no investment
• Develop and Produce an Improved 747– Requires limited investment of $4 Billion– Breakeven of 170 aircraft
• Design a Completely New Aircraft – Requires significant investment, approximately
$14 Billion– Breakeven at 528 aircraft
Boeing Competitive Strategy Analysis(Estimates; $ in Millions)
Boeing Airbus A3XXNo Build Build 747X Build New B-No Build B-747X B-New
Investment $0 $4,000 1 $14,000 2 $14,000 1 $14,000 $14,000
Margin per Airplane1,4 $21 $24 $27 $27 $27 $27
Breakeven 0 168 528 528 528 528
Market Share 20% 40% 50% 80% 60% 50%
Estimated Profit330 $1,400 ($900) ($9,600) ($7,000) ($8,800) ($9,600)927 $3,900 $4,800 ($1,700) $5,700 $700 ($1,700)1,500 $6,400 $10,300 $5,900 $17,800 $9,900 $5,900
1 Source: “Boeing Gets Blown Sideways”; Business Week Magazine; October 16, 20002 Assumes Boeing's cost to develop and build a newly designed large aircraft is comparable to Airbus's cost3 Estimated based on total large plane market; Source: Boeing Corporation4 Estimated based on calculated breakeven; 10% reduction for 'Build 747X' and 20% reduction for 'No Build'
Strategy Recommendation
• Medium Term (Through 2005)– Commit to competing in the Large Aircraft Market– Focus on producing and selling next generation 747– Highest projected return on investment
• Long Term (Beyond 2005)– Further evaluate market based on orders– Proactively monitor demand– May need to produce a new Large Aircraft to stay
competitive
Lets Take Off…!Lets Take Off…!