Sector Report: the Aviation Industry in France

With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.

This section will examine each of the five competitive forces that are active in the European Airline Industry. In this instance the buyers in the industry will be taken as passengers. Fuel companies, aircraft manufacturers and employees are the suppliers. Substitutes stem from modes of transport that fall under land and sea transit. Potential entrants are any airlines based outside of Europe or newly founded airlines based in Europe.

During World War II, the aircraft manufacturing industry took-off. According to Dr. Bright (1978), “by the year 1944 it was the largest industry in America” (p. 1). It soon declined in the years following due to material flaws, lack in engine performance, and production manufacturing methods.

In 2013 Airbus announced a contract to deliver 50 A380 airplanes to Emirates for $20 billion to be delivered between 2016 and 2018.

In the market for large aircraft demand the emerging niche for very large aircraft (VLCT aircraft seating more than 400 passengers) saw only two competitors: Boeing and Airbus. Even though both competitors’ moves were clearly marked by technology enhancements, and different target markets but both exhibited strategic interdependence.

Market Share Airbus will launch their new large, long distance plane A380 in 2006. This plane can be a dreadful competitive product to Boeing. If Boeing falls behind regarding innovations, fuel efficiency and other attributes of a long haul airliner, it will soon lose its market share. In order for Boeing to compete in the aviation industry, it is crucial to take on some risk and develop this new 7E7 project. This helps the company to fight against its competitors and recover from the slump in the industry.

It is suggested that the travel industry and the aerospace and defense industry as a whole will continue to grow on the basis of the strong demand emanating from domestic demand as well as globalization. This may give a major boost to the demand for 7E7s as the airlines are already concerned about high fuel costs intensifying out of increased demands from emerging economies like India and China and reduced production. Better design modifications is going to be a major strength for the 7E7 as Boeing is betting on the future of small-mid size airplanes which can fly short as well as long distances with its fuel efficient engines. From an investment perspective, with interest rates at it's lowest in decades, with 911 behind us, and barring a major pandemic such as SARS, the timing seems right for Boeing to pursue this endeavor.

Dominating the commercial aircraft market for decades, Boeing is considered to be the most highly competitive U.S aerospace industry. “U.S. firms manufacture a wide variety of products for civil and defense purposes and, in 2010, the value of aerospace industry shipments was estimated at $171 billion, of which civil aircraft and aircraft parts accounted for over half of all U.S. aerospace shipments. The U.S. aerospace industry exported nearly $78 billion in products in 2010, of which $67 billion (or 86% of total exports) were civil aircraft, engines, equipment, and parts” (Harrison, 2011). However, its position of influence has lessened in recent years. This is due to its main competitor, Airbus, who in recent years has made significant

Airbus operates in this industry by building airplanes with seating capacities ranging from 100 to 350 seats. Over the past few years, Airbus has been extremely successful developing airplanes in this size range, increasing its industry market share to approximately 33%. However, quantifying Airbus ' past financial success is difficult because prior to its 1999 1.6 billion euro IPO, Airbus was a private partnership. As a result, very little past financial information is available.

The aviation industry of any nation acts as a contributor to its economic growth, helps in globalisation and creating an international image. It is the best in terms of the fastest, safest and convenient mode of travel. Even though it is an expensive one, it is expanding its markets across the middle-class who are ready to spent money on leisure trips. Thus it is truly stated that aviation forms a vital core infrastructure area without which a country economy is handicapped.

This is a case about three different companies dedicated to the manufacturing of aircrafts. Those three major companies are: Boeing, Airbus Industry and McDonnell Douglas; each of one was struggling to produce enough aircraft to satisfy a seemingly unquenchable need for passenger and freight transport around the world, developed in this form many kinds of aircrafts in different models and styles.

Aircraft industry is deeply related to the government sector. As case says, both companies Bombardier and Embraer S.A, were the originally in government sector. Since this industry generally have a historical relationship with the military, each state has tendency to protect it.

Production Capacity always limited in this business. A backlog could drive potential customers to Airbus.

Airbus announces the Airbus A380 as “greener, cleaner, quieter, smarter: the A380 is a game changer in terms of aircraft performance, cost efficiency,

Fiscal policies of the government can have significant impact on the industry’s performance. Governments generally impose high taxes on airline industry, which is passed on to the customers in the form of higher air fares, alternatively airlines reduce the number of staff is cut down costs. An example is United Kingdom, when the UK government imposed high taxes on the aviation industry, the number of cargo operators reduced sharply in order to reduce costs (My-Efficient-Planet, 2010).