Table of Contents

Table of Contents 1

1. Introduction 2

2. Airbus ­ company profile 3

3. Case study "Ethics and Airbus" (Cateora & Graham, 2007) 4

4. Update of case study "Ethics and Airbus" 6

5. Ethics 8

6. PESTLE

analysis 12

7. SWOT

Analysis 16

8. Recommendations 22

9. Conclusion and outlook 27

10. Reference list 28

1

1. Introduction

This report examines Airbus, one of two major players in the global aircraft

manufacturing industry. Recent findings indicate that Airbus might have showed

unethical business behavior in convincing customers to purchase its aircraft. After

presenting and analyzing these allegations and updating potentially unethical conduct

by Airbus to the present day, this report continues to discuss the topic of ethics in

general. It is then elaborated how ethics are applied within the aircraft manufacturing

industry by its two main players Boeing and Airbus.

Following this, tools such as a PESTLE analysis and a SWOT analysis of Airbus are

presented. Based on the findings of these analyses, recommendations for Airbus are

formulated and examined with regard to practicability and feasibility aspects.

Recommendations will be divided into short-, medium- and long-term strategies.

Finally, this report will conclude by summarizing the findings and giving an outlook to

Airbus′ position in the global marketplace.

2

2. Airbus ­ company profile

Airbus is the world′s largest commercial aircraft manufacturer and, according to the

company′s website, is at the forefront of the industry and consistently captures about

half of all commercial airline orders (Airbus, 2007). Originally, Airbus was formed in

1970 when four major European aerospace companies created a consortium to build

commercial aircraft ("Airbus paves way for its giant contender", 2004). Until 2000,

planes were manufactured by allied yet independent companies, with marketing being

performed by Airbus. In 2000, the consortium structure was abandoned in favor of a

French-registered company, raising 3.5 billion Euros with the initial public offering of

EADS, European Aeronautic Defense & Space Company, of which Airbus is a

subsidiary (Cateora & Graham, 2007).

Today, Airbus operates globally and employs approximately 57,000 people. Airbus

operates fully-owned subsidiaries in the United States, China, Japan and in the Middle

East and has a network of 1,500 suppliers in 30 countries. Manufacturing aircraft

models with capacities ranging from 107 to 800 passengers, Airbus has sold over

7,000 aircraft and its planes form part of the fleet of more than 200 airlines (Airbus,

2007).

Since its inception, Airbus has developed well and today is an important player in the

global commercial aircraft industry, having steadily gained market share from its main

rival Boeing.

3

3. Case study "Ethics and Airbus" (Cateora & Graham, 2007)

Having established that Airbus is a European success story today, the case study

"Ethics and Airbus" highlights some methods used by the company to achieve orders

from a handful of customers in the past. Admitting that the vast majority of aircraft are

sold and bought in conventional ways without arising suspicion, the case study details

the following examples in which Airbus might have made use of questionable methods

to sell its aircraft:

· Sabena

The former Belgian state carrier collapsed in 2001 and investigations revealed that an

order of 34 A320 has been a major cause for the collapse. Describing it a "fatal

business decision" because the aircraft were not required, the case study continues to

state that no proof for side-payments or bribes could be found but the suspicion of foul

play could not be ruled out.

· Kuwait Airways Corporation (KAC)

The next example concerns Kuwait Airways Corporation that ordered aircraft valued

at US$ 1.1 billion from Airbus, with another option worth US$ 900 million. A lower offer

from Boeing was disregarded.

However, foul play became evident only after it was discovered that the Airbus′ Head

of Sales in the Middle East was a well-paid part-time commercial advisor to KAC.

· Indian

Airlines

In the early 1980s, Airbus has allegedly bribed Indian public servants to favor Airbus

aircraft over Boeing. Airbus was able to sell 19 A320s although this model at this time

had not been launched or flown. Airbus offered the A320 as a smaller and less

expensive alternative to Boeing′s 737, with incomplete technical data in every field.

Still, Airbus was successful and a better offer from Boeing was rejected on grounds

that are still unclear today.

· Air

Canada

In 1988, Airbus received the first major order in North America, when Air Canada

4

ordered 34 aircraft worth US$ 1.5 billion. This deal was suspected to have been

achieved through questionable commissions. Reports and investigations later

discovered that Airbus had paid commissions totaling US$ 22,540,000 to a

consultancy company. This consultancy company had close ties to Canadian and

European politicians and assisted Airbus in securing the AC order. The extraordinary

facet of this case is that Airbus openly admitted to these payments.

· Syrianair

Serious irregularities in connection with Syrianair′s order of six A320s in 1996 led to

the conviction of three people. These three men have forced Syria to purchase Airbus

aircraft, incurring big financial losses to Syrianair and the nation of Syria. The

conclusion drawn by reports is that bribes were paid, the reason for which is quite

doubtful because Boeing was not competing for the order for political reasons.

5

4. Update of case study "Ethics and Airbus"

All these examples have occurred well in the past, with one case dating back as far as

the early 1980s. Nevertheless, a speech delivered by US Senator Patty Murray ("Will

the last aerospace worker leaving America turn out the lights?", 2004) has found

various other incidents in which Airbus might have acted unethically or at least

suspiciously. Murray confirms the case study in saying that Airbus was able to take a

tax deduction for bribes until 2000 and she cites the following incentives and threats

used by Airbus in the past:

· Prime landing slots at European airports

Murray (2004) highlights how purchases of Airbus aircraft have been linked to landing

rights at Europe′s busiest and most important airports, mentioning the cases of

easyJet, Malaysia Airlines, Emirates and Qatar Airways. All these airlines were given

more favorable slots or landing rights following orders for Airbus.

· Discounts

Next, Murray (2004) accuses Airbus of selling aircraft below the cost of production.

According to her findings, Airbus does not have the same commercial accountability

due to its support from EADS and European governments. This will be highlighted at a

later stage of this report, however Murray points out that Airbus regularly sells aircraft

below cost to gain market share.

· Guarantees

According to Murray (2004), Airbus promises airlines that its aircraft will hold their

value in the future. Normally, the price of used aircraft is determined by market factors,

however Airbus was found to have offered various airlines to pay the difference

between Airbus′ projected value and the market value, far above an aircraft′s actual

value.

· Aircraft purchases linked to other trade issues by European officials

Finally, Murray (2004) links Airbus sales to unrelated trade issues. She cites five

cases in which European trade policies appear to have been linked with aircraft

purchases. Also, Airbus aircraft were a part of EU accession negotiations, with Murray

6