Airbus - The firm′s market

by: Tim Bachinger

TABLE OF CONTENTS

1. Introduction 1

2. The Company Airbus  1

2.1. Overview - Company History 1
2.2. Airbus’s Segments  2

3. Competitors  3

3.1. Overview 3
3.2. Leasing and Used Aircraft  3
3.3. Bombardier and Embraer 4
3.4. Competition with Boeing – The Duopoly Market  5

4. U.S. and EU Government Involvement  8

5. Market Measurement  9

6. Conclusion 12

APPENDIX 13

REFERENCES 15

1. Introduction

In December 2000, Airbus formally committed to spend US$11.9 billion to develop and launch the most ambitious commercial aircraft program yet, known as the A380, the world′s largest aircraft. The European manufacturer saw developing a competitor as a strategy to end Boeing′s dominance of the aircraft market with starting studies on a very large 500 seat airliner in the early 1990s. On July 24, 2000, Emirates became the first customer making a firm order commitment, followed by Air France, International Lease Finance Corporation, Singapore Airlines, Qantas and Virgin Atlantic. Together these companies completed the 50 orders needed to launch the program.¹ Currently, A380 orders from 13 customers stand at 159.² Recently Airbus earned its position as the world’s leading aircraft maker by controlling over 50% of the world’s commercial aircraft market. Nevertheless, competition in the aircraft manufacturing industry is still intense with regard to price, operating costs, and production schedules.³ These and more facts will be used in the paper to describe Airbus’s market, its boundary and their competitors. Furthermore the paper examines Airbus’s competition with Boeing, its main competitor, and how this competitive relationship is influenced by governments. After all Airbus’s competitors are identified, the paper will look on different approaches to measure Airbus’s market.

2. The Company Airbus

2.1 Overview - Company History

Airbus was officially formed in 1970 as a consortium of France’s Aerospatiale and Deutsche Airbus. Together the companies had decided to challenge the three US companies, Boeing, Lockheed and McDonnell Douglas, who dominated the commercial aircraft market in the 1970s. Shortly afterwards Spain’s CASA and British Aerospace joined the consortium.⁴ Each of the four partners, known as Airbus France, Airbus Deutschland, Airbus UK and Airbus España, operated as national companies with responsibilities for producing parts of the aircraft, to be transported to the headquarter in Toulouse, France for final assembly. In 2001, Airbus became a single fully integrated company. The EADS⁵, a merger of the French, German and Spanish interests, acquired 80% of the shares and BAE SYSTEMS, the successor to British Aerospace, 20%.⁶ Since it was founded in 1970 up to the end of 2004, Airbus has received 5,252 aircraft orders from 204 customers worldwide. In 2004, Airbus earned a turnover of around 20 billion euros.⁷As of 2005, its CEO is Gustav Humbert. Airbus employs about 53,000 people in several European countries.

2.2 Airbus’s Segments

Airbus’s aircraft manufacturing can be divided into two product categories, military aircraft and civil aircraft. In 1999 Airbus established a separate company, Airbus Military, to develop, manufacture and sell light and medium military transport aircraft. Its shareholders include Airbus, EADS-CASA of Spain, TAI of Turkey and FLABEL of Belgium.⁸ Airbus’s military aircraft project, the A400M is part of a strategic expansion move by Airbus into the mostly American dominated military transport aircraft sector. But according to EADS’s key figures, with revenues of around US$1.0 billion for 2004 it is still only an expanding business segment in comparison to Airbus primary market, civil aircraft manufacturing. Airbus’s civil aircraft manufacturing had a turnover of around US$27 billion in 2004.⁹ Civil aircraft manufacturing can be divided into three product segments, regional aircraft, business aircraft and commercial aircraft. Airbus’s focuses on commercial aircraft documented through its commercial aircraft project, the A380. The A380 represented one of the largest product launch decisions in corporate history given Airbus’s already mentioned projected launch cost of US$11.9 billion, which covered 26% of total industry revenues and more than 70% of Airbus’s total revenues in 2000.¹⁰

3. Competitors

3.1 Overview

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1 Airliners.net (The Airbus A380), p. 1.

2 Airbus (Airbus for Analysts), p. 1.

3 The Industrial College of the Armed Forces (Industry studies – Aircraft), p. 1.

4 Wikipedia (Airbus – History and Airbus Formed), p. 1.

5 European Aeronautic Defence and Space Company

6 Airbus (Corporate Information), p. 1.

7 EADS (Annual Report 2004 – Key Figures), p. 1.

8 Airbus Military (Company Background), p. 1.

9 EADS (Annual Report 2004, Economic and Financial Analysis), p. 1.

10 Esty/Ghemawat (Airbus vs. Boeing in Super Jumbos), p. 1.