Case 32 AIRBUS INDUSTRIE: Coping with a Giant Competitor

I. CASE ABSTRACT Airbus Industrie, a consortium of businesses from Germany, Spain, Britain, and France, is a newcomer to the commercial jet transport industry, having been formed in 1970. However, it initially selected a narrow aircraft niche which was unfilled at the time by either Boeing, McDonnell Douglas, or Lockheed Aircraft: a wide-body, twin engine passenger plane to seat 250 people. Airlines around the world purchased this fuel-efficient, medium-range Airbus A300. Additional aircraft designs were developed to directly compete with Boeing and McDonnell Douglas: the A319/320/321 series and the most recent A330 and A340 "jumbo jets". The battle for market share had been joined. After Bill Boeing formed his company in 1916, it became the world's largest manufacturer of commercial jet aircraft and a benchmark company in the industry. With a broad product line originating with its Boeing 707 through the leviathan Boeing 747-400, Boeing offered a state-ofthe-art aircraft for every size and range capability required by the world's airlines. Airbus was fighting for market share against Boeing and McDonnell Douglas when, in late 1996, Boeing's CEO announced McDonnell Douglas had agreed to be acquired by Boeing for $14 billion. This shook the industry, but most of all Airbus, who now found its two competitors working together to Airbus' disadvantage. A new Airbus strategy was necessary. This case may be utilized in classes in business policy (strategy), international business and/or public policy at the graduate (MBA) level, or with senior undergraduate students. Decision Date: 1997 1996 Turnover: $7,710,000,000 1996 Net Income: $408,000,000

II. CASE ISSUES AND SUBJECTS Aircraft Industry Geopolitical Issues Super-jumbo Jets Boeing's Acquisition of McDonnell Douglas Core Competencies Distinctive Competency Technology Strategies Consortium/Ownership Financial Management Corporate Governance Marketing Strategies Growth Strategies Global Markets Porter's Industry Analysis Issue of Antitrust

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Case 32 Airbus Industrie ____________ Copyright 1999 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the 7th Editions of (1) Strategic Management and Business Policy and (2) Cases in Strategic Management.

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III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS (see Figure 1.5 on pages 20 and 21) Strategy Evaluation & Strategy Formulation Implementation Control
Review MBO & Mission 5B Perform ance Corporate Governance Strategic Alternatives 6 Strategic Factors 5A Strategic Posture External Factors 3

1A

1B

Internal Factors 4

O O X O O X O = Emphasized in Case

O X = Covered in Case

IV. CASE OBJECTIVES 1. To discuss the competition between Airbus and Boeing for global airline dominance. To discuss Porter's Industry Analysis in the airline industry with two manufacturers (suppliers) of aircraft and over 200 airlines as customers. To discuss what core competencies Airbus has, if any. To discuss what distinctive competency Airbus has, if any. To discuss the merger of Boeing and McDonnell Douglas. 6. To discuss the benefits and impact on Boeing. To discuss the impact on Airbus.

2.

3. 4. 5.

To discuss what strategies Airbus must develop and implement to become #1. To discuss what strategies Boeing must develop to remain #1.

7.

To discuss the risks to Airbus to develop a super-jumbo jet, and the risks not to develop a super-jumbo jet. To discuss how Airbus can improve its profit situation in the future.

8.

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE 1. The consortium form of organization and management is totally new to the students. Once consortium is explained, the problem is resolved. We suggest the placement of this case in the middle or toward the end of the course. This case works very well as a written individual case analysis or exam. This is an excellent case for a team presentation.

2.

3.

4.

Does not work well for teams larger than four members.

The case author's four teaching objects are cited below. 5. Research the intensity of rivalry in the commercial aircraft industry, where market share is a requirement of profitability. 6. Determine the effects of Airbus Industrie's position in the European Union and how that position might affect the pending acquisition. 7. Evaluate how Boeing has internationally outsourced major airframe components into key countries to facilitate the sale of their product to the international airlines in those countries. 8. Determine what strategy Airbus Industrie might utilize to compete against the merged American companies. 9. SUGGESTION FOR DAILY CLASS PARTICIPATION We have found it is difficult to get quality daily participation from our students. We suggest the following: 1. Have the class members prepare--individually or as a team--(a) EFAS, IFAS, and SFAS or (b) just a SFAS for the assigned case. *We have 1 or 2 individual students of a team bring their EFAS, IFAS, and SFAS or just their SFAS on a transparency. We have found in this 75-minute class that SFAS alone as a transparency works most effectively. 2. We compare the students work with that of the team or individual students making the presentation to the class. *We also discuss how the WEIGHTS and RATING were developed and the Weighted Score for the case under discussion. 3. We ask each student at the beginning of the class to write down his/her Total Weighted Score for the case under discussion and pass it in. *You can use the results to call on students, whose scores seem to be out of line with the case. **It allows for a discussion of the Total Weighted Score as his/her overall evaluation of how the management of the company is managing the companys internal and external environment. ***We ask the students whether they would buy stock in this company. Then the Total Weighted Score seems to have real meaning. VI. DISCUSSION QUESTIONS 1. 2. What are the strengths and weaknesses of Airbus? What are the opportunities and threats facing Airbus?

3. 4. they? 5. it?

What are the strategic factors facing Airbus? Does Airbus have any core competencies? If 'yes,' what are If 'yes, what is

Does Airbus have a distinctive competency?

The case author provided the seven excellent discussion questions and answers. 6. What are the benefits to Boeing? How will Boeing benefit from the acquisition of McDonnell Douglas? Boeing is already a large company, so what are the most important benefits it will receive from a liaison with McDonnell Douglas? Customer loyalty in the purchase of aircraft is quite high, since an airline's flight training, maintenance, and FAA compliance is facilitated by utilizing aircraft of one, rather than multiple, sources of manufacture. During a press conference, McDonnell's CEO stated that in the future a customer who wanted a McDonnell Douglas airplane would be sold one, and one who wanted a Boeing plane would be sold one of those. However, it is clear that these two (previously competitors) will no longer need to compete on the basis of either price or service to fill these customer needs. In addition, different companies in the aircraft industry have experienced major peaks and valleys in workloads, resulting in massive employment swings. At the present time, Boeing's workload exceeds its labor resources, whereas McDonnell Douglas' is just the opposite. The acquisition provides more cost-effective personnel utilization than either company might achieve separately. Finally, Boeing achieved only marginal success in US government contracts (outside the airframe business), whereas McDonnell Douglas has achieved a higher level of success in government contracts than in commercial airframes. The weaknesses of both companies are complemented by the other's areas of strength. 7. What are the benefits to McDonnell Douglas? How will McDonnell Douglas benefit from the acquisition? What does Boeing's ownership offer it that it cannot garner on its own? McDonnell Douglas was starting to suffer from lack of orders. Only a few loyal previous customers were purchasing the MD-11 jumbo jet, and with the defense spending cutbacks of the 1990s, the firm had excess personnel which would certainly have required a costly reduction in force. Industry experts estimated it could remain viable for only two to four years. Boeing's near-immediate use of skilled engineers, scientists, and labor force will preclude this costly downsizing. In addition, Boeing's excellent financial position would allow McDonnell Douglas to undertake a new aerospace program which would be marginal under McDonnell's own balance sheet. 8. What is the impact on Airbus Industrie?

Why is there a difference between competing against the aircraft of two separate companies and competing against them together as one company? What is really changed? Without the acquisition, McDonnell Douglas might have withdrawn from the commercial aircraft market within two to four years, since it lacked the critical mass to be a viable market force. If/when that occurred, McDonnell Douglas' former customers would no longer be able to order replacement MD-80s or MD-11s. Airbus would then have had the opportunity to participate in these replacement aircraft orders. 9. Is there a geopolitical issue of antitrust? Are political organizations, such as the European Union, affecting global business? Absolutely. The geopolitical influence on business is increasing rather than subsiding, especially in such global industries as aerospace. General Electric, manufacturing jet engines primarily in the USA, acquired SNECMA, the French jet engine manufacturer, primarily to have a manufacturing presence in a European Union (E.U.) country. Boeing has more notably gone to the Asian Pacific Rim for outsourcing of airframe and sub-system components, because the airlines with the world's highest growth rates are there, with the consequence of ignoring most of Europe. As a result, the European Union countries whose companies participate in Airbus Industrie will seek protection (perhaps retribution) via the E.U.'s competition commission. 10. What can be gleaned from the limited financial data? The data in Exhibit 5 was printed in the May 7, 1997, Wall Street Journal, which described it as ". . . the first official statement on Airbus Industrie's bottom line." It demonstrates a profit sensitivity to volume. With the 1996 turnover decrease, costs and expenses increased from 91.1% of turnover to 94.7%. No information about tax liability was disclosed; however, conventional wisdom suggests that Airbus's losses in prior years would result in no tax liability for either of the stated years. 11. Is there a strategy to allow both Airbus Industrie and Boeing to build their profits? Can it be accomplished without creating such an intense rivalry that it enables customers to develop bargaining power, especially with respect to pricing? Airbus Industrie should utilize a strategy which does more than directly compete against Boeing's greatest strengths. It successfully accomplished this feat in the 1970s with the development of the A300, wide-body, twin-engine design. It was first and foremost in this niche; the industry bought the A300 in large numbers and Airbus Industrie became established in the industry. A repeat of this successful focus strategy would allow both companies to improve their profitability and minimize direct competition, especially price competition. Following industry analysis and surveys regarding the development of a new super-jumbo design (to seat upwards of 500 passengers), Boeing and Airbus arrived at different conclusions. Boeing said customer demand was insufficient to justify the huge development costs (see

Chart #4). Management said the costs would require them to mortgage the Boeing Company against risky demand. If the demand didn't materialize, the company would be bankrupt. Airbus Industrie, on the other hand, concluded that the demand would be present and decided to start working with the large airlines of the world to develop what they now call the A3XX Super-Jumbo design. The Super-Jumbo design fills a clear niche in the industry: the high-density, long-haul segment. An example is the Tokyo to USA cities and Tokyo to European capital cities routes. It is uncertain whether the North Atlantic route carriers would benefit from the Super-Jumbo since the trend is for more direct, point-to-point flights from European capitals to major North American cities. However, the Asian market will continue to develop hubs in such cities as Beijing or Shanghai, Singapore, Delhi, or Bangkok. 12. How much does Airbus risk in pursuing the Super-Jumbo concept? This strategy requires Airbus to "mortgage the company" while betting that demand will materialize in this niche. The development costs are estimated at $7 billion. Success is no certain matter. If the Super-Jumbo is not accepted by the market, Airbus will likely go bankrupt. On the other hand, broad market acceptance could catapult Airbus to an equal footing with Boeing. Boeing abandoned its plan for a Super-Jumbo and decided to stick with its 747-400 seating 420 passengers. In the United States, airlines have developed a "hub-and-spoke" route system, each hoping to dominate its hub and thereby reduce price competition. These spokes require small jets such as Bombardier's Canadair 50 - 75-seat aircraft, not Jumbos, much less Super-Jumbos. The long-haul trans-Atlantic flights utilized Jumbos in the 80s, but during the 90s, passengers revolted against landing at an overseas hub and then waiting hours to catch a "spoke" flight to their final destination. Many trans-Atlantic competitors are moving to 200-300 seat, twinengine, wide-bodies which fly point-to-point, bypassing traditional hubs such as New York, London, or Frankfurt. The unknown factor, however, is not trans-Atlantic but transPacific. There are greater benefits from economies of scale in the flights across the Pacific, which are more than twice as long as across the Atlantic, strongly suggesting the attractiveness of Super-Jumbos. Current aircraft fleet composition and Boeing's projection for the year 2015 are shown on teaching note Chart #6. Success in this industry may boil down to which one is correct.

VII. CASE AUTHORS TEACHING NOTE by Richard C. Scamehorn* A. CASE OVERVIEW - This was presented earlier in Section I - Case Abstract.

B. TEACHING OBJECTIVES - This was presented earlier in Section IV Case Objectives. The last 5 objectives (11-15) were provided by the case author.

*Reprinted by permission of the case author.

C. SUGGESTED DECISION ISSUES 1. WHAT STRATEGIC DIRECTION IS APPROPRIATE FOR AIRBUS INDUSTRIE? Analysis of the Jet Commercial Aircraft Industry using Michael Porter's model and The McKinsey Action Matrix. Airbus Industrie competes only in commercial jet aircraft manufacturing and distribution; ergo, this analysis will be limited only to that industry. Supplier's Bargaining Power: The only supplier with the potential for bargaining power is the turbo-jet engine manufacturer. However, almost from the onset, the aircraft industry has eliminated this power by treating the engines as "the choice of the airline" with (a) a capability of fitting either Pratt & Whitney, General Electric, or Rolls-Royce engines into the same plane, and (b) passing the engine maker's pricing along to the airline. Buyer's Bargaining Power: Globally, the industry now has only two suppliers of aircraft with more than 200 airlines as customers (albeit some are quite small). Although some of the very large airlines such as American, United, Delta, and British Air generate some bargaining power because of the size of their fleets, the airlines, taken as a whole, exercise low levels of bargaining power. This is clearly demonstrated by Boeing's profit of $50 million on the $150 million sale of a Boeing 747-400. Threat of Substitute Industries: There is no viable threat. Intensity of Rivalry: The lack of buyer's bargaining power has resulted in a low level of price competition. both Fortune and The Economist magazines have described Boeing as "having a license to print money." Barriers to enter/exit the industry: The huge design/development costs, along with a very high level of technology, represent very high barriers to enter this industry. The high write-off costs of property, plant, and equipment represent high exit barriers. Accordingly, the industry has a very high attractiveness. Boeing's position within the industry is clearly very high and made higher by the acquisition. Airbus's position has slipped

with the acquisition of McDonnell Douglas but nevertheless remains quite high since the industry is now a duopoly.

THE McKINSEY ACTION MATRIX COMMERCIAL JET AIRCRAFT MANUFACTURING INDUSTRY ATTRACTIVENESS LOW HOLD MEDIUM BUILD BUILD Airbus Industrie BUILD HARVEST HARVEST HOLD HIGH Boeing

B U S I N E S S U N I T P O S I T I O N

H I G H M E D I U M L O W

HARVEST

HOLD

It is obvious that a build strategy is appropriate for both Boeing and Airbus Industrie.

2. CAN THE INDUSTRY ALLOW FOR BOTH BOEING AND AIRBUS TO BUILD THEIR STRATEGIC POSITION AT THE SAME TIME? This issue depends more upon Airbus Industrie than Boeing. Airbus successfully developed the A300 design as a niche design in the industry. Then it turned to replicate Boeing's different functional aircraft designs (i.e., A330 to compete against the Boeing 777 and A319/320/321 to compete against the Boeing 757). If Airbus Industrie can replicate its A300 strategy in another niche, it can grow its profitability and allow Boeing to do the same. However, if Airbus simply copies Boeing's design categories, then the low-cost producer (most likely Boeing) would be the inevitable winner. In this situation, Airbus would be forced to price its "look-alike" products under whatever level Boeing establishes, forcing it into a follower (rather than a leader) position. 3. IF THE ISSUE BECAME SURVIVAL AS A LOW-COST PRODUCER, HOW WOULD THE ECONOMIES BE ACHIEVED? Boeing has already achieved economies of scale with 60%+ market share. It may be that it actually has encountered dis-economies

of scale with its overload condition (both engineering and production). However, this situation offers the possibility of internal control for the long term. If Airbus Industrie maintains an equally broad product line when Boeing has three or four times its production volume, it is doubtful it will be able to match Boeing's low costs. It is also doubtful that the classic solution of low-cost labor in a developing country will offer an acceptable solution. Too much of the technology, both design and process, must reside alongside the production process. To date, no developing country has either the technology or has the capability to absorb the technology. OVERVIEW Giga-dollars are at stake in the global aerospace market. Current success provides the huge amounts of capital required for the research that is necessary for future success. Airbus Industrie has this current success but must develop a vision for the future which is not based on head-to-head competition with Boeing.

VIII. I.

STUDENT STRATEGIC AUDIT / STUDENT PAPER CURRENT SITUATION A. Current Performance: Airbus has growing market share (25%), currently second behind Boeing/McDonnell with 50% market share. It is an established world-class competitor with 2,274 aircraft ordered, 1,570 delivered, and 704 backlog including 93 deliveries to be made in the first six months of 1997. More than 80% of orders came from outside Airbus' "home market" of western Europe. Because of its unique partnership, Airbus is not required to be profitable. Not enough information was given in the case to calculate ratios. B. Strategic Posture 1. Mission: To develop aircraft that will fill the global market needs, design them with the requirements of airline users in mind, and apply the best technology to produce the most comfortable and economic airplanes available. 2. Objectives: To become number one in the industry To develop strong partnership relationships with suppliers To build aircraft in other countries To strengthen the consortium To increase profits 3. Strategies: Horizontal growth strategy Global partnership to build planes in other countries Technology strategy of continuously pushing the bubble on new technology

4. Policies: Build the safest aircraft Use the consortium to sell planes II. A. CORPORATE GOVERNANCE Board of Directors or Supervisory Board: The seven-member Supervisory Board consists of one representative from each of the four owners plus the Managing Director, Chief Operating Officer, and Financial Controller. The consortium owners are Aerospatiale, which is owned by the Government of France; Daimler-Benz, a privately-held German firm; British Aerospace, a privately-held British firm; and a privately-held Spanish firm, CASA. This board appears to be more than a rubber-stamp board and is directly involved in the decision-making of the firm. No information is available about the length of service of the members of the Supervisory Board. The Board maintains policy control but specific policy guidelines are not stated. Top Management or Operating Directorates: Supervisory Board Chairman, Financial Controller, Manager Director-Volker von Tein, General Secretary of Human Resources, Corporation Communications and International Relations, Large Aircraft, and Chief Operating Officer oversee the six directorates. The directorates consist of Commercial, Engineering, Customer Services, Industrial and Transportation, Programs and Processes, and Administration. No information is available about the skills or background of top management personnel. EXTERNAL ENVIRONMENT A. Societal: Opportunities: Airline passenger traffic is on an annual growth curve of about 6.5% per annum. Falling ticket prices of 1 - 1.5% per annum require airlines to fly the most efficient aircraft available as a costreduction measure. Increased safety regulations apply. Airline competitiveness requires lowering operating costs by purchasing aircraft that supply operational economies or scale. European Union supported the Boeing/McDonnell Douglas merger. Technological innovation would create increased sales. Threats: B. Task: Opportunities: All parts (other than engines) are supplied by an Airbus partner. Buyers are 135 of the world's airlines. U.S. Federal Trade Commission (EFAS see Exhibit 1)

B.

III.

 Potential entrants to the industryare limited due to high cost of research and development and high initial capital necessary to start manufacturing. Stakeholders are partners who have a vested interest in aiding Airbus to make a profit. Lockheed withdrew from the industry. Threats: Boeing made a strategic acquisition of McDonnell Douglas. Substitutes offer less expensive forms of travel; however, they are not as fast or efficient over long distances: trains, automobiles, boats. European Union is a customer of Boeing. IV. INTERNAL ENVIRONMENT A. (IFAS see Exhibit 2)

Corporate Structure: In the Consortium Framework of partners, the operating control of Airbus is maintained via six Directorates: Commercial Directorate is responsible for all sales contracts, sales financing, and establishes marketing strategies for all current and potential products. This directorate has direct links with a network of regional offices and with Airbus organizations in North America and China. Customer Services Directorate is the largest, employing 45% of the staff of Airbus. This staff is located in 58 countries providing 24-hour world-wide service. This staff is responsible for stock inventory and training customer's flight crews, cabin staff, and maintenance personnel. Engineering Directorate coordinates all aspects of product safety and is primarily responsible for research and development of new technologies and refining them into commercially viable products. Industrial and Transport Directorate coordinates manufacturing processes in liaison with partner companies. Programs and Processes Directorate is responsible for improving flexibility, cutting costs, and reducing reaction time in the Airbus system. Administration Directorate is responsible for A & G.

B. Corporate Culture: Heavy emphasis on customer service. Customer Service Directorate is the largest directorate, employing 45% of the headquarters personnel. C. Corporate Resources: 1. Marketing: Strengths: Strong links worldwide to ensure responsiveness to changing market conditions Commercial advantage within the European Union

Ability to diffuse rumors via internally published pamphlets Reputation as a world-class competitor Innovative features developed for both safety and operational economies Family of aircraft with multiple models and configurations and customized seating capacity and operating ranges Commonality of aircraft features with demonstrated benefits to customers. With cross-crew training, mixedfleet flying, etc., customers have been provided cost reductions of $500,000 and improved productivity up to 20%. 2. Finance: Strengths: Airbus is backed by financial strength of three privately-owned partners and the Government of France. It has some $11 billion in annual revenues (see Exhibit). Eighty percent of orders are from outside home market of western Europe. Low inventory/carrying costs are due to JIT inventory. Weaknesses: Non-public company, does not enjoy the benefits of incorporation, flexibility of financing, and appreciation of company value over time Lack of shared cost and profit structure among partners Inability to track costs except for jet engines 3. Research & Development: Strengths: Fly-by-wire concept - ability to integrate other technologies into commercial airline applications Continuous search for new technologies to embark on new "niche" Emphasis on efficient and comfortable aircraft 4. Operations: Strengths: Divisional Directorates Centralized customer service near Toulouse, France, with 33 different nationalities; single point of contact for customers on all matters (24-hour dispatch) Responsiveness to changing market conditions Supertransporter supplying just-in-time material flow Readily available replacement parts Weaknesses: Airbus admits its structure (GIE) is complicated and not working well. Airbus doesn't have to make a profit. Individual partners that own Airbus make their profit from supplying parts to Airbus without disclosing financial information to each other.

5. Human Resources: No information available 6. MIS: Website heavily advertises aircraft and parts. V. VI. ANALYSIS OF STRATEGIC FACTORS (SFAS see Exhibit 3)

STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY: A. Strategic Alternatives Growth Expand into different segmented markets such as focusing on more countries in the European Union, European Union country's military aircraft market, or related high-technology fields. Develop a new niche in the commercial aircraft market Pros: Increase global market share Improve financial position Cons: High cost for R&D for new markets Opportunity cost in changing strategies Retrenchment Restructure partnership/consortium Pros: Improve financial structure (via increased information sharing) Reduce possible losses (due to ability to fully monitor expenses and revenues) Cons: Possible loss of market share Potential for new market entrants (minimal) Stability Maintain current posture Pros: No interruption of current operations Cons: Lose market share (merger) B. Recommended Strategy Retrenchment for restructuring Concentrate less on "niche" market to implement positive changes for an improved consortium structure. Stakeholders will benefit in the long run from improved structure due to redistribution of profits. Restructuring may improve opportunities for growth by allowing expansion via mergers and acquisitions.

 Financial information would be shared among all consortium members, therefore allowing Airbus to monitor costs and operate more profitably. VII. IMPLEMENTATION: A. Within 30 Days: Volker von Tein should call a meeting of the supervisory board to discuss restructuring of GIE to enhance information sharing. B. Within 6 Months: Supervisory board representative from Aerospatiale should approach the French government about taking Aerospatiale private to facilitate the restructuring of the GIE into a single-command structure, benefiting stakeholders by allowing redistribution of profits to improve technological integration, further expand product line, and better address competition. Human Resources should prepare and distribute information packets to apprise employees of pending structural changes, emphasizing the need for continued efforts toward superior customer service, as well as continuation of developing niche markets. C. Within 1 Year: Supervisory board representative should be pursuing final approval of privatization of Aerospatiale. Full attention should be focused on competition and developing niche markets. Specifically: Marketing Department should be directed to focus on void created by Lockheed's withdrawal from the commercial aircraft market and the increased demand created by growing airline passenger traffic. R&D should be directed to maintain strong focus on developing new safety features, continuing the Airbus tradition of meeting or exceeding safety regulations. D. Within 3 Years Supervisory board should finalize restructuring of Airbus Industrie. EVALUATION AND CONTROL The supervisory board should appoint a privatization committee to review the progress toward privatization of Aerospatiale, reporting quarterly. The supervisory board should appoint a restructuring committee, reporting bimonthly, to monitor continued operational focus on: addressing competition creating new niche markets capitalizing on Lockheed's market withdrawal developing further aircraft safety features

VIII.

IX. EFAS, IFAS AND SFAS EXHIBITS

EFAS (External Factor Analysis Summary)

External Strategic Factors Opportunities Lockheed withdrawal Airline passenger traffic growth European Union Need for more efficient aircraft Weight .15 .12 .10 .08 00 Threats Competition .20 4 .80 Boeing: merger, has larger market share, has broader inventory, etc. Industry leader in aircraft safety design Threat to reputation as fair/worthy competitor Buys aircraft from Boeing Rating 3 4 3 4 Weighted Score .45 .48 .30 .32 Comments Airbus was able to secure part of its market share 6.5% growth per annum Supported Airbus during Boeing merger Falling ticket prices (11.5%/yr.); Airlines searching for more efficient aircraft

Exhibit 1

Increased safety regulations Rumors European Union TOTAL SCORES

.15 .10 .10

5 4 3

.75 .40 .30 3.80

IX.

IFAS, EFAS AND SFAS EXHIBITS

IFAS (Internal Factor Analysis Summary)

Internal Strategic Factors Strengths Customer service Weight .20 Rating 5 Weighted Score 1.00 Comments Centralized, 24-hour dispatch, single point of contact, 33 different nationalities R&D continuously looking for technology; progressive Ability to integrate other technologies in commercial airline applications Families of aircraft Strong links worldwide

Exhibit 2

Niche strategy

.18

.90

Technological integration

.12

.48

Product differentiation Responsiveness to changing markets Weaknesses Lack of shared information among partners Difficulty of privatizing Airbus TOTAL SCORES

.11 .08 00 .20

3 4

.33 .32 00

.20

Airbus admits structure (GIE) is complicated and not working well Aerospatiale owned by French government

.11

.22

IX. SFAS, EFAS AND IFAS EXHIBITS

SFAS (Strategic Factor Analysis Summary)

Duration Key Strategic Factors Customer Service Weight .12 Rating 5 Weighted Score .60 Comments S I L x Centralized, 24-hr. dispatch, single point of contact, 33 different nationalities R&D continuously looking for technology; progressive Ability to integrate other technologies in commercial airline applications Families of aircraft Airbus admits structure (GIE) is complicated & not working well x x x Airbus able to secure part of their market 6.5% growth per annum Boeing: merger, has larger market share, has broader inventory, etc. Industry leader in aircraft design

Exhibit 3

Niche strategy

.09

.45

Technological integration

.07

.21

Product differentiation Lack of shared information

.07 .22

3 1

.21 .22 x

Lockheed's withdrawal Increasing airline passenger traffic Competition

.06 .15 .18

3 4 4

.18 .60 .72

Increased safety regulations TOTAL SCORES

.04

.20

X.

FINANCIAL RATIO ANALYSIS - Was inappropriate for this case.