Date post: | 30-May-2018 |
Category: |
Documents |
Upload: | ahmad-malik |
View: | 230 times |
Download: | 0 times |
of 24
8/9/2019 Beech aircraft case study
1/24
Brief History
Best known for its line of Beech craft propeller and jet airplanes, Beech Aircraft Corporation is one of
several American manufacturers of small aircraft. Beech competes with Cessna, Piper, and Lear for
shares of such markets as private pilots, small air taxi services, corporate customers, and military forces.
In addition, Beech manufactures a variety of aircraft parts and special systems for larger companies,
principally McDonnell-Douglas.
Beech craft was founded in Wichita, Kansas in 1932 by Walter H. Beech and his wife Olive Ann Mellor
Beech. The company began operations in an idle Cessna factory. With designer Ted Wells, theydeveloped their first aircraft, the classic Model 17 Stagger wing, which first flew in November 1932.
Over 750 Staggering were built, with 270 manufactured for the United States Army Air Forces during
World War II. In 1942 Beech won their first Army-Navy E Award production award became one of the
elite five percent of war contracting firms in the country to win five straight awards for production
efficiency.
8/9/2019 Beech aircraft case study
2/24
After the war, the Stagger wing was replaced by the revolutionary Beech craft Bonanza with a distinctive
V-tail. Perhaps the best known Beech aircraft, the single-engine Bonanza has been manufactured in
various models since 1947. The Bonanza has had the longest production run of any airplane, past or
present, in the world. Other important Beech planes are the King Air/Super King Air line of twin-engine
turboprops, in production since 1964 the Baron, a twin-engine variant of the Bonanza and the Beech 18,
originally a business transport and commuter airliner in the 1950s and 1960s, which remains in activeservice as a cargo transport.
In 1950, Olive Ann Beech was installed as president and CEO of the company, after the sudden death of
her husband from a heart attack on November 29 of that year. She continued as CEO until Beech was
purchased by Raytheon Company on 8 February 1980. Ted Wells had been replaced as Chief Engineer by
Herbert Rawdon, who remained at the post until his retirement in the early 1960s (he continued as a part-
time consultant to Cessna President Dwane Wallace in Wichita until shortly before his death)
History
Main years
8/9/2019 Beech aircraft case study
3/24
8/9/2019 Beech aircraft case study
4/24
8/9/2019 Beech aircraft case study
5/24
Issues of Beech Corporation
Whether to merge or not
If go for merger with whom to merge
Increasing competitive Environment
Plans and Goals
1. Aggressively marketing to operate profitably at the current demand andchanging model mix.
2. Accelerate development of new products our customers want and value.3. Work together efficiently as trendsetter of the industry.4. An exciting and viable Beech, delivering profitable growth for all.5. To gain operational efficiency in its work place6. To expand its product line to compete with competitors7. To low the inventory cost and use up to date.8. To Increase the Sales up to 15% by the year end9. The training of the sales team to attract more customers.
Short -Term Objectives
1. One of the fastest growing in the world. Domestic production is skyrocketingthough this growth is not good to meet the expenses of high Research and
development cost therefore finding a merger company to take care of research and
development cost and issue. A company which is quite advance in its Research
and development.
8/9/2019 Beech aircraft case study
6/24
2. To close the production of the pure jet aircraft as they are not gaining much sales volumeand also not profitable.
3. To increase the production volume of Turboprop and C12 cargo transport for the Army.4. To increase its
Long-Term Objectives
1. The production of jets and big aircraft is largely aimed at Aviation industry.Several plans to manufacture new models and to manufacturers also export a
diverse variety of auto components. Prediction of sales to all the countries and
about all the products.
Existing Strategies: -
y Market Developmenty Product Developmenty Related Diversification
8/9/2019 Beech aircraft case study
7/24
Key Internal Factor Weight Rating Weighted
score
Strength:
Brand Image 0.1 4 0.4
Product Line 0.1 3 0.3
Large And experienced work force 0.05 4 0.2
Quality 0.05 4 0.2
Market Share 0.1 4 0.4
Financial position 0.1 3 0.3
1.8
Weaknesses:
High inventory cost 0.2 4 0.8
No distribution outside USA 0.1 4 0.4
High R&D Cost 0.1 2 0.2
Product line 0.05 2 0.1
Long procedures 0.05 2 0.1
Total 1 3.4
The beech total score for its internal factors is 3.4 which is good it concluded that the company is
internally good and having great internal capabilities to compete in market and grow in the industry. The
company can use its internal strengths to introduce new products and expand.
8/9/2019 Beech aircraft case study
8/24
Key external factor Weight Rating Weightedscore
Opportunities:
Global Expansion 0.2 4 0.8
Mergers with Other firms in different countries 0.2 4 0.8
Big Jets 0.15 3 0.45
Targeting corporate customers 0.05 4 0.2
ThreatsRising Competition 0.15 2 0.3
Govt. regulations regarding loans 0.1 4 0.4
Increasing prices of petrol(Energy Crisis) 0.15 3 0.45
Total 1 3.4
The External factors evaluation is showing attractiveness to the Beech Corporation as it resulted in 3.4. It
provides the beech a dynamic environment to expand its business and to use those strategies which are
favorable for the expansion of beech Corporation.
8/9/2019 Beech aircraft case study
9/24
The beech lies in the first quadrant of the IE matrix which shows the company health is good with respect
to its internal and external factors. Beech should use the following strategies in these contexts.
Market Development
Product development
Horizontal Integration
Related Diversification
Unrelated Diversification
8/9/2019 Beech aircraft case study
10/24
SWOT Matrix of Beech
Strengths Weaknesses
1. Strong brand Image2. Product Quality3. Large and Experienced work
force4. Customer Loyalty5. Fuel Efficient6. Selling Govt./Military sector7. Strong Marketing8. Strong Financial Position.9. High market share.
1. No distribution outside US2. Long procedures3. Sales in Dollars4. Short product line (jet plan5. High inventory cost6. High R&D cost
Opportunities SO WO1. Global selling2. Mergers with Other firms in
developing countries to
launch new Products
3. Big passenger jet planes4. Target Corporate
Customers
(S1,S9:O1)Strong Brand Imageand high market share will helpthe company to introduceproducts in many countries(S2:O4)Product Quality can helpto target upper class with newProducts.
(W1,W6,W3:O2) Merger withother strong firms can improveMarket Share, sales and decreasR&D cost.(W2,W5:O3)Merger can beovercome on high inventory coand long manufacturingprocedures.
Threats ST :TWT
1. Rising Competition2. The Govt. Regulation
Related the
Advancement ofloans
3. Rising prices ofPetrol(Energy Crisis)
(S3,S5:T1) Competitiveadvantage Fuel efficiency withexperienced work force can beovercome on competition.(S1,S4,S9,S7:T1)Strongmarketing, brand image, customerloyalty and quality will competethe competition(S4,S5,S6,S9:T2) Customersloyalty, fuel efficiency and
already high market share cancompete short product line.
(W3:T1)Sales in Dollar are notgood for the rising competitionthe market.(W6:T2)The govt. regulationabout the loans facility aregetting worst and it will not befavorable for the R&D of thecompany so they should go forother options for raising funds.
8/9/2019 Beech aircraft case study
11/24
CPM
Beech Cessna Piper
Critical success
factor
Weight Rating Weighted
score
Rating Weighted
score
Rating Weighted
score
Market share 0.10 4 0.4 3 0.3 3 0.3
Price competitive 0.10 3 0.3 4 0.4 3 0.3
Product quality 0.10 3 0.3 3 0.3 3 0.3
Global expansion 0.15 4 0.6 3 0.45 4 0.6
Consumer loyalty 0.10 4 0.4 3 0.3 3 0.3
Sales distribution 0.15 3 0.45 3 0.45 3 0.45
Profit Margins 0.05 4 0.2 3 0.15 2 0.1 No of SBUs 0.05 2 0.10 4 0.20 4 0.20
Brand image 0.10 4 0.4 3 0.3 3 0.30
Financial Growth 0.10 3 0.3 3 0.3 2 0.20
Total 1 3.45 3.20 3.05
The beech craft corporation is having a score of 3.45 which is ahead of the score of its competitors as the
score of Cessna is 3.20 and the score of Piper is 3.05. Therefore beech is having competitive edge over its
competitors and though it is rated good for the future growth it is having an advantage thats why thecustomer trust on the beech products as one of the customer told Beechs competitors by refusing its
products and saying that no thanks I fly a beech and drive a Mercedes.
8/9/2019 Beech aircraft case study
12/24
Rivalry among Existing Firms HIGH
Threat of new Entrants Low
Threat ofSubstitute High
Bargaining power of Buyers Low
Bargaining Power ofSuppliers Low
The beach rivalry amongst other firms is high because it has strong competitors like Cessna and
Piper. Threat of new entrants is low as it is not easy for any new firm to invest so much money in
highly competitive Industry. Threat of substitute is also high as there are many means oftransportation and also passenger aircrafts are offering comfortable business class. As the prices
of the planes are fixed so the bargaining power of buyers is low and the customer which is going
for luxury, dont bargains. Suppliers are offering many products to the Beech Co. and the
decreasing trend in the CGS shows that the suppliers are not bargaining over their prices.
8/9/2019 Beech aircraft case study
13/24
Financial Analysis
Ratios 1977 1978 DifferenceCurrent ratio 2.5 2.7 Increasing
Quick Ratio 2.3 1.00 Decreasing
Debt to total assets ratio .31 .24 DecreasingDebt to Equity ratio 9.2 5.5 Decreasing
Long term Debt toEquity ratio
1 1.98 Increasing
Inventory turn Overratio
3.3 3.7 Increasing
Fixed Assets turnover 7.97 9.31 Increasing
Return on Equity 3.3 2.9 Decreasing
Operating Profit Margin 0.053 0.039 Decreasing
Net Profit margin 0.061 0.067 Increasing
Return on Total Assets 1.46 1.89 Increasing
Return on Share holderEquity
1.071 3.64 Increasing
The company is financially well strong to expand its business but some areas are quiet
shocking as the inventory cost is high and it is not easy to produce jets on a quick order
but it also bound the company investment. The overall view of the company is good and
there are better chances of growth.
PROJECTED INCOME STATEMENT FOR
THE
YEAR ENDED 19791977 1978 1979
net sales $ 417,419,646 $ 527,510,511 $ 659,388,139
Other income 6,353,498 8,434,525 10,543,156
423,773,144 535,945,036 669,931,295
Costs and expenses:
Wages, material and other costs 317,909,910 396,122,481 495,153,101
Selling, general and administrativeexpenses
40,435,377 48,184,146 60,230,182
Interest 3,455,903 3,264,442 4,080,553
Depreciation 3,354,028 3,751,244 4,689,055
Taxes, other than income taxes 8,847,425 11,693,847 146,173,088
8/9/2019 Beech aircraft case study
14/24
374,002,643 463,016,160 578,770,200
Income before income taxes 49,770,501 72,928,876 91,161,095
Federal and state income tax provision 24,288,000 37,408,000 46,760,000
Net income 25,482,501 35,520,876 44,401,0
Retained earnings at beginning ofyear
66,563,113 85,027,416 106,284,270
92,045,614 120,548,292 150,685,365
Less:
Cash dividends paid:
1979 - $ 95 a share 10,478,990
1978 - $ 76 a share 8,383,192
1977 - $ 65 a share 7,018,198
Market value of common stock issued as2% stock dividend
4,101,308 5,126,635
Cash payment in lieu of fractional shares 171,542 2,144,276
7,018,198 12,656,042 15,820,053
Retained earnings at end of year $ 85,027,416 107,892,250 134,865,313
Earning per share primary $ 2.32 $ 3.14 $ 3.92Fully diluted $ 2.03 $ 2.83 $ 3.53
The projected income statement shows an increase of 15% in the sales and this increase also allowed
company to increase its expenses and also other things but it also increases the company net income. And
other things are also increasing the dividends should also be paid more in the next year.
GRAND STRATEGY MATRIX
8/9/2019 Beech aircraft case study
15/24
The company lies in Quadrant 1 so it should use the following Strategies.
QUADRANT 1 (Proposed Strategies)
y Market developmenty Horizontal integrationy Product developmenty Related diversification
SPACE Matrix
8/9/2019 Beech aircraft case study
16/24
Y-Axis
Financial Strength - 3.00
Environment Stability 3.33
TOTAL = 0.33
X-Axis
Competitive Advantage -3.5
Industry Strength 3.67
TOTAL = 0.17
The companys lies in aggressive quadrant of the space matrix and it should use the following strategies
to go beyond and take a competitive edge.
8/9/2019 Beech aircraft case study
17/24
Market development
Product Development
Horizontal Integration
Backward Integration
Forward Integration
Related Diversification
Unrelated Diversification
QSPM
Key Factors Weight Merger Product Development
rating Score Rating Score
Key Internal Factors
Strengths
1.
Strong brand Image 0.06 4
2. Product Quality 0.04 33. Large and Experienced
work force0.03
4. Customer Loyalty 0.045. Fuel Efficient 0.046. Selling Govt./Military
sector0.06
8/9/2019 Beech aircraft case study
18/24
8/9/2019 Beech aircraft case study
19/24
1. Rising Competition 0.072. The Govt. Regulation
Related theAdvancement of loans
0.08
3. Rising prices of Petrol(Energy Crisis) 0.07Total 0.42
Total 1.00
Score
Future Strategies
1. Product DevelopmentReasons
y Major Competitors offering better quality products at comparableprice
y Rapid Technology Developmenty To introduce new jets which are demanding more Research and
development cost.
2. MergerReasons
y Share equity ownership
8/9/2019 Beech aircraft case study
20/24
y R&D Development Partnershipy Cross Distribution agreementy Cross manufacturing agreement
Optimum Strategy
1. MergerReasons
y Major Competitors offering more products at comparable pricey Rapid Technology Developmenty Use of new, cost-efficient materials;y Design flexible manufacturing concepts;y Increasing Research and development Costy Difficult terms and condition and not availability of loans in the
market for industries.
y Intensify innovation (in manufacturing processes and materialstechnology).
y Increased cost of innovations;y Stricter laws (emissions, fuel, safety);y Volatility in raw material prices;y Financial credibility for the company with the big company.
WHY we do not use other strategies?
1. Retrenchment Strategyy It will create negative image about company.
8/9/2019 Beech aircraft case study
21/24
8/9/2019 Beech aircraft case study
22/24
8/9/2019 Beech aircraft case study
23/24
To Merge with Raytheon
We suggest that beech should merge with Raytheon because the Raytheon Corporation has a
constant growth and the financial position of the company is also good. The beech require the
company which is having good financial position and having strong R&D and also technicallyadvanced and to cope with the changing environment of aviation Industry and Raytheon have all
the abilities in these contexts so we will prefer Raytheon on other two companies.
Recommendations
y Beech Aircraft should merge with Raytheon to increase its Development process and toimprove Research and Development.
y We recommend beech should increase the Revenues by offering more Product Line.y Beech should use Related diversification by introducing parts to other manufacturers
they should continue their efforts to groom their customers loyalty.
y To improve their Distribution and franchise system and also to go for global distribution.y The Beech aircraft should also start to deal in every major currency to target more
customers in global market.
y They should focus on more customer attractive deals by offering customization toCustomers.
8/9/2019 Beech aircraft case study
24/24
Address:
P.O. Box 85
Wichita, Kansas 67201-0085
U.S.A.
Telephone: (316) 676-7111
Fax: (316) 676-8286
Statistics:
Wholly Owned Subsidiary of Raytheon Corporation
Incorporated: 1932
Employees: 10,900
Sales: $1.10 billionSICs: 3721 Aircraft; 3728 Aircraft Parts & Equipment Nec; 3761 Guided Missiles & Space Vehicles