Case Study - Global Marketing - Ethics and Airbus

Case 4: Ethics and Airbus

De Leon*Estanislao*Gumabon*Lope*Rojas*Ronquillo

Company Profile

• world's largest commercial aircraft manufacturer • The forefront of the industry and consistently captures about half

of all commercial airline orders (Airbus, 2007). • was formed in 1970 when four major European aerospace

companies created a consortium to build commercial aircraft • The consortium structure was abandoned in favor of EADS,

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

• 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 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

Problem Statement

• What factors have lead to the negative allegations against Airbus?

• What courses of action should Airbus carry out for them to prevail over numerous allegations of ethical and legal lapses in their business transactions?

• Is the company capable of self-sufficiency had there been limited support from European governments?

Point of View

Present Top Management of Airbus

Framework for Analysis

SWOT AnalysisPESTLE Analysis

SWOT Analysis - Airbus

STRENGTHS WEAKNESSES

THREATSOPPORTUNITIES


STRENGTHS

• Has secured a commanding market share• competed toe to toe with Boeing

as the leading aircraft manufacturer in the world

• Duopoly - 50:50 in market share

• Successful jetliner product line • from the 107-seat single-aisle

A318 to the double-deck A380 widebody, world’s largest commercial aircraft in service today

• offers variety in terms of size and features


STRENGTHS

• Heavily funded and is highly competitive in terms of innovations in product design, manufacturing, operations and eco-friendliness

• Airbus is strongly favoured by both EADS and from most European government over Boeing


• Various allegations of corruption against Airbus’ former management

• Weak market share in North America Contracts for NASA and the Pentagon favour its greatest competitor, Boeing, much for political reasons

WEAKNESSES


• Airbus is currently experiencing various operational delays• the A380 superjumbo jetliner and

the A400M military transport plane are years behind schedule and billions of dollars over budget.

• Several smaller programs face issues meeting deadlines and fulfilling customer requirements.

WEAKNESSES


• Growth is imminent

• High replacement of aircraft in service in mature markets

• Dynamic growth in emerging markets

• Continued growth of Low Cost Carriers, especially in Asia

OPPORTUNITIES


• Growth is imminent: • Traffic growth on the existing

route network where it is more efficient to add capacity than frequency

• Emerges off megacities across the globe would increase the demand of travelling internationally

OPPORTUNITIES


• Boeing has been a consistent head-on competitor

• Boeing has been Airbus’ toughest critic with regards to alleged trade violations

• Technology race has been very tight for years

• Boeing receives a fairly similar political bias from the US

THREATS


• New entrants from Canada, China, Brazil and Russia who are eyeing the lucrative single-aisle market

• Bombardier's C-Series is on track for its first delivery in 2013

• China's state-owned Comac is readying for a 2016 first delivery date of its C919

• Russia's Irkut and Brazil's Embraer are also contenders

THREATS


STRENGTHS

OPPORTUNITIES

• Focus resources on high growth regions• particularly high demand of low cost

carriers in emerging Asian markets (India, China, etc.)

• Use innovations and new technology to entice purchase of upgrades by more mature aircraft markets

• Eco-friendly technology as an answer to the “Green Revolution”


STRENGTHS

OPPORTUNITIES

• Showcase technological advances in efficiency and design and offer a wide variety of planes to cater increasing global needs

• Maximize EU support to develop convenient routes to megacities around the world (i.e. HK, Tokyo, NY, Manila)

• Consider more alliances and joint ventures amongst trading nations.

WEAKNESSES


OPPORTUNITIES

• Public relation officers should arrange a series of launches, press releases, and seminars to overhaul the tainted reputation of Airbus

• Note that present management is not part of the team being scrutinized and Airbus contributing nations are already presently part of OECD

WEAKNESSES


OPPORTUNITIES

• Streamline operations to hasten completion of pending projects to avoid further expenses and penalties

THREATS


STRENGTHS

• Reciprocate Boeing attempts to highlight past scandals of airbus

• There are claims of equally notable unfair transactions that went in favour of Boeing

• Secure advances in R&D to stay competitive with Boeing and miles ahead from new entrants

• Eco-friendly technologies and high performance, high efficiency engines should be maintained

THREATS


STRENGTHS

• Maximize Airbuses network and influence to expedite launch of the A380, A350, A400M and other projects

• A380 is much anticipated to rival the Boeing 747


• Legal counsel and public relations officers must ensure that the incidences in Sabena, Kuwait, Syria and others be controlled and not to happen again

• this might open opportunities for new entrants

WEAKNESSES

THREATS

PESTLE Analysis - Airbus

POLITICAL

ECONOMIC

SOCIO-CULTURAL

TECHNOLOGICAL

LEGAL

ENVIRONMENTAL


POLITICAL

• Highly political• Airbus was established by European

countries primarily to compete against American aircraft companies like Boeing, McDonnell Douglas and Lockheed

• Countries generally considered the aircraft industry as strategic and therefore something that has to be protected and/or controlled

• A number of airlines are still state-owned flag carriers. Therefore aircraft orders tended to be influenced by governments.


• The industry is a virtual duo-poly between Airbus and Boeing• Boeing bought McDonnell Douglas• Lockheed pulled out of the business

• Market for air travel expected to rapidly grow in the next 20 years

• High barriers to entry owing to the large capitalization required to operate

• High risk investments owing to the long development leadtimes for aircraft designs coupled with increasing uncertainty of demand immediately after the development phase

• High fixed costs and development costs mean that volume is critical for cost recovery and profit.

ECONOMIC


• Undercurrent of Europe vs America transcends pure commercial rivalry

• Terrorism might impart temporary setbacks to the industry

• For Airbus in particular, for political reasons, production and development operations have to be spread over several countries that have a stake in the company

SOCIO-CULTURAL


• High investment costs and increasing technological requirements in every new aircraft development project

• Increasing sophistication of commercial air travelers as well as an increasing environmental activism among nations will lead to increasing demands on aircraft innovations

• Fluctuations in oil and aviation fuel prices is driving the need to develop fuel-efficient and environmentally friendly aircraft

TECHNOLOGICAL


• Increasing pressure for Airbus to have above-board dealings in light of the laws enacted in the EU concerning corrupt business practices

• Accusations by both Airbus and Boeing made against each other in terms of illegal and anti-competitive government financing and subsidies

LEGAL


• Environmental concerns are gaining importance in the industry• Governments are passing more

stringent environmental rules for the transportation industry including the airline industry, e.g., reduced carbon footprints

ENVIRONMENTAL

Recommendations:

• Relaunch new image of Airbus that promote high ethical standards

• Pool all available resources to expedite the development of currently pending high value projects

• Concentrate sales efforts on boom regions such as Asia so as to capture as much of the booming markets as possible

• Increase R & D in environmental-friendly aircraft• Prevent or minimize the effect of market entry• More aggressive marketing strategies to convince customers

to purchase aircraft• Enter into exclusivity treaties with airline partners• Offer legitimate financial incentives or service packages to

loyal customers

Conclusion

• Based on the case and other readings, Airbus was given the green light by the European countries that formed it to do whatever is necessary to win the aircraft market [by hook or by crook]. Beyond Airbus and Boeing, this is more of a head-on battle between the US and European superpowers to gain dominance in global airspace and trade. So far it seems to be a stalemate with WTO standing as a mediator. That's why it seemed that bribery and kickbacks are accepted practices. These giants would do anything to uphold what they both believe is for the greater good.

Updates and Developments

1. Aircraft Manufacturing Industry• Share of market between Airbus and Boeing; 1996-2005


1. Aircraft Manufacturing Industry• 1996 – Airbus was re-organized to a single fully integrated

limited company. The objective was to streamline operations, reduce costs and speed production

• 2000 – Another round of re-organization at Airbus allowed it to reclaim and maintain its market share for the next 5 years

• 2005 – Boeing launches the 787 Dreamliner, the most fuel-efficient aircraft for its class. The 787 model enables Boeing to grab significant market share from Airbus

• 2006 and 2007 went to Boeing, but by 2008 Airbus again took the lead up to this year.

• 2007 - Airbus has adhered to the United Nations’ Global Compact


2. Current Issues• Accusations by Boeing on Airbus being a

recipient of direct or indirect subsidies by European countries with stakes in the company

• There is an on-going litigation at the World Trade Organization (WTO) on the accusation of illegal subsidies from both companies.

• Boeing claims that Airbus is being illegally financed/subsidized by European governments.

• Airbus claims that Boeing is receiving indirect subsidies from the US government in the form of US military contracts.


3. Other European companies facing similar issues

• Siemens• Global extent of corrupt practices• Bribes and kickbacks to government officials in

Asian, African, European, Middle East and Latin American countries to secure infrastructure contracts

• Investigation instigated by the US through the FCPA

• made possible when Siemens was listed on the NYSE in 2001

• Before 1999, bribes were deductible as business expenses under the German tax code, and paying off a foreign official was not a criminal offence.


3. Other European companies facing similar issues

• Siemens• Siemens has acknowledged having more than

2,700 business consultant agreements, so-called B.C.A.’s, worldwide. Those consultants were at the heart of the bribery scheme, sending millions to government officials. This practice of hiring consultants is similar to Airbus.

• “unprecedented in scale and geographic reach”; “systematic and widespread”; “institutionalized corruption”

• Top level executives of Siemens were indicted; company paid $1.6 billion in fines to both the US and the EU; share price suffered as a result.

References

• http://www.comp.nus.edu.sg/~ipng/mecon/cases/Airbus.pdf• http://www.leeham.net/filelib/ExcessBaggage.pdf• http://en.wikipedia.org/wiki/Competition_between_Airbus_and_Boeing• http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.html• http://en.wikipedia.org/wiki/Airbus• http://www.airbus.com/aircraftfamilies/• http://www.airbus.com/innovation/proven-concepts/in-operations/• Carney, Timothy, Boeing vs. Airbus: Clash of the Corporate Welfare Titans. July

14, 2005. http://cei.org/studies-point/boeing-vs-airbus• Michaels, Daniel. Airbus Officials Cite Challenges. Wall Street Journal Digital

network. June 10, 2010 http://online.wsj.com/article/SB10001424052748704575304575295963528035840.html#articleTabs%3Darticle.

• Leahy, John. Airbus Global Market Forecast 2010 – 2029. Toulouse, December 13th, 2010 http://www.airbus.com/fileadmin/media_gallery/files/brochures_publications/Global_Market_Forecast/Airbus_Global_Market_Forecast_-_2010-2029.pdf

• BBC News. Airbus beats Boeing in 2010 Plane Orders. http://www.bbc.co.uk/news/business-12205687.

• Gulfnews.com. July 19, 2010. http://gulfnews.com/business/aviation/new-competitors-may-end-airbus-boeing-duopoly-1.655979

Thank you!

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Case Study - Global Marketing - Ethics and Airbus

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