The Airbus Program - National Champions, European Project, Global Player

AIRBUS From the National Champions and the European Project to the Global Player

Human Resources and Organization

Prof. Dr. Edgar Bellow

13th March 2012Reims - France

Dr. Daniel Stanislaus Martel

Lecturer at University of Management, Economics and Finance, Geneva, Dunya Institute of Higher Education, and AKAD Banking & Finance, Zurich and Berne

Aerospace Journalist & Editor/Consultant

2

AIRBUS? You said Airbus?

Human Resources and OrganizationProfesseur Dr. Edgar Bellow

13th February 2012

© Dr. Daniel Stanislaus Martel [email protected]

Source: Skyward.ch

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AIRBUS?You said Airbus?


13th February 2012


Source: Skyward.ch

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13th February 2012


Source: Skyward.ch

What do You Know About Airbus?

Please help Discuss for five minutes in groups

Nominate a representative

Report to your colleagues in one minute

The floor is yours5



13th February 2012


6

Airbus? You said Airbus?

Facts about Airbus

Airbus is… Number one in civil airframe orders (1419) and delivies (524) in 2012

Known as an economic venture with market share of 64 % in 2012

Considered a prime technology driver

Presented as a European success story with 11.570 orders and 7079 del.

Renown as a Global Player with 6659 aircraft in service

… yours to learn from7

AIRBUS?That’s Airbus!



13th February 2012

Agenda

Airbus in it’s world The world of air transport (demand: operators / supply: airframers)

Aerospace as a strategic industry

The Airbus Case

A changing framework: European integration (optional)

The world around everything: Globalization and Neoliberalism

Looks into the future

Many case studies8




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Learning Objectives

After our course, you are able to…… outline the historical agenda of the Airbus programme

… explain at least three major influences on the Airbus programme

… apply at least three concepts to your own operations

… it is up to you! 9




13th February 2012

Why is this Important for You?

As a future Reims Management School Graduate, You… … need to be aware of possible roles of stakeholders in

economics

… need to be aware of the importance of a long term vision translated into decisions

… need to be aware of the role of technology in economics

… it is up to you!10




13th February 2012

AIRBUS The World of Air Transport

Demand: Operators / Supply: Airframers







The World of Air Transport

Three clusters of actorsAircraft operators in demand for airframes

Airports / ground facilities which serve aircraft operators

Airframe constructors which supply airframes

Perfectly complementary… and highly regarded / regulated12





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Aircraft Operators (1)

An industry set for growth (source IATA)Annual USD 425 billion turnover (2010)

5.5 million direct jobs, adding up to 33 millions (2010)

Some 2.5 billion customers (2010)

Relevant for everybody13© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



Aircraft Operators (2)

A highly fragile industry with high risk operations Pressure on margins and cost at any step

Highly know how, and experience sensitive

High political exposure, positive and negative (ecologism)

Vulnerable to externalities (recession, fuel price…)

Gigants on argyle feet14© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



Airports / Ground Facilities

Interface air transport Technical/functional monopoly at served destination

Next to perfect competition for transfer / transit passengers

Facilitator / focus of local economic development

Entry / exit door for national economy

Essential for the country15© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



Airframe manufacturers (1)

Economic actors supplying the hardware High value adding industry attracting the best brains

High cost for R & D and overheads

High drive for innovation in a prospective perspective

High concentration owing to competition

Essential for the country16© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012




Their product: airframesNumerous physical, mathematical, functional constraints

Maximum drive for economic efficiency

Maximum need for Risk Management at any level

Very little space for product differentiation17© Dr. Daniel Stanislaus Martel

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13th February 2012




Fundamentals of airframes Product life cycles of 20 to 40 years (second hand market)

High degree of technological and contractual lock-ins

Sensitive to « correct » timing of market entry

Each programme is high risk owing to competitor’s life cycle

A high risk business!18© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012




Technology drive behind airframes Attempt to « leapfrog » competitor

Attempt to override locked-in competitors

Race for early commitments

High degree of customer lock-in (change of supplier)

A high stake business19© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012




New products… Anticipate market need and foreseeable competitor’s reactions

Use currently available technologies

Always major compromises in technology and functionality

Focused on as many customers as possible

… always have a wider economic, technological, social context20© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012




Launch of new airframesGain of productivity for current and future customers

Maximize difficulties for competitors to catch up

Maximize barriers for market entry for new competitor

Response to expected tomorrows21© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012




Strategic partnership with operatorsComplex financial operations

Standalone airframe or first member of aircraft family

Stepstone to further aircraft models

Look into the future every day22© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



Classroom Incubation 1

What government policies are adequate for air transport Conceptualize such a policy in groups for 10 minutes

Elaborate a global national air transport policy

Nominate a group representative

Share your findings with your colleagues

Build your own air transport future23© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



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AIRBUS Aerospace as a

Strategic Industry







What is Industry?

Industry is a value-adding economic activitySupply of physical goods

Contributing to local development

Strengthening national economy

Raising standard of living of producers and customers26© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

Attitudes of Industrial Actors

Best possible factor allocationProviding responses to felt and anticipated needs

Drive to outpace competition

Making best possible use of factors of production

Inventions and expected innovation processes27© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

The Product Cycle

28© Dr. Daniel Stanislaus Martel [email protected]


13th February 2012


Strategic Industry

Integration into society

Mar

ket

pen

etra

tio

n

Invention of product or

service

Approval by decision makers

Convince pioneers

Advantages felt by others

Invention generalizes in market

Invention becomes part

of society

Response to a need felt

Win promotors

for the «cause»

Target customers sharing the same need

as the inventors

Solution responds to or exceeds

expectations

Solution offers real

gain in productivity

Solution leads to new

attitudes

Author based on Alter (2002), 15-40

The Two Types of Innovation

Proactive invention and reactive learning by experienceVoluntary innovation: ambition to optimize

Involuntary innovation: attempt to correct failure

In both cases: accepted or rejected by society

In any case there are multiple changes29© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

The State in the Economy

Management of territory under its jurisdictionFormal institutions governing population and activities

Elites try to optimize situation for re-election

Elites promote their interest within and outside state

Role of state has not ended with globalization30© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

The Two Level Game (Putnam)



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Strategic Industry

Author based on Putnam (1993), 431-468

GOVERNMENT

National Territory International System

Supreme Authority Legal entity/actor

National policies, among them economic policies including application of international agreements, compliance with international regimes…

Objective: Optimize national territory as a production site

International relations through diplomacy, international governmental organizations (WTO), trade agreements, regional integration (EU)…

Objective: Maximize trade-offs for national economy

Strategic Industries

Crucial for state and economy as a whole Worldwide demand (pharmaceuticals, energy systems…)

Unsubstituable, therefore inelastic demand

Complex and specialized know-how intensive processes

Necessary for economy (energy) and state (security)

Strategic suppliers are in a situation of monopoly32© Dr. Daniel Stanislaus Martel

[email protected]


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Strategic Industry

Sensitivity and Vulnernability (Keohane and Nye)



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Strategic Industry

Author based on Keohane and Nye (1989)

G O V

National Territory

E C O

G O V

E C OE C O

G O V

Other CountryOther Country

EconomicPolicies

EconomicPolicies

EconomicPolicies

Strategic Trade Policies (Krugman)

Prevent vulnerabilities – lower sensitivities Policies target already strong strategic industries

Mixture of national economic and technology policies

Mixture of international initiatives in favour of national industries

Related policies (higher education, research, immigration)

Not to be confused with classical protectionism34© Dr. Daniel Stanislaus Martel

[email protected]


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Strategic Industry

The Technology Leap (Mokyr)



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Strategic Industry

Author based on Krugman (Mokyr (1993), 431-468

The Challenge: Path Dependence (Krugman)

Heritage, present and future of a production site Site configuration result of all past decision’s outcomes

Each decision cost-benefit based on site configuration at its time

Strengths depend on commitments by decision makers

The stronger Path Dependence, the higher lock-in

Chance or risk36© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

The Chance: The Technology Leap (Mokyr)

Revolutionary invention leading to fundamental change Innovation creates a disruption (plastics, mobile phone…)

Opportunity to establish new Micro- / Macro-Path Dependences

Strategic Trade Policies seize opportunities (Silicon Valley)

High Risk versus High Reward (Question Mark in BCG Portfolio)

Breaking the lock-in37© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

STP and P.D. in Practice: Site Optimization

Past, present and future focus on Strategic IndustriesClose cooperation between all involved actors

National policies focused on R & D, S & T, higher education…

International policies targeted at maximized trade offs

Objective: strenghten Strategic Industries38© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Strategic Industry

Site Optimization (Keohane and Nye)



13th February 2012


Strategic Industry

Author based on Keohane and Nye (1989), Krugman (1996), Krugman (1994)

G O V

National Territory

E C O

G O V

E C OE C O

G O V

Other CountryOther Country

EconomicPolicies

EconomicPolicies

EconomicPolicies

The International Product Life Cycle (Vernon)



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Strategic Industry

Author based on www.provenmodels.com

Time

Ben

efit

s

Exp

ort

s /

Infl

uen

ce

Lo

sses

/In

vest

Imp

ort

s /

R &

D

New Prod Mature Product Standardized Product

Competing similar country

STPs

Inventor’s country

Technologically leading country

Emerging country STPs

Technological emancipation

Rising cost of production


What do you think about Site Optimization Discuss one sector per group for 10 minutes

Elaborate a coherent Site Optimization policy or decide against



Be your own site optimizer41© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



42


AIRBUS The Airbus

Case







Stages of Airbus History

A long, international history from the beginning 1920 – 1965: Setting the stage

1965 – 1970: The National Champions

1970 – 1986: The dedicated entrepreneurs

1986 – 1992: The audacious innovators

1992 – 2001: The visionary strategists

2001 – 2006: The scared money makers

2004 – 2012: The new hard workers

What does this mean?44

AIRBUS The Airbus

Case



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1920 – 1965: Setting the Stage (1)

Europe: Site Optimizations for Strategic Industries Europe until 1939: Airframers are national programmes

After 1945: Competition between France and United Kingdom continued

1949: United Kingdom delivers first jet aircraft Comet 1 which fails owing to overstretched technology leaps

1955: France launches Caravelle jet which fails on the market

Technology is not everything45

AIRBUS The Airbus

Case



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United States: Free enterprise United States until 1939: Airframers are private corporations

After 1945: Eased market entry through mass production and Marshall Plan

1958: Monopolies through large quadrijets Boeing 707 and Douglas DC-8

1964: First of a series of smaller jets Boeing 727 to swamp the world market

Market strategy is everything46

AIRBUS The Airbus

Case



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World air transport: towards unlimited growth 1965: Boeing announces quantum leap with Boeing 747 Jumbo Jet widebody

1966 - 1967: Lockheed and McDonnell-Douglas announce smaller widebodies Tristar and DC-10

Common characteristics (two aisles, containerized cargo) leading to technological disruption (technology leap)

Revolution in air transport announced for 1970 - 1972

Market strategy is everything47

AIRBUS The Airbus

Case



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Europe: Cooperation to protect strategic industry of aerospace 1959: France / West Germany: State treaty for the Transall transporter

1962: Industrial cooperation Netherlands, U.K., West Germany for the Fokker F-28

1965: Industrial and commercial cooperation West Germany, U.K., Netherlands for the VFW-614

All programmes remain marginal in the world market

New idea: enable economies of scale48

AIRBUS The Airbus

Case



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The political breakthrough: the Concorde 1962: State treaty between France and the U.K. for supersonic aircraft

French motivations: Additional resources for national leadership programme

U.K. motivations: Maintain strategic industry, obtaining adhesion to EEC despite Charles de Gaulle’s veto

National motivations around common denominator

1969: Maiden flight, 1975 commercial service, 2006 withdrawn from use

Concorde: masterpiece of technology, commercial disaster49

AIRBUS The Airbus

Case



13th February 2012

1920 – 1965: Setting the Stage

Analysis Lacking economies of scale put European airframers at

disadvantage despite technological superiority

Transnational programmes as new way to sustain national Strategic Trade Policies

U.S. dominate world market through mass production

The American Challenge / Le défi américain

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AIRBUS The Airbus

Case



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1965 – 1970: The National Champions (1)

The wake up call 1965: Colloquium of London on future of airframing in Europe

Window of opportunity following new category of widebody aircraft

Only chance: transnational cooperation for economies of scale

20th July 1967: Governmental treaty between France, Western Germany and the U.K. on the Airbus A300

Defend national aerospace through transnational cooperation51

AIRBUS The Airbus

Case



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National Strategic Trade Policies France: new large-scale national high tech project

United Kingdom: preserve remaining Strategic Industries

West Germany: Opportunity to show European commitment and to relaunch aerospace industry

Common denominators – different orientations52

AIRBUS The Airbus

Case



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Common denominator remains minimal March 1969: U.K. withdraws from state treaty while remaining a subcontractor

29th May 1969: State treaty between France and West Germany launching the multinational Airbus programme

18th December 1970: Groupement d’intérêt économique (GIE) Airbus established for programme coordination

Partners of GIE Airbus: French Aérospatiale 46,7 %, Deutsche Airbus 46,7 %, West Germany/Netherlands VFW-Fokker 4,2 %, joined by Spanish CASA 4.2 %

European Investment Bank grants launch aids ; financing and manufacturing remains the full responsibility of the partners

Increased economies of scale53

AIRBUS The Airbus

Case



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Maximized opportunities Aircraft A300 widebody complementary to U.S. competitors

Aircraft compatible with other widebodies being marketed, thus joining a new category of aircraft

Proven technologies in new combinations

National facilities specialized in one component, integration in Toulouse

Airbus enables to join the U.S. competitors54

AIRBUS The Airbus

Case



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The Transnational Airbus System



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Strategic Industry

Source: Kracht (1994), p.56

1965 - 1970: The National Champions

Analysis Focus on coming technology leap as the last chance for national

aerospace industries

Complementary product for same market

Economies of scale through specialization of facilities

Transition of the U.S. competitors exploited

56

AIRBUS The Airbus

Case



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1970 - 1986: The Dedicated Entrepreneurs (1)

Modest beginnings 9th November 1971: First firm order by Air France for 6

28th October 1972: Maiden flight of the A300, 33 days before contractual date

Performance and cost of operation exceeded expectations

Sales very difficult owing to lack of trust and experience

Supported by pioneers and early adopters57

AIRBUS The Airbus

Case



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Chances, threats and renewed chances Main chance: Complementary to U.S. widebodies

1974 – 1975: Recession, not one sale

Tensions between France and West Germany regarding action

After 1975: Argument of low fuel consumption decisive

Stakeholders believe in project58

AIRBUS The Airbus

Case



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Airbus becomes a political issue 1975: EEC Commissioner Altiero Spinelli suggests European

aerospace policy

1976: Professionals within GIE structure launch prospective studies for complementary Airbus aircraft

1977: France prefers narrowbody for 150 pax, Germany a shorter widebody for 220

Airbus becomes a landmark59

AIRBUS The Airbus

Case



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Airbus grows mature 1978: Launch of smaller A310 decided by partners

1978: Order of 23 A300 by U.S. operator enables international breakthrough

Immediate protective action (import tax) by the U.S. government

Mandate by EEC Council of foreign ministers to EEC Commissioner for Industrial Affairs Etienne Davignon to obtain cancellation of tax, failure

1979: international Aircraft Agreement within GATT framework

Airbus becomes a global issue60

AIRBUS The Airbus

Case



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Airbus grows into a risk for U.S. competitors 1978: Boeing launches the B767 competitor to the A310

A310 maximises technology leaps (IT, CRT screens, manufacturing…)

September 1981: maiden flight of B767, 3rd April 1982 of A310

Both aircraft superior in different areas and representing two different mission profiles

Airbus changes competitor’s behaviour61

AIRBUS The Airbus

Case



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New Airbus success despite U.S. Strategic Trade Policy favouring Boeing 1983: longer-range A310-300 launched, 9th June 1983: Updated A300, A300-600

maiden flight

2nd May 1984: Launch of A320 narrowbody for 150 passengers

Technology leaps and disruptions maximized

1985: New U.S. safety regulation allows transatlantic twin operations (ETOPS)

Boeing 767 with longer range favoured (financial instead of safety aspects)

Airbus takes the technology leadership62

AIRBUS The Airbus

Case



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In the meantime in the U.S. … Neoliberalism emerges New economic paradigm emerges (Reagonomics, Thatcherism)

Focus on financial and no longer technological performance

Expenditure cutting at any price, including long-term R & D

Boeing adopts this paradigm under new management in 1985

All prospective programmes ended with exception of B777 widebody

Airbus takes the technology leadership63

AIRBUS The Airbus

Case



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1970 - 1986: The Dedicated Entrepreneurs

AnalysisDifficulties to penetrate market since few early adopters

Programme portfolio aligned on future market needs

Despite opposed interests, governments find consensus

Focus on technological superiority64

AIRBUS The Airbus

Case



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1986 - 1992: The Audacious Innovators (1)

New attacks and successes 1986: U.S. claim Airbus subsidies violate 1979 Aircraft Agreement

1987: EEC Commissioner for Trade, Willy de Clerq, defends the Airbus programme

Transatlantic tensions, EEC claiming U.S. subsidies through military programmes

26th February 1988: Joint A320 certification by Dutch, French, West German and U.K. national certification bodies, world premiere

Attacks through technology and replies through politics65

AIRBUS The Airbus

Case



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Steps to future successes 5th July 1987: Launch of A330 (2 engines) and A340 (four)

Maximized micro-Path Dependence (both aircraft 94 % compatible)

Maximized technology leaps for both

Airbus « Family Concept » through commonality (Cross Crew Qualification)

Both aircraft launched through reimbursable aids from member states

Long-term attack on U.S. competition66

AIRBUS The Airbus

Case



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Airbus grows European March 1988: European Parliament discusses Airbus

November 1989: launch of longer A321 narrowbody without subsidies

New production facility in Hamburg to complete Toulouse

7th October 1991: Roll-out of A340 quadrijet with European anthem

7th November 1992: Roll-out of A330 twinjet

Long-term attack on U.S. competition67

AIRBUS The Airbus

Case



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The battle of the reports September 1990: Gellman report compiled for U.S. Department of Commerce

Over 19 years, Airbus has received subsidies for USD 19 billion

No Airbus programme is economically viable

November 1991: Arnold & Porter report compiled for Airbus Industrie

Disproves Gellman report, U.S. manufacturers not commercial enterprises

From 1976-1990 (14 years) USD 15.24 billion through military and NASA research

It seems a matter of interpretation68

AIRBUSThe Airbus

Case



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The 1992 EEC – U.S. Airbus Accord (1) Agreement negotiated between Brussels and Washington

Mutual exchange of financial statements to competent authority of other signatory entity (GIE Airbus member states for Boeing, U.S. government for Airbus)

Clause of exception: Saving a manufacturer from bankruptcy allowed

Clause of limitation: Financial support to new programmes not allowed

Again, a matter of interpretation and cheating69

AIRBUSThe Airbus

Case



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The 1992 EEC – U.S. Airbus Accord (2) Both sides make concessions on subsidies

Europe – Airbus: Limitation of public launch aids to 33 % of global budget of programme; official current interest rate on first 25 % of global amount; interest rate raised by 1 % on remaining 75 %, integral reimbursement by Airbus in 17 years maximum

U.S. – Boeing / McDonnell-Douglas: Limitation of indirect subsidies such as military and scientific programmes (NASA) to 4 % of global turnover of targeted manufacturer

Again, a matter of cheating and interpretation70

AIRBUSThe Airbus

Case



13th February 2012

1986 - 1992: The Audacious Innovators

Analysis Pro-active attitude sets foundations for the future through

systematic extension of portfolio

Competition gets nervous and obtains governmental support

All involved parties have no interest to escalate the conflict

Focus on technological superiority

71

AIRBUS The Airbus

Case



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1992 - 2001: The Visionary Strategists (1)

New Airbus successes despite threat March 1993: Maiden flight of A321 narrowbody

May 1993: Launch of smaller version of A320 for 130 passengers named A319

Assembled in Hamburg-Finkenwerder

June 1994: Boeing 777 Triple Seven twinjet maiden flight

U.S. ETOPS regulation extended to transpacific routes, leading to loss of comparative advantage of A340 qudrijet

U.S. Strategic Trade Policies in favour of own manufacturer72

AIRBUS The Airbus

Case



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Airbus replies to threats November 1995: launch of smaller A330-200 derivative

August 1996: Maiden flight, performance exceeds expectations

Boeing replies with inferior B767-400 derivative

Airbus outwits Boeing locked-in on the B777

Both A330 models become the reference in their category73

AIRBUS The Airbus

Case



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1996: Beginning of global duopoly 15th December 1996: Boeing purchases McDonnell-Douglas

30th June 1997: European Commission accepts merger under conditions (civil activities of MDC kept independent for 10 years; annual report of civil activities to European Commission (97/816/EC)

1997: During French-German summit, decision to transform Airbus into full corporation

Boeing and Airbus switch to neoliberalism and privatization74

AIRBUS The Airbus

Case



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Airbus reacts to intensified competition December 1997: Boeing 777 Triple Seven countered by A340-600, larger

derivative, and A340-500, quadrijet with longest range ever (18.000 km)

1999: Airbus Military subsidiary for military transporter A400M launched

NATO members Belgium, France, Germany, Italy, Spain, Turkey and U.K. order 180 for delivery after 2009; South Africa and Malaysia another 12

April 1999: Launch of A318 for 100 passengers without launch aids

Airbus consolidated technology leadership75

AIRBUS The Airbus

Case



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The road to Airbus, Inc. 1999: Widespread discussion about Airbus as a private company

June 1999: French-German government preliminary agreement to establish European Defence and Space Company (EADS)

U.K. partner British Aerospace rejects integration

14th October 1999: Aérospatiale-Matra and Deutsche Aerospace (DASA), the Airbus partners of the time, merge into EADS

EADS remains a political issue76

AIRBUS The Airbus

Case



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European Defence and Space Company (EADS) Negotiated by parent companies of Airbus partners Largadère (Aérospatiale-

Matra since 1998) and DaimlerChrysler (Deutsche Aerospace/DASA)

Largadère and DaimlerChrysler hold each 30 % of EADS (total 60 %)

Small corporate headquarters in the Netherlands for fiscal reasons

Two equivalent headquarters in Paris (strategic management) and Munich (operational management)

EADS becomes number two aerospace company after Boeing worldwide77

AIRBUS The Airbus

Case



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Airbus Integrated Company Established 23rd June 2000 as a subsidiary of EADS

80 % held by EADS; 20 % by British Aerospace (BAE)

EADS obliged to buy back BAE share at any time after 2003 (put option)

Production facilities, procedures and processes unchanged

Airbus followed the wave of privatizations78

AIRBUSThe Airbus

Case



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Renewed vigor of Airbus Summer 2000: The very large A380 attracts 95 initial orders

Airbus governments respect the Airbus Accord of 1992 and grand launch aids of USD 2.5 billion out of estimated USD 10.7 billion

U.S. government announces a World Trade Organization (WTO) complaint

April 2001: A340-600 maiden flight, February 2001: A340-500 maiden flight

January 2002: A318 maiden flight

Airbus followed the wave of privatizations79

AIRBUSThe Airbus

Case



13th February 2012

1992 - 2001: The Visionary Strategists

Analysis Victory of Airbus over one competitor (McDonnell-Douglas) thanks

to aircraft family concept

Boeing remains successful despite lower commitment for its future owing to lower prices and existing customer base

EEC substitutes itself for the individual member states in Strategic Trade Policy formulation and implementation

Focus on technological superiority80

AIRBUS The Airbus

Case



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2001 - 2006: The Scared Money Cumulators (1)

The shock of the decade: Nine Eleven Air transport hurt everywhere (recession and security procedures)

Boeing lays off 30.000 workers

Airbus reacts in a shortsighted way… und cuts prospective R & D expenditure

A380 complexity exceeds expectations by far

New Airbus attitude: short term focus81

AIRBUS The Airbus

Case



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The situation of Boeing Boeing 737 narrowbody outdated but cheaper than A320 series

Boeing 767 outperformed by A330-300 and A330-200

Boeing 747 Jumbo Jet challenged by A380

B777 Triple Seven with two engines outperforms A340 with four following U.S. Strategic Trade Policies in its favour (ETOPS)

Airbus remained confident in its Path Dependence82

AIRBUS The Airbus

Case



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Boeing returns New management ends short-term financial priorities and seizes « last chance

for successful turnaround »

Boeing analyses potential for superiority over A330 and A340

Disruptive new aircraft B787 Dreamliner

Boeing maximizes technology leaps and disruptions (composites, comfort…)

Boeing copies decentralized Airbus system but outsources core competences

Airbus downplays the risk83

AIRBUS The Airbus

Case



13th February 2012


Airbus imitates Boeing 2002: Airbus sets up engineering centre in Wichita/USA

2003: Airbus sets up engineering joint venture in Russia

2003: Airbus officially not worried about new bestselling competitor

September 2004: Airbus announces an optimized A330-300 as a reply

Airbus widely criticised for loss of strategic vision

Airbus management replies that customers are satisfied with A330 series

Airbus gets inert84

AIRBUS The Airbus

Case



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2005: the tide turns 15th February: B777-200LR roll-out, range similar to A340-500 but lower cost of

operation… enabled by further U.S. ETOPS regulation for twinjets

18th February: Reveal of A380 and announcement of three months delay

April: A380 and A350 launch aids incompatible with WTO for U.S.

27th April: A380 maiden flight with worldwide maximum coverage

May: new A380 delays announced

Airbus weakened – Boeing boosted85

AIRBUS The Airbus

Case



13th February 2012


Airbus in difficulties 6th October 2005: formal launch of A350 with 140 orders against 174 for the B787

November 2005: Boeing launches new B747-8 update which wins substantial orders

December 2005: Airbus sets up engineering facility in China

29th March 2006: International Society of Transport Aircraft Trading bashes the A350

April 2006: BAE sells its stake in Airbus – EADS is obliged to divert funds for it

July 2006: Scandal with alleged insider deals braks Airbus leadership

Airbus weakened – Boeing boosted86

AIRBUS The Airbus

Case



13th February 2012

2001 - 2006: The Scared Money Cumulators

Analysis Airbus copied Boeing’s short-term focus – and pays the price

in full

Boeing wins back a long-term operational and strategic vision

Revolutionary A380 affected by management problems

Focus on technological superiority

87

AIRBUS The Airbus

Case



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2006 - 2012: The New Hard Workers (1)

Turnaround in sight? 17th July 2006: New A350XWB design presented at Farnborough

Airshow

Wider fuselage than B787 and earlier Airbus widebodies

First reactions not too enthusiastic

Widespread scepticism whether Airbus is able to launch programme

Can Airbus recover?88

AIRBUS The Airbus

Case



13th February 2012


Turnaround in sight? 4th September 2006: A380 test passengers enthusiastic

11th September 2006: Russian stake of 5.02 % in EADS

3rd October 2006: another 10 months delay for the A380 announced

10th October 2006: Christian Streiff, CEO of Airbus Integrated Company resigns

7th November 2006: Fedex order for ten A380 freighters cancelled

Can Airbus rise up again?89

AIRBUS The Airbus

Case



13th February 2012


New worries or new opportunities 10th December 2006: launch of yet reworked A350XWB (materials…)

Market entry pushted back to 2013, 5 years behind B787 Dreamliner

Budget of at least USD 15 billion, making subsidies unavoidable

Main design freeze pushed back to 2008 to learn from the B787

12th December 2006: A380 certified by EU and U.S. agencies

The question remains open90

AIRBUS The Airbus

Case



13th February 2012


New worries or new opportunities January 2007: Boeing outsold Airbus for the first time in 5 years with 1044 against 790 net

orders

10th January 2007: U.S. open a WTO case on subsidies to Airbus

9th February 2007: the EU files a WTO claim on indirect subsidies to Boeing

May 2007: the new joint Airbus/AVIC A320 plant in Tianjin/China is opened

Summer 2007: Airbus sets up engineering facility in Mobile/Alabama for the A350XWB

15th October 2007: first A380 delivered to Singapore Airlines

The question remains open91

AIRBUS The Airbus

Case



13th February 2012


Will it never end? 28th February 2007: EADS Power 8 restructuration programme

launched

4300 jobs cut in France, 3700 in Germany, 1600 in U.K., 400 in Spain

Summer 2007: Airbus is hit by the weak US Dollar

A350XWB to be assembled in Toulouse

Still, the question remains open92

AIRBUS The Airbus

Case



13th February 2012


Towards a new beginning? 2009: Research on « Sharklet » wing extension for the narrowbodies launched

2010: Major narrowbody update rumoured

April 2010: A330-200 Freighter certified

Summer 2010: Airbus launches the Terminal Aerosave initiative for dismantling aircraft at the end of their life cycle

December 2010: Airbus A320 New Engine Option (NEO) combining sharklets, new engines and other optimizations launched for 2015

Still, the question remains open93

AIRBUS The Airbus

Case



13th February 2012


Diversification into military activities 2009: Roll out of the A400M

2009: Multi Role Transport & Tanker (MRTT) becomes new standard in aerorefueling

2009: EADS / Martin/Marietta wins Pentagon contract over 179 tankers

After Boeing claim, final contract awarded to Boeing in 2010

Aerospace remains a political issue94

AIRBUS The Airbus

Case



13th February 2012


In the meantime… Boeing runs into difficulties with the B787 « Delayedliner »

Lack of know how for complex project after decade-long cuts

Delay over delay... budget overruns of several billions

Airbus A350XWB runs into difficulties as well and gets delayed

Customers still criticise Airbus for not having « pushed the envelope » far enough

Meanwhile… composites are targeted for their long-term environmental damage

Are composites the quantum leap too much?95

AIRBUS The Airbus

Case



13th February 2012


Outcomes January 2011: 10.000th order (an A320 NEO)

June 2011: 667 gross orders for the A320 NEO at the Aérosalon de Paris representing USD 60.9 billion

July 2011: Sharklet devices tested for the first time

15th July: Lufthansa opens first experimental Airbus A320 biofuels service

2012: Beoing responds A320 NEO with B737 MAX

A new stalemate96

AIRBUS The Airbus

Case



13th February 2012


Current situation A320 NEO: The fastest selling aircraft programme in history

A330 twinjet: Continues to sell very well – major update for late 2012 rumoured

A340 quadrijet: End of production cycle earlier than expected

A380: sells slowly but permanently

A400M still plagued by problems

A330 MRTT remains niche product

New opportunities or old chances97

AIRBUS The Airbus

Case



13th February 2012

2006 - 2012: The Hard Workers

AnalysisAirbus slowly recovers but remains affected

Boeing underestimated complexities with B787

Airbus remains trapped in cost saving… and finds partially back to long term prospecting

Focus on technological superiority partially redeployed98

AIRBUS The Airbus

Case



13th February 2012


What can corporations learn from Airbus Discuss one type of corporation in groups for 10 minutes




Be your own site optimizer99© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



100


AIRBUS A Changing Framework:

European Integration







Basics of territorial / geographical convergence

Economies of scale Static gains owing to increased factor allocation

Dynamic gains owing to increased resource availability

Collateral gains such as leverage in negociations

Personal gains such as prestige

… yours to learn from 102





13th February 2012

The Road to the European Union

Economic integration first, political convergence second 1948: Organization for European Economic Cooperation (OEEC) for Marshall Plan

1949: Council of Europe for scientific and political resource pooling

1950: Association of European Aircraft Manufacturers established

1951: European Coal and Steel Community (ECSC) to « denationalize » strategic industries

1955: European Civil Aviation Conference (ECAC)

Common challenges in several key fields103





13th February 2012

The Road to European Institutions

The European Communities 1957: European Economic Communities (EEC)

1959: European Investment Bank (EIB)

1960: Eurocontrol for transeuropean air traffic control

1962: EEC becomes supranational in agriculture

1965: European Commission establishes the Politique de recherche scientifique et technique (PREST)

1966: EEC negociates the GATT Kennedy Round in its own right

From association to delegation104





13th February 2012

The Road to European Policies

A new international actor emerges 1972: EEC and EFTA establish Committee on Scientific and Technological Cooperation

(COST)

1972: Joint Aviation Authorities (JAA) for parallel aerospace and air transport certification

1974: EEC obtains UN Observer status

1974: The EEC contributes to the European Science Foundation (ESF)

1975: The Directorate General XII Research carries out the « Europe + 30 » research to to predict the future of Science & Technology in Europe

From delegation to adoption105





13th February 2012

The Road to European Politics

A new international authority readies itself 1978: Common monetary policy

1979: First direct election of European Parliament

1980: Council Directive 80/1266 rules Air Accident Investigation

1984: First Framework Programme for scientific research

1985: French President Mitterrand launches the Eurêka technology initiative

From adoption to integration106





13th February 2012

The Road to European Visions

A new international actor enters the scene 1985: White Paper on Single European Market by 1992

1986: Single European Act aligns national foreign policies

1987: European Airworthiness Authorities standardize air operations

1990: Joint Aviation Authorities (JAA) established

1990: Schengen Agreement abolishes frontiers

From integration to takeover107





13th February 2012

The Road to European Programmes

A new international actor enters the scene 1992: Maastricht Treaty transfers national political prerogatives to the European Union (EU)

1993: Single European Market launched

1996: Beginnings of the Single European Sky initiative

1996: European Commission suggets to consolidate the European aerospace industry as the only way to resist U.S. competition (Com(97) 466 final)

1997: European Association of Aerospace Industries (AECMA) launches the European Integrated Aeronautics Programme (EIAP)

2001: Euro introduced as the European currency

From takeover to association108





13th February 2012

The Road to European Leadership

A new supranational entity gets active 2001: Experts claim in « Vision 2020 » as an answer to the European Commissioner for

Research that Europe can take the lead in aerospace

2001: Aerospace actors establish the Advisory Council for Aeronautics Research in Europe (ACARE)

2002: European Air Safety Agency (EASA) established (EC Regulation 1592/2002)

2003: Commission Regulation on aircraft certification (CR 1702/2002

2004: European Commission launches Single European Sky ATM (SESAR) to merge aerospace technology and air traffic management and procedures

From assimilation to responsibility109





13th February 2012

Towards a European Crisis?

A new supranational entity gets active 2004: European Constitution rejected by referendum

2005: European Union Emissions Trade Scheme (EU ETS) targets air transport

2007: Europe hit by financial crisis

2009: Recession and beginnings of the Euro crisis

2011: European Financial Stabilization Mechanism and European Financial Stability Facility

2012: European Union Emissions Trade Scheme (EU ETS) launched

From responsibilities to burden110





13th February 2012


What do you think about the European integration Compare three influences in groups for 10 minutes

Elaborate a coherent profile for one sector



Be your own integrator111© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



112


AIRBUS The World Around Everything:

Globalization and Neoliberalism







Examples

Four representative projects How Airbus fights competitors

A business strategy

How the Airbus A380 came into being Example of a complex project management

The ongoing match Airbus A320 Neo versus Boeing 737

The open next round The Boeing B787 versus the Airbus A350 XWB






13th February 2012

How Airbus Fights Competitors (1)

An integral strategy… Maximize technology leaps as long as adequate

Right timing in respect to futured air transport demand

Product differentiation through complementarity

Long term vision in technology and customer response

Customer lock-in through Path Dependence

… based on superiority115





13th February 2012

The Airbus Challenges based on Porter



13th February 2012

Source: Author based on Cortez (2010), p.76

Strategic Risks

for AIRBUS

Industry CompetitorsRivalry among

existing firms (Boeing)

Potential EntrantsThreat of new

competitors (RU, BR, TJ)

BuyersBargaining power of customers (airlines)

SubstitutesThreat of substitute

products (ICE…)

SuppliersBargaining power of suppliers (engines)



Statistics of a Success Story



13th February 2012




The Airbus Challenges based on Porter



13th February 2012




How the A380 came into being (1)

Maximized disruptions without « ripping the envelope »… Product elaboration with all aspects in mind

Maximized innovations within existing Path Dependence

Creating a new product category

Maximized Marketing Hype

Customer lock-in through Path Dependence

… as a way to minimize risks119





13th February 2012

A380 implementation and Risk Centered Approach



13th February 2012




A380 implementation and Risk Centered Approach



13th February 2012




How the A380 came into being (2)

Challenges encountered and overcome Exponential complexity of product, manufacturing and

development

Budget overflows in times of expenditure cutting

Management problems unrelated to properties of aircraft

Negative dynamics of management problems

… yours to learn from exponential complexity122





13th February 2012

The Open Next Round: B787 versus A350 XWB (1)

Challenges overcome and pushed aside? Boeing 787 posed challenge

Airbus hit by recession and during short-term economies

Minimized response in the A350 based on A330 family

Customers wanted a strong Airbus to avoid Boeing monopoly

Airbus half heatedly yielded to customers (situation of monopoly)

Airbus has to learn again123





13th February 2012

Risk Taking In Innovation



13th February 2012

Source: Author based on Cortez (2010), p.278-291, Murdick, et.al. (1989), p.177-201, and Hampton (2009), p.81-94

New ProductB787 / A350 XWB

New way of Distribution

Disruptive MarketingN

ew t

ech

no

log

yM

any

dis

rup

tio

ns

New

way o

f M

anu

facturin

gC

om

po

sites

R I S K



The Open Next Round: B787 versus A350 XWB (2)

Challenges still underestimated Airbus A350XWB attempts to leapfrog the B787

Programme attempts to learn from technology leap

Airbus still wants to minimize cost

Customers are deceived and try to obtain more

Boeing has chance to « shoot down » A350 XWB through B777 upgrade

Will Airbus learn the lesson?125





13th February 2012

The Successful Match A320 NEO versus B737 MAX (1)

Airbus dominates the upcoming cycle Fastest selling aircraft family in history with 1400 orders in 1.5 years

Extrapolation of proven existing design

Technological updates

No disruption, therefore Micro-Path Dependence fully maintained

First major product overhaul

Boeing has difficulties to follow






13th February 2012

The BCG Product Portfolio applied to Airbus



13th February 2012

Source: Author based on Krogerus et al. (2008), pp.14-15

RelativeMarketshare

Gro

wth

in M

arke

t

High

Hig

h

Low

Lo

w

Dogs (A350 XWB) Cash Cows (A330)

Question Marks (A380) Stars (Airbus Narrowbodies)




Airbus dominates the upcoming cycle Fastest selling aircraft family in history with 1400 orders in 1.5 years

Extrapolation of proven existing design

Technological updates

No disruption, therefore Micro-Path Dependence fully maintained

First major product overhaul






13th February 2012


Boeing in the meantime B737 far older than A320

B737 far more difficult to upgrade – but no monopoly wanted

Other constraints (landing gear lower than A320), limiting engine options

Pressure on cost of R & D

May run into difficulties129





13th February 2012


What do you think about these programmes Adopt one of them for your industry




Be your own programme manager130© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



131


AIRBUS Looks into the

Future as a Conclusion



13th February 2012




Open Questions (1)

Some examples New competitors

Technology leaps and disruptions

Alternative fuels

Future raw materials demand and supply

Yours to think about them133© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012


Future for a Conclusion

Open Questions (2)

New Competitors Russia and China make efforts in Strategic Trade Policies

Massive investments

Winning trust by customers

Airbus and Boeing well-established (common interest)

Fundamental disruptions impossible

… yours to learn from134© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



The Vernon International Product Life Cyce



13th February 2012

Source: Author based on Graf (2002), p.23



Open Questions (2)

Technology leaps and disruptions Widebodies: ongoing potential for optimizations

Narrowbodies: disruptive potential limited owing to operational constraints

New materials and technologies of limited impact on short haul aircraft

Aircraft remain compromises following systemic lock-ins (infrastructure!)

From reality to dream



13th February 2012



Open Questions (3)

Alternative fuels Global air transport fuel demand counts for 3.4 % of world oil consumption

Efficiency gains of jet engines some 40 % over the last 50 years

Leverage gains (ATC, flight management, ground procedures…) largely untapped (potential at least another 40 % savings)

On-board storage, refueling and safety issues

… yours to learn from



13th February 2012



Open Questions (4)

Alternative fuels Hydrogen too disruptive

Biofuels more promising but energy yield lower

Biofuels not more ecological if overall picture in mind

Solar energy and electricity out of the question

Integral research to be continued

Beware of illusions138© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



Open Questions (6)

Future raw materials demand and supply Ecological approaches do not reduce demand for critical raw materials

Quantities lowered owing to better engineering

Depending on technologies adopted (LED diodes, displays, materials…)

Air transport remains marginal in overall resource use

… yours to learn from



13th February 2012



The Look into the Future



13th February 2012

Source: Author based on Graf (2002), p.23Distance into the FutureShort Long

Lo

wH

igh

Current Trend

Certainty of forecast

Struct

ural

/

Fund

amen

tal c

hang

eCertainty of new developments

Prognoses Pro-jections Scenarios Expectations

WishesHope

Rel

iab

ility



The Future As It Will Most Probably Be



13th February 2012

Source: Author based on Graf (2002), p.23Distance into the FutureShort Long

Lo

wH

igh

Current Trend

Forecast?Structu

ral /

Fundamenta

l

change

New developments?

Prognoses Pro-jections

Scenarios ExpectationsWishesHope

Wild-card

Wild-card

Wild-card

Wild-card

Wild-card

Black Swan

Black Swan

Rel

iab

ility




What do you think about the Airbus case Discuss in groups for 10 minutes

Elaborate an overall conclusions



The floor is yours142© Dr. Daniel Stanislaus Martel

[email protected]


13th February 2012



143


144

Qs and attempts of As

« ? » « !! »


13th February 2012


The Airbus Program - National Champions, European Project, Global Player

Education

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