AirBus and Boeing

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AirBus and Boeing

Category: Case Study

Subcategory: Economics

Level: Academic

Pages: 3

Words: 825

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TO: Boeing’s CEO
FROM:
DATE: 04/11/2015
SUBJECT: Airbus and Boeing
The Kind of rivalry between Airbus and Boeing
The rivalry between Airbus and Boeing is a competitive rivalry. Boeing appears to be a monopoly, and Airbus was intending to challenge its monopoly. Both companies are in the industry, that is, the aircraft industry; one (Boeing) appears to be ahead of the other (airbus). As Airbus tries to grow in the industry, it becomes a threat to Boeing. The decision made by one firm influences the decisions to be made by the other firm and their performance; in this case, if Airbus decides not to implement its proposed project them Boeing will benefit for many years. Every firm aims at leading in the industry and maximizing its revenue.
Another factor that makes this rivalry a competitive rivalry is the fact that a firm makes its intention and developments known to the other firm so as to examine their response to those decisions and developments. This competitive rivalry is very risky since it entails engaging in risky developments such as Airbus was making a decision of developing the world’s first commercial superjumbo jet in order to challenge Boeing’s monopoly in the industry. The action taken by Airbus is an action that initiates the competition in the aircraft industry.
The rivalry is competitive also because the two firms have resource similarity. Both firms are developing aircrafts, and they also aim at developing large aircrafts and thus accommodating a larger number of passengers; as a result they tend to be using the same kind of materials.
Developments to be undertaken by Boeing and Airbus.
Airbus will proceed with the project to develop the world’s first commercial superjumbo. According to various researches, reports were given and analysis done, proceeding with the project implementation will be of befitting to Air even though there are a lot of risks involved. Superjumbo market seems to be an attractive market according to the information and projections given concerning divergent forecasts of demand by Goldman First Boston report. If Airbus does not proceed with the project them, it will leave Boeing to enjoy all the profits in the superjumbo market. Airbus would also earn a higher share of superjumbo market segment than Boeing since it was considered to offer larger and newer design. According to these reports, Airbus is likely to proceed with the development.
Boeing will progress in its development of the superjumbo stretch 747-X in reaction to Airbus’s new development. This development is meant to help Boeing retain its position in the superjumbo market. Airbus could be unsuccessful in the market if Boeing fails to undertake this development, but this might not last for long. All new productions always experience fewer sales but once the good part of it is known, the sales change and this could be the case. Therefore, Boeing would not want to risk losing its position in the superjumbo market since it the most profitable airplanes and regaining the position if it loses it might be costly and might also take a long period.
Other activities that Boeing can do
Boeing can also consider employing employees who are expecting and thus reducing the total number of employees required to produce a single aircraft. Reducing the number of employees will reduce the cost of production and improve the financial situation of the firm. To further improve its financial situation, Boeing should focus on producing its most profitable airplanes (superjumbo) rather than increasing its production cost by producing several new models that are less profitable. Maximizing on its profits will help Boeing improve its financial difficulties and since Boeing is already in the superjumbo market, and now for a long time, it has an upper hand compared to Airbus regarding sales. Boeing should, therefore, make this effort of improving its financial situation before Airbus joins the market and Boeing stops enjoying the supernormal profit earned by a monopoly.
The firm that stands to gain more according to the institutional investor’s perspective
Airbus stands to gain more in this competitive rivalry. Despite the fact that Airbus is not yet in the superjumbo production, it still has a good financial position, unlike Boeing, which is experiencing financial difficulties and losses. Whether Airbus proceeds with the proposed project or not it still runs at a profit. If Airbus proceeds with the superjumbo development project, it is said to gain a higher share of a market segment than Boeing. Therefore, Airbus is either way will gain more.
The superjumbo project will help Airbus to diversify in the aircraft industry. Diversification is one of the best things a firm can do so as to spread the risk in the future. Therefore, Airbus is expanding in the aircraft industry, unlike Boeing which has to deal with the current problem even though it has been diversified in the industry. Diversification is a sign of gaining more.
The fact that Airbus is a threat to Boeing, it shows that Airbus has a greater potential and as Boeing reacts to Airbus’s decision; this reaction helps Airbus to attract more customers to their firm. This project and Boeing’s reaction also raises Airbus’s reputation, and a good reputation is an asset to a firm.
References
n.p. “Competitive Rivalry and Competitive Dynamic.” n.d. <https://elearn.uta.edu/bbcswebdav/users/jmcgee/Syllabus/Content/Syllabus%20and%20ourse%20Content/pdf/Chapter%2006.pdf >
n.p. “Principles of Economics.” n.d. <http://depts.alverno.edu/dgp/GEC/Principles%20of%20Economics.html>