Aerospace Sector Analysis
Group Members:
Kelly Karsten
Nicholas Frank
Maren Peasley
Shane Fuchigami
Sector Definition
• Aerospace and Defense
– Commercial
• 100+ seats
• Jets <100 seats
– Defense and Space
• Aircraft and Arsenal
• Satellites and Launching Pads
Sector Subset
• Why focus on Commercial?
– Passenger miles have an impact on demand for
airplane production.
– Airline profitability has a direct relationship
with plane production demand
– Military information is classified
– Current decreases in sector need to be
recognized
Competitors in the Commercial
Aircraft Industry
•
•
•
•
Boeing
Airbus
Bombardier
Embraer
Overview of Boeing
• Leader in the commercial jet manufacturing for
decades
• Merged with McDonnell Douglas in 1996
• Second largest defense contractor in 2000
• Leader in the satellite making (space industry)
business as of 2001
Overview of Airbus
• Established in December of 1970
• Boeing’s only competitor in commercial jet
manufacturing
• Controlled 55% of the large passenger aircraft
market in 2001
Percentage of the Market Share in the 100+
Seat Commercial Airline Industry in 2001
Boeing
45%
Airbus
55%
Overview of Bombardier
• World’s largest maker of small planes in Canada
• Make jets that seat between 25-90 passengers
• Control 36% of the global market for business
and regional jets
Overview of Embraer
• Company founded in 1969 in Brazil
• 11,000 employees
• Historically their planes seat between 30-50
passengers
• Currently developing new jetliner family in the
70-110 seat category
Percentage of World Market Share for
Regional Aircrafts in 20-99 Seat Category
Other
20%
Embraer
8%
Bombardier
72%
Boeing
Strengths
Weakness
• Strong brand name
• Market power in all levels
of aerospace industry
• Focusing on growing
market of jets less than
100 seats (Bombardier)
• Lost sales due to current
US recession
• Losing market share to
Airbus
• Relocating headquarters to
St. Louis disruptive to
synergy/corporate culture
• Cyclical employment
Airbus
Strengths
Weaknesses
• Gaining market share
on Boeing every year
• Flexibility
• Cost-efficiency
• Funded by outside
sources (States and
Government)
• Slowed Sales due to
US recession
• Focus on 500+ seats
while trend is going
toward smaller, faster
jets
• Cyclical employment
Bombardier
Strengths
Weaknesses
• Operates in a growing
market
• Huge increase in Net
Income from 2001 to
2002
• Known as a socially
responsible company
• Heavy competition by
Airbus and Boeing
• Increased long-term
liabilities to fund
expansion
Embraer
Strengths
Weaknesses
• Currently entering a
growing market
• One of world’s four
largest commercial
aircraft manufacturers
• New products offered
at low-cost and have
exceptional quality
• Not know that well
domestically
• Competing in a very
competitive US
industry
Why These Four Companies ?
• Boeing – Biggest aerospace player
• Airbus – Boeing’s only competition in the
commercial jet industry with 100+ seats
• Bombardier – World’s largest maker of small
jets
• Embraer – One of the world’s four largest
commercial aircraft manufacturers
Sectors Dominant Economic Traits
•
•
•
•
•
•
•
Maturity Stage
Fierce Competition
Competing on Price
Difficult to grow in size
Cyclical employment / development
Expensive production costs and R & D
No international barriers
Market Size and Growth
•
•
•
•
•
Low-growth industry
Highly saturated industry
Orders are declining and being cancelled
Focus: Try to expand market share
If airline profits fall, orders will fall
Scope of Competitive Rivalry
• Boeing vs. Airbus
–
–
–
–
Mature Market
Airline Price Leverage
Cannot stop Production Line
Price Discounting
• New market appearing (Bombardier)
Macroeconomic Issues
• U.S. Recession
- unprofitable airlines
• September 11th
- low consumer confidence
• Weak economy
• Wars and Terrorism
- Oil prices
Competitive Forces at Work
• Passenger traffic
– Why do people want to fly?
– Where do they want to go?
– How much are they willing to spend?
• Technology
– Changing consumer demand and new
technology spur higher seat aircraft
– Older aircraft being replaced due to noise
regulations
Aircraft Orders – 1996-1999
3000
2500
2000
Cancellations
Net Orders
1500
Deliveries
Backlog
1000
500
0
1996
1997
1998
1999
Aircraft Orders – 2000-2003
3000
2500
2000
Cancellations
Net Orders
1500
Deliveries
Backlog
1000
500
0
2000
2001
2002
2003
Sector Attractiveness
• Cons
– Multi-Billion Dollar investments required
– Break-even point can be years after production
starts
– Worker unions are very powerful
Sector Attractiveness
• Pros
– Potentially billions of dollars in profit
Success Factors
• Core competency in specific Aerospace
Discipline
– Aircraft electronics
– Frame/Fuselage design or production
– Engine design or production
• Mountains of $$
Sector Health
• Aircraft manufacturers exhibit weak
financial ratios
Sector Opportunities
• Improving good will with unions could be
an extremely valuable asset
Sector Problems
• Financial ratios getting worse
• Market based on fickle (consumer) market
• Development costs extremely high and
rising
Drivers for Change
• Health of Economies
– Consumer Confidence
•
•
•
•
•
Consumer Need to Travel
Health of Airline Industry
Prospect of War
Government Spending/Regulations
Technological Innovations
Competitor’s Moves
• In time of war, shift focus to Military
• Boeing
– Supersonic Jet
• Airbus
– Super-Jumbo Jet
• Bombardier
– Focus on Smaller Jets
• Embraer
– Focusing on the 70-110 seat market
How does this affect the Sector?
• Change the way of consumer/business
travel
• Recession will cause less travel
• Looking for substitute ways to travel
– Trains, Cars, Buses, etc.
• Increased congestion at Airport hubs
– Need for point to point travel
Impact of Change on Key Sector
Participants
• Orders will get cancelled
• Decrease Revenues for firms
• Affects the future of the companies 5 years
out
• Increase R&D spending to meet
government regulations
Bibliography
• Dukcevich, Davide. “Boeing, Airbus Fly Above
Cancellations.” Forbes. 15 Aug. 2001. 11 Nov. 2002.
www.forbes.com/business
• Pollcak, Jacob & Friedman, Robert. “Aerospace and
Defense.”S&P 500 31 Oct. 2002. 15 Nov. 2002
www.netadvantage.standardandpoors.com
• Taylor III, Alex. “Little Jets are Huge.” Fortune. 4 Sept.
2000. 5 Nov. 2002. www.fortune.com/lists/F500
• www.airbus.com
• www.boeing.com
• www.embraer.com
• www.bombardier.com
Bibliography
• Personal interview. Richard Wynne. The
Boeing Company. 13 Sept. 2002
• “Industry Surveys.” Volume 1. A-D.
Standard & Poor’s. Selected data from
“Aircraft Orders & Deliveries” table.
Aerospace & Defense Industry Survey, pg.
3. July, 2001.
Bibliography
• “Industrial Manual.” Volume 1. A-I. Mergent.
Balance Sheet and Income Statement from “The
Boeing Co.” and “Bombardier Inc.”. July, 2001.
• “Industrial Manual.” Volume 1. A-I. Mergent.
Balance Sheet and Income Statement from “The
Boeing Co.” and “Bombardier Inc.”. July, 2000.
• “Industrial Manual.” Volume 1. A-I. Mergent.
Balance Sheet and Income Statement from “The
Boeing Co.” and “Bombardier Inc.”. July, 1999.
Bibliography
• “Industrial Manual.” Volume 1. A-I. Mergent.
Balance Sheet and Income Statement from “The
Boeing Co.” and “Bombardier Inc.”. July, 1998.
• “Industrial Manual.” Volume 1. A-I. Moody’s.
Balance Sheet and Income Statement from “The
Boeing Co.” and “Bombardier Inc.”. July, 1997.
Questions ???