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Airbus Strategic Management Analysis

by Suleman

Table of Content

  • Executive Summary
  • Company Background
  • Mission and Vision of Airbus
  • Organisational Structure of Airbus
  • Porters Five Force Analysis
  • Value chain analysis of Airbus
  • Cultural Change
  • Human Resource Issues
  • Future Direction of the company
  • Information System
  • Recommendation
  • Reference
  • Bibliography

Executive Summary

Airbus is one of the most respected names in the aircraft manufacturing business. It produces aircraft for both commercial and military purposes. The last few years saw a decline in the company’s productivity due to technical glitches. Different management tools were used to identify the major hurdles faced by the company. This has helped to understand the prospects of the industry and the market position of Airbus. An in-depth analysis of the company is thus conducted to understand the changes brought in by the management for retaining competency in the market. The results of the research have helped to provide the future direction of Airbus.

Company Background​​ 

Airbus is among the worlds leading jetliners​​ and military aircraft​​ manufacturer with a unique vision, innovation and passion shared among the employees (Airbus, 2010).​​ "Airbus Industrie"​​ was founded in 1970 which has it's headquarter in Toulouse, France. ​​ This company is​​ a​​ subsidiary of EADS which is a​​ European aerospace company and the company manufactures half of the world's aircrafts.​​ ​​ In the year 1974 world's first twin engine wide body jet was introduced by Airbus. In the latter 1980's the company produced several famous aircrafts like A310, A318, A319, A320 and A321.​​ In 1990s Airbus produced long-range jetliners of A330/A340 family.​​ But the era of 2007 was revolutionary in the airline industry because Airbus introduced 525 seated A380 for commercial​​ operating.​​ ​​ The company also has a plan to introduce A350 XWB in the year 203 with many new and innovating​​ products in the military products range also.​​ ​​ 

Initially the European short haul Airbus was launched to fulfil the growing need of people who preferred to travel by air but at​​ an​​ affordable​​ price. ​​ After realising the growing threat for American Airline industry, minister from France, Britain and Germany met in 1967 and signed a memorandum of understanding or launching the first phase of A300 and from there onward the revolutionary era started​​ (Airbus-a, 2010).​​ Considering the growing competition in market, EADS was formed who was the new owner of 80 percent of the Airbus and rest by BAE system. Such collaboration​​ gave rise to Airbus SAS (EADS, 2000).​​ Boeing, the US aircraft​​ manufacturer has always been the strong competitor of Airbus, and the government of different European​​ like Spain, Britain, Germany and France. Such subsidiary gave the company to attract more numbers of contracts and to grow with a greater​​ speed​​ (Tagliabue, 1996).​​ Till date these​​ two companies compete with each other to achieve the leadership in aircraft​​ manufacturing business.​​ Due​​ to economic meltdown in throughout the world Airline industry suffered a lot and as a result the financial performance of aircraft manufacturer companies declined​​ (Lagadec, 2008). The data revealed from government of developing nations indicated that economy is recovering at a slower rate but soon the condition will be fine, where as in the ​​ Asia Pacific region like economy is performing quite well which will help Airbus to enhance its performance in coming years.​​ 

Figure 1: Journey of Airbus

airbus aircraftrange

(Sundar, et al., n.d.)

Mission and Vision of Airbus

According to the Company, its mission statement reveals that Airbus's mission is to fulfil the need of Airline as well as its operators​​ but producing the modern and wide range of aircraft family which are of highest standards (Airbus-b, 2010).​​ ​​ 

The company infuses its values of innovation and excellence among the employees and considers the suppliers, contractors and customers as the corporate partners for achieving safety, quality and performance benchmarks. The company always kept market need as the centre while developing the new products; it also considers the suggestion given by airline companies and aviation authorities.​​ ​​ As Airbus is a customer specific company so the management always prefer to have a two way exchange of ideas, views and technological feedbacks. This results in high integration between the company & its stakeholders and Airbus gains an image of "most reliable and best performing aircraft" (Airbus-b, 2010).​​ It can be concluded that Airbus emphasis highly on the quality of their products, they try to introduce the innovative technology to make the aircraft a unique one and also introduces those feature which make their product more used friendly. The company's Mission and Value stamen provides the backbone of the organisational culture; the management try hard to share these values with the employees for developing an effective organisational culture.​​ 

Organisational​​ Structure of​​ Airbus​​ 

Initially​​ Airbus maintained a​​ bureaucratic  ​​​​ organisational structure where the different vertical hierarchal structure communicated with each other in more formal manner.​​ The​​ structure was complex and was suffering with many communication​​ problems. The​​ structure was arranges in such a manner that it was quite difficult for the subordinates to pass their message to the supervisors.​​ When the ex-employee of Airbus​​ who worked as senior engineer in the company was interviewed, he disclosed many hidden facts regarding the company's corporate structure. He revealed that in Airbus, the subordinates are not allowed to share their work related problem with the supervisors or managers because they consider these problems just an excuse to pass the job responsibility. Such poor communication among the different department of the Airbus resulted in failure of A380 because when the whole structured was assembled they find wiring was a major problem. As a result the company has to delay their delivery schedule of A380 until all the design related factors are settled. The company cost many orders worth of several Billion dollars and its competitor, Boeing got the change to enhance​​ their sales by many folds (Matlack, 2006).​​ This was a clear example of poor communication between the employees due to complicated and bureaucratic organisational structure.​​ ​​ 

(Sundar, et al., n.d.)

After realising the problem, management of Airbus introduced certain changes in the existing traditional organisational structure.​​ In the year 2007, airbus enounced more simple and streamlined organisational structure​​ for enhancing​​ transnational integration. The management declared that such simple structure will result in​​ complete​​ integration of operation,​​ manufacturing, procurement, finance and human resource department​​ (ATW Daily News, 2007).​​ 

As described by Airbus this new structure was introduced to make the company "a real architect and integrator"​​ for manufacturing airline and supporting this industry​​ (Airbus-a, 2007).​​ The plan was to make​​ Airbus more competent and to satisfy the need of its customer in best possible manner.​​ After introducing​​ the​​ reorganisation plan, Airbus reduced its supplier size (initially it was few thousands). The motto was to retrain few suppliers and make them strategic partners; the company started outsourcing​​ its non core business​​ activities. In the Power8 plan of restructuring of organisational structure of Airbus it was mentioned that by 2010 the company has a plan to cut 10,000 jobs​​ to reduce the operating​​ and the company the already​​ made job cut of 4,100 (Reuters, 2009).​​ It can be assumed that in the coming future the changes made by the company in its organisational structure will prove more beneficial and will enhance the productivity of Airbus.​​ 

Porters Five Force Analysis

Porter Fiver Forces Analysis assists the management to develop the appropriate strategy after analysing the outside forces which directly affect the company. This is​​ an effective tool which helps​​ to analyse and understand dynamics of a specific industry, this also assist in finding the​​ degree​​ of​​ competition​​ in the specific industry and its attractiveness​​ for both the latest candidates and for the existing ones (Porter, 2008, p.3-4).​​ 

Figure 2: The Five Forces That Shape​​ the Competition

(Source:​​ Porter, 2008)

Porter's Five Force Analysis has been conducted to understand the position of Airbus in aircraft manufacturing​​ industry. The five forces which affect operation of Airbus are discussed as followed:

Threat of new entrants: ​​ 

The airline industry needs high expenditure of resources and hence this act as barriers for the new entrains. When​​ an​​ airline company purchases an aircraft, they prefer to settle the deal who have strong market image and are old players in the industry. The old players in aircraft manufacturing business who have large market share​​ enjoys economies of scales and hence they can control the prices in such lower levels which becomes problem for the new​​ entrains.​​ The switching cost for​​ thru​​ new entrains is high because different government imposes different rules on these companies. It can be inferred, given all these details, that threat of new entrant in low in aircraft​​ manufacturing​​ business.​​ 

Bargaining power of Buyers:

As Boeing is the strong competitor of Airbus and their products are quite similar in many terms, hence the buyers have an opportunity to switch from one producer to another without​​ much problem.​​ The buyers can go for backward integration and create more pressure on Airbus​​ thus​​ the buyers have​​ a​​ strong bargaining power.​​ 

Bargaining power of suppliers:

Initially Airbus had several thousand suppliers for their business, but after introduction of power8 plan of restructuring organisational structure and operation process company has started to retain few suppliers who can be strategic partner for in long term future. Such collaboration with the suppliers will result in healthy relation and bargaining power of supplier is low.​​ 

Threat of substitute product:

With advancement in technology new fast mode of locomotion came into existence which can be used for​​ shorter distances coverage and hence they give strong challenge to the short distance hauls. When passengers have to cover long distances, apart from airline no other locomotive can be used and thus the threat of substitute to long distance haul is low.​​ 

Rivalry among existing competitors:

Apart from Airbus there are certain more aircraft manufacturers such as​​ A.T.R, Dassault Aviation, Embraer, Eurocopter, but Boeing is the biggest competitor of Airbus. Both the companies try hard to occupy the position of market leader​​ and thus go on adopting different competitive strategies (European Business, 2004).​​ Airbus and Boeing are the two major market players in airline manufacturing business and the strategies adopted by Airbus is highly influenced by the strategy followed Boeing so the competition is quite high. ​​ 

Value​​ Chain​​ Analysis of Airbus

The concept of value chain analysis was first introduced by​​ M. Porter and this concept assists​​ a company to understand how different activities add value to the product or services offered by the company.​​ Firm uses this concept as a template to understand it cost position and the different means through which the company can implement different​​ business level strategies​​ (Hitt, et al., 2008,​​ p.84).​​ ​​ To understand the cost incurring structure​​ in Airbus, all the vital activities need to be segregated into primary​​ as well as supportive activities. Primary activities are the one which are directly related with production of aircraft and supportive activities are whose activities which provide support for conducting the primary activities.​​ 

Figure 4: Value chain analysis

(Source: Learn Marketing, n.d.)

Inbound logistic:

It refers to the goods acquired from different suppliers and the cost incurred throughout the process. Airbus had around several thousand suppliers which resulted in higher cost of production, but after introduction of Power8, company started maintaining just few numbers of suppliers who are strategic partners. To pay more attention on core activities, the company started outsource​​ the noncore;​​ hence cost of inb


The company incurs majority of the direct cost during its operation activities and the operating profit of the company directly depends on particularly this activity.  ​​​​ After analysing the financial report of Airbus for the last 9 months it can be concluded that company's core expanses on operation has increased on​​ y-o-y​​ basis. So Airbus have to take this factor into consider more seriously and should plan to reduce​​ the operation​​ costs as far as possible.

Outbound logistic:​​ 

This cost is related with supplying the products to the customers.​​ In the year 2007 Airbus was supposed to give delivery certain numbers of A380 aircrafts but due to technical problem it failed. Many such orders are pending which will result in higher outbound cost for the company. The company have to make more investment to increase efficiency of its supply chain for making delivery.​​ 

Marketing And sales:

The aircraft manufacturing industry is governed by two major players namely Airbus and Boeing. In the last few years airbus suffered a lot due to fall in the revenue because the company failed to give the delivery of A380 by the end of 2007 and this resulted in​​ loss of revenue. Considering the financial report for the last 9 month of Airbus it can be concluded that selling and​​ advertising expanses has rose along with hike in research & development cost. If the company has to enhance overall profitability of the company, these expanses have to be reduced as far as possible.​​ 


To retain in the high market share, airbus have to keep the customers satisfied and hence have to make good amount of expenditure in customer care department.​​ ​​ As this expanse cannot be neglected, so Airbus​​ has​​ to bear this cost.​​ 

Firms infrastructure:​​ 

According to Power8 plan the company decided to concentrate mainly on the core business activities and outsource other​​ business activities. This helped the company​​ to save cost on infrastructure development. However as the company has​​ to deliver many orders of A380 in near future, it is expected to​​ expanded its operation and the cost on infrastructure will automatically go high.​​ 

Human resource management:

The company considers its human resource as its strategic partner​​ and they pay a lot of care​​ to ensure that​​ the best labour force​​ is retained. Training programmes are designed according to the​​ job responsibilities​​ of the employees.​​ The​​ HR​​ department of Airbus has no intention​​ to cut the training programmes in the near future because this will affect the product quality​​ (Airbus-d, n.d.). However the company has​​ a plan​​ to cut down 10,000 jobs​​ by 2010.​​ Hence​​ the total cost on human resource​​ management is expected to​​ come down.​​ 

Technical development:

Airbus faced a strong threat after it failed to assemble A380​​ on time. This reflected​​ the​​ problems​​ existing​​ in​​ technology as well as​​ in the communication procedure. To overcome the technical problem, the company approached IBM Global Business Services to provide technical assistance.​​ The collaboration increased​​ company's​​ productivity​​ without making any major investment in additional hardware​​ (IBM, 2006).


Keeping in tune with the​​ Power8 plan, Airbus is trying​​ to reduce its procurement cost by​​ maintaining less​​ number of suppliers. Airbus believes in maintaining​​ strategic partnership with its suppliers,​​ which​​ is expected to lower the cost of procurement​​ as well as​​ ensure a​​ better quality.​​ ​​ Outsourcing the non-core operations will​​ help in reducing the​​ procurement cost. The company is introducing changes in its supply chain management so that whole​​ processes​​ can​​ progress​​ in​​ a​​ smoother manner.​​ 

Cultural Change

Consistent performance delivered by Airbus made the management so complacent that they did​​ not bother to​​ bring any​​ change in the organisational culture for several years. The management continued with traditional, vertical hierarchal structure which later ensued in many problems. The basic​​ organisational culture was influenced by​​ the​​ bureaucratic​​ structure where mode of communication was mainly​​ vertical. Problems related with​​ the cultural factors came to the surface when Airbus failed to assemble its new product A380 in the year 2007. Management realised that the design of the aircraft was not competent as final wiring turned out to be the major problem.​​ The​​ main reason behind such discrepancy​​ in the design was​​ the lack of communication between​​ the technical staff and the different groups of engineers who were working on the​​ project (Airmech, 2006).​​ 

In a company,​​ the organisational culture is influenced by many factors like the corporate strategy, the​​ mode of communication between the way employees, the group dynamics,​​ the core values​​ and beliefs​​ followed by the workforce​​ (Keyton, 2005, p.28).​​ In the early 2006 when Airbus conducted​​ a​​ research to find out the reasons behind​​ the​​ failure of their new project,​​ it was discovered that the primary reason was the nonchalant attitude of the managers towards the problems faced by their subordinates. When any employee went​​ to the supervisor with​​ a problem, they didn't pay heed to it.​​ The bottom​​ up communication channel​​ thereby started mal-functioning​​ thereby upsetting the entire​​ organisational cultured. After​​ the​​ appointment of​​ the​​ new​​ company executive Louis Gallois in the year 2006, Airbus witnessed​​ a series of changes​​ in its organisational culture​​ (European Voice, 2006). First and foremost among them was the introduction of a simpler organisational structure so as to facilitate​​ a smoother​​ communication​​ among the various​​ departments​​ both vertical (bottom-up & top-down channel)​​ and horizontal.​​ 

Louis Gallois introduced a long term plan named Power8 to amend​​ the existing cultural loopholes in Airbus.​​ According to the plan it was decided that more​​ emphasis​​ would be laid on​​ its core business​​ and​​ around 10,000 job cuts will be done by 2010.​​ The company​​ is trying hard to​​ enhance its environment policies by adopting ISO 14001 standards, so Airbus is providing proper training to its employees to make them more aware towards issues related to environment, implementation of environment policies and role of each and every employees in​​ the​​ improvement of environment​​ in​​ the long​​ term (Airbus-e, n.d.).​​ Due to​​ the​​ change in organisational culture, Airbus managed to reduce​​ emission of Carbon dioxide by 4 percent from 2006 to 2007, emission of volatile organic compound reduced​​ by​​ 4 percent from 2007 on y-o-y, between 2006-07 emission of NOx ​​​​ & SOx​​ reduced by 13 percent and 26 percent (Airbus-f, 2008, p.30-31). All this factors indicates​​ that the management​​ was successful​​ in changing the organisational​​ culture so that the company becomes more​​ competent. ​​ 

Human Resource Issues

Workforce​​ is a vital resource​​ of any company​​ and​​ its success depends​​ a lot on​​ the​​ efficiency of the​​ employees.​​ Airbus is​​ very particular regarding the selection and training of its human resource and the policies are​​ designed​​ to improve​​ the required skills of​​ the employees. Airbus considers its employees as the strategic partner and frames​​ the HR policies keeping this fact in mind.​​ Company is​​ therefore​​ planning to make the policies more flexible so that it can be modified as per the requirement of different countries and its local workers. In the recent past Airbus​​ has​​ made its self more technically advanced, hence the HR should be trained to adjust itself with the changed environment.​​ The success of the new HR policies of Airbus​​ can​​ only be analysed after​​ recession​​ phase gets over and Airbus delivers​​ their pending orders of A380. At present the HR policies of Airbus are based on five main factors which are: design, operation, training,​​ maintenance, and communication. The HR department is trying hard to reduce all the hurdles to facilitate a​​ smooth functioning of all these factors​​ (Bousquie & Neil, 2001).​​ 

Future Direction of the​​ Company

In​​ the​​ past the company suffered huge losses​​ due to complex organisational structure, poor communication channels and​​ extremely​​ diversified business. This forced the company to​​ accept​​ many non-core businesses, lower productivity of human resource, rigid operation policies, high cost of operations​​ and poor profitability.​​ These problems​​ came to​​ surface when the much talked A380​​ project failed to be delivered on​​ proper time. This was​​ learning​​ lesson​​ for the company;​​ the management took certain stringent steps to overcome the loopholes and upgrade the quality of its products and services.​​ The company's future plan is to​​ decrease​​ the workforce so that excessive operating cost can be reduced and​​ the​​ money can be investment for proper training of the​​ remaining​​ employees to make them more​​ competent. ​​ 

Airbus​​ has​​ several​​ challenges to face in​​ the near​​ future. Not only it has​​ to​​ deliver the pending A380 aircraft but also meet the new order that​​ rose to 310,​​ which comprises of both commercial aircraft and military aircraft. At present the total​​ backlog order of Airbus is 3,488​​ which amount to​​ U.S. $437.1. For accomplishing these orders Airbus has​​ to expand​​ its production capacity and has​​ to make the whole process more efficient​​ (Airbus-g, 2010).​​ The collaboration of airbus with IBM turned out​​ to be successful and it can be expected​​ that in near future Airbus will undergo​​ more​​ such types of collaboration to improve the quality and​​ to enhance the productivity​​ (TechDrummer, 2008).

Information System

Airbus makes high​​ investment in technological up gradation​​ of the operation system.​​ The​​ company makes good expenditure in the R&D so that new and more competitive designs can be introduced. Company has introduced SAP for smooth functioning of its supply chain management and to facilitate​​ a better collaboration among all the functional departments like production, purchase, sales,​​ human resources, finance.​​ After successful​​ collaboration with IBM, the company enhanced its technological environment. Support from IBM in the form of​​ efficient and well trained human resource helped the company to increase its productivity.​​ Technology is the core sector in aircraft manufacturing business hence Airbus has to make more investment in R&D.​​ 


After analysing the aircraft manufacturing industry with the help of Porters Five Forces,​​ it seems that competition is quite high​​ which is expected to rise with time. The change in organisational structure​​ and introduction of Power8​​ are some of the positive​​ steps​​ taken by Airbus which​​ is expected to elevate the company position in the market. However,​​ the management should continue​​ up-dating its strategic plan as per the​​ demands of the changing market. Making the organisational structure flat and decentralised will improve communication among​​ different organisational levels. Technology is what gives the extra edge​​ in aircraft manufacturing business, so the company should concentrate more on R&D.​​ ​​ Introduction​​ of advanced technologies and​​ healthier​​ human​​ resource management policies will ensure that that Airbus is benefitted in the long run.

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