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
Boeings 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
Overview of Bombardier
Worlds 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
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 worlds 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 Boeings only competition in the
commercial jet industry with 100+ seats
Bombardier Worlds largest maker of small
jets
Embraer One of the worlds 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
Aircraft Orders 2000-2003
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
Competitors 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 & Poors. 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. Moodys.
Balance Sheet and Income Statement from The
Boeing Co. and Bombardier Inc.. July, 1997.
Questions ???
