Aerospace Sector Analysis
GroupMembers:
Kelly Karsten
Nicholas Frank
Maren Peasley
Shane Fuchigami
Sector Definition
• Aerospace and Defense
每 Commercial
• 100+ seats
• Jets <100 seats
每 Defense and Space
• Aircraft and Arsenal
• Satellites and Launching Pads
Sector Subset
• Why focus on Commercial?
每 Passenger miles have an impact on demand for
airplane production.
每 Airline profitability has a direct relationship
with plane production demand
每 Military information is classified
每 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
Airbus
55%
Boeing
45%
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 WorldMarket Share for
Regional Aircrafts in 20-99 Seat Category
Bombardier
72%
Embraer
8%
Other
20%
Boeing
Strengths
• Strong brand name
• Market power in all levels
of aerospace industry
• Focusing on growing
market of jets less than
100 seats (Bombardier)
Weakness
• 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
• Gaining market share
on Boeing every year
• Flexibility
• Cost-efficiency
• Funded by outside
sources (States and
Government)
Weaknesses
• Slowed Sales due to
US recession
• Focus on 500+ seats
while trend is going
toward smaller, faster
jets
• Cyclical employment
Bombardier
Strengths
• Operates in a growing
market
• Huge increase in Net
Income from 2001 to
2002
• Known as a socially
responsible company
Weaknesses
• Heavy competition by
Airbus and Boeing
• Increased long-term
liabilities to fund
expansion
Embraer
Strengths
• Currently entering a
growing market
• One of world＊s four
largest commercial
aircraft manufacturers
• New products offered
at low-cost and have
exceptional quality
Weaknesses
• Not know that well
domestically
• Competing in a very
competitive US
industry
Why These Four Companies ?
• Boeing 每 Biggest aerospace player
• Airbus 每 Boeing＊s only competition in the
commercial jet industry with 100+ seats
• Bombardier 每 World＊s largest maker of small
jets
• Embraer 每 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
每 MatureMarket
每 Airline Price Leverage
每 Cannot stop Production Line
每 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 atWork
• Passenger traffic
每 Why do people want to fly?
每 Where do they want to go?
每 How much are they willing to spend?
• Technology
每 Changing consumer demand and new
technology spur higher seat aircraft
每 Older aircraft being replaced due to noise
regulations
Aircraft Orders 每 1996-1999
0
500
1000
1500
2000
2500
3000
1996 1997 1998 1999
Cancellations
Net Orders
Deliveries
Backlog
Aircraft Orders 每 2000-2003
0
500
1000
1500
2000
2500
3000
2000 2001 2002 2003
Cancellations
Net Orders
Deliveries
Backlog
Sector Attractiveness
• Cons
每 Multi-Billion Dollar investments required
每 Break-even point can be years after production
starts
每 Worker unions are very powerful
Sector Attractiveness
• Pros
每 Potentially billions of dollars in profit
Success Factors
• Core competency in specific Aerospace
Discipline
每 Aircraft electronics
每 Frame/Fuselage design or production
每 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
每 Consumer Confidence
• Consumer Need to Travel
• Health of Airline Industry
• Prospect ofWar
• Government Spending/Regulations
• Technological Innovations
Competitor＊s Moves
• In time of war, shift focus to Military
• Boeing
每 Supersonic Jet
• Airbus
每 Super-Jumbo Jet
• Bombardier
每 Focus on Smaller Jets
• Embraer
每 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
每 Trains, Cars, Buses, etc.
• Increased congestion at Airport hubs
每 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 ???