Airbus Porter’s Five Forces Analysis

AirBus Five Forces Analysis

Airbus, a leading name in the aerospace industry is a maker of commercial aircrafts, helicopters, military aircraft and space systems.  2016 remained a significant year for the company when it made some major changes to kits organizational structure so as to foster quick decision making and companywide collaboration. It was also an year of solid progress when the company booked healthy orders.  There was a slight increase in the number of helicopters ordered and delivered. The space and defense systems section of the company booked healthy orders in Military Aircraft and space systems. Despite some very challenging situations, its helicopter business delivered more rotorcraft in 2016 compared to 2015.

Based upon its strong commitment of employees, the company was able to deliver 688 commercial aircrafts. Its backlog has risen to 6874 aircrafts and there was an increase of 3% in revenue based on stronger deliveries. Its 2016 revenue grew to € 67 billion. This is a Porter’s five forces analysis of Airbus discussing how these forces affect its competitiveness. These forces are a part of every industry and business and affect its attractiveness. Read further to know how attractive the industry is for Airbus and how competitive the brand is.

Key points:

Bargaining power of suppliers: Low

Bargaining power of buyers: Moderate

Threat of substitutes: Low

Threat of new entrants: Low

Level of competitive rivalry: High

 

Bargaining power of the suppliers:

For the success of its growing aircraft product line, Airbus relies on a large and global supply chain. Some 7700 suppliers are a part of this supply chain and many of them are major companies with financial clout and heavy influence. Some of the important names in its supply chain include 3M, SIEMENS, Honeywell, Rolls Royce and several other industrial partners. These suppliers are from several corners of the world. The overall bargaining power of these suppliers is low.

Apart from the general raw material like titanium, aluminium and composite material, Airbus also needs other kind of material to build advanced best in class aircraft. Airbus suppliers are required to follow some rules and regulations related to material quality and other things like labor welfare and ethics. Airbus has the upper hand because it is a major buyer. So, no supplier would like to lose such a major customer. This is why Airbus has higher clout and the bargaining power of the customers mostly remains low. If some of the suppliers have moderate bargaining power then it is due to quality and size.

Bargaining power of the customers:

The power has shifted in the hands of the customer in the 21^st century. It is the customer who is on the giving end. Several business brands are competing for market share in any industry. However, in the aerospace industry, it is just around 6 brands that can be called major brands. The customers of Airbus are the major and minor airlines brands around the world. Every Airlines brand wants to have the most fuel efficient and technology rich aircraft. This is because it makes flying an enriching experience and also saves costs. The customers’ demands are important for any aerospace brand. The bargaining power of the customers is overall moderate. It is because Airbus makes some great aircrafts whose demand is very high. It is also loaded with a large backlog. Its brand image and high quality products moderate the bargaining power of the customers.

Threat of substitutes:

The threat of substitute products is low. It is because while the demand for quality aircrafts has kept growing, there are only the competing brands like Boeing, Bombardier etc. that can deliver matching quality. Airbus aircrafts are performing very well and this is the reason behind their demand. The factors that minimize the threat from the substitutes are quality, technology, timely delivery and customer convenience. These factors keep the threat from the substitute products minimized. This also reflects in the heavy backlog that Airbus has collected. All these factors keep the treat minimized which remains in low to moderate range.

Threat of new entrants:

The barriers to entry and exit are high in the aerospace industry. For any new player trying to enter the market, it will have to make a very large financial investment in infrastructure and supply chain. You also need enough finances to pay your skilled human resources and to   have all the licenses and permits. All these things cost a fortune. Moreover, regulatory barriers will make your job difficult. So, if you are trying to exit the barriers will again make your job impossible. Based on these barriers, the threat from any new player might be considered nil unless some large technological brand with enough financial investment and knowhow decides to enter the market. However, the chances are still low because of the high risks, both financial and legal involved.

Level of competitive rivalry in the industry:

The level of competitive rivalry in the aerospace industry has grown intense. The number of players is limited. The main layers are just six. The other major names apart from Airbus include Boeing, Bombardier, Embraer and few others. These brands are investing in great quality and building helicopters, planes and military aircraft that employ the best in class technology and deliver superior value and performance. Now the customers have options and every brand is pushing the line of quality whether in terms of fuel efficiency or technology. The level of competition is clearly intense. The two main brands that rule the market are Airbus and Boeing and still Embraer and Bombardier have also made the mark in several areas. While airbus and Boeing are loaded with backlog, there is constant pressure related to quality and safety. These factors make the overall rivalry between existing players intense. Whatever edge a brand gains is based on its quality and brand image.

Sources:

1. Airbus Annual Report 2016