Boeing Felt Threatened by the Rise of Airbus

Case Type: business competition/competitive response.
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: Airlines; Aerospace & Defense.

Case Interview Questions #00041: You are consulting to the CEO of the Boeing Company (NYSE: BA), a large airplane manufacturer headquartered in Chicago, Illinois, United States. The company is made up of several business units, including Boeing Commercial Airplanes (BCA); Boeing Defense, Space & Security (BDS); Engineering, Operations & Technology; Boeing Capital; and Boeing Shared Services Group.

In the last couple of years Boeing’s market share in commercial airplanes has gone from being number one to number two. In addition, another company Airbus SAS, the aircraft manufacturing subsidiary of European aerospace company EADS (Euronext: EAD) has just announced that it will be entering the airplane manufacturing business and is presently tooling up its plant. As a consultant for Boeing, what are the concerns your might face? What additional information might you want to find out, and what recommendations would you give to Boeing?

Possible Solution:

As a consultant for Boeing, you are most likely concerned with three key items:

• The condition of the airplane manufacturing industry.
• Why your client Boeing has lost market share?
• How to prevent the new entrant Airbus from stealing market share from your client?

1. The airplane industry’s demand is a function of travel among two classes: business and leisure. Business travel increases as a result of globalization. Leisure travel increases with growth of middle and upper classes. Business travelers are primarily insensitive to price, leisure travelers are very price sensitive.

2. The current competitor Airbus:

A comparison of price, service, technology, heritage, safety should be discussed. It turns out that planes made by Airbus is cheaper to operate because it is more fuel efficient. As a consultant, you should ask a strategic question whether Boeing is interested in the manufacture of more fuel efficient planes. The answer would depend on the future of oil prices. Instead, it may be better to try to compete on the basis of price, safety and service.

3. Prevention of a new competitor gaining market share:

Key:Creation of barriers to entry.

• Long term contracts are preemptive.
• High concern, on the part of purchasers, for a proven safety track record.