Table of Contents

EXECUTIVE SUMMARY........................................................................................................................... 2
1. EXTERNAL ANALYSIS OF AIRBUS................................................................................................... 2
1.1 A CRITICAL ANALYSIS OF AIRBUS EXTERNAL MACRO CONTEXT USING PESTLE........................................2
1.1.1 Political & legal context.............................................................................................................................. 2
1.1.2 Economic Context.......................................................................................................................................... 3
1.1.3 Social context.................................................................................................................................................. 3
1.1.4 Techonological Context.............................................................................................................................. 4
1.2 INNOVATION CHALLENGES FACING AIRBUS........................................................................................................5
1.3 PORTER´S FIVE FORCES APPLIED IN AIRBUS......................................................................................................5
1.3.1 Competitive rivalry (low)........................................................................................................................... 6
1.3.2 Bargaining power of suppliers (low).................................................................................................... 6
1.3.3 Bargaining power of customers (low).................................................................................................. 7
1.3.4 Threat of new entrants (low)................................................................................................................... 7
1.3.5 Threat of substitute products or services (low)...............................................................................7
2. INTERNAL ANALYSIS OF AIRBUS.................................................................................................... 8
2.1 THE RESOURCE-BASED VIEW (RBV)...................................................................................................................8
2.1.1 Human:.............................................................................................................................................................. 8
2.1.2 Tangible............................................................................................................................................................. 9
2.1.3 Intangible.......................................................................................................................................................... 9
2.2 AIRBUS CORE CAPABILITIES............................................................................................................................. 10
2.3 MISSION AND OBJECTIVES................................................................................................................................... 10
2.4 CURRENT INNOVATION........................................................................................................................................10
3. UNDERSTANDING THE CURRENT INNOVATION STRATEGY...............................................12
4. STRATEGIC RECOMMENDATIONS............................................................................................... 13
5. CONCLUSION...................................................................................................................................... 13
Executive Summary
Recently, Innovation becomes considerable relavant for the strategies to gain
competitive advantage for organizations. Firms usully use this element to enhance
customer experience and fulfill their levels of satisfaction. This report attempts to
critically analyse all the main characteristices about Airbus case study. Firstly, trought
a Porter Five Forces Analysis, this study wil portrays the macro environmental factors
that may impact this organization and how this company has face these challenges.
Hence, it likely determines whether or not this company have address innovation
based on the external forces.

Moreover, the internal factors that can have an effect on Airbus, ie, resources such as
financial, human or intangibles are analyzed. Additionally, it will emphasize the
competitive advantage the company has in the market and what is the success of
being the airline is selling more planes in the world in today's reality.

Finally, after exposing all external and internal elements and understand which is the
strategy that is handling Airbus some recommendations to further enhance their
potential and remain a leader in the sector is currently made. It should be noted how
this company has excelled in recent years for its innovation and as increasingly more
projects have focused on reducing costs and offering the greatest pleasure to
passengers.

1. External analysis of Airbus

1.1 A critical analysis of Airbus external macro context using PESTLE

1.1.1 Political & legal context

a. There is a one important agreement signed bewteen The United States of

America and Eurepean Union about the free sky in these two spaces. The EU-
US Air Transport Agreement was applied in 30 March 2008 for all EU Member
States. It was amended by a Protocol signed and provisionally applied on 24
June 2010. Norway and Iceland accession to the Air Transport Agreement as
amended by the Protocol is provisionally applied from 21 June 2011. (Comm,
2009)

b. Every country in the world has the autonomy to decide the air regulations and
taxes that apply according to their laws and legislation.
 c. The Airbus-Boeing conflict has followed a familiar path of trade disagreements
between the EU and US, with each side symmetrically accusing its opponent of
breaking the rules. (ÇaliŞkan, 2010)

d. It is important to mention that the security and the terrorist attacks affect the
political situation of each country or state. Puedes dar un ejemplo aca.

1.1.2 Economic Context

a. There are some countries such as China, Spain, or France o in economic

recession due to political or social issues. In those markets the demand for
aircrafts can be significant reduced as the result of

b. The exchange rate affects the production and sale flows of Airbus, resulting in
companies with overseas branches, or those that trade internationally, to be at
the mercy of global currency fluctuations. As is the case with private
investments, changes in conversion rates can wipe out profits or increase
gains. When a firm has shareholders to report to, and the figures can run into
millions, then it can have a serious impact on profits and losses. The rapidly
changing currency landscape can have the potential to make businesses
reluctant to set firm figures in contracts months before a deal takes place.
(Euroinvestor, 2012).

Likewise, these kinds of problems are present in the agreements with global
customers. Despite the fact that something may appear like a great
arrangement when it is first composed down, it can become detrimental for the
parties once it has been signed.

c. A sharply increased the annual percentage increase of the cost of living as

measured by the consumer price index. Consumer price indices are based on a
representative basket of goods and services purchased by consumers in an
economy. (Callahan, 1981), over the countries where Airbus is manufacturing
and assembling for producing the aircrafts.

1.1.3 Social context

a. Airbus forecasts that China will need over 5,300 new passenger aircraft and
freighters from 2014 to 2033, with a total market value of US$ 820 billion. It
represents 17 per cent of the world total demand for over 31,000 new aircraft
in the next 20 years. (Airbus , 2014)

b. The lifestyle in the society affects aircraft demand. In some countries there are
more people travelling by plain nowadays. The International Air Transport
Association (IATA) reported that global passenger traffic results for 2015
 showing demand (revenue passenger kilometers or RPKs) rose 6.5% for the
full year compared to 2014. This was the strongest result since the post-Global
Financial Crisis rebound in 2010 and well above the 10-year average annual
growth rate of 5.5%. (IATA, 2016)

Real increased of demand by region:

Table 1. Real increased of demand by region

1. Asia Pacific carriers recorded a demand increase of 8.2% compared to 2014,

which was the largest increase among the three largest regions. Demand was
stimulated by a 7.3% increase in the number of direct airport connections in the
region, resulting in time-savings for travelers. Capacity rose 6.4%, pushing up
load factor 1.3 percentage points to 78.2%.
2. European carriers’ international traffic climbed 5.0% in 2015. Capacity rose
3.8% and load factor increased 1.0 percentage point to 82.6%, highest among
the regions. The healthy result in part was attributable to a pick-up in consumer
spending in the Eurozone as well as a moderate increase in flight frequencies.
Traffic growth slowed toward the end of the year owing to strikes at Lufthansa
and the shutdown of Russia’s Transaero.
3. North American airlines saw demand rise 3.2% in 2015, broadly unchanged
from the growth achieved in 2014. Capacity rose 3.1%, edging up load factor 0.1
percentage points to 81.8%.
4. Middle East carriers had the strongest annual traffic growth at 10.5%. As a
result, the share of international traffic carried by Middle East airlines reached
14.2%, surpassing their North American counterparts (13.4%). Capacity growth
of 13.2% exceeded the demand gains, pushing down load factor 1.7 percentage
points to 76.4%.
5. Latin American airlines’ traffic rose 9.3% in 2015. Capacity rose 9.2% and load
factor inched up 0.1 percentage points to 80.1%. While key regional economies,
particularly Brazil, have been struggling, overall traffic has been robust.
6. African airlines had the slowest annual demand growth, up 3.0%, although this
was a significant improvement over the 0.9% annual growth achieved in 2014.
With capacity up just half as much as traffic, load factor climbed 1 percentage
point to 68.5%. International traffic rose strongly in the second half of 2015, in
conjunction with a jump in trade activity to and from the region.

(IATA, 2016)

1.1.4 Techonological Context

a. The company’s pioneering application of composite materials was followed by their

mainstream acceptance into worldwide aviation manufacturing. Airbus also has
continued to improve aircraft flight decks, using the latest technological development
in systems and design to provide pilots with the best working environment (Airbus,
2016).

b. The latest in on-board systems ensure that Airbus aircraft are more capable,
provide even better performance and demonstrate the highest reliability. The
introduction of a higher hydraulic operating pressure resulted in smaller and lighter
hydraulic system equipment, as well as less hydraulic fluid on board. The application
of variable frequency generators provides more power with less weight and lower
maintenance costs, along with increased reliability and time-between-removals
(Airbus, 2016).

c. Airbus also is at the forefront in applying innovation and technology to optimise the
eco-friendly aspects of its aircraft. The result is quieter jetliners with reduced fuel
consumption, lower noise levels and fewer emissions (Airbus, 2016).

1.2 Innovation challenges facing Airbus

The aircraft market is really big, there are many public or private companies
producing aircrafts. However, there is only a big company Boeing. In that order, the
idea is basically select the companies that can be a direct competitor.

1.3 Porter´s Five Forces applied in Airbus

Porter's five-forces is a useful tool to analyse the global context of Airbus. When taken
together, these “forces” determine long-term profitability and competition with
others. Porter's work has had a greater influence on business strategy than any other
theory in the last half of the twentieth century, and his most recent work may have a
similar impact on global competition. (Reference for business, 2004)

Figure 2
Source: Odessa Corp, 2014

1.3.1 Competitive rivalry (low)

Two large companies dominate the market: Airbus and Boeing. There are smaller
companies in countries such as in India, The United States or China that produce
planes for diverse circumstances, but generally for military operations. However, it is
expected that in the next five years other competitors will emerge but it will take
some years to reach the level of these big companies.

It is Commercial Aircraft Corporation of China, Ltd. (COMAC) is a state-owned limited

liability company, which is formed with the approval of the State Council. COMAC
functions as the main vehicle in implementing large passenger aircraft programs in
China. It is also mandated with the overall planning of developing trunk liner and
regional jet programs and realizing the industrialization of civil aircraft in China.
COMAC is engaged in the research, manufacture and flight tests of civil aircraft and
related products, as well as marketing, servicing, leasing and operations of civil
aircraft. (COMAC, 2015)

1.3.2 Bargaining power of suppliers (low)

Airbus has hundreds of hundreds suppliers in the world. The four main countries
where Airbus has manufacturing places are: France, Germany, Spain and the United
Kingdom.
Airbus has created a truly global supply chain that contributes to the success of its
growing aircraft product line. The company relies on industrial co-operation and
partnerships with major companies all over the world, and a global network of some
7,700 suppliers. (Airbus, 2016)

1.3.3 Bargaining power of customers (low)

There are more than one hundred private airlines operating nowadays in all
continents. In addition, some countries or states have some airlines for specific
operations. Therefore, Airbus can access a global market of customers in the majority
of the countries specially countries where the demand is increasing such us China,
India or the United States of America (IATA, 2016).

1.3.4 Threat of new entrants (low)

The probability for some potential competitor for Airbus is really low, since it is
difficult to reach the innovation level that both Airbus and Boeing have developed
over the last decades in technological improvements in the construction of aircrafts.

However, recently in China, there is a company that is producing aircrafts, but some
experts and market analysts think the new competitor will take years to become a big-
enough company in this market.

"The C919 is a stepping stone for Chinese aerospace experience and knowledge, but
right now, it has zero impact on Airbus or Boeing and isn't a viable competitor. By the
time they get the industrial knowhow - which could be 50 years - Airbus and Boeing
will long since have moved the game on," (StrategicAero, 2014).

1.3.5 Threat of substitute products or services (low)

The main competitor for Airbus is Boeing. Boeing is the world's largest aerospace
company and leading manufacturer of commercial jetliners and defence, space and
security systems. A top U.S. exporter, the company supports airlines and U.S. and
allied government customers in 150 countries. (Boeing, 2016)

Notwithstanding, the real threat for substitute the Aircrafts produced by Airbus is
really low. The reason is the company has innovated in the manufacturing process and
products. Airbus has a very high position on the global market. In the next figure it is
possible to analyse the participation of each other in the global market. (Rothman,
Johnsson, and Jasper, 2016)
Figure 3

2. Internal Analysis of Airbus

2.1 The resource-based view (RBV)

Resources of Airbus

2.1.1 Human:

Airbus has around 55,000 employees in the world. The majority of the employees are
in France, Germany, Spain and the United Kingdom. Airbus has a very interesting
career plan and development of skills programme for employees. In addition, Airbus
has a strict process to select employees. Basically, they are looking for people with
many ideas of innovation or new ideas to develop inside the company. Airbus
promotes a culture of always proposing new challenges and working hours have
emotion. (Airbus, 2016)
2.1.2 Tangible

[Link] Physical

There are three main plants of production in the world where Airbus manufactures
the aircrafts. It is based at Toulouse, France; Hamburg, Germany; Seville, Spain; and,
since few years ago as a joint-venture, Tianjin, China. It is important to mention the
main plant of manufacturing is in Toulouse. More than 7,000 suppliers in the world
provide all the resources that are needed to produce the aircrafts. Airbus has
subsidiaries in the United States, Japan and India. In addition, the company has offices
to do business in each continent. (Airbus, 2016)

[Link] Financial

Total revenue in 2015 was 64,450 (in € million) and 60,713 (in € million) in 2014. It
means an increase of 6%, around 3,737 (in € million) in 2015 (Airbus, 2016).
Basically, the company has good indicators and they were achieving the majority of
the aims in that years and they are trying to reach high levels in the sales for this year.
At March 31, 2016 revenues was 12,183 (in € million) with a desviation in 105 (in €
million). (Airbus, 2016)

2.1.3 Intangible

[Link] Technology

Airbus is a very good example of a company with a focus on technology and

innovation. There are many means to keep and develop technology. Firstly, the
company has the latest advances in cockpit technology, larger interactive displays, an
advanced flight management system and they have improved the navigation system
as well.

Second, Airbus is changing the use of paper inside the operation managements. The
company is using an electronic library to remove the paper documentation used by
the crew.

Finally, Airbus is developing the latest advances in structures and materials, such as
the A380 shows a direct operating cost per passenger that is 15% lower than the
competing large airliner. (Airbus, 2016)

[Link] Knowledge (development)

Innovation is relationed with the development of technology specifically for Airbus.
They have an exclusive area across the company to create and keep innovative ideas
can produce new technology. In the section of current innovation there will be more
explanation about the innovation in Airbus.

[Link] Education

Airbus has different agreements with 21 partner universities in 11 countries.

Basically, the idea is to promote new ideas and develop new projects in the industry.
For instance, there are around 2,500 students whom have a close contact with around
950 Airbus staff. The main idea consists in working together in order to create a real
scenery to develop innovative projects. (Airbus, 2016)

2.2 Airbus core capabilities

+ Strong partner universities in the world.

+ Aerospace innovation laboratory in the company.
+ Motivation for development new ideas in the employees and students.
+ Strong contact with customers.

2.3 Mission and objectives

Airbus has the focus in how to develop new projects and create the best value for the
customer. It means all efforts are heading to the comfort of the customers. The
company create innovative and sustainable solutions producing aircrafts with the best
technology in the world. Moreover, Airbus promotes a innovative culture in all
process in order to achieve the strategic aims. (Airbus, 2016)

2.4 Current Innovation

Airbus has five main means of innovations currently. The company is looking for how
to develop new projects from the sources of knowledge that they are creating in the
different ways. In other words, Airbus is producing new ideas with a specific aim in
order to make more open and close innovation.

Airbus BizLab is a global aerospace business accelerator where start-ups and Airbus
“intrapreneurs” can work together to speed up transforming their innovative ideas
into valuable businesses. Over the past year, Airbus BizLab has hosted 15 start-ups
and 27 Airbus internal projects on it is six-month acceleration programme during the
same period. (Airbus, 2016)

Second, two months ago Airbus has invented a special mini aircraft called THOR
(Testing High-tech Objectives in Reality) in 3D but it is printed in order to develop
high-tech concepts. The main aim is to explore new ideas and the risks in any of the
flying-system. The initial THOR version weighs approximately 21 kg and can fit in a
four-metre-by-four-metre square. It is powered by two 1.5 kW electrically-driven
propellers, and 90 per cent of its structural components were 3D-printed from plastic
polyamide powder. (Airbus, 2016).

Figure 4

Source: Airbus, 2016

Third, Airbus has devolved a drone to help the inspections that usually are made by
humans. It is significantly the difference using the drone the inspection time is around
10 to 15 minutes instead by humans is around two hours. “The use of this new
technology offers better working conditions including improving the safety and
comfort for the quality inspectors”, says Nathalie Ducombeau, Airbus head of quality.
Figure 5
3. Understanding the current innovation strategy
To understand how Airbus is developing its innovation plans. It is important to be
clear about what their threats or potential weaknesses that may have short or long
term. First, there is a first focus that is minimizing the use of resources used to
manufacture aircraft. That's why Airbus tries to innovate their processes by creating
new ways to build airplanes.

Since 2008 Airbus is asking students about more creative ideas in order to contribute
to develop new projects in the process of production of aircrafts. For the company is
really important that people especially students, customers give ideas for the future of
the aircrafts. Actually, Airbus is thinking and developing projects for 2050.

Second, closely linked with the use of resources, the importance of decreasing the
toxic gases, especially CO2 in the environment is evident. Airbus is committed to
reducing its increasingly footprint on the planet. That's why aircraft like the A380 or
the new family NEO are aimed to reduce the expulsion of gases that affect the
environment.

In addition, Airbus is collaborating with the environment using the campaign “cradle-
to-cradle” it consist in change all the processes to manufacture the aircrafts achieving
main goals such as using less water, materials and energy. Moreover, when the
aircraft is flying, they are trying to reduce the CO2.

Finally, the main innovation is having the company is in such close contact you have
with your customers and especially in measurements performed with the welfare of
the traveler. Airbus is creating innovation in a number of areas. This company is
making efforts innovate constantly. For instance, Airbus has launched last year a very
interesting laboratory called iAirbus BizLab in Toulouse for projects from different
places over the world.

However, the most important point is about the research conducted is that Airbus has
several partnerships with universities around the world that provide engineering
students that the company prepares and supports them to achieve create real
innovation projects focused on having aircraft with the best international standards.
4. Strategic Recommendations
After to show the analysis of the current means of innovation, the external context
using the five forces and analysing the internal structure of the company. The
recommendations are focused to enhance the Airbus current strategy in each
continent using more tools useful the world of aviation.

+ Airbus is creating some spaces to talk and reflect with customers and engineer
students specially. It would be a good strategy to involve more universities and
companies such as airlines interested to develop new ideas and planning the aircrafts
in the future. Additionally, it could increase the contact between customers and
students in order to receive more ideas that could be useful in the future.

+ The comfort for the passengers in the aircraf is essencial part of innovation as well.
Airbus has been interested mainly in how to more productive and efficient. It means
working with less resources and minimize the waste. However, the company cannot
forget the comfort for the customer. It is the really important how to have the
customer very happy with the facilities in the aircraft.

+ Airbus has already one laboratory in the main plant in France. However, could
develop more laboratories where the company can have the opportunity to expose the
different types of innovation that currently are running and finally to receive the
feedback of each innovation idea.

5. Conclusion
Finally, after exposing in this report all relevant analysis to analyze using Airbus
strategy based on the competitive advantage that has achieved outstanding
developments and innovation in the different processes that the organization has in
the reality.

It can be concluded that this organization is clearly an example to follow. It has very
well defined and implemented all the objectives that generate innovation and makes
further efforts to enteder reality and how aviation will be in the future.
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