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Boeing Case Analysis

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Boeing/Airbus Case Write Up

Competition in the Commercial Aircraft Business
With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.

Figure 1: Porter’s Five Forces Applied to Aircraft Industry Barrier to entry: - High barriers to entry, to a certain extent help understand the risks involved in operating in the aircraft industry.
1. Initial Capital Requirements: - Huge initial development period and very high investment costs, tooling costs, and WIP are necessary even before the company starts …show more content…

It could almost be viewed as a power game between governments.
4. Sunk Costs: - Big sunk costs. It is difficult to exit from the industry. Surviving and beating competition is the only way to do business.

Airbus and A380: Risks Involved and Sensitivity Analysis
Airbus was planning to introduce the A380 in direct competition to Boeing 747 to compete in the large aircraft sector. The rivalry between Airbus and Boeing was already intense. Boeing’s market share reduced from 70% in 1974 to 45% in 1990 while Airbus’s market share had increased from 1% to 34% during the same time (Exhibit 5). Encouraged by this increase in market share, Airbus was contemplating the introduction of A380. Development of new product line is extremely expensive in the Aircraft sector. Following is a quantitative analysis of the project to calculate the risks involved in introducing a new line of Aircrafts.
Please refer to the attached excel file for NPV and sensitivity analysis. All assumptions are stated in the excel files.

Four scenarios are examined and the following is the summary of results for each of them.

Scenarios Discount Rate11% Discount Rate 6%
Basic NPV Analysis $ (2458.71) $ 1927.24
Decrease in sales price to $180 million $ (3366.54) $ 31.74
Increase in sales volume to 16% $ 189.32 $ 8633.58
Decrease in sales volume to 8% $ (3505.71) $ (647.00)
Decrease in Profit Margin to 20% $ (3457.32) $ (227.64)

• The most glaring conclusion that can

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