The Rise of Airbus, 1970-2005

I. Brief Summary of the Case

Airbus’s early history dates back to 1960s. Unable to develop a commercially viable passenger jet during the post war years, French aircraft manufacturers decided to form alliance with other aircraft manufacturers to compete with the American jet makers. During the Paris Air Show of June 1965 the French aircraft executives initiated a series of informal meetings between representatives of the major European airline carriers and aircraft makers to discuss the possibilities of building a European short-to-medium-range 250 to 300 seats wide body jet called “AIRBUS”. During the next two years, representatives of the major French, British, and German aircraft companies lobbied their government for financial assistance in support of the Airbus project. In 1967, government officials representing the three European nations signed an agreement approving the joint development and production of an airbus. The approved airbus model was A300. The project was launched shortly thereafter, but not a single A300 was ordered by any air carrier during 1967, 1968, and 1969. With no orders in sight, the British government was reluctant to keep on investing in the risky venture, and in 1969 announced its decision to withdraw from the project (it rejoined ten years later).

In 1970, French and German governments went ahead and formalized their partnership, creating Airbus Industrie – a cooperative partnership (or consortium) registered under French law as a “Grouping of Economic Interests” (GEI). In 1971, Spanish aircraft manufacturers associated with Construcciones Aeronauticas SA (CASA) joined Airbus Industrie as a junior partner. Throughout the first five years of operation, Airbus Industrie struggled as total orders fell well below the minimum set by the partners as a precondition for launching the project. Bernard Lathiere took the helm of Airbus – February 1975 – total orders of the A300 numbered 20 units, total deliveries averaged four aircraft a year. In 1975 – the year referred to by Airbus executives as the consortium’s “black year” – Airbus sold just one A300 aircraft while Boeing recorded a total sale of over 100 aircrafts. Bringing the British back in, Lathiere moved on to consolidate the foundations under which Airbus would grow and prosper. Lathiere devised and implemented a series of strategies that touched upon every important function of the company, including manufacturing, marketing, sales, product development, and R&D. Boeing was the first company to use the family concept in aircraft design.

Airbus took the Boeing approach several steps forward and made the concept the foundations of its manufacturing and marketing strategy. Lathiere devised two distinctly different strategies that helped Airbus compete successfully with American aircraft manufacturers. He first targeted large segments of the emerging global markets where airline customers were willing to experiment with Airbus models. He next focused on the mature American market and offered U.S airline customers exceeding attractive financial incentives. Jean Pierson led the consortium for 13 years, from 1985-1998. Pierson paved the way for the future transformation of Airbus from a government supported partnership to a publicly owned company. An engineer by training and gifted salesman, Pierson focused on improving Airbus’s financial results, cutting costs, increasing sales, phasing out subsidies, and developing new planes. Pierson turned Airbus profitable for the first time in 1995. Noel Forgeard took over Airbus from 1998-2005.

The key to turning Airbus Industrie into a stand-alone corporation was a cross-border merger between three of the consortium’s four partner companies. In June 2000, British Aerospace (BAE) and European Aerospace Defense and Space Company (EADS) finally reached an agreement: the two companies would own together all the stocks issued by the newly formed Airbus Integrated Company (AIC). Airbus’s reorganization into a limited liability company benefited the new company in several ways. The first and most obvious advantage of reorganization was cost savings, and such savings were achieved, above all, in materials’ purchasing. Another benefit of the Airbus’s reorganization was the speed up of the decision making process and lastly, the restructuring of Airbus as an integrated company resulted in a leaner, more flexible organization where the lines of communication was shortened, functional units were consolidated, and redundant positions were eliminated.

II. Statement of the Problem
a. Macro: Product development cost is high.
b. Micro: Frequent changing of strategies.

III. Alternative Courses of Action
1. Increase capacity of seats and reduce the costs.
2. Set long-term objectives
3. Set a manufacturing plant to lessen its cost

IV. Discussion of Alternatives
1. Increase capacity of seats and reduce the costs – Increasing the capacity of seats of the aircraft with lesser costs would mean more interested buyer and in return, saved costs from the part of the company. 2. Set long-term objectives – Setting long-term objectives is very important in a certain organization for them to have a clear direction. Having a clear direction to where the organization is supposed to go is essential to every leaders or managers to clearly understand their goals for the company. 3. Set manufacturing plant to lessen its cost – Setting their own manufacturing firm would help the company to lessen its cost. It will help them focus on the organization’s primary goal and with that, they will no longer need some manufacturing companies which are very expensive.

V. Recommendations
1. Expand the market by keeping costs low
2. Pursue strong current alliances with aircraft manufacturing firms
3. Operational efficiency
4. Should keep its market share high

VI. Conclusions
1. That Airbus was a well designed, well built, and commercial flop.
2. Provides quality product.
3. Have strong alliances with other aircraft manufacturing firms.
4. Sets high standard on leadership.
5. Promotes healthy competition with competitors.