Bombardier, an aerospace company has been postponing the launch of a new commercial aircraft to the market. The product will be targeting regional airlines in the market of 100-150 seats market. Investors and other stakeholders are questioning the company’s continued delay in launching CSeries. Some of the problem has been attributed to problems with leadership senior leadership positions which lack stability. Bombardier has not been able to launch the new product on time and may therefore lag behind competition in the commercial jet segment.
External environment analysis
Following the September 11th event, many people were reluctant to travel. In order to rebuild consumer confidence, airplane manufacturers had to reduce their prices and attract new customers. Travelers are seeking for cheaper tickets which force commercial airlines to look for cost-efficient aircrafts. Customer preferences have changed over the years and people are looking for necessity rather than luxury.
Innovation, creativity, and freethinking with a focus on globalization are the main three point of Bombardier’s corporate culture. The company works in culturally diverse environment and language and culture are considered competitive edge to the company. Creativity through intensive R&D will help the company meet the ever changing needs of customers.
The Political/Legal Segment
Government plays a significant role in the aircraft industry through its policies and regulations. For example, in Canada, the government offers financial assistance to domestic aircraft manufacturers in addition to funding R&D. Canadian government also intervenes in the industry where possible to protect the interest of domestic manufacturers. There has been growing concern over depletion of environmental resources and man governments have taken the initiative of protecting the environment. Several laws and incentives have been introduced by various governments to help contain the negative impacts of air transportation on the environment.
Economic
The commercial aircraft segment is expected to be worth US$ 2 trillion in the next ten years, which will require an additional 16,600 aircraft into service. Reports project world passenger travel to grow by 5.3% annually for the next twenty years. Increased demand is expected to come from emerging and developing markets including India and China.
Industry Analysis
There have been many changes taking place in the airplane industry before 2001. There has been increasing demand for low cost regional carriers in response to increasing preference for cheaper tickets. The segment for regional commercial segment with 100-150 seats are gaining popularity and promises opportunity for future growth before other competitors enter the market.
There is increased use of mid-size aircraft ranging from 100 to 140 seats for both domestic and international transportation. According to the case, market share for these airplanes is expected to grow by 56% in twenty years. In 2006, 245 regional aircraft of fewer than seats were delivered globally. Bombardier expects the market for regional jets of 20 to 100 seats to increase and reach 5,400 units by 2026. However, it was clear that the market was shifting toward regional jets with larger capacity, typically in those between 100 to 150 seats.
Threat of new entrants
High cost presentments major threat to entry into the industry. In addition, there are other companies planning to enter regional aircraft segment. There are a number of significant barriers to entry into the airlines industry.
Threat of substitutes
The threat of substitutes is medium because there is increasing number of airline companies buying LCC.
Buyer bargaining power
The bargaining power of buyers is expected to increase as more manufacturers enter the market. However, as more people move from big commercial airlines to smaller ones, demand will become more elastic, consequently lowering the bargaining power of buyers.
Supplier bargaining power
The bargaining power of suppliers has traditionally been strong. Bombardier acquires its raw materials from a variety of suppliers, which significantly reduces their bargaining power.
Opportunities
Increasing demand for low cost commercial airplanes
Strategic alliances and partnerships
Threats
Increased terrorism
Increasing competition in the regional commercial aircraft market and the airline industry
Strengths
Bombardier is one of the world’s leading rail transportation equipment and aircraft manufacturers. The company’s aerospace division suppliers a wide range of aircrafts to all major airlines across the globe.
The company has access to lucrative research and development incentives, including financial and specialty warrant to all Canadian companies involved in the aerospace industry. The company is currently the world’s third largest aerospace company behind Boeing and Airbus.
Weaknesses
The company has experienced delays in commercial aircraft development programs. The delay in launch of CSeries has made the company to undergo some losses. The company relies on government assistance for financing resulting into some level of control by the government. For example, the Canadian government offered financial assistance on condition that Bombardier conducts some R&D and production activities in Montreal-Mirabel and Belfast.
The company reported a 43% drop in its Q4 earnings, dropping even lower than the stock market’s already murky forecast. This has greatly disappointed shares who have witnessed their shares’ values continuously decrease since 2008. Another problem faced by the company is that it cannot fully compete with established companies like Airbus and Boeing, since it concentrates on business jets. Bombardier is starting to concentrate on commercial aircraft, but even when they do, these big companies are more diversified and they manufacture bigger capacity aircraft.
Competitive advantage
Bombardier’s learning curve which it uses in design is the company’s competitive advantage. In addition, the company has stronger organizational capabilities orchestrated by a complex production process. In conclusion, the company has competitive advantage over other competitors in the commercial aircraft segment. To start with, the company is planning a 20% fuel reduction one new aircrafts, which comes roughly half each from the airframe and engine. According to Bombardier Commercial Aircraft president, Gary Scott, this will be source a competitive advantage since companies that fix same engine on their airframe will only save half the cost.
Current Strategy Evaluation
Business-level
The company is pursuing a differentiation strategy by ensuring that it produces outstanding aircrafts that consumes less fuel with unique design as compared to other aircrafts in the industry. Bombardier is using cost leadership, which involves producing products at the lowest cost possible. Bombardier is using focus strategy by investing in R&D to develop aircrafts that are fuel efficient and cost-effective. The company has realized the importance of keeping existing customers as customer relationship determines success in aerospace industry.
Corporate-level
Bombardier is pursuing growth strategy in both commercial aircraft and business jet. The company is trying growth by developing new product designed to capture new markets, and competing aggressively with existing products in existing markets. The firm pursues growth strategy through market penetration, which involves increasing the sales of existing products by conducting more aggressive selling in already established markets.
The firm also pursues it strategies through product development, which involves developing new products for current market. This is evident in the commercial jet market, where Bombardier has almost succeeded in developing and introducing C-Series into the market. Similarly, in the business jet market, Bombardier has developed Global 700 and Global jets.
Recommendations
Bombardier should consider forming strategic partnerships with major suppliers as it would help the company achieve economies of scale. Strategic partnerships also help aircraft manufacturers to access external expertise they lack. Such strategy would also reduce risk through cost reduction and share risk with former competitors and suppliers. The company has had frequent changes in leadership, and analysts suggest that has led to blurred vision and strategic uncertainty. The firm should consider employing other people outside the family to take leadership positions. The market is also expected to grow outside Europe and the US.
References
Taleb, Ali and Hebert, Louis. “Bombardier Aerospacer: The CSeries Dilema.” Richard Ivey School of Business. The University of Western Ontario.
