Case 4: Ethics and Airbus

De Leon*Estanislao*Gumabon*Lope*Rojas*Ronquillo
Company Profile

• world's largest commercial aircraft manufacturer

• The forefront of the industry and consistently captures about half of
all commercial airline orders (Airbus, 2007).
• was formed in 1970 when four major European aerospace
companies created a consortium to build commercial aircraft
• The consortium structure was abandoned in favor of EADS,
European Aeronautic Defense & Space Company, of which Airbus is
a subsidiary
• Airbus operates globally and employs approximately 57,000 people
• Airbus operates fully-owned subsidiaries in the United States,
China, Japan and in the Middle East and has a network of 1,500
suppliers in 30 countries.
• Manufacturing aircraft models with capacities ranging from 107 to
800 passengers, Airbus has sold over 7,000 aircraft and its planes
form part of the fleet of more than 200 airlines
• Airbus has developed well and today is an important player in the
global commercial aircraft industry, having steadily gained market
share from its main rival Boeing
Problem Statement

• What factors have lead to the negative

allegations against Airbus?
• What courses of action should Airbus
carry out for them to prevail over
numerous allegations of ethical and
legal lapses in their business
transactions?
•  Is the company capable of self-
sufficiency had there been limited
support from European governments?
Point of View

Present Top Management

of Airbus
Framework for Analysis

SWOT Analysis
PESTLE Analysis
SWOT Analysis - Airbus

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS
SWOT Analysis - Airbus
• Has secured a commanding
market share
• competed toe to toe with Boeing
STRENGTHS
as the leading aircraft
manufacturer in the world
• Duopoly - 50:50 in market share

• Successful jetliner product line

• from the 107-seat single-aisle
A318 to the double-deck A380
widebody, world’s largest
commercial aircraft in service
today
• offers variety in terms of size and
features
SWOT Analysis - Airbus
• Heavily funded and is highly
competitive in terms of
innovations in product design,
STRENGTHS manufacturing, operations and
eco-friendliness

• Airbus is strongly favoured by

both EADS and from most
European government over
Boeing
SWOT Analysis - Airbus
• Various allegations of
corruption against Airbus’
former management
WEAKNESSES

• Weak market share in North

America Contracts for NASA
and the Pentagon favour its
greatest competitor, Boeing,
much for political reasons
SWOT Analysis - Airbus
• Airbus is currently experiencing
various operational delays
• the A380 superjumbo jetliner and
the A400M military transport WEAKNESSES
plane are years behind schedule
and billions of dollars over
budget.

• Several smaller programs face

issues meeting deadlines and
fulfilling customer requirements.
SWOT Analysis - Airbus
• Growth is imminent

• High replacement of aircraft in

service in mature markets

• Dynamic growth in emerging

markets
OPPORTUNITIES
• Continued growth of Low Cost
Carriers, especially in Asia
SWOT Analysis - Airbus
• Growth is imminent:
• Traffic growth on the existing
route network where it is more
efficient to add capacity than
frequency

• Emerges off megacities across

the globe would increase the
OPPORTUNITIES demand of travelling
internationally
SWOT Analysis - Airbus
• Boeing has been a consistent
head-on competitor

• Boeing has been Airbus’ toughest

critic with regards to alleged trade
violations
• Technology race has been very
tight for years
• Boeing receives a fairly similar
political bias from the US
THREATS
SWOT Analysis - Airbus
• New entrants from Canada,
China, Brazil and Russia who
are eyeing the lucrative single-
aisle market

• Bombardier's C-Series is on track

for its first delivery in 2013

• China's state-owned Comac is

readying for a 2016 first delivery
date of its C919
THREATS

• Russia's Irkut and Brazil's

Embraer are also contenders
SWOT Analysis - Airbus
• Focus resources on high growth regions
• particularly high demand of low cost
carriers in emerging Asian markets (India,
China, etc.)
STRENGTHS

• Use innovations and new technology

to entice purchase of upgrades by
more mature aircraft markets
OPPORTUNITIES

• Eco-friendly technology as an answer

to the “Green Revolution”
SWOT Analysis - Airbus
• Showcase technological advances in
efficiency and design and offer a
wide variety of planes to cater
STRENGTHS
increasing global needs

• Maximize EU support to develop

convenient routes to megacities
around the world (i.e. HK, Tokyo,
OPPORTUNITIES NY, Manila)

• Consider more alliances and joint

ventures amongst trading nations.
SWOT Analysis - Airbus

• Public relation officers should

arrange a series of launches,
WEAKNESSES
press releases, and seminars to
overhaul the tainted reputation
of Airbus
OPPORTUNITIES
• Note that present management is
not part of the team being
scrutinized and Airbus
contributing nations are already
presently part of OECD
SWOT Analysis - Airbus

• Streamline operations to hasten

completion of pending projects to
WEAKNESSES
avoid further expenses and
penalties

OPPORTUNITIES
SWOT Analysis - Airbus
• Reciprocate Boeing attempts to
highlight past scandals of airbus
• There are claims of equally notable
STRENGTHS unfair transactions that went in favour
of Boeing

• Secure advances in R&D to stay

THREATS
competitive with Boeing and miles
ahead from new entrants
• Eco-friendly technologies and high
performance, high efficiency engines
should be maintained
SWOT Analysis - Airbus

• Maximize Airbuses network

STRENGTHS
and influence to expedite
launch of the A380, A350,
A400M and other projects
• A380 is much anticipated to rival
THREATS
the Boeing 747
SWOT Analysis - Airbus
• Legal counsel and public
relations officers must ensure
that the incidences in Sabena,
Kuwait, Syria and others be
WEAKNESSES

controlled and not to happen

again
THREATS

• this might open opportunities for

new entrants
PESTLE Analysis - Airbus

POLITICAL

ECONOMIC
ENVIRONMENTAL

SOCIO-
LEGAL CULTURAL

TECHNOLOGICAL
PESTLE Analysis - Airbus
• Highly political
• Airbus was established by European
countries primarily to compete against
American aircraft companies like Boeing,
McDonnell Douglas and Lockheed
POLITICAL

• Countries generally considered the

aircraft industry as strategic and
therefore something that has to be
protected and/or controlled

• A number of airlines are still state-

owned flag carriers. Therefore aircraft
orders tended to be influenced by
governments.
PESTLE Analysis - Airbus
• The industry is a virtual duo-poly between Airbus
and Boeing
• Boeing bought McDonnell Douglas
• Lockheed pulled out of the business

• Market for air travel expected to rapidly grow in

ECONOMIC
the next 20 years

• High barriers to entry owing to the large

capitalization required to operate

• High risk investments owing to the long

development leadtimes for aircraft designs
coupled with increasing uncertainty of demand
immediately after the development phase

• High fixed costs and development costs mean

that volume is critical for cost recovery and profit.
PESTLE Analysis - Airbus
• Undercurrent of Europe vs
America transcends pure
commercial rivalry
SOCIO-
CULTURAL • Terrorism might impart
temporary setbacks to the
industry

• For Airbus in particular, for

political reasons, production and
development operations have to
be spread over several countries
that have a stake in the company
PESTLE Analysis - Airbus
• High investment costs and
increasing technological
requirements in every new aircraft
development project
TECHNOLOGICAL • Increasing sophistication of
commercial air travelers as well as
an increasing environmental
activism among nations will lead to
increasing demands on aircraft
innovations
• Fluctuations in oil and aviation fuel
prices is driving the need to
develop fuel-efficient and
environmentally friendly aircraft
PESTLE Analysis - Airbus
• Increasing pressure for Airbus
to have above-board dealings
in light of the laws enacted in
LEGAL
the EU concerning corrupt
business practices
• Accusations by both Airbus and
Boeing made against each
other in terms of illegal and
anti-competitive government
financing and subsidies
PESTLE Analysis - Airbus

• Environmental concerns are

gaining importance in the
ENVIRONMENTAL
industry
• Governments are passing more
stringent environmental rules for
the transportation industry
including the airline industry,
e.g., reduced carbon footprints
Recommendations:

• Relaunch new image of Airbus that promote high ethical

standards
• Pool all available resources to expedite the development of
currently pending high value projects
• Concentrate sales efforts on boom regions such as Asia so as
to capture as much of the booming markets as possible
• Increase R & D in environmental-friendly aircraft
• Prevent or minimize the effect of market entry
• More aggressive marketing strategies to convince customers
to purchase aircraft
• Enter into exclusivity treaties with airline partners
• Offer legitimate financial incentives or service packages to
loyal customers
 Conclusion
• Based on the case and other readings, Airbus was
given the green light by the European countries that
formed it to do whatever is necessary to win the
aircraft market [by hook or by crook]. Beyond Airbus
and Boeing, this is more of a head-on battle between
the US and European superpowers to gain dominance
in global airspace and trade. So far it seems to be a
stalemate with WTO standing as a mediator. That's why
it seemed that bribery and kickbacks are accepted
practices. These giants would do anything to uphold
what they both believe is for the greater good.
Updates and Developments

1. Aircraft Manufacturing Industry

• Share of market between Airbus and Boeing; 1996-2005
Updates and Developments
1. Aircraft Manufacturing Industry
• 1996 – Airbus was re-organized to a single fully integrated
limited company. The objective was to streamline
operations, reduce costs and speed production

• 2000 – Another round of re-organization at Airbus allowed it

to reclaim and maintain its market share for the next 5
years

• 2005 – Boeing launches the 787 Dreamliner, the most fuel-

efficient aircraft for its class. The 787 model enables Boeing
to grab significant market share from Airbus

• 2006 and 2007 went to Boeing, but by 2008 Airbus again

took the lead up to this year.

• 2007 - Airbus has adhered to the United Nations’

Global Compact
Updates and Developments
2. Current Issues
• Accusations by Boeing on Airbus being a
recipient of direct or indirect subsidies by
European countries with stakes in the
company
• There is an on-going litigation at the World
Trade Organization (WTO) on the accusation
of illegal subsidies from both companies.
• Boeing claims that Airbus is being illegally
financed/subsidized by European
governments.
• Airbus claims that Boeing is receiving indirect
subsidies from the US government in the form
of US military contracts.
Updates and Developments
3. Other European companies facing
similar issues
• Siemens
• Global extent of corrupt practices
• Bribes and kickbacks to government officials in
Asian, African, European, Middle East and Latin
American countries to secure infrastructure
contracts
• Investigation instigated by the US through the
FCPA
• made possible when Siemens was listed on the
NYSE in 2001
• Before 1999, bribes were deductible as business
expenses under the German tax code, and
paying off a foreign official was not a criminal
offence.
Updates and Developments
3. Other European companies facing
similar issues
• Siemens
• Siemens has acknowledged having more than
2,700 business consultant agreements, so-
called B.C.A.’s, worldwide. Those consultants
were at the heart of the bribery scheme,
sending millions to government officials. This
practice of hiring consultants is similar to
Airbus.
• “unprecedented in scale and geographic
reach”; “systematic and widespread”;
“institutionalized corruption”
• Top level executives of Siemens were indicted;
company paid $1.6 billion in fines to both the
US and the EU; share price suffered as a
result.
References
• http://www.comp.nus.edu.sg/~ipng/mecon/cases/Airbus.pdf
• http://www.leeham.net/filelib/ExcessBaggage.pdf
• http://en.wikipedia.org/wiki/Competition_between_Airbus_and_Boeing
• http://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens.ht
ml
• http://en.wikipedia.org/wiki/Airbus
• http://www.airbus.com/aircraftfamilies/
• http://www.airbus.com/innovation/proven-concepts/in-operations/
• Carney, Timothy, Boeing vs. Airbus: Clash of the Corporate Welfare Titans. July
14, 2005. http://cei.org/studies-point/boeing-vs-airbus
• Michaels, Daniel. Airbus Officials Cite Challenges. Wall Street Journal Digital
network. June 10, 2010
http://online.wsj.com/article/SB1000142405274870457530457529596352803
5840.html#articleTabs%3Darticle.
• Leahy, John. Airbus Global Market Forecast 2010 – 2029. Toulouse, December
13th, 2010
http://www.airbus.com/fileadmin/media_gallery/files/brochures_publications
/Global_Market_Forecast/Airbus_Global_Market_Forecast_-_2010-2029.pdf
• BBC News. Airbus beats Boeing in 2010 Plane Orders.
http://www.bbc.co.uk/news/business-12205687.
• Gulfnews.com. July 19, 2010. http://gulfnews.com/business/aviation/new-
competitors-may-end-airbus-boeing-duopoly-1.655979
Thank you!