BOEING Vs AIRBUS Value Creation and Capture

This assignment provides an in-depth examination of the competitive landscape between Boeing and Airbus, with a focus on the development of a new Very Large Commercial Transport (VLCT) model. The analysis includes an evaluation of the potential benefits to each company if they were to develop this new model, as well as an assessment of the risks involved. Additionally, the assignment explores the possibility of collaboration between Boeing and Airbus in developing the VLCT, with a discussion on the potential outcomes and challenges that may arise.

BOEING VS AIRBUS
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1.What are the drivers of value creation and value capture in this industry?
Drivers of value creation is something that has the ability of improving the value of a brand or a
product. Value capture on the other hand, is the process of maintaining a certain proportion of
the profits of each transaction (Visnjic et al 2017). Some of the concepts in business that is
critical for explaining the driver of value creation in this market is the porters five forces. Porter
indicated the five forces to be; threat of new entry, competition, suppliers and buyers power, and
substitution. The forces are evident in this industry. In this industry the companies source their
part from numerous suppliers. The suppliers play a very critical role in the manufacturing of
planes.
The supplies by these suppliers, greatly contribute to the value of the plane. The suppliers
provide the industry with unique product which contribute greatly to the value of the final
products. The industry has thousands of suppliers, meaning the companies have options,
therefore, the suppliers has no power or capability to determine the value of their products. The
companies in the industry being few, and have the option to change suppliers freely, gives them
the power to influence the cost of supplies by the suppliers. The option of changing suppliers
freely enables the firms in the industry to maximize on their profits.
The industry is a tough one for new firms to venture into. The cost associated with the
manufacturing is very high. The high cost of production therefore, limits other firms from
venturing to the industry. The high cost has led to the limited number of firms in the industry.
The industry has a large number of customers. The production commercial planes have seen
many airlines enter the business. The large number of customers has reduced the negotiating
power of the customers. The large number therefore give the manufacturing firms the
opportunity to maximize on their profits. The industry has a stiff competition. The major rivals in
the industry being Boeing, Airbus, and McDonnell Douglas and other firms. The substitutions to
the aircraft is limited. In the case study it is evident that there is limited or no substitute for
commercial planes.
2. Company doing Better (Boeing or Airbus)
The performance of a firm can be determined by numerous metrics. Some of these metrics
include the number of products sold, revenue of the firms among other factors (Fernandes et al
2021). In the case of these firms, the exhibits indicate these metrics. From exhibit one Boeing is
performing better in terms of the number of deliveries that it made as compared to that of Airbus.
Boeing delivered 4,169, while Airbus delivered 900. This indicate that Boeing is performing
better than the Airbus. The revenues of the firms in the industry are highlighted in exhibit three.
According to exhibit three, Boeing is performing better than the Airbus. The revenue of Boeing
in 1992 is 24,084 million dollars while that of Airbus is 7,647 million dollars. As at 1992, the
Boeing was the firm in the industry that had better performance.
3. What would be the value of a new VLCT to both companies?

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If both companies are to develop the new VLCT, there will be several benefits to each of them.
For example, since the VLCT is an untapped niche market, if either of them enter the market, it
is very possible that this new model generates higher willingness to pay from the customers, thus
creating huge economic value. Second, if Airbus and Boeing have decided to develop this new
VLCT, then there will be less competition in the relative market since Douglas would be out of
the picture. Third, the production of a new VLCT is a long and costly process, which means not
every player in the aerospace market was able to compete. Therefore, developing a new VLCT
will increase the entry barrier of this market. In terms of game theory, we can analyze the
payoffs to each company through a table:
Airbus/Boeing Develop Do Not Develop
Develop (loss, loss) (profits, no profit)
Do Not Develop (no profit, profits) (no profit, no profit)
If either of the two companies chooses to take actions to develop the VLCT, the one who moves
profits and will likely become a monopoly in the market. If the two companies both choose not
to develop, then the market is unchanged and therefore no profit to either of them. And if both of
the companies take actions, there will probably be loss to both of them, since the fierce
competition will probably drive their profits thinner and with high costs of production, the loss is
very likely to happen.
4.If you were Airbus, how would you respond to Boeing? Should Airbus collaborate with
Boeing in the development of the VLCT? Value of VLCT
We think Airbus has a higher chance of success to begin developing the VLCT. Currently,
Airbus has a market share around 23%. Though Airbus is growing, it is unlikely to surpass
Boeing in a short time. However, the VLCT is attractive and may help Airbus to overturn
Boeing’s position since Airbus had a positive insight that superjumbos will be heavily needed in
the following years. Developing superjumbo helps Airbus to win more market share and profit.
For Boeing, currently they have a large market share of around 56%, which makes them
profitable enough. They had a relatively negative market insight of the need for superjumbos
compared with Airbus’. The best strategy for Boeing was not to enter a niche market but stay

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current. Moreover, the R&D cost and the fixed cost to build a superjumbo is extremely high. It is
said that development of VLTC needs 4-20 billion dollars. So the riskiness was high. This
explains why Boeing lacks the incentive to build VLTC.
The past experience collaborating with Boeing was not satisfactory. This leads to a potential
problem this time. Is Boeing willing to pay the same effort on the collaboration project compared
with their own? So if we are Airbus, Boeing is not a trustworthy company to cooperate with and
we would definitely not collaborate with them.
References

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Bruijl, G. H. T. (2018). The relevance of Porter's five forces in today's innovative and changing
business environment. Available at SSRN 3192207.
Fernandes, E., Moro, S., Cortez, P., Batista, F., & Ribeiro, R. (2021). A data-driven approach to
measure restaurant performance by combining online reviews with historical sales data.
International Journal of Hospitality Management, 94, 102830.
Visnjic, I., Jovanovic, M., Neely, A., & Engwall, M. (2017). What brings the value to outcome-
based contract providers? Value drivers in outcome business models. International Journal of
Production Economics, 192, 169-181.