Bombardier Aerospace: The Cseries Dilemma

Bombardier Aerospace: The CSeries Dilemma

https://www.casequiz.com/bombardier-aerospace-the-cseries-dilemma-164753/

Assignment Questions:

1. What is your assessment of the general environment of the aircraft industry?  In particular, what observations can be made regarding the competitive dynamics within the regional segment?  What are the implications for airline companies and aircraft manufacturers?

Aircraft industry: Timeline = 2007

P: Airline industry (traumatized due to terrorist attack, 9/11). The number of customers decreased, increased security measures, government intervention. *threat

E: Small airlines were going bankrupt or got acquired, job losses (less money to travel for business/leisure), economic crisis

S: SARS disease, causes panic to travel and catch the virus *threat

T: The need for more fuel efficient engines (currently it’s more of a priority). *opportunity

Ingredients for airlines to work: Aircraft, pilots, fuel* Price goes up – goal to make more fuel efficient engines

Planes required to fly across continents take a lot of fuel and aren’t always full. We want smaller planes - capacity (100-150) for regional (shorter distance). *Aircrafts differ

*More specific industry: Regional (shorter distance) aircraft manufacturers*

1. What is your assessment of Bombardier’s reaction to the regional market?  What is your assessment of its financial performance?  How does it compare with that of Embraer?  Why?
2. Is CSeries a good response to new market dynamics?  What are the main competitors against this new family of products?
3. Would you recommend that Pierre Beaudoin proceeds with the CSeries project?  What alternatives should he consider?  How would you evaluate them?  Which option is best?  Why?

Porter’s 5 forces: [pic 1][pic 2]

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High or Low: Factors to entry = Barriers to entry (cost, etc.)

*If threat is high, barriers are low *think of barrier as a step: if it’s small and low, it would be easy for anyone to cross it making it a high threat (& vice versa)

1. New Entrants: Anyone who has some knowledge of the industry (not just anyone can start putting planes together) *Medium strengths of threat

Threat of new entrants for Bombardier in Canada is found to be moderate as it is difficult for the new entrants to enter in the market because of the existing giants like Chinese and Russian companies. Further, the cost to enter in the market is high along with massive capital investment. According to the data given in the case, the cost related to Cseries was more than $100 million by the end of 2007 along with $2 billion of the overall cost.  Further, giants in the industry were enjoying economies of scale and already reached at the lower end of the learning curve.

1. Supplier Power: Engines (a few- extremely strong power: Pratt & Witney, Rolls Royce, General Electric, Boeing) Maintenance (need mechanics that are expert in that specific type of engine – highly dependent on labour), Pilot (qualified, certified), Fuel *High
2. Buyer Power: Airlines, leasing companies *High

Bargaining power of customers for Bombardier is found to be low because the buyers don’t have many choices, and thus, they have to limit themselves into few companies. Limited powers to buyers have a positive impact on the companies and have a momentous impact therefore; one has to put more weight for this attribute.

1. Threat of substitutes: Car, Train, Bus, Media conferencing (for business) *High

Threat of substitutes is found to be low because Performances of the other means of transportation are not superior to the airline industry, thus; there is less chance that the customers will switch to another substitute. Further, substitutes that are available are of low quality that would never be a consumer’s priority.

1. Industry Rivalry:

Competition in the aerospace industry has been intensified with the passage of time. Now, technology advancement and increased number of travelers has increased entity’s interest in the industry.  Along with that, there are high barriers to entry because of the four major rivals in the industry that include Boeing, Airbus, Bombardier and Embraer (the big guys). *High – it’s growing because there’s no sign that the cost of fuel (or other supplies such as labour) will be going down.

In addition to that, the company is encountering with several environmental concerns as well that are affecting the operations of Bombardier. These factors include strict environmental regulations, the credit crunch in the financial market and intense competition.