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Aircraft Industry - International Business-Review

Introduction:

It is essential to understand that the aircraft industry has many beneficial externalities such as incrassating nation prestige. Thus a general evaluation of the industry can not be restricted to a quantitative decision alone. Struggle in the aircraft industry during the coming 21st century is expected to be fierce, and quotations will abound with respect to returns on investment and the assumption of substantial risks.

 

The report is all about the changing in the structure of the aircraft industry. There are many characteristics and forces which force the aircraft industry to get changed its structure. The report only forces on the passenger air craft rather air craft as a whole called aviation.

 

The dissertation is focusing on the whole globe rather than a single country. This is representing the airline companies of entire world. In this report changing and restructuring of the airline industry is discussed in detail.

 

 

Executive summery:

Aircraft industry is on the boom and this is a high technology industry. There are a lot of changes are coming and every day there is a new innovation in the industry. There is restructuring in the industry in day to day operation. The report is distributed in three parts.

 

The first part is discussing the background and the basic structure of the industry. It defines the characteristic of aircraft, growth, competition and political factors of the aircraft industry structure. It also defines that how the changes in the industry are coming.

 

The second part is telling that what are the forces which are causing the changes and how the changes are coming in the industry. Those forces are technology, changing economic conditions, political and legal factors, cultural factors and demographics.

 

The third and the final part elaborate the original restructuring of the industry. This part shown in the statistics and results of industry’s restructuring.  This is shown in term of mergers, acquisition and subsidiaries of different airline companies.

 

 

STRUCTURE OF THE INDUSTRY

Aircraft Industrial Structure and changes:

The air craft industry is an advance, complex technological industry that does have got a strong impact on other industries of the world businesses. It is highly important industry for strengthening international competitiveness through superior technology. Developed countries throughout the world have been promoting the aircraft industry as the engine of continues growth and development of advanced technology. The importance of the industry is acute in areas of maintaining superior defense technology. Promoting rapid growth industries and improving productivity.

 

 

Characteristics of the Aircraft Industry

Several characteristic of the aircraft industry can be summarized as follows:

Firstly aircraft is a very complex and complex system with many subsystems and components. Since compact light and multifunctional subsystems have to be integrated and interface well. Constructing an aircraft can be defined as an addition of the subsystems in which high technology experience is required.

 

The second point is that an aircraft must be highly reliable. Even small defect in a minor component can result in the death of several people by crashing of aircraft. No technical uncertainty is acceptable at any level of the aircraft system for example at the components subsystem and system levels.  

 

Third the air craft industry is a high value added industry based on specialized and technology intensive labor. Most developed countries support the aircraft industry strategically to increase international competitiveness. T o develop and manufacture aircrafts large scale production facilities supported by significant investments and specialized technological labor are necessary.

 

Since the aircraft industry depends upon gains in production based on economies of scale long term national investments and political support is required.

 

 

EXTERNAL FORCES

 

Growth:

 In the whole world the industry is on a fast growth, many developing countries which that are in terms of economics scale or industrial level but have achieved significant advancement by persuading a more active policy for their air craft industries. The example includes the Countries of Brazil, Taiwan, and South Africa. These countries have already shown indigenous models of air craft in the world market. In contrast it is regretful; developing countries’ aircraft industry still remains in the level of the simple fabrications or parts assembly though subcontracts with foreign manufacturers.

 

 

Competition:

There is a high level of competition in the industry. Each and every company of the industry is trying to do smoothing different to excel in the race of better and faster transportation services. International competitiveness and to prepare for the upcoming 21st century, the countries strongly need more investment in and policy support to research and development in varied technical areas including the aircraft industry. Technology is an integral resource of a nation in maintaining its competitiveness, above all under the economic and technological regime of the WTO (World Trade Organization), and the TR (Technology Round).

 

 

Technology:

The rise and fall, progress and decay of the nation depend on the industrial competitiveness achieved through technological innovations. Developing countries considers the securities concerns and the quickly changing international situation.

 

An aircraft business can be characterized as collective system integrating almost all the international sky-scraping technology industry products. While it has a huge impact on various field of industry, the industry require a high level of investments and long development time. An aircraft or air plane is a complicated system composed of electronics, electrical, mechanical and other subsystems, in which the reliability of each system’s components is crucial. An aircraft can fly well when all the subsystems work reliably and interface with each other perfectly. Because constructing an aircraft is possible only when all related industries are well developed, the aircraft industry is generally prevalent among developed countries. 

 

 

Political:

In conclusion to revitalize research and development on the aircraft industry of developing countries the following political consideration must be recognized:

 

The promotion of the aircraft industry should be started the close connection with other activities of industry, while government support should follow the promotion o the aircraft industry with view to attaining fundamental capabilities for the aircraft development. As mentioned before the aircraft industry should be promoted within the framework of a fully supported national aim to nurture a strategic industry.

 

 

CROSS-BORDER RESTRUCTURING

External forces causing Restructuring Aircraft Industry:

Technology

In the whole world there is a high level of technological advancements are going on. In this ever changing world of technology the aircraft industry is seriously affected and highly developed. Aircraft is a sort of industry which needs advancement in its technology. Development in new technology aircraft industry is now able to develop air planes which are to port more passengers, more luggage, and planes are made of lighter weight, Factories are able to make more number of plane, passengers are facilities in a better way.

 

Moreover because of technological advancements there is a high level of security,  fights are much faster than before, planes are able to flight with extreme weather conditions, the flights are reaching in time, there is a less consumption of fuel as compare to before, the number of plane crashes (accidents)  are reduced, designs of planes are becoming extremely beautiful, planes are able to fly at longer distance and there are numberless other technological advancements which are made in the high technology aircraft industry.

 

 

Following are some practical examples of air line industry technological advancements:

 

Egypt Air Flight 648:

Seating system of the company planes is the most comfortable; seats are able to more front and back and there are a reasonable space for each seat.

 

 

Boeing 747:

The plane is having the largest capacity of passengers. It can accommodate 416 in a flight. Passenger comfort level is good also.

 

 

In-flight entertainment and communication:

The most a passenger could expect was a movie projected on a screen at their seats but now there is sometimes a channel devoted to the plane's radio communications, allowing passengers intercommunicate with the people in earth and their is internet facility as well.

 

 

TAM Airlines

In 1988, TAM flew its 3 millionth passenger; it was a record number of passengers ever journeyed by a single airline.

 

 

Economics conditions:

There was a boost in the economy of the world in last many decades. There are advancements because of globalization of economy. Whole of the Europe is now being considered a single economy under a single currency. There is collaboration between the different economies.

 

Aircraft industry is an international industry. There is a high level of expansion in the industry. Companies have to expand their business and make some rapid advancement to stay in the international competition and there is no other way of survival. For this airline companies are increasing their number of planes, technologies in planes, advancements in airports and for all this there is a high level of merger are going on. Companies are taking loans from the world’s different bank. Banks are providing facilities to these companies by entertaining with loans and other services to these companies. Rate of petrol and airplane fuels is getting higher.

 

 The industry is also facing different problems like continues increase in the rates of fuel rates. Interest rates of different economies are getting higher. Wars against terrorism have also given some serious setbacks to the industry. Inflation rates of different economies are also increased. Insurance rates for the industry after 9/11 have gone to its peak. Insurance companies don’t feel a healthy investment by investing in airline companies.     

 

 

Political and legal:

World politics and legal conditions have also played a big part in the restructuring of industry. Governments of different countries are collaborating with each other for different agreements in the aircraft industry. There are certain laws, rules and regulations are being made and amended in the international scenario. Contracting nations adopted international regulations, standards, and procedures for the use of communication systems and air navigation aids; for airport characteristics; for rules of the air and air traffic control; for airworthiness of aircraft; for licensing of operating and mechanical personnel; for aeronautical maps and charts; for log books; and for measures to facilitate air navigation.

 

A similar arrangement in traffic rights (to pick up and set down passengers, cargo, and mail) was not adopted, and bilateral negotiations had to be carried out to effect such arrangements. The American principle of “freedom of the air” and the British principle of “order in the air” were reconciled in 1946 in Bermuda at a meeting between the United States and Britain. Subsequent bilateral agreements are based on the so-called Bermuda Principles covering the regulation of routes, capacity, and tariff.

 

Cultural:

Many airlines are representing the culture of their countries. There is availability of local plus international food in the journey. Airhostesses are being dressed up as according to the airline’s respective countries. There is a lot of modernism and fashion displayed in the interiors of the airplanes. Singapore Airline is the top of practicing the above mentioned cultural activities.

 

Many of the Airlines are advertising as according to their country’s culture. Saudi Arabian Airlines, Singapore Airlines, Pakistan Airlines and Indian Airlines are representing their culture to attract the international and national customers by promoting their airlines.

  

 

Demographics

The industry is targeting many types of customers in the world. The customers are categorized as business class, first class, economy class and domestic class. The classes are made according to the demographics of different perspective customers of industry. There are different types of classes also distinguished as domestic and international flights.

 

 

World Business Class

World Business Class is the equivalent of business class on different Airlines' international flights. Passengers of this class receive healthy meals and refreshment also includes alcoholic beverages. All seats are well equipped with audio-video-on-demand, universal power-ports, a moveable reading light, a folding work table, and a swivel cocktail table.

 

 

Domestic First Class

Domestic First Class is offered on domestic flights. It is available on Airbus and has got the seats between 34 and 37 inches of pitch. Passengers aboard this class receive complimentary meals, refreshments, and alcohol.

 

 

International Economy Class

Economy Class is available on all international flights. Seats range from 17 to 17.5 inches wide, and have between 31 and 34 inches of pitch. Passengers aboard this class receive complimentary meals, snacks, and non-alcoholic beverages.

 

 

Globalization and Mergers

 

CHANGES IN THE NUMBER AND SIZE OF INDEPENDENT FIRMS

THE LEVEL OF MARKET CONCENTRATION

 

Struggle between the United States and its allies and the USSR gave a huge edge to the competition and advancement in the aircraft industry.  The race of advances in civil aeronautics made the United States’ one of the strongest and most robust industries of any type in the whole world. By the late 1960s European air craft industries were finding ways to decrease their dependence on American Aircraft manufacturers.

 

In the struggle to upset the American leadership in the production of civil aircrafts, Britain and France joined hands to develop the succeeded the first commercial jet to fly faster than the speed of sound. In 1970 French, German, British, and Spanish aircraft industry collaborated make airbus Industry .An airplane named Airbus A-300 airplane, introduced after four years. More European programs developed as multinational groups were collaborated to develop fighters, attack aircraft, and helicopters.

 

Merger and acquisitions examples:

 

China Eastern Airlines was established in 1988 on the basis of the CAAC. It founded China Cargo Airlines in a joint venture with COSCO in 1998. In March 2001 it completed acquisition of Air Great Wall. A couple of more China Yunnan Airlines and China Northwest Airlines merged into China Eastern Airlines in 2003.

 

After getting approved from State Council of China, it announced that on September Singapore Airlines and Temasek Holdings (Which owns 55% of Singapore Airlines) would jointly buy shares of China Eastern Airlines. On November 2007 investors signed a complete agreement to acquire a combined 24% stake in China Eastern Airlines: Singapore Airlines will own 15.73% and Temasek Holdings - 8.27% stake in the airline.

Singapore Airlines transaction was still pending in China aircraft market prompted the Hong Kong company Cathay Pacific to make an attempt to stop the transaction  by buying a sufficient share of China Eastern and block down the agreement together with Air China (which already holds an 11% stake in China Eastern) at the shareholder's meeting in December 2007. However on the same December Cathay Pacific announced that it won’t involve in any deal to disturb relations with China. 

Subsidiaries

 

China Eastern Airlines has following subsidiaries:

 

 

China Cargo Airlines

The airline is a wholly owned subsidiary of China Eastern Airlines; it became independent in 2004, having flights in Europe, North America and Japan.

 

 

China Eastern Airlines Jiangsu

Nanjing based airlines, founded 1993 and use parent company aircrafts. Owned (63%) by China Eastern Airlines and Jiangsu Provincial Guoxin Asset Management Group owns (24%).

 

 

China Eastern Airlines Wuhan

A company based in China using the parent company air planes Owned China 96% by Eastern Airlines 2 % state-owned and rest by others

 

 

China Eastern Yunnan Airlines

Founded in 1992 and serves domestic destinations and secondary routes and also Tourists from Kunming to Southeast Asia use this aircraft. In late 2002, China Eastern Airlines took control of it. Now, this aircraft is wholly owned by China Eastern Air Holding and its main base is Kunming Wahiawa International Airport.

 

 

Conclusion:

 

We can conclude the results from the above dissertation the aircraft industry is a highly technological and sophisticated industry. All the times in the industry there are innovations and new things are introduced. There is a high speed development in the industry; all the companies in the industry will have to compete the high level of advancements coming in the international arena.

 

To meet the changes and challenges produced by the time companies have restructured themselves. To handle the difficult situation formed by the external forces of technology, economics, culture, political & legal companies are getting merged with each other. There are joint ventures and acquisitions are going on in the airline industry at international level.

 

The best remark about the restructuring of Aircraft industry is:

 

Survival is the fate of fittest

 

 

 

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