Safran is a French multinational firm dealing in the Aerospace and Defense industry manufacturing aircraft engines, pieces of equipment, avionics, navigation systems, and communication systems. Coping in the aerospace industry, the group was founded in 2005, having its headquarters in Paris, France. As of 2018, the firm generated a vast sales figure of 21 billion Euros and has occupied an employment figure of almost 92,000 (Safran, 2019). In addition, the group has expanded its operations over a vast network with multiple subsidiaries working under the group. From observing the American Airlines industry, the evaluation of Porter’s five forces would be a supportive method for maintaining prospect strategies to better understand the company’s standing position in the market.
Competitive Rivalry in the Market
The competitive rivalry in the aerospace industry is high because to get and meet the demands of government and commercial contracts, and giant corporations are battling fiercely. Also, because of the presence of firms in so many nations, the aerospace and defense industry is highly concentrated, with only a few significant firms controlling a large portion of the market, competition is even fiercer. The company’s major competitors are Boeing, Lockhead Martin, United Technologies, GE Aviation, and Raytheon. As of 2019, Safran is trying to lead the market in terms of aircraft manufacturers and suppliers worldwide based on revenue of 28.5 Billion US dollars. At the same time, others showed the leading revenue of 76.6, 59.8, 46.9, 33.8, 32.9, and 29.2, respectively, according to Statista (2020). Therefore, the presence of such big firms in the sector makes the environment more challenging for each other.
Threat of Substitutes
The threat of having substitutes is considered low in the aerospace sector because the airlines when making purchases of aircraft, consider a product matches the requirement and conditions specified by the state, which only a few can match. Furthermore, while consumers are budget-conscious, they are not price-sensitive, and substitutes for practical combat aircraft require several years to create. Moreover, the products or technology are sophisticated and protected by patents. Therefore, it is tough to replicate these products on time due to a restricted number of manufacturers. (Braziotis et al, 2017). Thus, the availability of substitutes is considered to be low in the industry.
Threat of New Entrants
The threat of new entrants in the aerospace industry is considered to be low as this industry is a capital-intensive business, requiring both capital and skills to thrive. Research and development cost a lot of money, and it involves a lot of time to develop a finalized product, somewhere between five to ten years. Moreover, to cope with strict regulations, businesses must adhere to a variety of regulatory obligations. (Chattopadhyay, 2015). Highly confidential tools and technologies, such as intelligence gathering devices may act as a barrier to entry. Furthermore, the firms in the aerospace industry take advantage of economies of scale (Guffarth and Knappe, 2019), so entry barriers are high. Hence, making less room for the newcomers.
Bargaining Power of Buyers
The Bargaining power of consumers in context to the aerospace industry is moderate because of the limited number of suppliers to choose from, which large manufacturers may not leverage to the buyers. The customers in the aerospace and defense sector are essentially government organizations, so they are in solid financial shape. Because aerospace and defense products and equipment are so vital to customers, this authority is partly neutralized. The companies not only provide them with the aircraft engines or equipment but also the repair and maintenance with increased the switching cost and reducing the buying power (Sabet et al, 2016). Innovation-based product differentiation further balances consumer behavior. Considering such a pattern in the aerospace industry keeps the barraging power moderate.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the aerospace industry is usually moderate since few big suppliers give more influence in shaping the product’s price to their profit objectives. In addition, the manufacturers are also dependant on their backend suppliers for the availability of raw material for which they have to bargain as well and then turn profits margin, making supplier power balanced. The firms buying aircraft make the deals by considering the technological competence and supplier’s adaptability with the company demands. Moreover, the aerospace industry has to rely on few aircraft manufacturers for the accessibility and maintenance of planes (Helleloid et al., 2015). Thus, in the context of the aerospace industry, the bargaining power of suppliers is relatively moderate.
References
Braziotis, C., Tannock, J.D. and Bourlakis, M., 2017. Strategic and operational considerations for the Extended Enterprise: insights from the aerospace industry. Production Planning & Control, 28(4), pp.267-280.
Guffarth, D. and Knappe, M., 2019. Patterns of Learning in Dynamic Technological System Lifecycles—What Automotive Managers Can Learn from the Aerospace Industry?. Journal of Open Innovation: Technology, Market, and Complexity, 5(1), p.1.
Helleloid, D., Nam, S.H., Schultz, P. and Vitton, J., 2015. THE US AIRLINE INDUSTRY IN 2015: INSTRUCTORS’NOTES. Journal of the International Academy for Case Studies, 21(6), p.145.
Sabet, E., Stratton, R. and de Leeuw, S., 2016. Managing supply chain collaboration in high-tech aerospace industry.
Safran, 2019. Safran : Very strong 2018 performance – Further growth and profitability improvement in 2019. [online] Safran. Available at: https://www.safran-group.com/media/safran-very-strong-2018-performance-further-growth-and-profitability-improvement-2019-20190227.
Statista, 2020. Revenue of the worldwide leading aircraft manufacturers | Statista. [online] Statista. Available at: https://www.statista.com/statistics/264366/revenue-of-the-worldwide-leading-aircraft-manufacturers-and-suppliers/.