The current production of aircraft engines is restricted to three main companies that are Pratt & Whitney, Rolls Royce and GE. Although there are some other companies in France and Japan, these three are the dominant ones and usually control the trends in the market (Lumsden, 1994, pp 86). The companies in this industry are focused with the manufacture of aircraft engines and engine parts mainly for the governmental market. In addition, the industry covers such aspects as landing gear, rotors and propellers and avionics systems. The nature of the business makes the commercial airlines to consider buying the engines ready and then fixing them on the airplanes body rather than making the engines themselves. This pattern in the aviation industry is mainly because of the risk involved in the manufacture of engines and their parts.
The demand from commercial, private and military airplanes is the main driver for the growth in the aero engine industry. The main industry players form consortiums that may be seen as cartels in a bid to dominate the market and control the dynamics of the industry. Several partnerships formed for revenue-sharing determine, to a large extent, the operations of the industry. The industry is therefore very much profitable and is dependent on a personal company’s operations and their ability to secure contracts on a long-term basis. The benefit of these large companies is the fact that they have large economies of scale both in terms of purchasing and production. This fact has over time given them an advantage over other small companies and is one of the main reasons for driving the small companies out of business (Vajda & Dancey, 1998, pp 152). In addition, the large capital that is required in the industry is a barrier of entry for small companies.
Manufacturers of engine parts mainly focus on production of parts for either one or several engine systems. These larger companies may then subcontract for production of other smaller parts of the engines and those that they find may be uneconomically viable to produce (Pham, 2011, pp 62). The levels of subcontractors may be many and diverse because these subcontractors may in turn sub contract other smaller companies to meet the market demand. The main reason for this is because the aero engine industry has a high level of specialization and the customers have requirements that may require customized parts.
Despite the disadvantages, small companies can out-compete the larger companies by concentrating on high end parts and those that are hard to find. Another avenue to venture in the business would be to focus on low volume production of low price commodities. The major companies prefer to focus on large parts and therefore leave out a gap in the production of smaller parts that are equally important in the aero engine industry. The entry of other companies is also helped by the increase in new emerging trends that are in favor of new businesses. The increasing use of second-generation biofuels (Liemt, 1992, pp 105) and the use of fuel-efficient and lightweight designs of aero engines have encouraged the entry of new players in the market.
Based on the foregoing in the aero engine industry, new entrants including commercial aviation companies are encouraged to venture into the industry and have a chance of competing with the dominant companies. The existence of products in the engine realms that can be made by smaller companies provide a real chance for the companies to venture in. The threat of substitutes as proposed y Porter is one of the reasons why other players must risk venturing in the industry. The commercial airplane companies and others alike can focus on the growing trend for use of light weight engines which would act as substitutes for the already existing heavy weight engines (Garvin, 1998, pp 79). This production would provide the customers with other substitutes to consider in the aero engine industry.
The bargaining power that suppliers hold in the industry is also another reason for the small companies to venture into the business. The market of inputs allows the small companies to grow because they see them a s growing market for their products. The increase in the number of companies dealing with the extraction of raw materials for the production of engine parts is a positive sign for better times in the industry. Small companies should grasp the opportunity and use it as a stepping stone to enter the highly profitable market (Roberts, 1998, pp 173). The readiness of the suppliers to work with as many customers as possible makes it financially viable for new entrants to venture into the business.
Another factor in the successful entrance of other small companies in the business of manufacturing engine parts is the theory of competitive rivalry. The theory is adamant that when there are many competitors in a business, the chance of getting many customers is minimized because they can get the product from other sources. Despite this limitation, the companies should not be afraid because they can turn this into a positive thing (Hill & Jones, 2010, pp 108). They should therefore focus on limiting the number of direct competitors by focusing on new and unique products that are not readily available in the market. One example is concentrating on light weight engines that are not normally available in the market.
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