Sky’s the limit

IIPM : EXECUTIVE EDUCATION

Wish a Jaguar or a Land Rover could fly...

Has anybody ever wondered why Ford, world’s third largest automobile manufacturer and seventh largest in Fortune list finds it difficult to manage such niche and high-end brands like Jaguar and Land Rover? Well, the answer lies not with the dynamics of automobile industry but something else. For long, world has witnessed the exponential consumerism of the US. And now its becoming ambitious too. Consider this: Forecast International states in its report, ‘The Market for General Aviation/Utility Aircraft 2007-2016’ that ‘makers of general aviation and utility aircraft will turn out nearly 27,140 aircrafts worth approximately $22.55 billion during the period 2007-2016.’ It further states that ‘of the total number of aircrafts produced, 22,477 piston aircrafts will account for the vast majority of units produced (82.8% of the total).

Turboprop aircraft manufacturers will turn out aircrafts in lower numbers, for total production of 4,660 units (17.2% of the total). Turboprop value of production is projected to amount to $13.7 billion or 60% of the total, while the value of production of piston aircraft will amount to $9 billion or 40% of the total, due to the much higher unit prices of turboprop aircraft.’ Moreover, Very Light Jets (VLJ) are changing the dynamics of the private jet industry. Companies such as Cessna with its Citation Mustang VLJ, Eclipse Aviation’s Eclipse 500 are revitalising the fractional ownership industry. Reports state that more than 3,000 VLJs are already on order. A report by Charles M. Schulz – Sonoma County Airport, states, ‘The FAA/Transportation Research Board Business Aviation Panel has suggested that the market for VLJs could add an additional 4,950 of these aircrafts to the general aviation fleet by 2017. Other forecasts project from 7,400 to 10,900 new business jets entering the market between 2006 and 2014.’ Furthermore, it states that Federal Aviation Administration expects another 14,000 light sport aircrafts to be added to the General Aviation fleet by 2017 and that ‘the growth of the active general aviation aircraft fleet is forecast to increase by an annual average rate of 1.4% through to 2017, growing from an estimated 214,591 aircrafts in 2005 to 252,775 in 2017.’

So what does all this have to do with the inability of Ford to manage Jaguar and Land Rover brand? Well, no prize for guessing that these are not utility cars but essentially status enhancers. Yet on any given day, even a single engine piston aircraft like Cessna 172, or a twin engine turboprop like Cessna 421C is more of a status enhancer than a Jaguar or Land Rover, simply because they can fly. Already the VLJs are being termed as SUVs of the sky. Americans now buy personal aircrafts, the way Indians buy cars now. A Very Light Jet costs a shade more than a two million dollar while one can get a second hand piston aircraft at the price of a high-end Jaguar. Expecting this craze to go northward, Honda and Toyota have started working on making private jets. In contrast, in emerging economies like India and China, the craze for high-end cars is just growing due to increased affluence, just as the demand for Rs.1 lakh car would explode. Here, Ford prefers the Tatas exactly for the same reason for which Fiat finds it more feasible to sell its cars through Tatas as dynamics of these markets are far more different than the US and Europe. Ford bettered what Fiat did first. But don’t get surprised if Tatas bid for Fiat in a few years’ time.That’s the future of automobile makers in the US and Europe. Realisisng this, Ford has already started the exit game.

Pathikrit Payne

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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