Strategic Analysis of Competitive Markets: A Case Study for the Narrowbody Market

Commercial aircraft developments are major endeavours which strain considerably the resources of original equipment manufacturers. Beyond these financial strains, the development programs represent huge bets for the companies due to the fixed assumptions made when business plans are conceived and the abundance of uncertainties both at the technical and market levels. Standard methods used for capital budgeting are not well suited to account for uncertainty and fail to capture the dynamic nature of markets and the erosion of leadership positions over time. The on-going research tries to overcome some of these challenges by proposing a game-theoretic based method that helps substantiate aircraft development strategies. Assessing the value of aircraft development strategies is both a complex and tedious task due to the uncertain environment and long forecasting periods. Existing methods do not always capture the problem in its entirety and usually over-simplify it by using generic customers and generic flight routes. Besides, these methods usually fail to account for lost opportnunities and for the sale diffusion process during the early lives of new aircraft. A method is proposed to carry out the valuation of strategies while accounting for some of the challenges identified. The analysis is applied to large commercial aircraft developments and investigates strategy selection in a competitive environment.