Establishment of an Aviation Company

Executive Summary

The aviation industry has undergone critical moments during the last three decades. It has gone from boom to bust and up again. John Hamilton is a MBA graduate and an ex aviator. He has both the experience of somebody that knows how to fly and deal with an aircraft and the knowledge of someone who knows how to operate a profitable business. He decided to mix these two elements in creating a company that will offer to the aviation industry something others have failed to do for years. On the coming pages we will evaluate how this idea has proceeded. He gathered a professional team and began to work on his ideas. Below we will see how he proceeded and can he be successful or not?

Source of Opportunity

In the nowadays market situation, the aviation industry is in demand for new, innovative, products. It has been long time since new innovative technology has been introduced into new aircraft manufacturing. John was well aware of this fact when he went to Adam Aircraft. We will use PEST analysis to underpin the sources of opportunity for “Adam Aircraft”. Their scope is to develop a new aircraft model with innovative technology and affordable cost for consumers.

As discussed in the PEST, if they manage to get this right there is plenty of opportunity for the company to become even a leader of the industry. This is because there is a huge demand waiting for them in the market. In fact, this is what all companies tend to do; fulfill customer needs and desires in order to maximize their profits. The demand for new aircrafts with innovative technology, or other sort of innovations incorporated in them, is huge.

The only major problem until now for companies has been the cost of implementing such innovation into new aircraft development. John and his team are using an innovative cost management system (copied from the information technology field) to cut down as much as possible startup costs and ‘in-process’ costs. If they do so they will be able to meet customer demands closely. This situation will not pass unnoticed from investors. This way Adam Aircraft can raise the necessary funds to build its model aircrafts.

Quality of the team

“Intuition suggests that there is a close connection between the personal qualities of the entrepreneur and the economic success of the firm”. (Casson M,2003)

This is one of the most critical elements a business is to be successful. Every new idea seems idealistic and out of reach if the right people do not gather to make it reality. For that reason the team or individuals that are a part of the new product formulation must be both, very passionately about their work and highly professional. We will analyze this factor by conducting a SWOT analysis of the team and see whether they have the potential of getting the job done and get the idea across the line.

Being an aviator himself John knew that in order to offer the market the highest quality of product it could, Adam Aircraft had to assemble a team of professional information technology and aviators experts. In fact, this is what he did. The team he assembled comprised people who had previous background in different big companies of the aviation and information technology fields. In the SWOT analyses we discuss the strength and opportunity factors that this team brings to the company.

Potential of the business

“The harsh reality is that you will not have enough time in a quarter, a year, or a decade to pursue all the ideas of the businesses you and your team can think of”. (Timmons J A & Spinelli S, 2004) This refers to the fact that we must plan our time to think of the best options we could have and exercise them instead of yearning for all the options.

The growing customer demand on the market for new innovative products does offer a picture for a brilliant future for those companies managing to introduce new innovative products at acceptable costs. The quality of the team assembled by John is an assurance that Adam Aircraft can achieve this objective. The combination of the above mentioned factor does give Adam Aircraft a good potential for the future.

Recommendations

The first recommendation to John and Adam Aircraft is to be careful with costs. they must not forget that the market has a high demand for new aircrafts with innovative technology features, but they also must recognize that the market has an equal demand that the costs be as low as possible. They must not forget previous experiences of other companies that failed due to high costs.

The second thing to keep under control would be the timing of the process. The team should not hurry to implement as fast as it can the innovations into the aircraft building and should do all the necessary tests before implementing them. Here, they also should not forget that in the past previous companies have failed in new aircraft building precisely due to the fact that they implemented technology that was not tested adequately.

And a third suggestion would be that once they manage to get a good market share they should not stop their efforts and quality work for other projects. If the team will manage to satisfy the best it can the above mentioned, than Adam Aircraft will gain a comfortable position in the aviation market. It also has the possibility of forming brand recognition as leader in innovative and ‘cost-friendly’ for its products.

Pest Analysis

Political Factors

Politics has never been a barrier for technological improvements in the United States. In fact, it has been quite the contrary. Many times, politics and politicians have been promoters of technological advancement. But this favorable climate for technological improvements has also been accompanied by a prudent attitude of ‘consumer protection’. This is the case of the many regulations government has set up to prevent public ‘harm’ caused by technology or technological advancements. This is also the case for the aviation industry we are discussing about. The FAA regulations (which are governmental regulations) intend to ensure a high quality of product for the consumers and also protect them from any ‘harm’ that can be caused.

Environmental factors

The environment also is very positive about the aviation industry. Flight as a mode of transportation has become a stable way of moving people and goods from one place to another. Technological advancements in this sector also are very welcome. In fact, as demonstrated in the case study, the problem of the industry does not rest in technological advancement desire but in its related costs. There is an increasing demand not only from aviators (people who use planes for personal use) but also from people who use planes as a form of transportation. Overall the business environment is positive with a high demand but with a costing problem.

Social Factors

Customers are demanding constantly an increase in quality within planes in terms of commodity of flight. Aviators, pilots, also demand a higher quality of planes but both customer groups do not accept to ‘sacrifice’ with highly increasing costs for a better quality. Until now in the aviation industry the increase in costs has been way to higher the rise in technological improvements.

Technological Factors

Technology has been progressing impressively during the past three decades. Innovations have been made in many industries. Especially in the information technology and hardware fields there have been significant advancements. Unfortunately these innovations and technology have not implemented into aircraft manufacturing because of high costs of implementation. But the fact that there are high costs of implementation is more a management issue than an issue related to the technological advancements itself. In the case we are discussing, Adam has found the correct way to properly manage the implementation of the technological innovations into aircrafts and still remain under certain limits of costs increase.

SWOT Analysis

Strengths

Team’s Previous Experience

John Hamilton has a long experience in the aviation field. Being a MBA holder he also has acquired all the skills necessary for managing and organizing properly a business firm. He knows that experience in the area of the product/service to be offered to the market is essential if you want to have the best quality possible. This is why he has assembled a team of professionals of the field of aviation to help him design and implement the construction of a new airplane product that will comprise the best of the previous aircraft versions and a few advanced technological innovations. Since the team members have been familiar with the aviation industry products for many years (all of them have been even users) they already have an idea of the customer needs and desires and what should be added, or implemented, into a new aircraft for it to be successful. This experience feature cuts a lot of time and costs to the company.

Motivation

Since the team members are pilots and people who have dealt with the aviation industry before this factor serves as a motivation for them. Also, John has a strong passion for this industry field and has demonstrated this during his life. Other team members are the like of him is sharing passion for the aviation industry. This factor motivates them to build a good product. Another motivation factor is the fact that there has not been much development into the new products offering in the industry when, instead, the market is ‘hungry’ about them. Customers are demanding new products as is showed in the case study on the discussions that took place on parties where aviators gather and express their desires for new products. Unfortunately, the industry has not offered anything substantial mostly due to high increase in manufacturing costs.

Startup costs

This is also a source of strength for the company we are dealing. Since John and his team are experienced into the aviation and technology fields, they have managed to cut significantly the costs of designing and manufacturing. This has been done by using high technology servers and model manufacturing machinery that nowadays, thanks to the advancement in computer science and information technology can be available for a few thousand dollars. There is no need to have any large computer machineries that have a high cost as has been for decades the case for many other big aviation manufacturing companies.

Weaknesses

Capital

Even though they have managed to have a lower startup cost nevertheless building a new aviation product requires a huge gathering of capital. Traditionally new projects require up to 250,000 US$. This is a sum that a starting company with no previous background in the field cannot gather easily. In fact, it is extremely difficult, that this sort of starting companies could afford these costs alone.

Competition

Adam Aircraft is a new company in the market. It has no previous history, no background, in aviation product manufacturing or design. It is true, that the managing team is comprised of serious professionals of the field but so do the teams of other rival companies. Big manufacturing companies already have well-established brand recognition among consumers. Instead Adam Aircraft has yet to build one. They also have previous experience in design and manufacturing whereas Adam Aircraft has to ‘get it right’ since the first time. Thus, it can suffer from competition.

Opportunities

But the future can be very bright for Adam Aircraft even though competition is fierce. As we have mentioned before there is plenty of evidence that the market is in need and is demanding new, innovative products. Also, in the past, previous companies have tried to bring in new products but they have failed. They have either failed due to high costs or to the premature implementation of innovative technology in aircrafts.

At the present moment these technology Innovations have been tested and Adam Aircraft can use them without the fear of a technological failure. On the other hand, their ‘gradual innovation insert’ policy for the new aircraft to be designed, along with their cost management discussed above, allows them to keep the overall costs low. This would result in a final product that has a lower cost that what other companies introduced before and with newly added technological innovations. Thus satisfying both customer needs.

Threats

The major threat is that of the market share and brand recognition. Since, as discussed above, Adam Aircraft is a startup company with no previous market experience it does not have a good reputable name. It has no name at all. But in order to attract investors for this or future project it has to come out with an excellent project and ‘get it right’ since the first time. If it fails in this project, it will be very difficult to attract again investors for future ones. Also, the overall costs could come up to be higher than expected. This is because Adam Aircraft has to rely on different supplier companies to get the materials needed for building their aircraft model and pass the FAA regulations. These regulations, at the present moment, do require a lot of time and effort which ultimately will result in increasing costs.

Reference:

Timmons J A & Spinelli S 2004, New Venture Creation: Entrepreneurship for the 21st Century, McGraw Hill Professional, Boston MA.

Casson M, 2003, “The Entrepreneur: An Economic Theory”, Edward Elgar Publishing Cheltenham.