Honda Aircraft Company - Final Paper

Honda Aircraft Company/Shaikh T. Alamin-Khashoggi

Final Paper

Honda Aircraft Company

Shaikh T. Alamin-Khashoggi

BUS - - 490-801

Dr. Nnamdi Onuorah

April 24, 2016

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I. Introduction

Premised upon the Mandate of “Do Not Imitate” by Honda’s founder, Soichiro Honda,

indicates that at Honda, they are constantly striving to seek out new initiatives and stay at the

forefront of innovation. The current innovation includes Honda’s new HondaJet.

II. Company History

In October 1946, Soichiro Honda established the Honda Technical Research Institute in

Hamamatsu, Japan to develop and produce small 2-cycle motorbike engines. Two years later,

Honda Motor Company, Ltd. (Honda) was born, and in 1959, Honda opened its first storefront

in Los Angeles, California with six employees. Although the innovations at Honda has included

items such as motorcycles, automobiles, humanoid robots and many other technologies, Honda

began rethinking technology to maximize performance through its subsidiary with the

HondaJet.

Since its foundation, Honda has had a vision of taking personal mobility to the skies.

Under Honda’s user-first philosophy, they have refined its technology to deliver unprecedented

new value with the HondaJet, an advanced light business jet that broke new ground by offering

a larger cabin and luggage space, far better fuel efficiency, and higher cruise speed compared to

conventional aircraft in its class.

Developed near the birthplace of aviation in North Carolina (Greensboro), HondaJet

fulfills one of Honda’s longstanding dreams to advance mobility through personal aviation.

Designed as an all-new aircraft, HondaJet is the next step in Honda’s legendary commitment to

advanced technology at the Honda Aircraft Company(HAC) (News Release: December 24, 2015).

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III. Mission Statement

Taking in conjunction with that of the Vision, is that of a company built on dreams,

inspiring Honda to create innovative products that enhance human mobility and benefit

society. Considered to be the strength of Honda, “The Power of Dreams” is a way of thinking

that guides Honda and inspires it to move forward. Collectively these are what makes Honda’s

unique Mission Statement: “To develop forward-thinking technologies that anticipate and

satisfy the needs of a future society,” that is indicative of its history.

IV. Objectives

According to Graham Warwick and Stephen Trimble, HAC, a wholly owned subsidiary of

Honda was founded in 2006, although it has its heritage in more than 20 years of ground-

breaking aeronautical research and development (Warwick)(Trimble). Moreover, according to

the HondaJet designer, Michimasa Fujino, “Our objective was to design and develop an

advanced light jet that would create new value for personal and business aviation (Fujino).”

Fujino is also the president and CEO of HAC which produces and sells the HondaJet.

V. The External Environment

a. Competition Analysis – Porter’s five forces

i. Risk of entry

The risk of entry by potential competitors includes Epic Aircraft Aviation Industry

Corporation of China; Metal Master; Spectrum Aeronautical; and Sports Jet Limited. Currently

all of these weak competitive forces are “opportunities” wherein their projects are under

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development and will face many governmental regulations, including certifications that took

the HondaJet nearly two decades to achieve.

ii. Rivalry Intensiveness

The rivalry intensiveness among the established companies like Embraer, Cessna, and

One Aviation have varying factors considered to be a major “threat.” Moreover, with the threat

of “potential competitors” like Epic, Metal Master, Spectrum, and Sport Jet, which may take

market share away from the established companies, there will eventually be an increased

rivalry.

iii. Bargaining Power of Buyers

The bargaining power of buyers is primarily a “threat.” However, with that of HondaJet,

it can be deemed an “opportunity” because buyers typically cannot purchase a large quantity to

leverage a price reduction in such a niche market; their switching costs would be high; and

because they cannot enter the industry easily and produce the product themselves.

iv. Bargaining Power of Suppliers

The bargaining power of suppliers is a “threat” to HondaJet wherein its materials,

services, and labor can exceedingly raise the costs of manufacturing, and that of variable, fixed

and maintenance costs. This is primarily due to the HondaJet being made from composite

materials with few or no substitutes, which is vital to the jet’s success.

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v. Availability of Substitute Products

The availability of substitute products includes jets from Embraer, Cessna, and One

Aviation, all of whom are “threats” because they have the ability to depress the HondaJet’s

profits with similar jets that have lower purchasing costs. However, with very light jets (VLJ)

being in that of a “fragmented industry,” defined as aerospace, due to their unique

characteristics, VLJ may also be considered a “consolidated industry” wherein potential

competitors have gone bankrupt by trying to cut prices to differentiate their products from

those of the other competitors.

b. Economic Forces

The economic external macro environment generally gives a company the “opportunity”

to expand its operations and earn higher profits. However, in respect to HAC, the economic

forces are one of its “strengths,” “opportunities,” and “threats.”

Strength – Diversified product portfolio. – Honda unlike many other automotive companies

does not focus only on selling vehicles. It is the largest producer of the engines and motorcycles

as well. Therefore, the company is not as susceptible as its competitors are to market cycles or

technology disruptions.

Opportunity – Growth through acquisition. – Honda could greatly benefit from strategic

partnerships or acquisitions of smaller competitors. The business would add new brands to its

portfolio, achieve greater economies of scale and would benefit from synergies between

different firms.

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Threat – Rising raw material prices. – Metals are the main raw material used in vehicle and

motorcycle manufacturing and the rising price of raw materials raises overall production costs

for Honda.

c. Global Forces

The global external macro environment generally creates a myriad of “threats” and

“opportunities” for companies. “Although globalization has increased both the threat of entry

and intensity of rivalry within many formerly protected national markets, it has also created

enormous opportunities for companies based in those markets (Hill, P.148).” In respect to HAC,

the global forces are one of its “strengths,” “weaknesses,” and “opportunities.”

Strength – Strong brand image. – Honda has a reputation for producing the best quality

engines around the world. The company’s brand was the 21st most valuable brand in the world

valued at $17 billion and was only behind Toyota, Mercedes-Benz and BMW.

Strength – Motorcycle market share in Asia. – In 2012, Honda sold 80.5% of its

motorcycles in Asia, the market that has the greatest potential. Having the largest motorcycle

market share, Honda is well positioned to compete with other companies for the sales and

profits.

Weakness – Decreasing sales. – In 2012, Honda’s revenue hit the lowest point in 4 years

to 7.948 trillion Yen. Honda sales were down by 11.2% in North America, which represents

more than 40% of total Honda revenues. Revenue from Asia and Europe also declined by 21.3%

and 15.5% respectively, signaling a poor performance globally.

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Opportunity – Positive outlook for global motorcycle industry. – The motorcycle

industry grew by 4.2% from 2011 to 2012 and is expected to grow by at least 6% to 2016.

Honda is the world’s leading producer and seller of the motorcycles having more than 29% of

the market share. Growing demand for the motorcycles are a great opportunity for the

company to expand its global market share and grow sales.

d. Technological forces

The technological external macro environment generally is both an “opportunity” and

“threat” because it can make established products obsolete overnight and simultaneously

create a host of new product possibilities. In respect to HAC, the technological forces are one of

“strengths” and “threats.”

Strength – Huge investments in research and development. – Honda’s investment in

research and development reach as much as 5% of revenue. The business relies on these

investments to achieve competitive advantage through various technologies, such as improved

vehicle painting process, new hydrogen and hybrid engines or new welding technologies. In

2012, the company owned 42,000 patents and had pending applications for 29,000 more

patents.

Threat – Intense competition. – Honda faces more intense competition than ever. New

small entrants are disrupting the market with their capabilities in producing electric vehicles or

alternative fuel engines. Big companies are restructuring themselves to become more efficient.

As a result, firms like Honda are suffering from competition from both big and small players.

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Threat – Decreasing fuel prices. – Some analysts forecast that future fuel prices will

drop due to extraction of shale gas. This would negatively influence Honda because the

company is focusing on hydrogen fuel, hybrid and flexible fuel engines, which are not so

attractive to consumers when fuel prices are low.

e. Demographic Forces

The demographic external macro environment generally is both an “opportunity” and

“threat.” An opportunity where these forces in the general environment can change who has

control and for how long. Once those in control retire, what implications will these have in the

organization. In respect to HAC, the demographic forces are one of its “weaknesses” and

“threats.”

Weaknesses – Weak position in European market. – Honda holds a very weak position

in the European market and has maintained only 1.1% market share in 2012. Although the

European market share is declining at the moment and many companies experience losses, the

market is huge and firms can benefit from the economies of scale.

Threat – Natural disasters. – Honda has manufacturing facilities in Japan, Thailand,

China and Malaysia. These countries, including others, are often subject to natural disasters

that disrupt manufacturing in the facilities and decrease Honda’s production volumes.

f. Political and Legal Forces

The political and legal external macro environment generally is both an “opportunity”

and “threat” due to developments within society which can constrain operations, affecting

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managers and companies. In respect to HAC, the political and legal forces are one of its

“opportunities” and “threats.”

Opportunity – Increasing fuel prices. – Honda’s strong emphasis on engineering fuel-

efficient vehicles with flexible fuel, hybrid and hydrogen engines will pay off due to increasing

fuel prices.

Opportunity – Growing global demand for environment friendly vehicles. – The

declining levels of fossil fuel sources and the rising CO2 emissions became a major concern for

many people and many governments. Therefore, ecologically friendly vehicles, powered by

hybrid, hydrogen or flexible fuel engines became very popular. The market for such vehicles

was $33 billion in 2010. Honda’s focus on hybrid and hydrogen fueled engines is a great

opportunity to capture the market share for this new demand.

Threat – Strong yen. – Honda earns most of its profits outside Japan and appreciating

yen poses a great threat to Honda’s profits.

HAC has been able to compile a SWOT analysis where it relied on its Strengths (inside

matters: skills and capabilities that give advantages over others), by addressing its Weaknesses

(inside matters: drawbacks that hinder that give disadvantages relative to others) head on, so

that it could continue to exploit the Opportunities (outside matters: environmental factors that

may be exploited to its advantage) and reduce the Threats (outside matters: environmental

factors that could cause trouble) by establishing a robust worldwide network, especially by

expanding sales to South America, overseeing Latin America’s largest private aviation business

which operates 23 fixed base operations throughout Brazil.

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VI. The Internal Analysis

a. Finance and Accounting

i. Liquidity Ratios

Honda Aircraft Company Embraer Aircraft

Current Ratio = Current Assets/Current Liabilities - Measures a company’s ability to pay off its short-term liabilities. A higher current ratio is always more favorable than a lower one because it shows the company can more easily make current debt payments. Premised upon the analysis of the ratios, Honda performs worse than Embraer.

03/2012 1.32 2012 1.92

03/2013 1.30 2013 1.99

03/2014 1.23 2014 2.28

Quick Ratio = Current Assets – Inventory/Current Liabilities -Measures the company’s ability to pay its current liabilities when they come due with only quick assets (i.e., assets that can be converted into cash within 90 days). As the ratio increases, so does the liquidity of the company. Premised upon the analysis of the ratios, Honda performs worse than Embraer.

03/2012 0.88 2012 1.15

03/2013 0.84 2013 1.20

03/2014 0.80 2014 1.33

Debt/Equity=Total Liabilities/Shareholders Equity – Shows the percentage of a company’s financing that comes from creditors and investors. The lower the ratio implies that a company is more financially stable; higher= riskier. Premised upon the analysis of the ratios, Honda performs better than Embraer.

03/2012 0.51 2012 1.90

03/2013 0.54 2013 1.86

03/2014 0.55 2014 1.75

ii. Profitability Ratios

Asset turnover=Revenue/Average Total Assets – Measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. The higher the ratio indicates that the company is using its assets more efficiently; a lower ratio indicates that the company is inefficient and most likely have management or production problems. Premised

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upon the analysis of the ratios, Honda performs better than Embraer.03/2012 0.68 2012 0.63

03/2013 0.78 2013 0.57

03/2014 0.81 2014 0.54

Profit margin=Net Income/Net Sales – Measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. Creditors and investors use this to measure how effectively a company can convert sales into net income. Premised upon the analysis of the ratios, Honda performs better than Embraer.

03/2012 2.66 2012 0.57

03/2013 3.72 2013 0.57

03/2014 4.85 2014 0.53

Return on assets=Net Income/Average Total Assets – Measures net income produced by total assets during a period by comparing the net income to the average total assets. This allows both management and investors to see how well the company can convert its investments in assets into profits, showing how many dollars invested in assets during the year produced how many dollars of net income. Premised upon the analysis of the ratios, Honda performs better than Embraer. 03/2012 1.81 2012 0.36

03/2013 2.89 2013 0.32

03/2014 3.92 2014 0.28

The above ratios were calculated utilizing the Annual Financials for Embraer S/A ADR,

NYSE: ERJ, Balance Sheet (Marketwatch) and Income Statement (Marketwatch), and for the

Honda Motor Company Ltd ADR, NYSE: HMC, Balance Sheet (Nasdaq) and Income Statement

(Nasdaq), including the Growth, Profitability, and Financial Ratios for Honda Motor Company

Ltd ADR (HMC)(Morningstar).

b. Competitive Advantage

i. Superior Efficiency

HAC is dedicated to the principle that a highly engaged and diverse team provides a

superior path for driving future innovations and provides its company a distinct competitive

advantage. This is why the company strives to maintain a highly inclusive working environment

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where every member of the HondaJet team is treated with respect, has equal access to

opportunities and resources, and has the opportunity to contribute to HondaJet’s success.

Although a newcomer to aviation, Honda has the advantage of being a solid global

player. Its brand is known for safety, quality and reliability, and it already has a global

infrastructure for sales, operations, and manufacturing. This certainly greases the path for

HAC’s expansion in several respects, including quality, innovation, and customer

responsiveness.

ii. Quality

Honda’s managers know how to control the forces that influence the company by

reconciling dichotomies, for the rivalry in the light business jet market HAC uses the principle

“right-first-time or build in quality” strategy to have better production with good quality, overall

less cost and time for delivery.

iii. Innovation

HAC is dedicated to the principle that a highly engaged and diverse team provides a

superior path for driving future innovations and provides its company a distinct competitive

advantage. This is why HAC strives to maintain a highly inclusive working environment where

every member of the HondaJet team is treated with respect, has equal access to opportunities

and resources, and has the opportunity to contribute to HondaJet’s success. By building upon

various successes, HAC challenged the ultimate balance of innovation and inspiration by

challenging how a light business jet should look and refining how one should perform. HAC has

done so in many ways including:

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1. Over-the-wing engine mount design. This innovation is a breakthrough in aeronautics which was engineered and proven by Honda after more than 20 years of extensive research and development. This innovative technology not only breaks the conventional mold set by the aerospace industry, but also provides category-leading advancements such as a more spacious cabin, noise reduction, and increased fuel efficiency of the HondaJet (Richard 2011).

2. Natural Flow (NLF) wings and nose. NLF of the wings and nose maximizes performance of the HondaJet. The technology applied to the design of the main wing airfoil and fuselage nose shape of the HondaJet to reduce aerodynamic drag. This cutting-edge engineering innovation contributes to high speed cruising and increased fuel efficiency (Richard 2011).

3. Composite fuselage. Unlike many jets that use aluminum, the HondaJet employs a lighter yet stronger composite fuselage. The fuselage is created from a cutting-edge combination of co-cured integral structure and honeycomb sandwich structures. The result is increased cabin space, better performance, and greater fuel efficiency (Richard 2011).

4. Advanced cockpit. The innovations of the HondaJet cockpit shows that it is built for optimum safety based on thoughtful ergonomic design and state-of-the-art situational awareness. First, it gives the pilot(s) more space and greater visibility; and fewer intrusions and more intuition. This includes the Garmin G3000 next-generation all-glass avionics system which brings pilot and aircraft closer together with touch-screen technology. The dual touch-screen controllers and three 14-inch landscape high-resolution displays offer enhanced navigation, flight planning, and control. The cockpit is unquestionably built around the pilot(s) operation of the HondaJet.

5. New engine design. As a start-up aircraft engine manufacturer backed by General Electric (GE), the largest engine supplier in the world, HAC worked relentlessly to define the future of businesses and general aviation. By priding itself to exceed customer’s expectations, HAC in partnership with GE developed a new engine for the HondaJet to maximize performance. Based upon its culture of respect and trust which is rooted in Honda’s manufacturing philosophy, it further promotes diversity and diversity in creating a quality product.

These innovative benchmarks have further allowed the HAC to do something

extraordinary with the HondaJet. It has allowed this light business jet to be equipped with a

lavatory, something unusual in its class, making it apparent that the HondaJet’s long-term

success will be unquestionable. To further these general dynamisms of the light jet industry

environment, HAC has positioned itself further with additional competitive advantages beyond

the innovations listed, including its customer responsiveness and strategic choice.

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iv. Customer Responsiveness

There are three specific areas that give HAC a competitive advantage is HAC’s

engineering and design, research and development, and brand equity. In order to determine

whether HAC’s competitive advantage in these areas is sustainable, an analysis is applied to

each one using the VRIO framework as originally developed (Barney, 1991; Barney 1995; and

Rothaermel, 2012). Different from Porter’s 5 Forces which analyze external environments, VRIO

analyzes firm’s internal resources which must be valuable, rare, imperfectly imitable and non-

substitutable. A resource or capability that meets these requirements can bring sustained

competitive advantages for a company.

Honda’s business units, including HAC, are aligned to take advantage of design

breakthrough, which reads to a conclusion that its engineering and design are a source of

sustainable competitive advantages. Secondly, Honda’s unique structure and its level of

commitment to advanced quality research make its research and development a sustainable

source of competitive advantages in the industry. Lastly, by supporting its brand value with

superior engineering, design, and research and development, Honda is able to rely on its brand

equity as a source of sustained competitive advantage.

Premised on these competitive advantages, HAC and the aerospace/aviation industry

predicts that 9,250 new business jets will be sold in the next 10 years. Further predictions

indicate that the business jet market in Asia to overtake that of South America around 2020,

indicating the increase in global demand and developments of new markets. As such, it is

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believed that HAC will be able to capture about 5% of annual deliveries by 2020, delivering

about 300 HondaJets annually.

VII. Strategic Choice

a. Business level strategy (Differentiation; Cost Leadership; or Focus)

HAC operates a hybrid business level strategy which includes differentiation, cost

leadership, and focus strategies.

The “focus strategy” part of Honda’s business level strategy concentrates on the

placement, or location of its facility making itself a specialized differentiator. The private jet

industry forecasts that over the next decade, a majority of jet orders will originate in the United

States. As HAC has strategically located its facility in Greensboro, North Carolina, it is well

placed to capitalize on the U.S. demand for private jets. International competitors like Brazil-

based Embraer or Canada-based Bombardier are not so fortunate wherein Greensboro attracts

innovators to the aerospace and aviation industries. North Carolina understands that these

industries are platform infrastructures that enhance the ability of all of the state’s businesses to

compete within the global marketplace.

Greensboro has a key competitive advantage in key segments of these industries where

HAC as an organization can successfully direct its energy, resources and competencies into

Greensboro by acting strategically, and thereby moving to support and sustain economic and

community growth. Moreover, as a whole, investment by North Carolina in these industries will

further continue to leverage existing capacities in education, workforce development, research

and development, and transportation infrastructure, especially wherein these industries are

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recognized as strategies target critical to the United States’ national and economic security

(Guay, 2007, and Brockett, 2004). Further, North Carolina has more than established its

reputation for forward-thinking strategic investment, which has been the basis of the state’s

competitive advantage over the past 50 years. Evidence of this is the investments in the

Research Triangle. With the significant investments towards the infrastructure, North Carolina

has enhanced its competitiveness of these industries since 1873 with the first American

airplane built in Hertford County by James Henry Gatling (Parramore 2003).

The” differentiation” part of Honda’s business level strategy is focused differentiation

approach wherein all the means of differentiation that are open to the differentiator (i.e.,

Embraer), are available to HAC. As such, HAC (i.e., the focused company) competes with

Embraer in only one or a few segments. Moreover, as the focuser, HAC has a cost advantage

because it is producing complex and/or custom-built products that does not lend itself easily to

economies of scale in production and, therefore, offer few experience-curve advantages.

HAC, is a wholly owned subsidiary of American Honda Motor Company, Inc., which was

founded in 2006. As Honda enters this new market segment, it expects to bank on its

established brand name, financial stronghold, global presence, and engineering expertise to

compete in the aviation industry. With HAC concentrating on a small range of products (i.e.,

light business jets), it allows HAC as the focuser to develop the innovations highlighted above,

(e.g., VI. The Internal Analysis, Section B: Competitive Advantage, Subsection iii: Innovation)

faster than Embraer can. Since HAC does not attempt to serve all market segments, because

doing so would bring it into direct competition with Embraer’s other competitors like

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Bombardier, Cessna, and Gulfstream, it is becoming successful as it begins to serve its market

segment by chipping away at Embraer’s competitive advantage.

The other side of HAC’s business level strategy is that it can also pursue a differentiation

strategy at low cost (i.e., Cost Leadership and Differentiation) premised upon its flexible

manufacturing technologies. With its technological developments highlighted above (e.g., VI.

The Internal Analysis, Section B: Competitive Advantage, Subsection iii: Innovation), HAC has

also found it easier to obtain the benefits of both strategies.

The reason is that with all of the technological advances and innovations that HAC

utilizes, it allows them to pursue a differentiation strategy at a low cost by combining these two

generic strategies. Although “traditionally, differentiation was obtainable only at high cost,

because the necessity of producing different models for different segments meant that firms

had to have short production runs, which raised manufacturing costs (Hill, P.125).” However,

HAC focuses on one model of light business jet which reduces any costs for retooling the

production line and the costs associated with small production runs. As such, by standardizing

many of the component parts used, HAC has effectively been able to realize significant

economies of scale in manufacturing, production, and marketing costs. By doing so, HAC has

been able to take advantage of new developments in production and marketing, and managing

to reap the gains from cost-leadership and differentiation strategies simultaneously.

Premised upon these factors, HAC can charge a premium price for the HondaJet

compared with the price charged by Embraer (i.e., the pure cost leader), and because they have

lower costs than Embraer (i.e., the pure differentiator), they obtain at least an equal, and

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probably a higher level of profit than Embraer and other firms pursuing only one of the generic

strategies by combining its approaches in a combination in ways.

b. Corporate level Strategy (Horizontal or Vertical Integrations; Diversification;

Restructuring and Downsizing)

With HAC’s utilization of product differentiation to manage rivalry and increase its

profitability, it deters potential entrants within the industry by utilizing tactics and maneuvers

to prevent price cuts and price wars, but primarily to prevent rivals like Embraer from stealing

its customers and reducing its market share. By adopting the combination business strategy,

HAC has been able to effectively protect its competitive advantage and preserve its profitability,

generate above-average profits, and collectively reduce the strength of the five forces of

industry competition to preserve both HAC’s and the aviation industry’s profitability. Premised

upon its business level strategy, HAC’s corporate level strategy is premised upon vertical

integration and diversification.

Honda’s utilization of vertical integration is its first strategy which allows it to gain more

control over the value chain. When Honda made the decision to develop HAC, they were able

to get more control over the production part of the distribution process. Similarly, with Honda

performing distribution and retailing activities, it has more control over the way the HondaJet is

presented and at what price it is sold in the market.

HAC via Honda also utilizes vertical integration to increase advantages over its

competition to block them from gaining access to the scare resource (i.e., composite materials)

that it uses on the HondaJet. By doing so, it allows HAC access to more production inputs,

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distribution resources, and process and retail channels. Each of these offering opportunities for

HAC to distinguish itself from Embraer and other competitors through effective marketing.

Honda’s utilization of related diversification is its second strategy which allows it to

move the company into the new activity with HAC that is simultaneously linked to its existing

activities by the commonalities of research and development as its subsidiary.

Related diversification involves fewer risks because Honda has moved into the aviation

industry about which top management has some knowledge. Probably because of those

considerations, Honda diversification into HAC displays a preference for related diversification

like most companies which have displayed such a preference (C.W.L. Hill (1985); G.R. Jones and

Hill (1988); and Rumelt (1974)).

Premised upon the vertical integration and related diversification, Honda has been able

to effectively utilize its corporate business strategy wherein its management actions increases

HAC’s performance relative to its rivals. Presumptively this strategy is a part of Honda’s

business model that is key to Honda planning and managing HAC’s structure and its methods

for maximizing revenues and profits. This is especially taken into consideration where Fujino

indicated that, “with operational costs of about $1,000 - $1,200 an hour, HondaJet could make

travelling in a group of five or six cheaper and more efficient than flying commercially between

small cities. Competitors offer at best $1,800 by comparison (Kim, para. 16).”

VIII. Implementation (Implementing through Acquisition, Internal new venture; and

Strategic Alliance)

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The strategic choices utilized by Honda on the business and corporate levels were

implemented after utilizing a SWOT (i.e., Strength, Weakness, Opportunity, and Threat) analysis

to determine its present state and then characterized that for its desired future state with an

internal new venture.

The internal new venture was the visualization of HAC through first, a bottom-up change

where the top management consulted with all of the managers at all levels in Honda. Over

time, they developed a detailed plan for change with a timetable of events and stages that

Honda would have to go through, emphasizing participation and keeping the stakeholders

informed about the situation to minimize uncertainty.

Secondly, Honda created a strategic alliance with a key supplier of composite materials

to enable HAC to capture most of the benefits associated with forward vertical integration

without bearing the associated risks and costs. This has allowed Honda to enter into the

aviation industry to continually increase its long-run profitability. In doing so, HAC has been

able to strengthen its competitive advantage and its position in the aviation industry through

the original core business (e.g., Honda).

IX. Evaluation and Feedback

The HondaJet design team was challenged to deliver 21st century performance with

elegance. It was considered somewhat unique that within the very competitive arena of today’s

global business environment that Honda has always been focused on the future, and that its

top management regularly sets its eyes twenty or more years ahead. As such, Honda’s

advancement into aviation was understood to be a natural progression of the company.

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According to Fujino, HAC’s president and CEO, Honda has “always demonstrated a

challenging spirit and independence to penetrate into new markets at its own risk and to boldly

expand its boundaries (American Institute, CS4.1 – Honda’s Aviation Challenge, P. 2, para. 3).”

Fujino indicated that Honda’s top management told his team that they needed to

develop from scratch a Honda-original airplane. However, “some board members thought we

should not continue the airplane project,” and “thought we should concentrate the company’s

resources on automobile research and development. This opinion was driven in part by the fact

that the airplane business is very specialized and by the resulting perception that it is very

difficult for a new entrant to get into this business (American Institute, CS4.2 – New Concepts

for the Light Jet, P. 3, para. 1).”

When the HondaJet was finally displayed publicly on July 28, 2005 at the AirAdventure

Oshkosh, Fujino indicated that airplane fans talked to him and said, “I have never seen such a

beautiful airplane (American Institute, CS4.4.2 – HondaJet World Debut at Oshkosh

AirAdventure, P. 28, para. 1).” Moreover, after multiple media outlets wrote positive comments

about the HondaJet, the top management of Honda gradually changed its opinion and realized

the HondaJet’s great potential.

Afterwards, in the summer of 2009, Fujino had the opportunity to speak with Mrs. Sachi

Honda, the wife of Honda Motor Company founder, Mr. Soichiro Honda who told him after his

report of the HondaJet’s provisional certification by the Federal Aviation Administration (FAA)

and its commercialization to her that, “If Mr. Honda were still alive, how happy he would be to

see the HondaJet launched (American Institute, CS4.6 – Reflection on Mr. Honda, P. 30, para.

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1).” Further, after the HondaJet was granted Part 23 certification by the FAA, AirInsight partner,

Ernest Arvai said that the HondaJet “is the high performance sports car in the sky…and offers

higher performance for its higher price: a speed of 420 knots, a higher operating altitude – up

to 43,000 feet – and is 17% more fuel efficient than its competition (Creedy, para. 2).” This

feedback was more likely than not taken in response to the independent evaluation of the

HondaJet’s operating costs by Aircraft Cost Calculator in August 2014.

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Honda Aircraft Company - Final Paper

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