Boeing vs Airbus: An Economic Analysis of the Commercial Aircraft Industry

BOEINGVERSUSAIRBUS:
ANECONOMICANALYSIS
AThesissubmittedtotheMiamiUniversity
HonorsPrograminpartialfulfillmentofthe
requirementsforUniversityHonorswithDistinction
By
AlanJohnCook
May2008
Oxford,Ohio
ABSTRACT
BoeingVersusAirbus:AnEconomicAnalysis
By:AlanJ.Cook
InbusinesstherehavebeenfewrivalriesasspectacularasthatbetweenBoeingandAirbus.Not
only are bottom lines and stakeholder returns at stake, but also national pride and supremacy of the
skies. These two immense corporations have been battling it out for over four decades. But what
makesthiscompetitionbetweentwoverydifferentfoessoepic?Whatisitthatdrivesthesetwofirms
tocompetesovigorously?Whyaretheycompetingatall?Withonlytwofirmscontrollingtheentire
market, the industry fits the classic definition of an oligopoly and yet we observe neither firm has
undertakencollusionormovedtolimitoutput.
Thispaperwillpresentananalysisofthecompetitiverelationshipbetweentherivalfirmswithin
1
thelargecommercialaircraftmanufacturingindustry (ormoresimplythecommercialaircraftindustry).
This paper will be divided into four main parts, each attempting to answer a pivotal question to our
understanding of the nature of the competition: What does standard economic theory tell us about
oligopolies? What is actually observed in the commercial aircraft industry? What factors drive the
competition?Whatimplicationsdothesefindingshave?
Therearemanyfirmsthatmanufactureaircraft,includingBombardierofCanadaandEmbraerofBrazil,howeverAirbusand
BoeingaretheonlymanufacturersofLargeCommercialAircraft(LCA),andassuchthefocusofthisthesiswillbeontheLCA
segmentoftheCommercialAircraftManufacturingindustry.
BoeingVersusAirbus:AnEconomicAnalysis
By:AlanJ.Cook
Approvedby:
Dr.JamesBrock
,Advisor
Dr.BarnaliGupta
,Reader
Dr.DeborahFletcher
,Reader
Acceptedby:
,Director
UniversityHonorsProgram
TABLEOFCONTENTS
Abstract.........................................................................................................................................................3
I.HistoryofJetTravel...................................................................................................................................9
II.StandardOligopolyTheory....................................................................................................................13
Cooperative&NonCooperativeOligopolyModels.............................................................................16
III.CommercialAircraftManufacturingIndustryObservations.................................................................18
NumberofFirms...................................................................................................................................18
MarketConcentrationandMarketShare............................................................................................19
FirmStructures.....................................................................................................................................22
BarrierstoEntry...................................................................................................................................24
Interdependence..................................................................................................................................26
PriceCompetition.................................................................................................................................27
NonPriceCompetition.........................................................................................................................30
Innovations...........................................................................................................................................33
IV.WhatFactorsDrivetheCompetition?..................................................................................................38
InstrumentofNationalPolicy...............................................................................................................39
OrderSize.............................................................................................................................................40
DifferentiatedProducts........................................................................................................................41
FixedOutput.........................................................................................................................................42
ExpandingMarket................................................................................................................................43
Conclusion............................................................................................................................................43
V.WhatImplicationsDoesThisHave?.......................................................................................................45
References..................................................................................................................................................46
Appendix.....................................................................................................................................................48
I.HISTORYOFJETTRAVEL
Inordertotrulyappreciatethisanalysis,itisimportanttocastitintheappropriatelightand
context.Wethereforebeginwithabriefhistoryofthecommercialaircraftindustry.
TheBeginningofFlight.TheWrightBrothersflewtheirfirstplanein1903atKittyHawk.This
was the first instance of heavierthanair powered flight that carried a human being. Airplane
developmentprogressedslowlyuntilWorldWarI,atwhichtimeflightwasrecognizedforthemilitary
advantages it provided. Several small firms cropped up to supply military aircraft. In the interwar
period, plane development took aircraft from being constructed mostly of wood and canvas to
aluminum.TheonsetofWorldWarIIsawtremendousimprovementsinairplanedesignandthelevelof
production.Germanybuiltthefirstpracticalrocketandjetenginepoweredaircrafttowardstheendof
thewar.Uptothispointaircraftwereusedalmostexclusivelyformilitarypurposes,butaftertheendof
WWII,commercialaviationbegantoincreaseinpopularity.Firmsthathadpreviouslyproducedmilitary
airframes for the war switched over production to civilian aircraft. Companies such as Lockheed
Aircraft, Douglas Aircraft, and many smaller companies produced propellerdriven aircraft that
eventuallylaunchedtheageofciviliancommercialjettravel.2
The Jet Age. While civilian travel was firmly in the realm of propellerdriven airplanes, the
militaryspecificallythenewlyformedUnitedStatesAirForcetookinterestinthepotentialuseofjet
enginestopowerfightersandbombers.Boeingbecamealeaderinjetenginetechnology,bothdueto
luck and better engineers. Boeing then decided to take their expertise into the civilian market by
producingacommercialjetliner.Atthetime,othermanufacturersandairlineexecutivesbelievedthat
thecostandrevenuestructurescouldnotbemarriedtoproduceaprofitablejetliner.Thisallchanged
Heppenheimer,T.A.ABriefHistoryofFlight.NewYork:JohnWiley&Sons,2001.
withBritainsDeHavillandCometwhichwaspopularbecauseitcouldflyfaster,quieter,andabovethe
weather,providingasmoothertrip.3
Boeingsfirstjetlinerthe707wasintroducedin1958,hadfourengines,andwentontobe
commerciallysuccessful.LockheedandDouglasthenproceededtodeveloptheirownadvancements:
Douglas building the DC8 in 1958 and Lockheed building the turbopowered Electra (propellers
powered by a jet turbine engine instead of pistons, a derivative of the jet engine used). Because of
Boeingsearlyleadandbecauseofstrategicbusinessdecisions,the707wentontobecometheindustry
leader, propelling Boeing to the forefront of large commercial aircraft manufacturing.4 The 707 was
followedbythe727in1963,the737in1967,the747in1968,the757in1983,the767in1982,the777
in1994,andthe787whichiscurrentlyindevelopment.5
TheBirthofAirbus.Inthe1960sthecommercialaircraftindustrywasdominatedbyAmerican
firms:Boeing,McDonnellDouglas,andLockheed.EuropeanproducerssuchasHawkerSiddeleyofthe
United Kingdom, Arospatiale of France, and Deutche Aerospace of Germany realized that
independentlytheydidnothavetheresourcesnecessarytobuildalargecommercialairplane(LCA)that
was capable of competing against the American jetliners. They formed what initially was called the
A300Projectwhichwascollaborationbetweenthethreefirmstoproductamediumrangewidebody
jet.TheA300Projectthenwentontobecomeaformalconsortium:AirbusIndustriewasestablished
underFrenchlawandofficiallyheadquarteredinToulouse,Francein1970.Thememberfirmsofthe
consortium would take responsibility for the design and production of specific components, and the
FrenchpartnerwouldassemblethefinalaircraftAirbusIndustriewasresponsibleforsales,marketing,
McIntyre,Ian.Dogfight.Westport,Connecticut:Praeger,1992.
5
BoeingCommercialAirplanes.http://www.boeing.com/commercial/products.html.
4
10
and technical support for airlines. The first A300 entered into service in 1974; however, the United
KingdomwithdrewfromtheventurebeforetheA300reacheditsfirstcustomer.
IndustryCollapse.BothDouglasAircraftandLockheedsufferedserioussetbacksinthe1960s
and the 1970s. With Airbus still in its infancy, this led to a collapse in the commercial aircraft
manufacturing industry. Douglas Aircraft began development of their DC9 in 1963, and determined
that the prototyping process would take too long, so it took the plane directly from paper to
production.Thismeantthatanyproblemswiththedesignhadtobefixedontheassemblyline.The
results were production delays and cost overruns. The problems were too much for the company to
overcome,andDouglaswasforcedtomergewithMcDonnellAircraftamilitarycontractorinorder
to avoid bankruptcy. Douglas became a wholly owned subsidiary of the newly named McDonnell
DouglasandrestartedDC9productionandwentontodeveloptheDC10in1968.6
Lockheedbuiltoneandonlyonecommercialjetliner:theL1011TriStar.Thisplanewasvery
similarindesignandcompeteddirectlywiththeDouglasDC10andindirectlywiththeBoeing727and
747. However, the L1011 had production difficulties that delayed its launch for a year. In addition,
LockheedhadmadethedecisiontocontractwithonlyoneengineproviderRollsRoyceandmidway
through the development of both the L1011 and the new engines that were to accompany it Rolls
Roycedeclaredbankruptcy.ThisfurthersetbacktheL1011,andLockheedlostasubstantialnumberof
orderstotheDC10whichhadbeenreleasedthepreviousyear.Themarketsimplywasnotbigenough
to support three separate firms and the associated development costs of four separate planes.
Lockheedproducedonly250planesandstoppedproductionin1981.7
The Rise of Airbus. The initial success of Airbus was poor; in 1979 only 81 A300s were in
service.However,thelaunchoftheA320in1981markedAirbusasamajorcompetitor.TheA320was
6
7
11
a superior product to the Boeing 737 against which it competed, and Airbus had over 400 confirmed
orders for the A320 before the first production plane flew. 8 The A320 incorporated several
technological improvements over competitors at Boeing and McDonnellDouglas, including flybywire
controlsystems,glasscockpits,andcockpitcommonality.ThesuccessoftheA320propelledAirbusto
develop the A330 and A340 which continued to integrate technological developments. This success,
coupledwiththedemiseofDouglasandexitofLockheed,allowedAirbustoerodeBoeingsdominate
marketshare.Bythe1990s,AirbushadsurpassedBoeingintermsofnumberoforders.9
JetTravelAvailabletotheMasses.Airtravelisnolongerexclusivelyforthebusinesstraveler
orthewealthy.LowcostairlinessuchasSouthwestintheUnitedStates,RyanAir,WizzJet,andEasyJet
in Europe, and numerous lowcost airlines in Asia such as Spice Jet in India or Tiger Airlines out of
Singapore all offer especially low fares. Traditional airlines are constantly driving down the operating
costs, thereby lowering their air fares.10 With the expansion of lowcost air travel to developing
countries such as India, China, Malaysia and Indonesia, jet travel is truly becoming accessible to
everyone.11
Newhouse,John.BoeingversusAirbus.NewYork:AlfredAKnopf,2007.
10
11
9
12
II.STANDARDOLIGOPOLYTHEORY
Anoligopolyisanindustrythatisdominatedbyafewfirmsthatcontrolasignificantamountof
themarketforthatindustry.Thecommercialaircraftmanufacturingindustryisdominatedbyonlytwo
firms any fewer and it would be a monopoly. These two firms control the entire market; between
themtheyhave100%marketshareitisnotpossibleforthemtohavemore.Bydefinition,then,the
commercial aircraft manufacturing industry is a duopoly, an oligopoly with only two firms. But the
analysis does not end there. The industry meets the definition of an oligopoly, but meeting the
definitiondoesnotgiveusinsightintothenatureofthecompetition.
Ford, General Motors, and Chrysler. ExxonMobil, Valero Energy, British Petroleum, Royal
Dutch/Shell,Chevron/Texaco.American,United,Delta,Continental,Northwest.AmericanTobaccoCo.,
Ligget&Myers,R.J.Reynolds,PhilipMorrisCo.Ifoneweretopollagroupofeconomists,themajority
wouldagreetheabovementionedcompaniesallactaspartofanoligopoly,intheirrespectiveindustry.
Butwhatcharacteristicsarecommonacrossthedifferentindustriesthatareuniquetooligopoliesand
canbeusedasindicatorsofanoligopolisticrelationship?Whilewecanidentifyseveralkeyindicatorsof
an oligopolistic relationship between firms (listed below), it is in comparing the commercial aircraft
manufacturingindustrytoknownandprevalentoligopoliesthatisthecruxofthisanalysis.
Interdependence & Collusion. When looking at the prevalent oligopolies present today we
noticeseveralkeyindicatorsthatidentifyanindustryasbeingdominatedbyanoligopoly.Arguablythe
most important are interdependence and collusion among the firms within that industry. Firms may
choose to work together to set either output or prices; colluding firms recognize that if they work
togethereitherimplicitlyorexplicitlyprofitscanbeheldartificiallyhigh.However,thiscollusionis
difficult to maintain because each firm has an incentive to cheat. We see that when a firm in an
13
oligopoly moves to gain more market share by lowering their price, the other firms in the oligopoly
movetopunishthedissentingfirmbytheirloweringpricestoo,andallarelessprofitableasaresult.
Interdependence refers to strategic interaction between firms when independently making
marketchoices.Eachfirmconsiderstheactionsofothermarketfirmswhenmakingitadecisions;the
profit of each firm is dependent on the strategies undertaken by the other firms. The resulting
equilibriumisreferredtoasaNashEquilibrium12wherenomarketfirmcanimproveitssituationgiven
thechoicesofallotherfirms.Interdependenceoftenleadstouniformpricingfromfirmtofirm,butnot
necessarilythecollusiveprice.
Barriers to Entry. Interestingly, when looking at the examples of oligopolies listed above, we
notethatnotallofthemareinindustrieswithexceptionallyhighbarrierstoentry.Itisinexpensiveand
technologicallysimpletoproducecigarettes.Ontheotherhand,theproductionofautomobilesandthe
refinementofoilareindustrieswithfairlysubstantialbarrierstoentry;ittakesextremelylargeamounts
of capital equipment to refine oil and significant investments in plants and machinery to produce
automobiles.Whatweobserveisthatineveryexampleofoligopoliestherearesomeformsofbarriers
to entry, whether they are a result of the nature of the industry, as is the case with automobile
manufacturingandpetroleumrefinement,orcreatedartificiallybyparticipantsintheoligopoly,asisthe
casewithtobacco.
Price&NonPriceCompetition. Ina generalsense,firmswould rather bepricesettersrather
thanpricetakers.Thereasonforthisissimple:firmsunderstandtheirowncoststructuresiftheyare
abletosettheirprice,thentheyareabletodeterminetheirownlevelofprofitandthusreachaprofit
maximizingposition.Thereforefirmshaveanincentivetowardsavoidingpricecompetitionwithother
12
NobellaureateJohnNashiscreditedwiththedevelopmentofthisparticularequilibriumconceptinhisworkingametheory.
FormoreongametheoryandNashequilibriums,seeLynne,Pepall,J.DanielRichardsandNormanGeorge."Industrial
Organization:ContemporaryTheoryandPractice."SouthWesternCollegePublishing,1999.223269
14
firmsifatallpossible.Inordertobeapricesetter,afirmmustbeinalessthanperfectlycompetitive
marketwherethefirmhassomeinfluenceoverpriceanddoesnotfaceahorizontaldemandcurve.This
canonlyoccurwhenafirmhassubstantiallyenoughofthemarketthattheycanaffectpricechanges.
Within oligopolies, a price leader sets the first price, and firms in the industry subsequently set their
prices.Thefollowershaveanincentivetoundercutthepriceleaderinordertogainmoremarketshare.
Nonpricecompetitionisverysimilarandoftenservesasanescalationofpricecompetitionto
the next level. To put it a different way, firms have an incentive to isolate their firm and act as a
monopoly.Inaduopoly,thiscanbeachievediffirmstacitlyorexplicitlyagreetolimittheirproductsets
so that they are able have a monopoly on individual types of planes (130150 seats for example).
Observingpriceandnonpricecompetitioncanprovidesignificantinsightintooligopolisticbehavior.
Innovation.Collusioneitherexplicitorimplicithampersinnovationwithinanindustry.This
is because firms have an incentive not to rock the boat and introduce change. The line of logic for
colluding firms is simple: if one changes, all must change in order to compete; change costs money,
which diminishes everyones profit. Therefore, firms that are colluding to keep profits high have an
incentivetoavoidinnovation.1314
Number of Firms, Market Concentration, and Firm Structure. In addition to the above five
characteristics,onecangaininsightbylookingatthefirmstructuresofbothAirbusandBoeing,aswell
as by analyzing the industry in which both firms participate. All of the following models begin by
assumingthatfirmsproduceonlyonegoodinanindustrywithlittleornoproductdifferentiationfor
exampleproductionofoil.
13
14
Loury,GlennC."MarketStructureandInnovation."TheQuarterlyJournalofEconomics(1979):395410.
Reinganum,JenniferF."UncertainInnovationandPresistenceofMonopoly."AmericanEconomicReview(1983):741748.
15
COOPERATIVE&NONCOOPERATIVEOLIGOPOLYMODELS
Economistshaveidentifiedseveralpossibleoligopolystructuresanddevelopedspecificmodels
thatattempttoquantify andunderstand theincentivesthat motivatefirmbehavior.Thereare many
differentmodelsusedtodescribeoligopolisticfirmbehaviorbasedonthewayinwhichfirmsinteract.
Cartels.Sometimescalledtrusts,thesearetheorganizationsoraffiliationsoffirmsthatactively
attempttoincreasetheirprofitsthroughcollusivebehaviorthatincreasesprices.Firmsthatarepartof
acartelwillformallyagreetolimittheiroutputorraisetheirprices.Theultimategoalisforallfirmsto
cometogetherandmaketheirdecisionsasamonopolywould.Marketforceswouldnolongerdivideup
market share; the member firms would agree how the market would be divided. This model is an
exampleofacooperativeoligopolymodel.
CournotModel.Unlikeacartel,thefirmsinaCournotmodeloligopolyactmoreindependently.
Eachfirmtakesintoaccountwhattheybelievetheotherfirmswilldowhentheysettheiroutput.All
firmswithintheindustrysimultaneouslysettheiroutputusingtheirunderstandingofthestrategiesof
all other market participants. This equilibrium is known as a Cournot Nash equilibrium. The level of
outputissomewherebetweenwhatamonopolywouldproduceandwhatperfectcompetitionwould
produce.
StackelbergModel.IntheStackelbergmodelthereisadominant,orleaderfirm,andarivalor
followerfirm.Thedominantfirmwillsetitsoutputfirstbasedonwhattheypredicttheotherfirmwill
do. The rival firm then sets its output based on what the best response by the follower. In this
oligopolisticenvironment,thelevelofoutputwillbegreaterthaninasimpleCournotmodel.
BertrandPriceSettingModel.Inthepreviousmodelstheoligopolistssetoutputandthemarket
forcessettheprice.However,intheBertrandmodeltheoligopolistsetspricesandthenletsconsumers
16
determine how much of their product they wish to buy. The equilibrium in the Bertrand model is
insensitivetodemandsincepriceissetonlyasaresultofthefirmscosts.Whenthevariousoligopoly
firmsproducedifferentiatedproducts,thegoodsarestrategiccompliments.
17
III.COMMERCIALAIRCRAFTMANUFACTURINGINDUSTRYOBSERVATIONS
InordertomeaningfullyanalyzethecompetitiverelationshipbetweenAirbusandBoeing,itis
importanttolookattheaforementionedfactors.Thesefactors,whenlookedatinconjunctionwithone
another,canprovideapictureofthecompetitiverelationship.
NUMBEROFFIRMS
Whenlookingatthecommercialaircraftindustry,therearethreemainsegments:
1)largecommercialairplanes(LCA),
2)regionaljets,and
3)privatejets.
Currently, only Airbus and Boeing belong to this LCA segment, with firms such as Embraer of
BrazilandBombardierofCanadatakinguppositionswithintheRegionalJetsegmentinNorthAmerica,
and firms such as Gulfstream and LearJet round out the private jet market. There are striking
differencesbetweentheLCAandregionaljetsegments.TheLCAmarketistrulyglobal,whichwillbe
discussed later, while the regional jet market remains localized generally to one hemisphere
BombardierandEmbraertypicallydonotsellaircraftinEuropeorAsiaforexample;thosemarketsare
generallyservedbydifferentfirmswithinthoseregions.15
This is not to say that there is not some overlap both Boeing and Airbus also sell their LCA
privatelytoindividualsandcorporationsandEmbraerdoesproducearegionaljetthatbordersonthe
LCAcategorybuttheoverlapisminimal,andthereareonlyahandfulofprivateownersofBoeingor
Airbus jetliners. In addition, the private jet market is minuscule in comparison to the LCA, and small
comparedtotheregionaljetmarket.BecauseofthewidedifferencebetweentheLCAandregionaljet
15
18
segmentsandbecauseoftheminimaloverlap,thefocusofthispaperwillbeonthecompetitionforthe
productionandsaleofLCAwithinthecommercialaircraftindustry.
MARKETCONCENTRATIONANDMARKETSHARE
As mentioned above, there are only two firms that share nearly 100% of the market. While
there are still older planes produced by defunct Soviet firms as well as some European manufactures
suchasBritishAerospaceorFrancesAerospatialethatremaininlimitedcommercialservice,itissafeto
say that nearly all LCA were produced by either Boeing or Airbus16. Therefore the market is highly
concentratedandqualifiesasaclassicduopoly.
Within the commercial aircraft industry, there are many different methods to measure the
relativemarketshareofeachfirm. Generallyspeaking,thedifferent methodsdependuponwherein
theaircraftslifecycleone measures: Numberofjetlinersproduced,number of jetliners in service, or
thenumberofjetlinersordered.
Numberofjetlinersproduced.Thismeasurewouldcountalloftheplanesthathaveeverbeen
built. This would include discontinued jetliners and jetliners that have been retired from active
commercialservice.Thiswouldnot,however,includeplanesthatwerebuiltasprototypesorwereused
as demonstrations of concept. The question then becomes, do you include the planes produced by
firmsthathavesincebeenacquiredormergedwithBoeingorAirbus?Forexample,doesonecountthe
planesproducedbyMcDonnellDouglasaspartofthejetlinersproducedbyBoeing?
Thereareargumentsoneachside.Originallytheplaneswereproducedincompetitiontoone
another;thereforeonecouldarguethatentirejetlinerproductlinesmightneverhavebeenproducedif
thefirmshadbeenonefromthebeginning.Fromtheotherperspective,becausetheacquiredfirmis
16
BoeinghasabsorbedviamergerMcDonnellDouglas,andallotherAmericanfirmsplanesarenolongerinservice;currently
onlyBoeingandAirbusproduceLCA.
19
nowpartofthecompanytheyhaveacquiredalltheassets,debt,etc.fromtheacquiredfirmthenit
should follow that the purchasing firm has acquired the right to count the purchased firms planes as
part of their market share. In addition, it is common practice to increase your claim to market share
afteramergeroracquisitionProcter&Gamblewouldcertainlyincreasetheirclaimtotheshareofthe
toothpaste market if they were to acquire Colgate. In fact, antitrust action looks at the combined
market share of the two firms after merger or purchase to determine whether or not to allow the
combination to proceed. Due to this precedent, this analysis will include under Boeing all planes
producedbyacquiredfirmsandunderAirbusallplanesproducedbyacquiredfirms.
Intermsofthenumberofjetlinersproduced,Boeingwinsaclearvictory.Thisisinnosmallpart
because of Boeings early arrival into the manufacture of large commercial jetliners. In addition, the
1997 merger with McDonnellDouglas (McDonnell earlier merged with Douglas to form McDonnell
Douglas in 196717) has also helped to increase Boeings overall market share, since both Boeing and
DouglaswereproducingjetlinerslongbeforetheAirbusconsortiumformed.Ifonelooksmorerecently;
since2000,weseethatBoeingsdominanceisnotasclear.Since2003,Airbushasactuallyheldthelead
intermsofthenumberofplanesdeliveredperyear.In2007AirbusandBoeingweredeadeven,with
eachproducing44718and44119respectively.(SeeExhibit1,2&3forabreakdownofmarketshareby
numberofjetlinersproduced.)
NumberofJetlinersinService.Thismeasurewouldbeverysimilartothenumberofjetliners
producedbutitwouldexcludethoseplanesthathavebeenremovedfromactivecommercialservice.It
would again raise the question of whether or not to include the planes produced by firms that were
eventuallyacquired.Forthesamereasonsasgivenabove,thisanalysiswillcontinuetoincludeplanes
17
PriortothemergerwithDouglas,McDonaldneverparticipatedinthecommercialaircraftmanufacturingindustry,having
onlyeverproducedmilitaryaircraft.
18
BoeingCommercialAirplaneshttp://active.boeing.com/commercial/orders/index.cfm
19
AirbusS.A.S.websitehttp://www.airbus.com/en/corporate/orders_and_deliveries/
20
produced by acquired firms in the market share of the purchasing firm. Implicitly this measure in
conjunction with the measure of jetliners produced will provide the number of jetliners retired by
subtractingtheformerfromthelatter.
Theusefullifeofajetlinerisaround25years,thusclearlylimitingtheperiodthismeasurelooks
into history.20 The window of time that this measure looks at is from the present (2007) back
approximatelyuntil1980. Thereforethismeasureismostrelevantin determiningmarket sharesince
1980.SinceAirbusdidnottakeoffuntilthe1980s,thegapwithBoeingbegantocloseaboutthistime.
Therefore Boeing is no longer the only major provider of jetliners in this measure, though Boeing still
retainedtheleadbecauseofthestrongpresencepriorto1980.Therearesomeratherimportantthings
tonotice:While thehistoricalpositionofboth companiesis certainlyimportant,itdoesnotcarry the
sameweightascurrentperformance.Upuntilthelate1990sBoeingwastheclearwinner.In2000we
observethat,forthefirsttime,AirbuswasdeliveringmoreplanesperyearthanBoeing.21
NumberofJetlinersOrdered.Whilebothofthepreviousmeasureshavelookedsolelytowards
the past for measures of market share, the number of jetliners ordered can give us insight into the
future. Orders should eventually equate into deliveries, and therefore should equate into future
payment streams. It is for these reasons that number of orders is the most frequently cited in news
reporting.
Thenumberoforderscanbebrokendownintothreemaincategories:ordersdelivered,orders
notdelivered,andtotalorders.Towhichonelooksdependsmostlyuponthemotivationsbehindthe
analysis:Onewouldlookatordersdeliveredtogaugepastperformanceofajetlinerssales;onewould
lookatordersnotyetdeliveredtogaininsightintothefuturehealthofajetlineranditsmanufacturer;
20
BoeingCommercialAirplaneshttp://active.boeing.com/commercial/orders/index.cfm&AirbusS.A.S.website
http://www.airbus.com/en/corporate/orders_and_deliveries/
21
21
andonewouldlookatthetotalnumberoforderstogettheoverallpictureintermsofjetlinerssales
performance.Eachmeasureprovidesimportantinsightforthepurposeofthispaper.
Instartingwithtotalnumberofjetlinersordered,itbecomesquiteclearthattheBoeing737has
beenthemostsuccessfuljetlinerinproduction,with7,676orderedasoftheendof2007.22Oneshould
alsonotethattheA320AirbusdirectcompetitorwiththeBoeing737andallofitsderivativeshave
garnered less than half the number of 737 orders.23 However, when looking at the larger planes
producedbyeachcompetitor,itisclearthatBoeing747isoutpacingAirbusA380.Boeinghasbuilta
commanding dominance with its 777 and 787 Dreamliner. Orders for each are 1,044 and 817
respectively, which significantly surpass the number of orders for the A330, Airbus second most
successfulplanebehindtheA320.24
Both Airbus and Boeing have seen significant growth in the number of aircraft ordered since
2000;jetlinersaleshavekeptpacewiththegrowthinairtravel.Whatisinterestingtonoteisthatboth
firms have seen near identical growth. Airbus, however, saw Boeing surpass them in orders for 2005
and2006,butregainedtheleadin2007.25(SeeExhibits4,5&6forabreakdownofmarketshareby
numberofjetlinersordered.)
FIRMSTRUCTURES
Boeing.TheBoeingCompanyisapubliclytradedfirmregisteredwithSecuritiesandExchange
Commission in the United States and listed on the New York Stock Exchange (ticker symbol BA). The
firmisownedbyshareholdersvia1,012,261,159outstandingsharesofBoeingStock(2006Boeing10K),
22
BoeingCommercialAirplaneshttp://active.boeing.com/commercial/orders/index.cfm
24
25
BoeingCommercialAirplaneshttp://active.boeing.com/commercial/orders/index.cfm&AirbusS.A.S.website
23
22
makingitapubliclyownedfirmmanagedbyaboardofdirectorsontheshareholdersbehalf.26Boeing
regularly publishes its financial information in both its SEC filings (10K and 10Q, among others) and
distributes an annual report to its shareholders. These filings and reports contain extensive detailed
informationonBoeingscommercialairplanesdivision,theentityresponsibleforthedesign,testing,and
manufactureofallBoeingcommercialjetliners.27
Airbus.ThecurrentstructureofthefirmnowknownasAirbusS.A.S.isextraordinarilycomplex
anddifficulttofullydiscern.AirbusS.A.S.wasformedafterthemergerofDaimlerChryslerAerospace
AG (DASA) of Germany, AerospatialeMatra of France, and Aeronauticas SA (CASA) of Spain to form
EuropeanAeronauticDefenseandSpaceCompanyorEADS.Asaresultofthemerger,EADSnowholds
80%ofthesharesofAirbusS.A.S.Theremaining20%isownedbyBAESystems,aBritishfirm.Allfour
firms, DASA, Aerospatiale, CASA, and BAE, were the original founding firms of the Airbus Consortium.
EADSisasimplifiedjointstockcompanythathasmajorshareholderssuchasSOGEADEaFrenchstate
owned holding company, SEPI a Spanish stateowned holding company, and Daimler AG, with the
Frenchgovernmentdirectlyowningaportionofthepubliclytradedshares.28Daimlerispartiallyowned
by the German government, and BAE Systems is partially owned by the British crown29. In addition,
EADS is traded on six public stock exchanges in Europe. Though the connection is not direct, Airbus
S.A.S.continuestobepartiallyownedandcontrolledbythegovernmentsoffourEuropeancountries.
EADSandBAESystemseach publishannualfinancialreports. However,AirbusS.A.Sdoes not
publiclydistributeitsfinancials.Inaddition,theAirbusfinancialinformationisnotdirectlycontainedin
eithertheEADSorBAEreports.ItisthereforeverydifficulttodetermineAirbussfinancialstatus.For
furtherclarificationofAirbussfirmstructure,pleaserefertoExhibit7.
26
BoeingCompany.Form10K.Chicago,IL:BoeingCompany,2006.
SeeforexampleBoeings2007AnnualReport:BoeingCompany.AnnualReport.Chicago,IL:BoeingCompany,2007.
28
29
TheBritishCrownnowholdsonlyaminorityshareofBAESystemsduetopartialprivatization.
27
23
BARRIERSTOENTRY
Barrierstoentryexistforanumberofreasons,buttheendresultisthatthereislimitedentry
intoamarketorindustrybecausethehurdlesthatmustbeovercomearegreat,andthereforefirmsthat
arealreadypartoftheindustryormarkethaveanadvantageandareinsulatedfromcompetitionfrom
newentrants.Withinthecommercialaircraftindustry,thisisespeciallythecase.Toillustratethepoint,
it took a government consortium formed by three European countries that directly subsidized its
creation to enter the commercial aircraft industry in 1967.30 It took the resources of three national
governmentstoformafirmcapableofcompetingagainstthetwolargeentrenchedfirmsatthetime:
Boeing and McDonnellDouglas. Specifically related to the commercial aircraft industry, there are a
numberofbarrierstoentryworthdiscussing.
Financing. The cost to design, prototype, build, and deliver a new LCA is immense. For the
Boeing 777 the development costs were estimated to be $1012 billon31. The new Airbus A380 has
estimateddevelopmentcostsof12billion($16.2billion)32.Whennewplanesaredeveloped,itisoften
the case that the firms producing them will have little idea as to how many they must produce to
achieveprofitability.Thefirmsproducingtheseplanesspendyearsdesigning,prototyping,testing,and
building them before they ever go into production and the first one is delivered to a customer.
Therefore financing is especially difficult given the long time horizon and the significant degree of
uncertainty. Inaddition,theseLCAdevelopment plansarenotoriousforgoingover budget. The777
30
Thornton,DavidWeldon.AirbusIndustrie.NewYork:St.Martin'sPress,1995.
Gates,Dominic."Airbus350Musclesinonthe777."SeattleTimes31July2007.
32
FactboxSizinguptheAirbusdoubledecker.12November2007.2February2008
<http://www.reuters.com/article/companyNewsAndPR/idUSL1267687320071112?pageNumber=2>.
31
24
wasoriginallybudgetedatonly$2billion33.TheA380wasinitiallyestimatedtocost8.8billion($11.9
billion)whenapprovedbythesupervisoryboardofAirbus34.
Engineering.AircraftofthesizeproducedbyBoeingandAirbusrequiresignificantengineering
experienceandknowhowinordertosuccessfullydesign,test,andproduceaviablejetliner.Italmost
bogglesthemindtocomprehendwhatisrequiredtodesignaircraftthatmustsuccessfullycarry130to
555passengersanywherefrom250to10,000milesdailyyearroundwithoutfailurefor25yearswhile
remainingeconomicallyprofitableforairlines.35Thetaskisdauntingtosaytheleast.Toputthisinto
perspective,Boeinghasonlydesignedeightplanesfromscratchsincetheystartedbuildingjetlinersin
1955.36Airbushasonlydesignedfoursince1969.37
Technology.ThecommercialaircraftmanufacturingindustryhasoftenbeencomparedtoNASA
style programs in their drive to develop and implement new and innovative technological solutions.
Commercialjetlinersarebehindmilitaryaircraftandspaceflightintermsofthevolumeoftechnological
developments.38Inorderforafirmtobecompetitiveinthisindustry,itmustkeeppacewiththerateof
technological change. At the current stage of development, either Boeing or Airbus is capable of
building a plane that will ferry passengers from point A to B. It is how quickly, efficiently, quietly,
comfortably, and safely that matters. Improvements in these areas arise because of design
improvementsviatechnologicalchange.Newentrantsandcurrentcompetitorsalikecanonlyexpectto
be competitive if they are able to produce and bring to market technology that improves upon the
existingjetliners.
33
Norris,Guy.AirbusA380:Superjumboofthe21stCentury.Osceola,WI:ZenithPress,2005.
35
36
BoeingCommercialAirplanes.http://www.boeing.com/commercial/products.html.
37
AirbusS.A.Shttp://www.airbus.com/en/aircraftfamilies/
38
34
25
Production&Logistics.Everyjetlinercontainsliterallyhundredsofthousandsofparts,ranging
insizefromrivetstoseatstooverheadcompartments.Afterdesigningthesecomponents,theymust
thenbemanufacturedandbroughttogetherintooneaircraftinoneplace.Thisisamonumentaltask
that has brought down previous market participants. The primary reason for the collapse of Douglas
Aircraft was their inability to manage their supply chain and bring together airplanes at a reasonable
cost.39Boeingstroubleinthelate1980swasinlargepartduetothencurrentleadershipsinadequate
managementofpartprocurementandlogistics.40
INTERDEPENDENCE
One of the key indicators of true oligopolistic behavior in industries such as oil, tobacco,
automotivemanufacturing,orairlines,isinterdependenceamongfirmswithintheindustry.Thisismost
obviouswhenthefirmscolludetosetpricesandoutput,erectbarrierstodeternewentrants,orlimit
competitioninotherways.Theformofthiscollusioncanbeeitherexplicitorimplicit.Ineveryindustry
mentioned, we observe explicit collusion through joint ventures and mergers or implicit collusion in
settingpricesorlimitingtechnologicaldevelopments.Whenlookingatthecommercialaircraftindustry,
there have been several joint ventures between Boeing and Airbus. Most of these have taken place
surroundingtheinterestindevelopingasuperjumbo.41However,noneofthejointventuresresulted
inanythingtangible.AirbuseventuallywentaloneanddevelopedtheA380.Inhindsightitappearsthat
manyofthepastjointventureswereanattempttolearnoftechnologicaldevelopmentsbeingmadeby
theotherfirm.42Thisexampleprovidesadirectinstanceofstrategicbehavior.
39
Lawrence,PhilipK.andDavidW.Thornton.DeepStall.Hampshire,England:Ashgate,2005.
41
42
40
26
PRICECOMPETITION
Itstandstoreasonthatwithinacompetitiveindustrytherewillbecompetitionbasedonprice;
incompetitiveindustriesthefirmsbecomepricetakersandnotpricesetters.However,inarelatively
noncompetitive industry there will be little price competition. As with most things in economics,
pricing is not this black and white in the commercial aircraft manufacturing industry. While the two
firmsarematureandhaveanextensiveproductline,alltheirproductsdonotdirectlycompetewithone
another.Forexample,theBoeing737andAirbusA320directlycompeteforsales,buttheBoeing747
hasremainedunchallengedforalmost30years.Theresultisthatpricecompetitionisfierceforsome
planesthe737versustheA320whilethereremainednocompetitionforothers,liketheBoeing747
fordecadesuntilthedevelopmentbyAirbusoftheA380.43
Discounts.Whenanewplaneisindevelopment,themanufacturingfirmsetsapriceforthat
airliner. However, no airline ever actually pays that price. Each customer receives discounts off the
stickerprice,andthisbecomesthedefactopriceforpurchasingthatjetliner.Inaddition,largerorders
receive additional discounts on top of the original discounts. The size of the discounts is a closely
guardedsecrettheresultisthatthepriceanyoneairlinepaysforaplaneisdifficulttodetermine.This
strategyisknownaspricediscriminationwhereBoeingandAirbusaretakingadvantageofeachairlines
different willingnesstopay. The actual revenue that Airbus or Boeing receives from an order is
extremelynebulous.44
Underpricing. The Boeing 747 for almost 30 years went unchallenged by Airbus. Until the
developmentoftheA380,Airbushadnoplanethatcouldcarry400+passengersoverdistancesbeyond
10,000miles.Withlittlecompetition,Boeingwascapableofchargingahigherpricethanperhapswould
otherwise be the case within a competitive environment. The Airbus A330 and A340 have enjoyed
43
44
27
significantsuccessinEuropebecauseofthenonpricecompetitionthatisdiscussedinthenextsection.
TheBoeing737andtheBoeingA320areverysimilarplanescarryingsimilarnumbersofpassengersover
similardistances.Thereforethe737andA320directlycompeteforairlinecustomers.Thesignificant
competition drives down the price of airliners offered by both firms. In the competition to get large
orders,bothfirmshavebeenaccusedofunderpricingtheir737orA320inordertolandthedeal.This
isfinancedbytheprofitseachfirmmakesonthesaleofthemorelucrative747andA330/40.Estimates
placethepureprofitgeneratedonthesaleofeach747tobeapproximately$25million.45
Ordersize.Itisoftenthecaseinthecommercialaircraftindustrythatlargeorderscanmakeor
breakafirm,especiallyatthecriticalpointwherefirmshaveinvestedsignificantlyinthedevelopmentof
anewplane(suchastheprototypingprocess)buthaveyettorealizesignificantsalesofthatplane.An
example would be Douglas Aircrafts DC8, which was bogged down in costoverruns and production
delays.TheCompanywouldhavebecomeilliquidandfailedadecadeearlierhaditnotbeenfortimely
orders by Northwest Airlines and Delta Airlines. More recently, the success of the Boeing 787
DreamlinerhasbeeninparttheresultoflargeordersfromseveralEastAsianairlinessuchasVietnam
Airlines,Quantas,andAllNipponAirways,andtheChinesegovernment.46
Itshouldbenoted,however,thattheAirbusA380developmentprojectwaskeptafloatinpart
because of the orders for private luxury jets from wealthy individuals and heads of state such as the
kingsofseveraloilproducingMiddleEastcounties.Inthesecases,theabilitytoincorporateuniqueand
extravagantluxurytrumptheoperationeconomicsthatairlinesusuallyface.47
GovernmentSubsidies.Perhapsoneofthemostcontentiousissuesinthecompetitionbetween
Boeing and Airbus has been subsidization of each firm by their respective governments: The United
45
Sell,T.M.WingsofPower.Seattle:UniversityofWashingtonPress,2001.
47
AirbusS.A.S.AnnualReview.Toulouse,France:AirbusS.A.S,2005.
46
28
States militarys indirect subsidization of Boeing, and the French, German, Spanish, and United
KingdomsdirectsubsidizationofAirbus.
Because Airbus was formed as a direct result of the governmental actions of the French,
German, and United Kingdoms legislatures, there traditionally has been a strong link between the
governments of the consortiums stateowned firms. The majority of the subsidization came during
Airbuss first two decades, when they were the severe underdog and did not have sales that would
generate cash organically. In the past, this has been most strongly represented in direct launch aid
appropriatedfromthetaxrevenueofthenationalgovernments.TheentirelaunchcostfortheA300&
A320camefromgovernmentsubsidies.48 Someof thelaunchfinancing had toberepaid atfavorable
interestrates,whilesomeofthelaunchmoneywouldneverhavetobereturned.Todate,itisunclearif
alloftheloanstoAirbusfromthemembergovernmentshavebeenrepaid.Subsidiescontinuetothis
day: the launch of the new A380 was partially subsidized through loans that must be repaid with
interest.49
BoeingwasamanufacturerofmilitaryaircraftbeforeitbecamealeadingproducerofLCA.In
fact,Boeing wasabletodevelopitsfirstcommercialjetairlinerbecauseofthetechnologyandknow
howithaddevelopedintheconstructionofmilitaryjets.Boeingremainstothisdayoneofthelargest
defensecontractorsfortheUnitedStatesmilitary50.Thereisstrongevidencetosuggestthattheprofits
derived from its military business helped keep the firm liquid and solvent when the LCA segment of
Boeingwasdoingpoorly.Inaddition,thereisstrongevidencethattheresearchanddevelopmentthat
48
Contrada,JohnDella."SubsidyWarCouldHarmBoeingMoreThanAirbus,UBReseracherSays."UniversityofBuffalo
Reporter24June2004.
50
ForaperiodoftimeBoeingactuallyexitedthedefenseindustrybuthassincereenteredandbecomeamajorparticipant
withthe1997mergerwithMcDonnellDouglas
49
29
produces new technologies and materials for military applications also find their way into Boeings
jetliners.51Thoughthesubsidizationmaynotbeasdirect,itisrealnonetheless.
NONPRICECOMPETITION
NationalizedAirlines.WithinEuropethefoundinggovernmentsoftheAirbusconsortiumhave
historically applied significant pressure on the national airlines to buy Airbus jetliners. Several of the
airlines most notably Air France are partially owned by European governments. Especially in the
beginning,thenationalcarrierswereAirbusonlycustomers.52OutsideofEurope,AirIndiaisownedby
theIndiangovernment,AirChinaisownedbytheChinesestate,andSingaporeAirlinesisownedbythe
Singapore government. In addition, there has always been a strong link between the Japanese
government and several Japanese airlines.53 The link between airlines and governments provides a
unique opportunity for competition between Airbus and Boeing. Governments have used their
influence over airline executives to encourage them to buy the planes of the firm that has a large
presenceintheircountry.IfeitherAirbusorBoeinghasasubassemblyplantinacountry,thiscreates
jobs and can improve the local economy. Government policy makers see this, and then wish to
encourageAirbusorBoeingtoexpandtheiroperationsintheircountry.Thesegovernmentofficialsalso
understandthatexpansiononlycomesifthemanufacturerisdoingwell.Thereforeinthemindsofthe
governmentofficials,theyequatetheirairlinepurchasingAirbusorBoeingproductswithprovidingjobs
andeconomicimprovements.54
ThistypeofnonpricecompetitionisespeciallyimportanttodevelopingcountriessuchasIndia
andChina,becausejettravelisgrowingfastestinAsia.Developingcountrieshaveaddedpressureto
createjobsandtobringinforeigndirectinvestment.BecauseofChinaslargegeographicalsizeandthe
51
53
54
Sparaco,Pierre."TransatlanticQuarrel."AviationWeek&SpaceTechnology6September2004:2627.
52
30
level of influence over the airlines by the government, both Airbus and Boeing have been putting
significant effort into sourcing subassemblies from China.55 What makes this especially important in
China is the fact that jetliners are often bought by the Chinese government on behalf of the Chinese
airlinesandnotbytheairlinesdirectly.56
Jetliner Financing. Airbus has historically had a unique advantage over Boeing that is often
overlooked.ThisisAirbusabilitytosupplyfinancing(throughtheconsortiumsmembergovernments)
at attractive terms for the purchase of their aircraft. Airbus logic is simple: If airlines cannot get the
cash, they cant buy their planes. Therefore Airbus began to assist airlines that could not obtain
financingintheglobalcreditmarkets.Airbusthenrealizedthattheycouldusefinancingasanadditional
meansofcompetitionwithBoeingtosecureordersofplanes.Originallythefinancingwasdoneonan
adhocbasis directlyinvolvingthegovernmentsof theconsortiumsmembers,mostoftenFrance. As
timeprogressedandAirbusbegantoturnaprofitasaresultoftheiroperations,theybegantoofferup
financingstillwiththeassistanceofmembergovernmentstoallcustomers.57
BoeinghashadlittleopportunitytoofferupcompetitionforAirbusattractivefinancing.Boeing
isaprivatefirm,thustheyresponsiblycannotoffertermsbetterthanAirbusorwhattheglobalcredit
marketoffersandremainaviablecompany.ThereforeBoeinghashadtorelyontheU.S.governments
ImportExport bank as a means for assisting struggling airlines to finance Boeing jetliner acquisitions.
Thesuccessofthishasbeenhitormiss,andhasresultedinmoredisputeswithAirbusthananyother
issue.Boeingcontendedthatwithoutthefinancing,Airbuswouldnothavesoldmanyoftheirplanes,
55
57
56
31
andthattheonlyreasonmanyairlineswentwithAirbusproductsoverBoeingproductswasbecauseof
thefinancing,notbecausetheyofferedasuperiorairplane.58
To date, this remains one of the most hotly debated issues regarding the competitive
relationship between Airbus and Boeing. It has spawned a number of congressional hearings and
investigationsaswellasanumberofinternationaltreaties.Asaresult,undertheUSEUAgreementon
TradeinLargeCommercialAircraftin1992andWorldTradeOrganizationguidelinesdevelopedaspart
ofUruguayRoundoftheGeneralAgreementonTariffsandTradein1994,financingthesaleofjetliners
remainslegal,thoughitisnowhighlyrestricted.59
Government Intervention. National pride and LCA manufacturing has intrinsically been linked
sincePanAmericanAirwaysbeganinternationalairtravel.Thishascontinuedtothecurrentday,with
national pride on the line with each new jetliner sale. The headsofstate of the United States and
severalEuropeannationshaveactivelygotteninvolvedinordertoseethatadealforthesaleoftheir
respectivejetlinersmakesitthrough.ThePresidentofFrancehasbeeninvolvedinnumerousdealswith
foreignairlines.PresidentBushhelpedsealthedealwithChinain2004duringavisitbythePremierof
thePeoplesRepublicofChina.60
Governmentinterventionalsocomesintheformofgovernmentprotectionfortheirrespective
firms.TheUnitedStatesCongress,theDepartmentofState,andtheWhiteHousehaveoftenbecome
involvedinattemptstoprotectBoeingfromwhattheyviewasunfaircompetitionfromAirbus.France,
Germany,andtheUnitedKingdomcontinuouslyplayaroleintheEuropeanjetlinersales.Theresulthas
beenseveraltradeagreementsbetweentheUnitedStatesandtheEuropeanUnion,thelatestofwhich
is the 1992 USEU Agreement on Trade in Large Commercial Aircraft. There are also continuous
58
Tomlinson,Richard."BehindtheLatestBoeingAirbusSpat."Fortune1November2004:14.
Holmes,Stanley."Finally,ABoeingAirbusShowdown."BusinessWeekOnline7October2004.
60
59
32
complaints filed in the World Trade Organization on behalf of either Airbus or Boeing. The latest of
there was a 2005 complaint filed by the United States against the European Union, and a cross
complaint filed by the EU against the United States. Each alleged that illegal subsidies had been
providedtotheirrespectivejetlinermanufacturer.Theresultwasthateachsidewasfoundguiltyand
thereforenosanctionswereimposed.
INNOVATIONS
Intherelativelyrecentcommercialaircraftindustryenvironment,onecanobservethefollowing
phenomena:
1)Boeingisthedominantfirm,
2)BoeingbecomesflushwithpastsuccessandallowsAirbustotakethelead,
3)Airbusisthedominantfirm,and
4)AirbusbecomesflushwithpastsuccessandallowsBoeingtotakethelead.
Inthe transitionfrom1to2,andfrom3 to4,oneofthekey factorsdrivingthechangefrom
leadertounderdoghasbeenthetechnologicaldevelopmentbythethenunderdogthatbegintoendear
theinnovatorintheeyesoftheairlineexecutives.Oftheinnovationslistedbelow,thefirstandsecond
weredevelopedasameanstoerodeBoeingsupremacyoverAirbusduring1)above.Theinnovations
listed third, fourth, and fifth were developed as a means for Boeing to reclaim the dominant position
during3)above.
FlybyWireSystems.TheBoeing707,727,original737,original747,andtheDouglasDC9,the
McDonnellDouglas MD8 were all built with control surfaces that were connected to the cockpits
peddlesandyokeviasteelcablesrunningthroughouttheplanesfuselageandwings.Whenthepilot
pushedapeddleinthecockpit,thisappliedtensiontothecableattachedtoit,whichinturncausedthe
flightsurfacetomove.Suchsystemswerecomplicatedtodesign,engineerandproperlycalibrate.This
33
typeofconfigurationrequiresthatthesteelcablesbeproperlytensioned,andsignificanteffortmustbe
madebytheairlinestomaintainthesecomplexsystemsoperatingthroughouttheentireplane.61When
AirbuswaspreparingtobuilditssecondairplanetheA320itwasnotinapositiontoengineerand
buildsuchacomplexsystem.62Thiswasbecausethewingwasmadebyonecompany,thefuselageby
another, the cockpit by a third, and the wing box by yet another firm and all with little interaction
between the various firms. Each used different computeraided drafting systems that were
incompatible. To design a system that extensively ran throughout the entire plane was logistically
impossible given Airbus structure. Therefore designers were forced to turn to another method of
controlling the planes flight surfaces. 63 Flybywire was at the time in its infancy with little
commercial application. Airbus saw this technology as a solution to its problem. In developing this
technology,itquicklybecameapparentthatitwassimplertodesignandbuildanddidnotrequirethe
airlinestoperformcostlymaintenanceandcalibration.64Airbushasincludedthistechnologyinallofits
jetliners.Boeingwasveryresistanttointegratingthisnewtechnologyinitsdesignsbecausethenew
technologywouldrequiretheirengineerstomoveupasteeplearningcurve.65
CockpitCommonality.In1978whenAirbuswaspreparingtolaunchthedevelopmentofanew
LCA,ithadonlyoneproduct,theA300.Atthesameperiodintime,Boeinghadadiverseproductset
rangingfromthe727,737,757,767,and747.HowwasAirbustocompetewiththiscompleteproduct
offeringwithonlytwoplanes?Airbusanswerwascockpitcommonality.EachofBoeingsplaneshad
different cockpit configurations. This was further compounded because each derivative also had
differentconfigurations.Ifapilotwascertifiedtoflya737,heorshecouldnotalsopilota757.A747
61
Airbusfirstplanewasbuiltusingconventionalmethods;thiscausedsignificantdelaysthatnearlybroughtdowntheproject.
Airbushaddifficultyovercomingtheseengineeringchallenges,andputthefirmataseveredisadvantagewhenpreparingto
launchtheirsecondplane.
63
64
65
BernsteinResearch."CommercialAircraftUpcycleClimbingHigherwithGlobalDemand."2006.
62
34
100pilotcouldnotflya747300.66Inaddition,eachpilotmustflyacertainnumberofhourseachyear
inordertomaintainhisorhercertification.Thiscouldbequiteexpensiveforthelessfrequent747and
767flights. Airbussawanopportunityto configuretheir cockpitssuch that A300pilots couldalsobe
certifiedontheirnewplanes,whichweretobesmaller.Thereforepilotscouldflythemorefrequent,
shorterroutesintheirnewA320tomaintaintheircertificationfortheA300.Inaddition,pilotscould
easily be moved between routes and plane types. For airlines, this meant increased flexibility and
decreasedtrainingcosts.67
Engine Configurations. Conventional wisdom had always held in LCA that four engines were
needed to cross the Atlantic or Pacific oceans; in case one engine failed there would still be three
enginestomakethetrip.Capitalizingonthiswisdom,whenAirbusbuiltitsA330andA340,theybuilt
theA330withtwoenginesforshorterroutes,andtheA340withfourenginesforlongerinternational
routes.Besidestheengineconfiguration,thefuselage,cockpit,andwingswerethesame.68However,
fourengineshaveonemajorproblem:Cost.Fourenginesconsumemorefuelthananequivalenttwin
engineairplane.Fourenginesalsorequiretwicethenumberofsparepartsandtwicethemaintenance.
While this wisdom held, there were not engines capable of producing the thrust required to
propel a jumbo jet with only two engines. In the 1980s and early 1990s highbypass turbofan jet
engines were developed that produced substantially more thrust than previous simpler turbojet
engines. These new highbypass turbo fan engines were more reliable, consumed less fuel, and
producedmorethrust.Boeing,lookingatthehighlysuccessfulA330andA340,wastryingtofindaway
togainacompetitiveadvantageinthejumbomarket.Tothatend,Boeingdevelopedandreleasedthe
66
68
67
35
777in1994withonlytwohighbypassturbofanengines.The777wassignificantlymorefuelefficient
thantheA340,andthe777thenpropelledBoeingbackintodominance.69
FuelEfficiency.Withthepriceofoilcontinuingtorisewithnoendinsight,continuingpressure
hasbeenplacedontheairlinesintermsoftheirfuelcosts.Thisinturnhasbecomeanincentiveforthe
aircraft manufacturers to develop the most fuel efficient planes possible, with the firm capable of
producing a fuel efficient plane gaining a sizable competitive advantage. For Airbus and Boeing, the
pathtowardsfuelefficiencyhasbeenonefulloftwistsandpotholes.Airbusoriginallyhadpickedupthe
banneroffuelefficiencyasameansofgaininganedgeoverBoeingintheirearlylife.AsAirbusmatured
and gained success, they became riskaverse and unwilling to move away from the designs that had
servedthemwellinthepast.Unfortunately,fuelefficiencyisarelativetermdependentonwhereoneis
in time; that which was considered fuel efficient a decade ago may now be a gas guzzler today.
During Airbus complacency, Boeing took up the banner of fuel efficiency, and this became a primary
concerninthedevelopmentofthe777.Fuelefficiencyrosetoprimesignificanceinthedevelopmentof
the 787 Dreamliner.70 There is no doubt with crude oil prices rising above $100 a barrel that fuel
efficiencywillcontinuetobeanimportantconsiderationforairlineexecutives.
Composite Materials. Another consequence of the rise in importance of fuel efficiency is the
increaseduseofcompositematerialsinLCAconstruction.Compositematerialslikecarbonfiberweigh
less than steel or aluminum and also provide greater strength. This allows aircraft manufacturers to
save substantial weight on the airframe. This directly translates into fuel savings, since less fuel is
requiredtotakeoffandfly.Compositesalsoofferopportunitiesfornewmanufacturingtechniques.For
example,thefuselageofthenewBoeing787Dreamlinerwillbeoneuninterruptedcarbonfiberpiece.
Thiswillsaveasignificantnumberofmanhours,sincethousandsofrivetswouldbeneededtoattach
69
70
36
hundredsofaluminumfuselagepanelstogether,whichwouldhavebeennecessarygivenconventional
manufacturing techniques. In fact, the 787 will be constructed of over 50% composite materials,
including the fuselage and wings.71 Composite materials are the newest development in jetliner
manufacturing and potentially represent the largest development since the highbypass turbo fan jet
engine.72
Both Airbus and Boeing demonstrated an inclination towards avoiding innovation when they
had dominate status. Boeing was unwilling to begin incorporating new technologies while they held
nearmonopoly standing. Airbus has also shown an unwillingness to accept new risk while they have
heldthemarketsharelead.Bothhavealsoshownthatmarketshare,andthereforecompetition,canbe
increasedviainnovation.
71
72
37
IV.WHATFACTORSDRIVETHECOMPETITION?
It is clear that the commercial aircraft manufacturing industry is oligopolistic. There are only
twofirmsthatmake uptheentiremarket. Airbus andBoeingscompetitive relationshipisconstantly
characterized by instances of strategic interaction. The above analysis makes it clear that each firm
considers the others actions when making decisions. Both firms take into account the competitive
position of the other firm. But the question that remains is why, despite all the incentives towards
collusion, do these firms compete so vigorously? For that matter, what is the unique nature of their
competitionthatmakesitparticularlyfierce?
Allfirmshaveincentivestomaximizeprofits.ThisisjustastrueforbothAirbusandBoeing.The
commercial aircraft is an oligopoly. Therefore, they are in a unique situation to exploit opportunities
that are not available to more competitive firms. Because of the extreme barriers to entry in the
commercial aircraft market, the commercial aircraft industry is insulated from new entrants and
additional competition. In a duopoly, firms can collude either tacitly or explicitly to set output,
prices, or both such that they can produce at the profitmaximizing position. This can be achieved in
oneoftwomainways:
1) Bothfirmscanproducesimilarproductsetssothattheycancollectivelylimittheir
outputandfixprices;or
2) Sufficientlydifferentiatetheirproductssothattheycanhaveanichemonopolyof
theirproducts.
In either case the goal is to control the level of output so that they can set the price. The
question then becomes, do we see either 1) or 2) above in the commercial aircraft industry? If not,
whatincentivesoractivitiesoverridetheconductwewouldexpect?
38
WhatbecomesclearintheanalysisaboveisthatAirbusandBoeingdonotbehavelike1)or2).
If competition is a spectrum, at one end are pricesetting monopolies, and at the other are perfectly
competitivepricetakers(seeExhibit8).Oligopoliesaretraditionallyfoundclosetothemonopolyend.
In this case there are a number of factors that push the commercial aircraft industry away from
monopoliesandtowardsperfectcompetition.
INSTRUMENTOFNATIONALPOLICY
Becauseofjetlinersintrinsictiewithhightechnology,thesheernumberofemployeesneeded
tomanufactureaircraft,andbecauseofalinkbetweenaviationandnationalpride,commercialaircraft
manufacturing has historically served as an instrument of national policy for the respective home
governments.
TechnologyInrecentdecadestheprestigeandsuccessofanationhascometobelinkedwith
hightechnology. There are a number of reasons for this from the ability of nations to defend
themselves withnewandimprovedtechnology,totheability toprovidebetterquality oflifethrough
new gadgets, to the esteem that comes from being on the cutting edge. This is all exemplified in
jetliners because of their close tie to military aircraft and because jetliners are often the first to
commerciallyimplementsnewtechnologies.TheUnitedStatesgovernmenthasmadeitclearthatthey
wishtopromotetheadvancementofcurrenttechnologiesandthedevelopmentofnewtechnologies.
Europeangovernmentshavedonethesame.AirbusandBoeingcanbeheldupasprimeexamplesof
howtheirfirmsareabletobreakintonewfrontiers.
EmploymentCommercialaircraftarelargemachines,oftencontaininghundredsofthousands
ofparts.Assuchittakesanextraordinarynumberofemployeestomanufacturejetliners.Largeorders
foraircraftcankeepcitizensemployedforyearstocome.BoeingorAirbuscanthenserveasameansof
employment for large numbers of people if governments are able to influence or manipulate aircraft
39
sales.Nationalgovernmentsworkingincooperationwithamanufacturercanensurethatthecompany
inquestionhasbusinessandthereforehasjobsfortheircitizens.
NationalPrideFormanynationsacrosstheglobe,thereisprideinwhattheircountryiscapable
of producing: the French are proud of their wines and cheese, the Americans proud of the space
programandthecuttingedgetechnology,etc.ThisisalsothecasewithjetlinerstheAmericansare
veryproudofBoeingandtheFrench,Germans,andBritishareveryproudofAirbus.Thisisnothardto
understandwhenonethinksofthetremendouseffortthatmustgointoproducingaviablejetliner.To
that end, jetliners have come to symbolize engineering and technical mastery, and thus pride in the
productsofBoeingandAirbus.Thisaddsanadditionalmotiveformanufacturebeyondsimpleprofit:
Prestige. One cannot underestimate the importance that prestige has played in the motivations of
airlineexecutivesandjetlinermanufacturerslikeAirbusandBoeing.
ORDERSIZE
Air travel has become less expensive in recent years with lowcost and nofrill airlines. The
resulthasbeenincreasednumbersofaircraftordersandalsoaircraftordersize.Orderscanbetensof
millions of dollars upwards to hundreds of millions of dollars. This creates a tremendous amount of
pressuretobringinthatsale,especiallysincealargeordercanbooktheproductionlineformonthsor
evenyearsatatime.Orderscanalsobeinfrequentinnature,especiallysurroundingthedevelopment
ofanewjetlinerbyeitherfirm.Thisinfrequencycanexacerbatetheimportanceofobtainingorders.In
essence, so much can be at stake that an incentive towards collusion is overridden by the need to
ensurethesuccessofyourplane.
The commercial aircraft industry is characterized by tremendous fixed costs, including the up
frontcostsassociatedwithdesigning,prototyping,andmanufacturingthefirstjetliner.Thesecostsare
difficulttodetermineinadvance,andarenoteasilyshedinthecaseofhardertimes.Thekeytostability
40
inthisindustryseemstobetheabilitytodevelopandmaintainasignificantbacklogoforders.Indoing
so, one ensures a continuing revenue stream far into the future; when an order is placed, a down
paymentisplacedwiththeremainingbalancetobepaidupondelivery.InthecaseofBoeing,atthe
end of 2007 they had a back order of 3,427 aircraft and Airbus had 4,336, with 375475 planes being
producedeachyear.Theywillnotreceivethemajorityoftheirpaymentuntilthedeliveriesaremade,
whichmeansthateachfirmcanexpectalargeflowofrevenueforyearstocome.
DIFFERENTIATEDPRODUCTS
Standardoligopolistictheoryoftenassumesthatfirmsproduce onlyoneproductand thatthe
productsmanufacturedbyeachfirmintheindustryarehomogenous.Whenfirmsareproducingraw
materials like copper or oil, it is simple to have a single uniform product among oligopolistic firms.
However,inthecaseofcommercialaircraftmanufacturing,theproductsarelargeandcomplicated;it
wouldbeverydifficultforAirbusandBoeingtodesignandbuilttwoidenticalplanesindependently.As
aresult,eachfirmmakessmalldecisionsinanumberofdirectionsthatchangeplanesthataremeantto
serve the same purpose. While both planes will take you from point A to point B, each does so with
little differences like seat width, entertainment options (personal screens versus one main screen for
example)orairhumidityduringflight.BoeingplanesuseayokepilotingsystemwhileAirbusplanesuse
ajoystick.Thesedifferencesbetweenjetlinersinvariablycauseairlinestochoosebetweenoneorthe
other;preferencesforoneplaneoveranothercanthendevelop.
Inthecaseofthecommercialaircraftmanufacturingindustry,asingleplanewillnotsatisfyall
customers.Planesareneededtoflylongdistancerouteswithhundredsofpassengersandshortroutes
with only 130 passengers. In addition, the person who wants to buy a longdistance plane will most
likely also want to buy a shortdistance plane. This gives rise to different products. Each firm could
choosetoproduceatonerangeofthemarketforexample,Boeingcouldchoosetoonlyproducelong
41
distance and Airbus could choose to produce only shortdistance planes but both firms have
attemptedtodevelopcompleteproductsetsthatarecapableofmeetingairlineseveryneed.Partof
thisisbecauseofthedevelopmentofcommonalitybetweenplanesandtheutilizationofeconomiesof
scale; it is cheaper for airlines to maintain one maintenance crew for Airbus planes than two
maintenancecrewsforAirbusandBoeingplanes,forexample.73
FIXEDOUTPUT
Withmanyproductsitisveryeasytovarythelevelofoutputwithinafirm.Withjetlinersitis
simply not possible to turn a knob and build immense planes faster. Significant investment in plants,
buildings,andequipmentisneededfirst.Thisalsomeansthatfirmscannoteasilysettheirproduction
outputinadvancewhereisonetoparkdozensofcompleted747s?Eachplanecanrepresenttensof
millions to hundreds of millions of dollars in investment and it is difficult for any firm to carry such
inventory for very long. The end result is that output is predetermined and fixed, and is known in
advance by all firms in the industry. Therefore the incentive is to make sure that your firm does not
havetoshutdownorbuildplanesforinventorybothofwhichcarrysignificantcosts.Inlookingatthis
from a different perspective, Airbus and Boeing have only within the last three years seen significant
growthinaircraftorders.Itwouldtakedecadesforcapitalinvestmenttoincreaseproductionbyonly
fiftypercenttopayoff.Thereforethemarketforjetlinerswouldhavetoincreasesubstantiallyovera
sustainedperiodinordertojustifysuchaninvestment.
73
Irwin,DouglasA.andNinaPavcnik."AirbusVersusBoeingRevisited:InternationalCompetitionintheAircraftMarket."NBER
WorkingPaperSeries.Cambridge:NationalBureauofEconomicResearch,December2001.
42
EXPANDINGMARKET
Because of the tremendous increase in air travel, the commercial aircraft industry has seen
recordlevelsofnewjetlinerorderssince2005;BoeingandAirbuseachsawtriplethenumberoforders
in 2005 than what they saw in 2004.74 With such expansive growth, there are many opportunities to
gain market share in expanding markets like the East Asian markets discussed earlier. With the
explosive growth in air travel in developing countries like China, India, and Malaysia, there are
significantopportunitiesforincreasedgrowthinthoseregions.Recordordersizesarebeingloggedby
eachfirmfromairlinesoperatingintheareasofgrowththisprovidesthesameincentivesasdescribed
intheaforementionedOrderSizesection.75
CONCLUSION
Thecommercialaircraftmanufacturingindustryischaracterizedbyrelativelyfixedoutput.Thiscoupled
with the infrequent aircraft orders, and the significant longrun uncertainty because of extended
product lifecycle, means that the normal forces of supply and demand are distorted. Research and
development of a new jetliner takes years, and it takes additional years or decades to realize the
completereturnonthatjetliner.Costsremainnebulousforthemanufactureofeachindividualjetliner
as a result. Because of the steep learning curve associated with developing new products, there is a
significantadvantagetothefirmthatdevelopsnewplanesfirst.Thistranslatesintoanadvantagefor
thefirmthatinnovatesfirst.Moreoverthecommercialaircraftindustryistrulyinternationalinscope,
andthereforestrategictradepolicyonthepartofboththeUnitedStatesandtheEuropeanUnionplays
a role in shaping the competition. Boeing and Airbus compete so vigorously because they face a
74
75
"AirWar."Economist25June2005:12.
43
marketplacewheresupplyisrelativelyconstantanddemandisintermittent;thisismadeallthatmuch
worsewithuncertainty.
44
V.WHATIMPLICATIONSDOESTHISHAVE?
Withinflexiblesupply,uncertainty,andadoseofnationalpride(irrationality),ourassumptions
that predict duopolistic behavior no longer holds. The commercial aircraft manufacturing industry
indicates models that predict incentives towards collusive behavior and limited output are not easily
applied to all industries. The model has not failed, but merely was designed to reflect the reality
representedbydifferentindustries.Wemustrecognizeandaccountforthedifferencespresentedby
thecommercialaircraftmanufacturingindustry.
Every industry is unique, including the commercial aircraft manufacturing industry. For many
thesedifferencesarewhatmakethefieldofeconomicsinteresting.Ifwecoulddevelopamodelthat
was easily applied to every industry, there would be nothing left to carry our interest. The standard
modelprovidesaframeworkforoutanalysis,buttheuniquecircumstancesineachindustryarewhat
provideitspirit.Thecommercialaircraftmanufacturingindustryisanoligopoly,butwhatisthenature
ofthecompetition?Whatdrivesthecompetition?Answeringthesequestionscanbecomejustabout
asmuchaboutpsychologyasmathematicalmodels.Thecommercialaircraftindustrycertainlyprovides
muchtosatiateourcuriosity.
45
REFERENCES
Aboulafia,Richard."AirbuspullsclosertoBoeing."AerospaceAmerica38.4(2000):1618.
"AirWar."Economist25June2005:12.
AirbusIndustries."GlobalMarketForecast20032004."Toulouse:AirbusIndustries,2003.
AirbusS.A.S.AnnualReview.Toulouse,France:AirbusS.A.S,2005.
AirbusS.A.S.GlobalMarketForecast20042023.BlagnacCedexFrance:AirbusS.A.S,2005.
BoeingCompany.AnnualReport.Chicago,IL:BoeingCompany,2003.
.AnnualReport.Chicago,IL:BoeingCompany,2004.
.Form10K.Chicago,IL:BoeingCompany,2006.
Contrada,JohnDella."SubsidyWarCouldHarmBoeingMoreThanAirbus,UBReseracherSays."
UniversityofBuffaloReporter24June2004.
FactboxSizing up the Airbus doubledecker. 12 November 2007. 2 February 2008
<http://www.reuters.com/article/companyNewsAndPR/idUSL1267687320071112?pageNumber=2>.
Holmes,Stanley."Finally,ABoeingAirbusShowdown."BusinessWeekOnline7October2004.
Irwin,DouglasA.andNinaPavcnik."AirbusVersusBoeingRevisited:InternationalCompetition
intheAircraftMarket."NBERWorkingPaperSeries.Cambridge:NationalBureauofEconomicResearch,
December2001.
46
Lawrence,PhilipK.andDavidW.Thornton.DeepStall.Hampshire,England:Ashgate,2005.
Loury,GlennC."MarketStructureandInnovation."TheQuarterlyJournalofEconomics(1979):
395410.
Lynne, Pepall, J. Daniel Richards and Norman George. "Industrial Organization: Contemporary
TheoryandPractice."SouthWesternCollegePublishing,1999.223269.
MorringJr.,Frank."WashingtonOutlook."AviationWeek&SpaceTechnology20June2005:21.
Norris,Guy.AirbusA380:Superjumboofthe21stCentury.Osceola,WI:ZenithPress,2005.
Reinganum, Jennifer F. "Uncertain Innovation and Presistence of Monopoly." American
EconomicReview(1983):741748.
Rodgers,Eugene.FlyingHigh.NewYork:TheAtlanticMonthlyPress,1996.
Schwartz,NelsonD."ReadyforTakeoff."Fortune7February2005:20.
Sell,T.M.WingsofPower.Seattle:UniversityofWashingtonPress,2001.
Sparaco,Pierre."TransatlanticQuarrel."AviationWeek&SpaceTechnology6September2004:
2627.
Tomlinson,Richard."BehindtheLatestBoeingAirbusSpat."Fortune1November2004:14.
47
APPENDIX
Exhibit1:Boeingjetlinerdeliveries1958through2007
Exhibit2:Airbusjetlinerdeliveries10974through2007
Exhibit3:ChartgraphingthedeliveriesofAirbusandBoeing1958through2007
Exhibit4:Boeingfirmordersreceived1955through2007
Exhibit5:Airbusfirmordersreceived1974through2007
Exhibit6:ChartgraphingfirmordersreceivedbyAirbusandBoeing1955through2007
Exhibit7:Airbusfirmstructurediagram
Exhibit8:CompetitiveSpectrumdiagram
DataforExhibits1,3,and4Source:BoeingCommercialAirplaneswebsite
http://active.boeing.com/commercial/orders/index.cfm
DataforExhibits2,3,and5Source:AirbusS.A.S.website
48
Exhibit1
YEAR
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
TOTAL
707
8
77
91
80
68
34
38
61
83
118
111
59
19
10
4
11
21
7
9
8
13
6
3
2
8
8
8
3
4
9
717
727
6
95
111
135
155
160
114
55
33
41
92
91
91
61
67
118
136
131
94
26
11
8
5
4
14
5
1
12
32
49
20
12
12
13
5
1,010 155
737
4
105
114
37
29
22
23
55
51
41
25
40
77
92
108
95
82
67
115
141
161
165
146
174
215
218
152
121
89
76
135
282
320
282
299
223
173
202
212
302
330
1,831 5,600
747
4
92
69
30
30
22
21
27
20
32
67
73
53
26
22
16
24
35
23
24
45
70
64
61
56
40
25
26
39
53
47
25
31
27
19
15
13
14
16
1,396
757
2
25
18
36
35
40
48
51
77
80
99
71
69
43
42
46
54
67
45
45
29
14
11
2
1,049
BoeingDeliveriesfrom19582007
Total
Boeing
767
777
787
8
77
91
80
68
40
133
172
218
277
376
291
203
141
97
156
189
170
138
120
203
286
299
257
20
177
55
203
29
146
25
203
27
242
37
270
53
290
37
284
60
385
62
435
63
446
51
330
41
272
37 13
207
43 32
219
42 59
321
47 74
510
573
44 83
44 55
483
40 61
525
35 47
381
24 39
281
9 36
285
10 40
290
12 65
398
12 83
441
959 687
12,687
DC8
21
91
42
22
19
20
31
32
41
102
85
33
13
4
DC9
5
69
153
202
122
51
46
32
29
48
42
50
22
22
39
18
16
10
DC10
MD11
13
52
57
47
43
19
14
18
35
41
25
11
12
10
11
17
10
10
1
3
31
42
36
17
18
15
12
12
8
4
2
556
976
446
200
MD80
5
61
34
51
44
71
85
94
120
117
139
140
84
43
23
18
12
16
8
26
1,191
MD90
13
25
26
34
13
5
116
TotalD&
MD

21
91
42
22
19
20
36
101
194
304
207
84
72
88
86
95
85
69
36
40
74
64
102
55
63
54
82
102
104
130
118
142
171
126
79
40
49
52
54
54
47
9
2

3,485
TOTAL
8
98
182
122
90
59
153
208
319
471
680
498
287
213
185
242
284
255
207
156
243
360
363
359
232
266
200
285
344
374
420
402
527
606
572
409
312
256
271
375
564
620
492
527
381
281
285
290
398
441
16,172
Exhibit 2
Exhibit2
AirbusDeliveriesfrom19742007
Year
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
TOTAL
A3001
A3202
A3303
A3403
4
8
13
15
15
26
39
38
46
36
48
42
29
32
45
47
37
44
46
44
25
19
16
8
14
8
8
11
9
8
12
9
9
A350
16
58
58
119
111
71
1
22
64
9
25
56
30
19
72
10
28
127
14
33
168
23
24
222
44
20
241
43
19
257
35
22
236
42
16
233
31
33
233
47
28
289
56
24
339
62
24
367
68
11
810 3,337 515 348
A380
TOTAL
4
8
13
15
15
26
39
38
46
36
48
42
29
32
61
105
95
163
157
138
123
124
126
182
229
294
311
325
303
305
320
378
434
447
1
1 5,011
A300includesallA300sandallA310,whichareaderivativeoftheoriginalA300
A320includesallA318s,A319s,&A321s,whicharederivativesoftheoriginalA320
TheA330&A340havethesamefuselageandwingsbutdifferentnumbersofengines;theyarethereforetheA340istechnicallya
derivativeoftheA330butiscountedseparatelyhere
Exhibit 3
Exhibit3
Deliveries19582007
800
700
600
Deliveries
500
400
300
200
100
Year
Airbus
Boeingw/Mergers
Boeingw/oMergers
Exhibit4
YEAR
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
TOTAL
707
70
53
25
31
17
62
76
17
42
71
135
101
87
40
12
13
9
18
12
16
9
4
14
6
1
21
717
727
80
37
10
20
83
187
149
125
66
64
48
26
119
92
88
50
113
133
125
98
68
38
11
1
5
15
6
11
11
42
41
21
3
32
8
8
1,010 155
737
83
35
61
49
28
21
48
14
42
47
35
39
37
145
78
95
121
71
64
131
274
212
177
312
241
111
70
114
101
67
169
438
314
354
237
374
188
162
206
152
570
739
850
1,831 7,676
747
83
43
22
30
20
7
18
29
29
20
14
42
76
72
49
23
14
24
23
42
84
66
49
56
122
31
23
2
16
32
56
36
15
35
26
16
17
4
10
48
72
25
1,521
757
38
64
3
2
26
2
45
13
46
148
166
95
50
35
33
12
13
59
44
50
18
43
37
7
1,049
BoeingFirmOrdersReceivedfrom1955to2007
Total
Boeing
767
777
787
DC8
70 73
53 39
25 10
31 10
17 18
142 4
113 21
27 24
62 20
154 30
405 70
368 116
316 57
177 36
134 16
102 8
90 4
169
175
180
114
170
226
49
439
45
294
11
308
5
190
2
105
20
150
15
171
38
399
23
338
57
357
83
592
100
563
52 28
419
240
65 24
21 30
223
54 30
220
17
112
22 101
379
43 68
664
79 54
527
38 68
566
30 35
355
9 116
589
40 30
314
8 32
251
11 13
249
9 42 56 277
19 153 232 1,022
10 77 160 1,058
36 143 369 1,423
1,011 1,044 817 16,114 556
DC9
23
33
209
159
66
88
44
34
24
28
73
41
21
35
22
41
27
6
2
976
DC10
63
29
21
18
46
31
13
9
16
34
45
33
12
8
48
2
6
3
5
2
2
446
MD11
MD80
MD90
11
20
44
18
37
10
7
6
4
9
10
11
13
23
27
14
14
19
87
43
117
106
120
88
239
135
50
23
10
10
9
14
17
2
24
39
17
3
4
200
1,191
116
27
26
TotalD&
MD
73
39
10
10
18
4
21
24
43
63
279
275
123
187
89
63
46
74
104
54
30
51
79
113
74
32
29
135
45
123
109
136
110
285
153
114
33
43
16
13
62
44
16
41

3,485
TOTAL
143
92
35
41
35
146
134
51
105
217
684
643
439
364
223
165
136
243
279
234
144
221
305
552
368
340
219
240
195
294
508
474
467
877
716
533
273
266
236
125
441
708
543
607
355
589
314
251
249
277
1,022
1,058
1,423
19,599
Exhibit 5
Exhibit5
AirbusFirmOrdersReceivedfrom1974to2007
Year
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
TOTAL
A300
20
16
1
16
73
127
47
54
17
7
21
53
24
56
45
87
71
52
32
9
6
15
7
32
0
2
61
0
6
2
7
966
A3202
A3303
A3403
A350
A380
TOTAL
20
16
1
16
73
127
47
54
17
7
35
92
170
114
167
421
404
101
136
38
125
106
326
460
556
476
520
375
300
284
370
1,111
824
1,458
14
39
146
58
116
3
3
146
107
81
300
25
8
18
5
26
81
1
22
13
1
15
95
30
81
9
10
235
42
34
364
64
25
437
24
63
408
32
36
388
110
20
175
52
2
85
235
24
31
10
155
54
35
34
279
51
28
10
918
64
15
87
20
673
104
15
15
17
914
198
23
290
33
6,288 970 522 392 209 9,347
A300includesallA300sandallA310,whichareaderivativeoftheoriginalA300
A320includesallA318s,A319s,&A321s,whicharederivativesoftheoriginalA320
TheA330&A340havethesamefuselageandwingsbutdifferentnumbersofengines;theyarethereforetheA340istechnicallya
derivativeoftheA330butiscountedseparatelyhere
Exhibit 6
Exhibit6
Orders19552007
1600
1400
1200
Orders
1000
800
600
400
200
Year
Airbus
Boeingw/Mergers
Boeingw/oMergers
Exhibit7
DASA
DaimlerChrysler
AeroSpaceAG
Aerospatiale
Matra
EADS
80%Ownership
CASA
AeronaucticasSA
German
Government
SOGEADEaFrench
StateHolding
Company
SEPIaSpanish
StateHolding
Company
SixPublicStock
Exchanges
AirbusS.A.S.
Private
Shareholders
French
Government
BritishCrown
(MinorityStake)
BAESystems
20%Ownership
Private
Shareholders
(MajorityStake)
Exhibit8
Monopoly
Duopoly
Oligopoly
MonopolisticCompetition
PerfectCompetition

Boeing vs Airbus: An Economic Analysis of the Commercial Aircraft Industry

Diunggah oleh

Informasi Dokumen

Deskripsi Asli:

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Boeing vs Airbus: An Economic Analysis of the Commercial Aircraft Industry

Diunggah oleh

Hak Cipta:

Format Tersedia

BOEINGVERSUSAIRBUS:

Anda mungkin juga menyukai