Airbus vs. Boeing the Case Study

Topics: European Union, Subsidy, Boeing Pages: 5 (2627 words) Published: September 22, 2010
Airbus vs. Boeing the case study
Jimmy Jones University of Phoenix

The case “Boeing vs. Airbus: Two Decades of Trade disputes” deals with the dispute that has existed between the US aircraft giant and the European Aircraft manufacturing giant. Boeing has 57,000 workers in Seattle and an additional 100,000 employees in the country. Boeing has also provided 600,000 employments nationally and it is considerd to be a big force in US economy. Boeing attained its main competitor McDonnell Douglas and merged as one in 1996. Airbus is a European manufacturer of commercial airline and its backed by four European countries. Airbus was originally a minor contestant in the airline market and was believed as improbable to face up to U.S. control. However, in early 2000 Airbus has tranfered itself to a major corporation from an association. And in 2003 the company exceeds Boeing in delivery of aircrafts. Legal issues:

To understand the problems in this case it is important to mention 4 points about the airline manufacturing industry and why only few competitors can exist in this market: 1) High Development costs involved in manufacturing aircrafts 2) Levels of breakeven that amount to a considerable proportion of global demand 3) considerable familiarity of level curve necessary for corporations to reach point of breakeven levels and turnovers 4) Unstable demands due to factors like fuel pricing, inflation, etc. After the success of the Airbus, the US officials and government criticized the heavy subsidies that Airbus had gained from the four European countries: Germany, Spain, England, and France. Boeing argued that these funding were in loans form and at under interest rates received from these countries, as well as airbus gaining breaks in tax. In addition, Boeing argues this subsidy has helped Airbus to offer striking financing terms for Airbus’s clients. The Airbus camp responded by pointing out that Boeing had long been benefitting from US subsidiaries which weren’t shared with the public. In 1992 the two parties reached an agreement where Airbus was allowed to receive launch aids from EU government and Boeing was allowed to use up the US government’s R&D spending. The agreement listed that limited direct government subsidies to 33 percent of the total costs of developing a new aircraft would be allowed and specified that such subsidies had to be repaid with interest within 17 years. The agreement also limited indirect subsidies, such as government-supported military research that has applications to commercial aircraft, to 3 percent of a country’s annual total commercial aerospace revenues, or 4 percent of commercial aircraft revenues of any single company in that country. In 1996 Boeing made a bid to merge with its old rival McDonnell Douglas which caused a new problem between the US and the EU trade unions and the two companies. Boeing’s argument to the US Federal Trade Commission (FTC) and the EU competition commission was that the Boeing–McDonnell Douglas combination was necessary to create a strong U.S. competitor in a competitive global marketplace. The EU could not actually stop the merger but under EU competition law the commission could declare the merger illegal, restrict its business in Europe, and fine it up to 10 percent of its estimated $48 billion annual sales (Papendropoulos, Tajana, 2006). Meanwhile Boeing also made a deal with the top 3 US airline, Delta, American Airlines and Continental to be the exclusive provider of aircrafts for the next 20 years. The EU body argued that this agreement was anticompetitive and could cause a considerable increase in the market power of Boeing. The three main concerns for the EU...
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