Boeing V Airbus

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Boeing versus Airbus

1. Do you believe Airbus could have become a viable competitor without subsidies?

Given the competitive dynamics in the commercial aircraft industry, it is not likely that Airbus could have become a viable competitor without subsidies. These dynamics include investment costs in the billions for research and development of a new airliner, long break-even times, significant experience curve on the manufacturing side, and the highly volatile demand for aircraft. Due to a lack of market share, if Airbus entered the market without this support they would have suffered many years of losses resulting in a possible bankruptcy. However, Airbus credits its success to a good product and a good strategy instead of the subsidies.

2. Why do you think the four European governments agreed to subsidize the establishment of Airbus?

In 1970, four European governments began subsidizing Airbus with the explicit goal of diminishing the US dominance in the international aviation market. The four founding European nations, Great Britain, France, Germany and Spain saw from the beginning the need to subsidize Airbus operations. At the time, all four countries were either owners or part owners of domestic airlines and wanted to conduct business with domestic companies. The only other major competitor at the time was the US based company, Boeing. The European governments took this opportunity to take part in the competition in order to surpass Boeing to become a leader in sales orders. This prevented Boeing from any emerging monopoly in the aircraft industry. There was also a potential for more jobs to come to these European countries. If they did not agree to this, their countries would have lost the possibility for many new direct and indirect aircraft related jobs. Furthermore, parts would be cheaper when manufactured in Europe. When you have to import parts for your aircraft, the prices begin to go up. For example, Eurocopter manufactures all of its parts in Europe, which creates higher prices for US consumers and prolonged shipment processes for manufacturers. When you purchase American products such as Bell products, you could get a part in a matter of days. Eurocopter parts would take months. This problem not only drives up immediate maintenance costs, but it also drives up operational costs. When an aircraft is on the ground waiting for parts the company loses money because they have to use other aircraft. In turn, this decreases the usable life of an aircraft and can cause a company to have to purchase new airframes prematurely.

3. Is Airbus’s position with regard to the long-running dispute over subsidies reasonable?

This is not a reasonable dispute for the simple fact that both companies receive equal amounts of subsidies. Airbus chooses to bring this position up to make Boeing focus on something different than their business along with bringing negative publicity. Both Airbus and Boeing need to put aside their differences. All parties need to be up front and honest with their tax breaks, subsidies, low interest loans, etc. This is a classical case of the incumbent suddenly feeling uneasy with the successful newcomer to the business it once dominated. In the end, the benefits of both companies closely match one another, so the real argument should lie in the accountabilities of capital risks.

4. Do you think that the 1992 trade agreement was reasonable?

In 1992, the US and the four European governments involved with Airbus signed a bilateral agreement designed to reduce and balance US support with European loans. Under the treaty, Europe reduced its government support. Paying little attention to its limits and openly defying transparency requirements, the US unilaterally withdrew from the agreement in 2004. The 1992 trade agreement was a reasonable agreement. Initially, both sides agreed to play by similar rules resulting in the most even competition...
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